As
filed
with the Securities and Exchange Commission on November 18, 2005
Registration
No. 333-__________
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
SB-2
REGISTRATION
STATEMENT UNDER THE
SECURITIES
ACT OF 1933
NUTRACEA
(Name
of
Small Business Issuer in Its Charter)
California
|
|
2040
|
|
87-0673375
|
(State
or Other Jurisdiction of Incorporation or Organization)
|
|
(Primary
Standard Industrial Classification Code Number)
|
|
(I.R.S.
Employer Identification No.)
|
1261
Hawk’s Flight Court, El Dorado Hills, CA 95762
(916)
933-7000
(Address
and Telephone Number of Principal Executive Offices)
1261
Hawk’s Flight Court, El Dorado Hills, CA 95762
(Address
of Principal Place of Business or Intended Principal Place of
Business)
Bradley
D. Edson
1261
Hawk’s Flight Court, El Dorado Hills, CA 95762
(916)
933-7000
(Name,
Address and Telephone Number of Agent For Service)
Copy
to:
Christopher
V. Chediak, Esq.
Weintraub
Genshlea Chediak Law Corporation
400
Capitol Mall, 11
th
Floor, Sacramento, CA 95814
(916)
558-6000
Approximate
Date of Commencement of Proposed Sale to the Public: as soon as practicable
after the effective date of this Registration Statement.
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 of 1933, check
the following box.
x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) 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.
o
____________________
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.
o
____________________
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) 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.
o
____________________
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box.
o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of
Securities
to be Registered
|
Amount
to be
Registered
|
Proposed
Maximum Offering Price Per Share (1)
|
Proposed
Maximum
Aggregate
Offering Price (1)
|
Amount
of
Registration
Fee
|
Common
Stock
|
29,486,680
|
$0.845
|
$24,916,245
|
$2,932.63
|
|
(1)
|
The
proposed maximum offering price per share is estimated solely for
purpose
of calculating the registration fee in accordance with Rule 457(c)
on the
basis of the average of the high and low sales price as reported
by the
Over-the-Counter Bulletin Board on November 15,
2005.
|
If,
as a
result of stock splits, stock dividends or similar transactions, or by reason
of
changes in the conversion price of the preferred stock, the number of securities
purported to be registered on this registration statement increases, the
provisions of Rule 416 under the Securities Act of 1933 shall apply, and this
registration statement shall be deemed to cover any such additional shares
of
common stock.
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.
The
information in this prospectus is not complete and may be changed. The Selling
Security Holders may not sell these securities until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus
is not an offer to sell securities, and we are not soliciting an offer to buy
these securities, in any state where the offer or sale is not
permitted.
SUBJECT
TO COMPLETION, DATED NOVEMBER 18, 2005.
PROSPECTUS
NutraCea
29,486,680
Shares of Common Stock
This
prospectus relates to the disposition of up to 29,486,680 shares of
NutraCea common stock or interests therein by the shareholders named in this
prospectus under the heading "Selling Shareholders". We will not receive any
of
the proceeds from the disposition of the shares covered hereby or interests
therein, although we will receive the proceeds from the cash exercise of
warrants to acquire certain of these shares.
Our
common stock is quoted on the Over-the-Counter (“OTC”) bulletin board under the
symbol “NTRZ”. On November 15, 2005, the last sale price of our common stock on
the Over-the-Counter Bulletin Board was $0.85 per share.
Our
principal executive offices are located at 1261 Hawk’s Flight Court, El Dorado
Hills, CA 95762, and our telephone number is (916) 558-6000.
INVESTING
IN THE COMMON STOCK OFFERED HEREIN INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
PURCHASE SHARES ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT.
YOU
SHOULD CONSIDER CAREFULLY THE “RISK FACTORS” CONTAINED IN THIS PROSPECTUS
BEGINNING ON PAGE 4.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION
HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS
IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE
.
The
date
of this prospectus is ______________, 2005.
TABLE
OF CONTENTS
|
Page
|
About
This Prospectus
|
2
|
Special
Note Regarding Forward-Looking Statements
|
2
|
Prospectus
Summary
|
3
|
Risk
Factors
|
4
|
Use
of Proceeds
|
11
|
Price
Range of Common Stock
|
11
|
Dividend
Policy
|
12
|
Unaudited
Pro Forma Condensed Consolidated Financial
Statements
|
13
|
Management’s
Discussion and Analysis of Operations
|
21
|
Business
of NutraCea
|
30
|
Business
of RiceX
|
39
|
Management
|
48
|
Transactions
with Management and Certain Business Relationships
|
55
|
Security
Ownership of Certain Beneficial Owners and
Management
|
56
|
Description
of Securities
|
59
|
Selling
Security Holders
|
61
|
Plan
of Distribution
|
62
|
Legal
Matters
|
64
|
Experts
|
64
|
Where
You Can Find More Information
|
64
|
Index
to Financial Statements
|
65
|
ABOUT
THIS PROSPECTUS
We
have
not authorized anyone to provide information different from that contained
in
this prospectus. This prospectus is not an offer to sell nor is it seeking
an
offer to buy these securities in any jurisdiction where such offer or sale
is
not permitted. The information contained in this prospectus is accurate only
as
of the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock. In this prospectus, references
to
“NutraCea”, the “Company”, “we”, “us” and “our” refer to NutraCea, a California
corporation.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some
of
the statements in this prospectus and in any prospectus supplement we may file
constitute “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.
These statements relate to future events concerning our business and to our
future revenues, operating results, and financial condition. In some cases,
you
can identify forward-looking statements by terminology such as “may,” “will,”
“could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,”
“estimate,” “forecast,” “predict,” “propose,” “potential,” or “continue” or the
negative of those terms or other comparable terminology.
Any
forward looking statements contained in this prospectus or any prospectus
supplement are only estimates or predictions of future events based on
information currently available to our management and management’s current
beliefs about the potential outcome of future events. Whether these future
events will occur as management anticipates, whether we will achieve our
business objectives, and whether our revenues, operating results, or financial
condition will improve in future periods are subject to numerous risks. The
section of this prospectus captioned “Risk Factors,” beginning on page 4,
provides a summary of the various risks that could cause our actual results
or
future financial condition to differ materially from forward-looking statements
made in this prospectus. The factors discussed in this section are not intended
to represent a complete list of all the factors that could adversely affect
our
business, revenues, operating results, or financial condition. Other factors
that we have not considered may also have an adverse effect on our business,
revenues, operating results, or financial condition, and the factors we have
identified could affect us to a greater extent than we currently anticipate.
Before making any investment in our securities, we encourage you to carefully
read the information contained under the caption “Risk Factors,” as well the
other information contained in this prospectus and any prospectus supplement
we
may file.
“TheraFoods,”
“NutraCea,” “NutraBeauticals,” “RiSolubles,” “RiceMucil,” “RiceMucille,”
“StaBran,” “SolubleSolutions,” “ZymeBoost,” “NutraHGH,” “Equineceuticals,”
“FiberSolutions,” “NutraBreathe,” “LiverBoost,” “RiceLean,” “VetCeuticals,”
“PetCeuticals,” Caduceus logo, “HiFiSolubles,” “Therafeed,” “Via-Bran,”
“Proventics,” “SuperSolubles,” “Nourishing The Body to Health,” “Proceuticals,”
"Cea100," "DiaBoost" and “NutraBalance” are registered trademarks of
NutraCea.
RiceX®
and RiceX Solubles® are registered trade names of The RiceX Company, NutraCea’s
wholly owned subsidiary. Mirachol®, Max "E"® and Max "E" Glo® are
registered trademarks of The RiceX Company.
PROSPECTUS
SUMMARY
The
following summary is qualified in its entirety by the information contained
elsewhere in this prospectus. You should read the entire prospectus, including
“Risk Factors” and the financial statements before making an investment
decision.
|
|
|
|
Issuer:
|
|
NutraCea
1261
Hawk’s Flight Court
El
Dorado Hills, California 95762
(916)
933-7000
|
|
|
|
|
|
Description
of Business:
|
|
We
are a developer, formulator and distributor of nutraceutical, health,
cosmetic and nutrition products using stabilized rice brand and
specially
formulated rice bran oil. We have also developed dietary products
that
provide the benefits of stabilized rice bran and rice bran oil
as a
nutritional supplement for humans and animals. Consumer products
are
marketed under the TheraFoods® name. Medical supplements are marketed
under the NutraCea® name. Products for veterinary and animal use are
marketed under the NutraGlo® name. Cosmetics are marketed under the
NutraBeautical® name. A description of our business begins on page 30
of this prospectus.
On
October 4, 2005, we acquired The RiceX Company. The RiceX Company
manufactures and distributes nutritionally dense foods and food
ingredients made from stabilized rice bran for supply to the global
food
manufacturing and equine feed industries. A description of the
business of
The RiceX Company begins on page 4 of this prospectus.
|
|
|
|
|
|
The
Offering:
|
|
This
offering relates to the resale of shares of our common stock that
are
outstanding and shares of our common stock that may be acquired
from time
to time upon conversion of our outstanding Series B preferred stock
and
upon exercise of outstanding options and warrants. The selling
shareholders and the number of shares that may be sold by each
are set
forth on page 61 of this prospectus.
|
|
|
|
|
|
Shares:
|
|
29,486,680 shares
of our common stock. A description of our common stock is set forth
on
page 59 of this prospectus.
|
|
|
|
|
|
Manner
of Sale:
|
|
The
shares of our common stock may be sold from time to time by the
selling
shareholders in open market or negotiated transactions at prices
determined from time to time by the selling shareholders. A description
of
the manner in which sales may be made is set forth in this prospectus
beginning on page 62 of this prospectus.
|
|
|
|
|
|
Use
of Proceeds:
|
|
We
will not receive any of the proceeds from the sale of our common
stock by
the selling shareholders.
|
|
|
|
|
|
Risk
Factors:
|
|
The
securities offered hereby involve a high degree of risk and will
result in
immediate and substantial dilution. A discussion of additional
risk
factors relating to our stock, our business and this offering begins
on
page 4 of this prospectus.
|
|
|
|
|
|
RISK
FACTORS
Please
carefully consider the specific factors set forth below as well as the other
information contained in this prospectus before purchasing shares of our common
stock. This prospectus contains forward-looking statements that involve risks
and uncertainties. Our actual results may differ significantly from the results
discussed in the forward-looking statements.
Risks
Related to Our Business
We
have a limited operating history and have not generated a profit since we began
operations.
We
began
operations in February 2000 and have incurred losses in each reporting period
since commencing operations. Our prospects for financial success are difficult
to forecast because we have a relatively limited operating history. Our
prospects for financial success must be considered in light of the risks,
expenses and difficulties frequently encountered by companies in new, unproven
and rapidly evolving markets. Our business could be subject to any or all of
the
problems, expenses, delays and risks inherent in the establishment of a new
business enterprise, including limited capital resources, possible delays in
product development, possible cost overruns due to price and cost increases
in
raw product and manufacturing processes, uncertain market acceptance, and
inability to respond effectively to competitive developments and attract, retain
and motivate qualified employees. Therefore, there can be no assurance that
our
business or products will be successful, that we will be able to achieve or
maintain profitable operations, or that we will not encounter unforeseen
difficulties that may deplete its capital resources more rapidly than
anticipated.
We
may need to obtain additional funds to finance long-term product research and
development as well as fund current operations.
We
have
not generated a positive cash flow from operations in any period since
commencing operations. While we believe that we have adequate cash reserves
and
working capital to fund current operations, our ability to meet long term
business objectives and debt obligations is dependent upon our ability to raise
additional financing through public or private equity financings, establish
increasing cash flow from operations, enter into collaborative or other
arrangements with corporate sources, or secure other sources of financing to
fund long-term operations. There is no assurance that external funds will be
available on terms acceptable to us in sufficient amount to finance operations
until we do reach positive cash flow or that we will reach positive cash flow.
In addition, any issuance of securities to obtain such funds would dilute
percentage ownership of our shareholders. Such dilution could also have an
adverse impact on our earnings per share and reduce the price of our common
stock.
We
may not realize the anticipated benefits from the RiceX transaction because
of
integration difficulties and other challenges.
If
we
fail to meet the challenges involved in successfully integrating the operations
of NutraCea and RiceX or to realize any of the anticipated benefits or synergies
of the RiceX transaction could seriously harm our results. Realizing the
benefits of the RiceX transaction will depend in part on our ability to overcome
significant challenges, such as timely, efficient and successful execution
of
post-merger strategies, including:
|
·
|
combining
the operations of two companies;
|
|
·
|
retaining
and assimilating the key personnel of each company;
|
|
·
|
integrating
the technology and products of the two companies;
|
|
·
|
retaining
existing customers and strategic partners of both companies and attracting
new customers and strategic partners; and
|
|
·
|
successfully
exploiting potential synergies of the two companies.
|
The
risks
related to the execution of these post-merger strategies include:
|
·
|
potential
disruption of our ongoing business and distraction of our management
resulting from the efforts to combine and integrate NutraCea's and
RiceX's
operations;
|
|
·
|
difficulties
associated with successfully coordinating our management;
|
|
·
|
difficulties
inherent in creating successful strategies for coordinating sales
and
marketing plans for the products and services of the two companies;
|
|
·
|
the
risk that synergies anticipated for our products will not be achieved
or
may not be realized within the timeframe currently anticipated;
|
|
·
|
the
possibility that efforts to achieve operating expense reductions
may be
unsuccessful or give rise to unexpected liabilities;
|
|
·
|
the
potential need to demonstrate to customers that the merger will not
result
in adverse changes in customer service standards or business;
|
|
·
|
impairment
of relationships with employees, suppliers and customers as a result
of
the integration of new management personnel; and
|
|
·
|
failure
to retain key employees, including members of the management team.
|
There
are significant market risks associated with our
business.
We
have
formulated our business plan and strategies based on certain assumptions
regarding the size of the rice bran market, our anticipated share of this market
and the estimated price and acceptance of our products. These assumptions are
based on the best estimates of our management; however there can be no assurance
that our assessments regarding market size, potential market share attainable
by
us, the price at which we will be able to sell our products, market acceptance
of our products or a variety of other factors will prove to be correct. Any
future success may depend upon factors including changes in the dietary
supplement industry, governmental regulation, increased levels of competition,
including the entry of additional competitors and increased success by existing
competitors, changes in general economic conditions, increases in operating
costs including costs of production, supplies, personnel, equipment, and reduced
margins caused by competitive pressures.
We
rely upon a limited number of product offerings.
All
of
our products are based on stabilized rice bran. Although we will market rice
bran as a dietary supplement, as an active food ingredient for inclusion in
our
products and in other companies' products, and in other ways, a decline in
the
market demand for our products, as well as the products of other companies
utilizing our products, could have a significant adverse impact on
us.
We
are dependent upon our marketing efforts.
We
are
dependent on our ability to market products to animal food producers, food
manufacturers, mass merchandise and health food retailers, and to other
companies for use in their products. We must increase the level of awareness
of
dietary supplements in general and our products in particular. We will be
required to devote substantial management and financial resources to these
marketing and advertising efforts and there can be no assurance that it will
be
successful.
We
rely upon an adequate supply of raw rice bran.
Our
proprietary technology is used to stabilize rice bran, which is a by-product
from milling paddy rice to white rice. We currently have a supply arrangement
with one of the largest rice mills in the United States, Farmers Rice
Cooperative. We are pursuing other supply sources in the United States and
in
foreign countries. However, there can be no assurance that we will continue
to
secure adequate sources of raw rice bran to meet our requirements to produce
stabilized rice bran products. Since rice bran has a limited shelf life, the
supply of rice bran is affected by the amount of rice planted and harvested
each
year. If economic or weather conditions adversely affect the amount of rice
planted or harvested, the cost of rice bran products that we use may increase.
We are not generally able to pass cost increases to our customers and any
increase in the cost of stabilized rice bran products would have an adverse
effect on our results of operations.
The
inability of our production plants to produce stabilized rice bran products
to
fulfill our current and future requirements could materially and adversely
adverse affect our business, results from operations, and financial
condition.
We
have a
unique process to stabilize rice bran products that results in an increase
of
the shelf life of such products from hours to at least one year. We require
this
long shelf life in our products to avoid unacceptable losses from spoilage.
Our
ability to manufacture rice bran raw materials is currently limited to the
production capability of our facility at Farmers Rice Cooperative and our
isolate plant in Dillon, Montana. Between the Dillon, Montana plant and the
facility at Farmers Rice Cooperative, we currently are capable of producing
all
of our required rice bran raw materials, but that capacity may not be sufficient
to meet all of our long-term supply needs.
We
face competition.
Competition
in our targeted industries, including nutraceuticals, functional food
ingredients, rice bran oils, animal feed supplements and companion pet food
ingredients is vigorous, with a large number of businesses engaged in the
various industries. Many of our competitors have established reputations for
successfully developing and marketing their products, including products that
incorporate bran from other cereal grains and other alternative ingredients
that
are widely recognized as providing similar benefits as rice bran. In addition,
many of our competitors have greater financial, managerial, and technical
resources than us. If we are not successful in competing in these markets,
we
may not be able to attain our business objectives.
Our
products could fail to meet applicable regulations which could have a material
adverse affect on our financial performance.
The
dietary supplement and cosmetic industries are subject to considerable
government regulation, both as to efficacy as well as labeling and advertising.
There is no assurance that all of our products and marketing strategies will
satisfy all of the applicable regulations of the Dietary Supplement, Health
and
Education Act, the Food, Drug and Cosmetic Act, the U.S. Food and Drug
Administration and/or the U.S. Federal Trade Commission. Failure to meet any
applicable regulations would require us to limit the production or marketing
of
any non-compliant products or advertising, which could subject us to financial
or other penalties.
Our
success depends in part on our ability to obtain patents, licenses and other
intellectual property rights for our products and
technology.
NutraCea
has one patent entitled Methods for Treating Joint Inflammation, Pain and
Loss
of Mobility, which covers both humans and mammals
.
In
addition, RiceX has five United States patents and may decide to file
corresponding international applications. RiceX holds patents to the production
of Beta Glucan and to a micro nutrient enriched rice bran oil process. RiceX
also holds patents to a method to treat high cholesterol, to a method to
treat
diabetes and to a process for producing Higher Value Fractions from stabilized
rice bran. The process of seeking patent protection may be long and expensive,
and there can be no assurance that patents will be issued, that we will be
able
to protect our technology adequately, or that competition will not be able
to
develop similar technology. There currently are no claims or lawsuits pending
or
threatened against us or RiceX regarding possible infringement claims, but
there
can be no assurance that infringement claims by third parties, or claims
for
indemnification resulting from infringement claims, will not be asserted
in the
future or that such assertions, if proven to be accurate, will not have a
material adverse affect on our business, financial condition and results
of
operations. In the future, litigation may be necessary to enforce our patents,
to protect our trade secrets or know-how or to defend against claimed
infringement of the rights of others and to determine the scope and validity
of
the proprietary rights of others. Any litigation could result in substantial
cost and diversion of our efforts, which could have a material adverse affect
on
our financial condition and results of operations. Adverse determinations
in any
litigation could result in the loss of our proprietary rights, subjecting
us to
significant liabilities to third parties, require us to seek licenses from
third
parties or prevent us from manufacturing or selling our systems, any of which
could have a material adverse affect on our financial condition and results
of
operations. There can be no assurance that a license under a third party's
intellectual property rights will be available to us on reasonable terms,
if at
all.
We
are dependent on key employees and consultants.
Our
success depends upon the efforts of our top management team, including the
efforts of Bradley D. Edson, our President and Chief Executive Officer, Todd
C.
Crow, our Chief Financial Officer, Ike E. Lynch, our Chief Operating Officer,
Patricia McPeak, our founder and former Chief Executive Officer, Margie D.
Adelman, our Secretary and Senior Vice President, and Reddy Cherukuri and
Rukmini Cheruvanky, our primary research scientists. Although we have written
employment agreements or consulting agreements with each of the foregoing
individuals there is no assurance that such individuals will not die or become
disabled. In addition, our success is dependent upon our ability to attract
and
retain key management persons for positions relating to the marketing and
distribution of our products. There is no assurance that we will be able to
recruit and employ such executives at times and on terms acceptable to us.
Our
products may require clinical trials to establish efficacy and
safety.
Certain
of our products may require clinical trials to establish our benefit claims
or
their safety and efficacy. Such trials can require a significant amount of
resources and there is no assurance that such trials will be favorable to the
claims we make for our products, or that the cumulative authority established
by
such trials will be sufficient to support our claims. Moreover, both the
findings and methodology of such trials are subject to challenge by the FDA
and
scientific bodies. If the findings of our trials are challenged or found to
be
insufficient to support our claims, additional trials may be required before
such products can be marketed.
Risks
Related to Our Stock
Our
Stock Price is Volatile.
The
market price of a share of our common stock has fluctuated significantly in
the
past and may continue to fluctuate significantly in the future. During 2005,
through November 15, the high and low sales prices of a share of NutraCea common
stock were $1.81 and $0.30, respectively. During 2004, the high and low sales
prices of a share of our common stock were $2.14 and $0.29, respectively. The
market price of a share of our common stock may continue to fluctuate in
response to a number of factors, including:
|
·
|
announcements
of new products or product enhancements by us or our competitors;
|
|
·
|
fluctuations
in our quarterly or annual operating results;
|
|
·
|
developments
in our relationships with customers and suppliers;
|
|
·
|
the
loss of services of one or more of our executive officers or other
key
employees;
|
|
·
|
announcements
of technological innovations or new systems or enhancements used
by us or
its competitors;
|
|
·
|
developments
in our or our competitors intellectual property rights;
|
|
·
|
adverse
effects to our operating results due to impariment of
goodwill;
|
|
·
|
failure
to meet the expectation of securities analysts' or the public; and
|
|
·
|
general
economic and market conditions.
|
We
have significant "equity overhang" which could adversely affect the market
price
of our common stock and impair our ability to raise additional capital through
the sale of equity securities.
As
of
October 21, 2005, NutraCea had approximately 66,891,667 shares of common stock
outstanding and 7,850 shares of preferred stock outstanding, which preferred
shares are convertible into 15,700,000 shares of our common stock. Additionally,
as of October 21, 2005, options and warrants to purchase a total of 29,055,359
shares of our common stock were outstanding. The possibility that substantial
amounts of our outstanding common stock may be sold by investors or the
perception that such sales could occur, often called "equity overhang," could
adversely affect the market price of our common stock and could impair our
ability to raise additional capital through the sale of equity securities in
the
future.
We
may need to raise funds through debt or equity financings in the future, which
would dilute the ownership of our existing shareholders and possibly subordinate
certain of their rights to the rights of new
investors.
We
may
choose to raise additional funds in debt or equity financings if they are
available to us on terms it believes reasonable to increase its working capital,
strengthen its financial position or to make acquisitions. Any sales of
additional equity or convertible debt securities would result in dilution of
the
equity interests of our existing shareholders, which could be substantial.
Additionally, if we issue shares of preferred stock or convertible debt to
raise
funds, the holders of those securities might be entitled to various preferential
rights over the holders of our common stock, including repayment of their
investment, and possibly additional amounts, before any payments could be made
to holders of our common stock in connection with an acquisition of the company.
Such preferred shares, if authorized, might be granted rights and preferences
that would be senior to, or otherwise adversely affect, the rights and the
value
of our common stock. Also, new investors may require that we and certain of
our
shareholders enter into voting arrangements that give them additional voting
control or representation on our board of directors.
Inadequate
market liquidity may make it difficult to sell our stock.
There
is
currently a public market for our common stock, but we can give no assurance
that there will always be such a market. Only a limited number of shares of
our
common stock are actively traded in the public market and we cannot give
assurance that the market for our stock will develop sufficiently to create
significant market liquidity. An investor may find it difficult or impossible
to
sell shares of our common stock in the public market because of the limited
number of potential buyers at any time. In addition, the shares of our common
stock are not eligible as a margin security and lending institutions may not
accept our common stock as collateral for a loan.
The
application of the “penny stock regulation” could adversely affect the market
price of our common stock
Penny
stocks generally are equity securities with a price of less than $5.00 per
share
other than securities registered on certain national securities exchanges or
quoted on the NASDAQ Stock Market, provided that current price and volume
information with respect to transactions in such securities is provided by
the
exchange or system. Our securities may be subject to “penny stock rules” that
impose additional sales practice requirements on broker-dealers who sell such
securities to persons other than established customers and accredited investors
(generally those with assets in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 together with their spouse). For transactions covered
by
these rules, the broker-dealer must make a special suitability determination
for
the purchase of such securities and have received the purchaser’s written
consent to the transaction prior to the purchase. Consequently, the “penny stock
rules” may restrict the ability of broker-dealers to sell our securities and may
have the effect of reducing the level of trading activity of our common stock
in
the secondary market.
The
senior rights and preferences of our outstanding Series B preferred stock may
have an adverse economic effect on our common shareholders and could impair
our
ability to obtain future financing when and if needed.
As
long
as any shares of our Series B preferred stock remain outstanding, Series B
preferred shareholders will enjoy various economic rights and contractual
benefits not held by our common shareholders. Most significantly, holders of
Series B preferred stock are entitled to a liquidation preference upon a
liquidation of NutraCea, and for purposes of the Series B preferred stock,
a
liquidation is deemed to include a merger, acquisition, or similar transaction
involving NutraCea. As a result, the Series B preferred stock is entitled to
receive its liquidation preference prior to any payments or distributions being
made to holders of our common stock. After payment of the liquidation
preference, holders of Series B preferred stock and holders of common stock
share pro-rata in any remaining proceeds. The aggregate outstanding liquidation
preference of our Series B preferred stock currently totals approximately $7.85
million. Holders of our Series B preferred stock also hold certain preferential
voting rights, including the right to approve liquidation events and future
financings.
Based
on
the senior rights of the Series B preferred stock, particularly the liquidation
preference, common shareholders may receive a substantially reduced portion
of
the proceeds of any merger, acquisition, or other liquidation of NutraCea
compared to the amount they would have received if the Series B preferred stock
were converted into common stock. In addition, any new investor who may wish
to
invest any substantial amounts of capital in NutraCea may require that any
securities it purchases rank senior in priority to the Series B preferred stock.
Based on the rights of the Series B preferred shareholders, we would not be
able
to conclude such a financing without their consent.
The
authorization of our preferred stock may have an adverse effect on the rights
of
holders of our common stock.
We
may,
without further action or vote by holders of our common stock, designate and
issue shares of our preferred stock. The terms of any series of preferred stock
could adversely affect the rights of holders of our common stock and thereby
reduce the value of our common stock. The designation and issuance of preferred
stock favorable to current management or shareholders could make it more
difficult to gain control of the Board of Director or remove our current
management and may be used to defeat hostile bids for control which might
provide shareholders with premiums for their shares.
We
may engage in future acquisitions that dilute our shareholders and cause us
to
incur debt or assume contingent liabilities.
As
part
of our strategy, we expect to review opportunities to buy other businesses
or
technologies that would complement its current products, expand the breadth
of
its markets or enhance technical capabilities, or that may otherwise offer
growth opportunities. In the event of any future acquisitions, we could:
|
·
|
issue
stock that would dilute current shareholders' percentage ownership;
|
These
purchases also involve numerous risks, including:
|
·
|
problems
combining the purchased operations, technologies or products;
|
|
·
|
diversion
of management's attention from our core business;
|
|
|
adverse
effects on existing business relationships with suppliers and customers;
|
|
·
|
risks
associated with entering markets in which we have no or limited prior
experience; and
|
|
·
|
potential
loss of key employees of purchased organizations.
|
We
cannot
assure you that we will be able to successfully integrate RiceX's business
or
any businesses, products, technologies or personnel that it might purchase
in
the future.
Compliance
with corporate governance and public disclosure regulations may result in
additional expenses.
Changing
laws, regulations and standards relating to corporate governance and public
disclosure, including the Sarbanes-Oxley Act of 2002, and new regulations issued
by the Securities and Exchange Commission, are creating uncertainty for
companies. In order to comply with these laws, we may need to invest substantial
resources to comply with evolving standards, and this investment would result
in
increased general and administrative expenses and a diversion of management
time
and attention from revenue-generating activities to compliance activities.
Our
officers and directors have limited liability and have indemnification rights
Our
Articles of Incorporation and by-laws provide that we may indemnify our officers
and directors against losses sustained or liabilities incurred which arise
from
any transaction in that officer’s
or
director’s respective managerial capacity unless that officer or director
violates a duty of loyalty, did not act in good faith, engaged in intentional
misconduct or knowingly violated the law, approved an improper dividend, or
derived an improper benefit from the transaction.
USE
OF PROCEEDS
The
Shares offered by this prospectus are being registered for the account of the
selling shareholders. We will not receive any proceeds from the sale of common
stock by the selling shareholders.
PRICE
RANGE OF COMMON STOCK
On
September 17, 1998, our common stock was approved for quotation on the National
Association of Securities Dealers’ Over-the-Counter (“OTC”) bulletin board where
it traded under the name Alliance Consumer International, Inc., and was quoted
under the symbol “ACIL” until June 3, 1999. On June 3, 1999, our common stock
was moved to the “Pink Sheets” published by the Pink Sheets LLC (previously
National Quotation Bureau, LLC). In May 2001, our common stock was again
approved for quotation on the OTC bulletin board and its symbol was changed
to
“ACIN.” Effective December 17, 2001, we changed our name to NutraStar
Incorporated and the common stock began trading on the OTC bulletin board under
the symbol “NTRA.” On October 1, 2003, we changed our name to NutraCea and our
common stock began trading on the OTC bulletin board under the symbol “NTRC.” On
November 12, 2003, we declared a 1:10 reverse stock split. Our post-split shares
trade on the OTC Bulletin Board under the Symbol “NTRZ”.
A
public
trading market having the characteristics of depth, liquidity and orderliness
depends upon the existence of market makers as well as the presence of willing
buyers and sellers, which are circumstances over which we do not have control.
The following table sets forth the high and low sales prices reported by the
OTC
Bulletin Board for our common stock and its predecessors in the periods
indicated. The quotations below reflect inter-dealer prices, without retail
mark-up, markdown or commission, and may not represent actual transactions.
NUTRACEA
COMMON STOCK
|
Low
|
High
|
|
|
|
Year
Ending December 31, 2005
|
|
|
Fourth
Quarter (through November 15, 2005)
|
$0.83
|
$1.17
|
Third
Quarter
|
$0.39
|
$1.81
|
Second
Quarter
|
$0.39
|
$0.65
|
First
Quarter
|
$0.30
|
$0.67
|
|
|
|
Year
Ended December 31, 2004
|
|
|
First
Quarter
|
$0.85
|
$2.14
|
Second
Quarter
|
$0.83
|
$1.33
|
Third
Quarter
|
$0.29
|
$1.16
|
Fourth
Quarter
|
$0.32
|
$0.56
|
|
|
|
Year
Ended December 31, 2003
|
|
|
First
Quarter
|
$0.60*
|
$1.10*
|
Second
Quarter
|
$0.50*
|
$1.10*
|
Third
Quarter
|
$0.70*
|
$2.90*
|
Fourth
Quarter
|
$0.75
|
$1.85
|
|
*Represents
stock prices adjusted for 1 for 10 share split in November
2003.
|
As
of
October 21, 2005, there were approximately 440 holders of record of our
common stock.
DIVIDEND
POLICY
We
have
never declared or paid any cash dividends on our common stock. We currently
anticipate that we will retain all future earnings for the expansion and
operation of our business and do not anticipate paying cash dividends in the
foreseeable future. In addition our ability to pay cash dividends on our common
stock is limited by the provisions of our Certificate of Determination, Rights
and Privileges of Series B Convertible Preferred Stock, which provide that
we
may not pay dividends on our common stock unless we first pay a dividend on
our
Series B preferred stock equal to 5% of the sales price for the Series B
preferred stock. Based upon the number of shares of Series B preferred stock
outstanding as of October 21, 2005, the aggregate dividend preference that
our
Series B preferred stock would be entitled to receive prior to our paying
dividends on our common stock equals $392,500.
UNAUDITED
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On
October 4, 2005, NutraCea acquired The RiceX Company, a Delaware corporation
(“RiceX”), in a merger transaction pursuant to the terms of an Agreement and
Plan of Merger and Reorganization, dated April 4, 2005, by and among NutraCea,
Red Acquisition Corporation, a wholly-owned subsidiary of NutraCea, and RiceX
(the “Merger Agreement”). At the effective time of the merger, Red Aquisition
Corporation merged with and into RiceX, with RiceX surviving the merger as
a
wholly-owned subsidiary of NutraCea. Pursuant to the Merger Agreement and as
a
result of the merger, each share of RiceX common stock outstanding immediately
prior to the effective time of the merger was converted into the right to
receive approximately 0.76799 shares of NutraCea common stock.
The
following Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements, and the accompanying notes thereto (“Pro Forma Financial
Statements”), describe the pro forma effect of NutraCea’s acquisition of RiceX
on:
|
·
|
NutraCea’s
Balance Sheets at September 30,
2005;
|
|
·
|
NutraCea’s
Statements of Operations for the Nine Months Ended September 30,
2005;
and
|
|
·
|
NutraCea’s
Statements of Operations for the Year Ended December 31,
2004.
|
The
Pro
Forma Balance Sheets give effect to the acquisition of RiceX as if it had
occurred on September 30, 2005, and the Pro Forma Statements of Operations
give
effect to the acquisition of RiceX as if it had occurred on January 1, 2004.
The
Pro Forma Financial Statements should be read in conjunction with and are
qualified by the historical financial statements and notes thereto of NutraCea
and RiceX.
NutraCea
has prepared these Pro Forma Financial Statements using the purchase method
of
accounting for business combinations, which prescribes that assets acquired
and
liabilities assumed by NutraCea are recorded at estimated fair values. Because
the Pro Forma Financial Statements are based upon RiceX’s financial condition
and operating results during periods when RiceX was not under the control,
influence, or management of NutraCea, the information presented may not be
indicative of the results that would have actually occurred had the merger
been
completed as of January 1, 2004, nor are they indicative of future financial
or
operating results of NutraCea. The Pro Forma Financial Statements do not give
effect to any synergies that may occur due to the integration of RiceX with
NutraCea.
The
Pro
Forma Financial Statements are based on estimates and assumptions which are
preliminary. This information is presented for informational purposes only
and
is not intended to represent or be indicative of the consolidated results of
operations or financial condition of NutraCea that would have been reported
had
the acquisition been completed as of the dates presented, and should not be
taken as representative of future consolidated results of operations or
financial condition of NutraCea.
NUTRACEA
UNAUDITED
PRO FORMA CONDENSED COMBINED
CONSOLIDATED
BALANCE SHEETS
At
September 30, 2005
|
|
HISTORICAL
(Unaudited)
|
|
PRO
FORMA
(Unaudited)
|
|
|
|
RiceX
|
|
NutraCea
|
|
Adjustment
|
|
|
|
Combined
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and equivalents
|
|
$
|
546,148
|
|
$
|
389,034
|
|
$
|
7,850,000
|
|
|
(h
|
)
|
$
|
8,785,182
|
|
Fees
paid (7%) associated with financing transaction
|
|
|
—
|
|
|
—
|
|
|
(549,500
|
)
|
|
(h
|
)
|
|
(549,500
|
)
|
Investment
advisor legal fees paid
|
|
|
—
|
|
|
—
|
|
|
(25,000
|
)
|
|
(h
|
)
|
|
(25,000
|
)
|
NutraCea
legal fees for the merger and financing transaction
|
|
|
—
|
|
|
—
|
|
|
(448,521
|
)
|
|
(h
|
)
|
|
(448,521
|
)
|
Payment
for 12/4/04 private placement secured promissory note
|
|
|
—
|
|
|
—
|
|
|
(2,400,000
|
)
|
|
(h
|
)
|
|
(2,400,000
|
)
|
Accrued
interest paid on private placement secured promissory note
|
|
|
—
|
|
|
—
|
|
|
(137,043
|
)
|
|
(h
|
)
|
|
(137,043
|
)
|
Other
RiceX employee compensation
|
|
|
—
|
|
|
—
|
|
|
(260,000
|
)
|
|
(e
|
)
|
|
(260,000
|
)
|
Other
NutraCea employee compensation
|
|
|
—
|
|
|
—
|
|
|
(450,000
|
)
|
|
(f
|
)
|
|
(450,000
|
)
|
Marketable
securities
|
|
|
—
|
|
|
170,977
|
|
|
—
|
|
|
|
|
|
170,977
|
|
Trade
receivables
|
|
|
407,618
|
|
|
87,801
|
|
|
(7,342
|
)
|
|
(a
|
)
|
|
488,077
|
|
Inventory
|
|
|
398,038
|
|
|
391,740
|
|
|
—
|
|
|
|
|
|
789,778
|
|
Deposits
and other current assets
|
|
|
44,043
|
|
|
410,808
|
|
|
—
|
|
|
|
|
|
454,851
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
1,395,847
|
|
|
1,450,360
|
|
|
3,572,594
|
|
|
|
|
|
6,418,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
marketable securities
|
|
|
—
|
|
|
170,977
|
|
|
—
|
|
|
|
|
|
170,977
|
|
Property
and equipment, net
|
|
|
475,026
|
|
|
108,806
|
|
|
5,600,000
|
|
|
(b
|
)
|
|
6,183,832
|
|
Depreciation
|
|
|
—
|
|
|
—
|
|
|
(613,889
|
)
|
|
(d
|
)
|
|
(613,889
|
)
|
Patents
and trademarks, net
|
|
|
—
|
|
|
354,600
|
|
|
2,000,000
|
|
|
(b
|
)
|
|
2,354,600
|
|
Amortization
|
|
|
—
|
|
|
—
|
|
|
(150,000
|
)
|
|
(d
|
)
|
|
(150,000
|
)
|
Other
assets, net
|
|
|
2,886
|
|
|
—
|
|
|
—
|
|
|
|
|
|
2,886
|
|
Goodwill
and other intangibles, net
|
|
|
—
|
|
|
250,001
|
|
|
30,247,991
|
|
|
(b
|
)
|
|
30,497,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,873,759
|
|
$
|
2,334,744
|
|
$
|
40,656,695
|
|
|
|
|
$
|
44,865,198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDER EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
560,076
|
|
$
|
882,684
|
|
$
|
(7,342
|
)
|
|
(a
|
)
|
$
|
1,435,418
|
|
NutraCea
legal fees for the merger and financing transaction
|
|
|
—
|
|
|
—
|
|
|
(448,521
|
)
|
|
(h
|
)
|
|
(448,521
|
)
|
Accrued
expenses
|
|
|
205,800
|
|
|
296,797
|
|
|
(137,043
|
)
|
|
(h
|
)
|
|
365,554
|
|
Deferred
revenue
|
|
|
5,461
|
|
|
—
|
|
|
—
|
|
|
|
|
|
5,461
|
|
Due
to related party
|
|
|
—
|
|
|
2,010
|
|
|
—
|
|
|
|
|
|
2,010
|
|
Current
portion of long-term debt
|
|
|
5,433
|
|
|
2,221,684
|
|
|
(2,221,684
|
)
|
|
(h
|
)
|
|
5,433
|
|
Convertible,
mandatorily redeemable series A preferred stock, no par value,
$1 stated
value, 20,000,000 shares authorized, 0 shares issued and
outstanding
|
|
|
—
|
|
|
20,473
|
|
|
(20,473
|
)
|
|
(g
|
)
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
776,770
|
|
|
3,423,648
|
|
|
(2,835,063
|
)
|
|
|
|
|
1,365,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNAUDITED
PRO FORMA CONDENSED COMBINED
CONSOLIDATED
BALANCE SHEETS
At
September 30, 2005
(
--Cont.
)
|
|
HISTORICAL
(Unaudited)
|
|
PRO
FORMA
(Unaudited)
|
|
|
|
RiceX
|
|
NutraCea
|
|
Adjustment
|
|
|
|
Combined
|
|
LIABILITIES
AND SHAREHOLDER EQUITY (DEFICIT) (
--cont.
)
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
11,059
|
|
|
—
|
|
|
—
|
|
|
|
|
|
11,059
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
787,829
|
|
|
3,423,648
|
|
|
(2,835,063
|
)
|
|
|
|
|
1,376,414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder
Equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series
B convertible preferred stock, no par value, 25,000 shares authorized,
7,850 shares issued and outstanding
|
|
|
—
|
|
|
—
|
|
|
7,850,000
|
|
|
(h
|
)
|
|
7,850,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering
fees, 7%, associated with financing transaction
|
|
|
—
|
|
|
—
|
|
|
(549,500
|
)
|
|
(h
|
)
|
|
(549,500
|
)
|
Valuation
of 1,099,000 warrant shares issued with offering
|
|
|
—
|
|
|
—
|
|
|
(911,071
|
)
|
|
(h
|
)
|
|
(911,071
|
)
|
Investment
advisor legal fees with the financing transaction
|
|
|
—
|
|
|
—
|
|
|
(25,000
|
)
|
|
(h
|
)
|
|
(25,000
|
)
|
NutraCea
legal fees for the merger and financing transaction
|
|
|
—
|
|
|
—
|
|
|
(448,521
|
)
|
|
(h
|
)
|
|
(448,521
|
)
|
Common
stock, additional paid in capital
|
|
|
31,945,230
|
|
|
49,608,419
|
|
|
(31,945,230
|
)
|
|
(b
|
)
|
|
49,608,419
|
|
Aggregate
value of NutraCea common stock consideration
|
|
|
—
|
|
|
—
|
|
|
29,120,393
|
|
|
(b1
|
)
|
|
29,120,393
|
|
Estimated
value of the RiceX warrants and options assumed
|
|
|
—
|
|
|
—
|
|
|
9,813,528
|
|
|
(b1
|
)
|
|
9,813,528
|
|
Valuation
of 1,099,000 warrant shares issued with offering
|
|
|
—
|
|
|
—
|
|
|
911,071
|
|
|
(h
|
)
|
|
911,071
|
|
Deferred
compensation
|
|
|
—
|
|
|
(20,239
|
)
|
|
|
|
|
|
|
|
(20,239
|
)
|
Accumulated
deficit
|
|
|
(30,859,300
|
)
|
|
(48,639,037
|
)
|
|
30,859,300
|
|
|
(b
|
)
|
|
(48,639,037
|
)
|
NutraCea
legal fees for the merger and financing transaction
|
|
|
—
|
|
|
—
|
|
|
448,521
|
|
|
(h
|
)
|
|
448,521
|
|
Other
RiceX compensation
|
|
|
—
|
|
|
—
|
|
|
(260,000
|
)
|
|
(e
|
)
|
|
(260,000
|
)
|
Other
NutraCea compensation
|
|
|
—
|
|
|
—
|
|
|
(450,000
|
)
|
|
(f
|
)
|
|
(450,000
|
)
|
Depreciation
|
|
|
—
|
|
|
—
|
|
|
(613,889
|
)
|
|
(d
|
)
|
|
(613,889
|
)
|
Amortization
|
|
|
—
|
|
|
—
|
|
|
(150,000
|
)
|
|
(d
|
)
|
|
(150,000
|
)
|
Discount
on promissory note
|
|
|
—
|
|
|
—
|
|
|
(178,316
|
)
|
|
(h
|
)
|
|
(178,316
|
)
|
|
|
|
—
|
|
|
—
|
|
|
20,473
|
|
|
(g
|
)
|
|
20,473
|
|
Accumulated
other comprehensive income, unrealized loss on marketable
securities
|
|
|
—
|
|
|
(2,038,046
|
)
|
|
—
|
|
|
|
|
|
(2,038,046
|
)
|
Total
Shareholder Equity (Deficit)
|
|
|
1,085,930
|
|
|
(1,088,904
|
)
|
|
43,491,758
|
|
|
|
|
|
43,488,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Shareholder Equity (Deficit)
|
|
$
|
1,873,759
|
|
$
|
2,334,744
|
|
$
|
40,656,695
|
|
|
|
|
$
|
44,865,198
|
|
--
See
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements --
NUTRACEA
UNAUDITED
PRO FORMA CONDENSED COMBINED
CONSOLIDATED
STATEMENTS OF OPERATIONS
Nine
Months Ended September 30, 2005
|
|
HISTORICAL
|
|
PRO
FORMA
|
|
INCOME
STATEMENT
|
|
RiceX
|
|
NutraCea
|
|
Adjustment
|
|
|
|
Combined
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Net
product sales
|
|
$
|
2,767,255
|
|
$
|
1,060,271
|
|
$
|
(179,923
|
)
|
|
(c
|
)
|
$
|
3,647,603
|
|
Royalties
|
|
|
13,324
|
|
|
—
|
|
|
—
|
|
|
|
|
|
13,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
2,780,579
|
|
|
1,060,271
|
|
|
(179,923
|
)
|
|
|
|
|
3,660,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COGS
|
|
|
1,123,812
|
|
|
704,569
|
|
|
(179,923
|
)
|
|
(c
|
)
|
|
1,648,458
|
|
Depreciation
|
|
|
—
|
|
|
—
|
|
|
613,889
|
|
|
(d
|
)
|
|
613,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
1,656,767
|
|
|
355,702
|
|
|
(613,889
|
)
|
|
|
|
|
1,398,580
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense
|
|
|
5,369,087
|
|
|
3,457,937
|
|
|
—
|
|
|
|
|
|
8,827,024
|
|
Amortization
|
|
|
—
|
|
|
—
|
|
|
150,000
|
|
|
(d
|
)
|
|
150,000
|
|
Other
RiceX employee compensation
|
|
|
—
|
|
|
—
|
|
|
260,000
|
|
|
(e
|
)
|
|
260,000
|
|
Other
NutraCea employee compensation
|
|
|
—
|
|
|
—
|
|
|
450,000
|
|
|
(f
|
)
|
|
450,000
|
|
Merger
legal expenses capitalized
|
|
|
—
|
|
|
—
|
|
|
(448,521
|
)
|
|
(h
|
)
|
|
(448,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(3,712,320
|
)
|
|
(3,102,235
|
)
|
|
(1,025,368
|
)
|
|
|
|
|
(7,839,923
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
deposit forfeiture
|
|
|
—
|
|
|
100,000
|
|
|
—
|
|
|
|
|
|
100,000
|
|
Interest
income
|
|
|
9,314
|
|
|
6,036
|
|
|
—
|
|
|
|
|
|
15,350
|
|
Interest
expense
|
|
|
(195
|
)
|
|
(715,046
|
)
|
|
178,316
|
|
|
(h
|
)
|
|
(536,925
|
)
|
Provision
for income tax
|
|
|
(2,226
|
)
|
|
—
|
|
|
—
|
|
|
|
|
|
(2,226
|
)
|
Total
other income (expense)
|
|
|
6,893
|
|
|
(609,010
|
)
|
|
178,316
|
|
|
|
|
|
(423,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(3,705,427
|
)
|
$
|
(3,711,245
|
)
|
$
|
(847,052
|
)
|
|
|
|
$
|
(8,263,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Preferred Dividends
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Available to Common Shareholders
|
|
|
(3,705,427
|
)
|
|
(3,711,245
|
)
|
|
(847,052
|
)
|
|
|
|
|
(8,263,724
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Loss Available to
Common
Shareholders Per Share
|
|
$
|
(0.10
|
)
|
$
|
(0.10
|
)
|
|
—
|
|
|
|
|
$
|
(0.13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Weighted-Average
Shares
Outstanding
|
|
|
36,721,625
|
|
|
36,756,797
|
|
|
(8,541,048
|
)
|
|
(b1
|
)
|
|
64,937,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
--
See
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements --
NUTRACEA
UNAUDITED
PRO FORMA CONDENSED COMBINED
CONSOLIDATED
STATEMENTS OF OPERATIONS
Year
Ended December 31, 2004
|
|
HISTORICAL
|
|
PRO
FORMA
|
|
INCOME
STATEMENT
|
|
RiceX
|
|
NutraCea
|
|
Adjustment
|
|
|
|
Combined
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Net
product sales
|
|
$
|
4,010,186
|
|
$
|
1,009,729
|
|
$
|
(405,000
|
)
|
|
(c
|
)
|
$
|
4,614,915
|
|
Royalties
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
Licensing
fees
|
|
|
—
|
|
|
214,500
|
|
|
—
|
|
|
|
|
|
214,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Revenues
|
|
|
4,010,186
|
|
|
1,224,229
|
|
|
(405,000
|
)
|
|
|
|
|
4,829,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COGS
|
|
|
1,655,940
|
|
|
600,129
|
|
|
(405,000
|
)
|
|
(c
|
)
|
|
1,851,069
|
|
Depreciation
|
|
|
—
|
|
|
—
|
|
|
818,519
|
|
|
(d
|
)
|
|
818,519
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Profit
|
|
|
2,354,246
|
|
|
624,100
|
|
|
(818,519
|
)
|
|
|
|
|
2,159,827
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense
|
|
|
3,268,220
|
|
|
24,175,462
|
|
|
—
|
|
|
|
|
|
27,443,682
|
|
Amortization
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
|
(d
|
)
|
|
200,000
|
|
Other
RiceX employee compensation
|
|
|
—
|
|
|
—
|
|
|
260,000
|
|
|
(e
|
)
|
|
260,000
|
|
Other
NutraCea employee compensation
|
|
|
—
|
|
|
—
|
|
|
450,000
|
|
|
(f
|
)
|
|
450,000
|
|
Merger
legal expenses capitalized
|
|
|
—
|
|
|
—
|
|
|
(448,521
|
)
|
|
(h
|
)
|
|
(448,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
From Operations
|
|
|
(913,974
|
)
|
|
(23,551,362
|
)
|
|
(1,279,998
|
)
|
|
|
|
|
(25,745,334
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
deposit forfeiture
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
—
|
|
Interest
income
|
|
|
33,070
|
|
|
4,497
|
|
|
—
|
|
|
|
|
|
37,567
|
|
Interest
expense
|
|
|
—
|
|
|
(27,602
|
)
|
|
178,316
|
|
|
(h
|
)
|
|
150,714
|
|
Provision
for income tax
|
|
|
1,650
|
|
|
—
|
|
|
—
|
|
|
|
|
|
1,650
|
|
Total
other income (expense)
|
|
|
31,420
|
|
|
(23,105
|
)
|
|
178,316
|
|
|
|
|
|
186,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
(882,554
|
)
|
$
|
(23,574,467
|
)
|
$
|
(1,101,682
|
)
|
|
|
|
$
|
(25,558,703
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
Preferred Dividends
|
|
|
—
|
|
|
8,373
|
|
|
—
|
|
|
|
|
|
8,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss Available to Common Shareholders
|
|
|
(882,554
|
)
|
|
(23,582,840
|
)
|
|
(1,101,682
|
)
|
|
|
|
|
(25,567,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Loss Available to
Common
Shareholders Per Share
|
|
$
|
(0.02
|
)
|
$
|
(1.18
|
)
|
|
—
|
|
|
|
|
$
|
(0.53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted Weighted-Average
Shares
Outstanding
|
|
|
37,061,242
|
|
|
19,905,965
|
|
|
(8,541,048
|
)
|
|
(b1
|
)
|
|
48,426,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
--
See
Notes to Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements -
NUTRACEA
NOTES
TO UNAUDITED PRO FORMA CONDENSED
COMBINED
CONSOLIDATED FINANCIAL STATEMENTS
For
the Periods Ended December 31, 2004 and September 30, 2005
1.
|
Basis
of Presentation
.
|
The
accompanying Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements are presented for illustrative purposes only and do not give effect
to any cost savings, revenue synergies or restructuring costs which may result
from the integration of NutraCea and RiceX’s operations. In addition, actual
results may be different from the projections set forth in these Unaudited
Pro
Forma Condensed Combined Consolidated Financial Statements.
As
of the
date of this document, NutraCea has not obtained, and does not presently
intend
to obtain, a third-party appraisal for the purchase price allocation, however,
it has estimated the fair value of the assets acquired and allocated the
purchase price accordingly. If an actual third-party appraisal is obtained
by
NutraCea in the future, the appraisal may contain allocations that are
materially different than those presented in these Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements. In addition, these Unaudited
Pro
Forma Condensed Combined Consolidated Financial Statements have not been
adjusted, as may be necessary, to conform the RiceX data to NutraCea’s
accounting policies.
2.
|
Pro
Forma Adjustments
.
|
(a)
The
Pro
Forma Condensed Combined Consolidated Balance Sheet is derived from the
unaudited balance sheet of RiceX as of September 30, 2005 and has been adjusted
to record eliminating adjustments from transactions between RiceX and NutraCea.
For purposes of the Unaudited Pro Forma Condensed Combined Consolidated Balance
Sheet, eliminating adjustments consist of trade receivables and trade payables
between RiceX and NutraCea for product sales and purchases, as well as for
sublease amounts.
(b)
This
entry reflects the preliminary allocation of the purchase price to identifiable
net assets acquired and the excess purchase price to “Goodwill and other
intangibles, net” as follows:
|
|
Common
Stock
|
|
Additional
Capital
|
|
Total
|
|
|
|
|
|
|
|
|
|
Value
of NutraCea common stock issued to RiceX shareholders:
|
|
$
|
—
|
|
$
|
38,933,921
|
|
$
|
38,933,921
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimate
of fair value of identifiable net assets acquired:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RiceX
equity
|
|
|
|
|
|
|
|
|
1,085,930
|
|
Estimate
of fair value adjustment of property, plant and equipment
|
|
|
|
|
|
|
|
|
5,600,000
|
|
Estimate
of fair value adjustment of RiceX intellectual property
|
|
|
|
|
|
|
|
|
2,000,000
|
|
Estimate
of fair value of identifiable net assets acquired
|
|
|
|
|
|
|
|
|
8,685,930
|
|
Goodwill
and other intangibles, net
|
|
|
|
|
|
|
|
$
|
30,247,991
|
|
(b1)
The
purchase price allocation included within these Unaudited Pro Forma Condensed
combined Financial Statements is based upon a purchase price of $38,933,921,
calculated as follows:
RiceX
shares outstanding at October 4, 2005
|
|
|
36,813,274
|
|
Merger
exchange ratio
|
|
|
0.76799
|
|
NutraCea
shares reserved for issuance to RiceX shareholders
|
|
|
28,272,226
|
|
Net
change in total combined common shares outstanding
|
|
|
(8,541,048
|
)
|
Price
per share (NutraCea closing price as of October 4, 2005)
|
|
$
|
1.03
|
|
Aggregate
value of NutraCea common stock consideration
|
|
|
29,120,393
|
|
Value
attributed to par, no par
|
|
|
—
|
|
Balance
to capital in excess of par value
|
|
|
29,120,393
|
|
Estimated
value of the RiceX warrants and options assumed**
|
|
|
9,813,528
|
|
Total
estimated consideration
|
|
$
|
38,933,921
|
|
**
The
purchase price allocation discussed herein accounts for the assumption by
NutraCea of the outstanding RiceX options and warrants to purchase up to
15,378,465 shares of RiceX common stock that are “in-the-money” (i.e.
exercisable at $1.03 per share or less), which, based on the conversion ratio
of
0.76799 per share of RiceX common stock (and assuming employees will exercise
the “net exercise” provision), would result in the issuance by NutraCea of
options and warrants to purchase up to 11,733,708 additional shares of NutraCea
common stock. The possible issuance of an additional 11,733,708 shares of
NutraCea common stock would be distributed among third party warrant and
option
holders (warrants to purchase 3,762,740 shares of NutraCea common stock)
and
RiceX current employees and directors (options to purchase 7,970,968 shares
of
NutraCea common stock). Using the Black-Scholes option-pricing model, the
estimated fair value of the aggregate warrants and options underlying the
shares
would be $9,813,528, or $0.84 per share.
(c)
The
Pro
Forma Condensed Combined Consolidated Statements of Operations are derived
from
the audited Statements of RiceX for the period ended December 31, 2004 and
the
unaudited Statements of RiceX for the period ended September 30, 2005, and
has
been adjusted to record eliminating adjustments from transactions between
RiceX
and NutraCea. For purposes of the Unaudited Pro Forma Condensed Combined
Consolidated Statement of Operations, eliminating adjustments consist of
product
sales and cost of goods sold between RiceX and NutraCea.
(d)
This
entry reflects the estimate and additional depreciation expense associated
with
the estimate of fair value of property, plant and equipment. NutraCea has
estimated the fair value of property, plant and equipment for presentation
of
the purchase price allocation. If NutraCea obtains a third-party appraisal
of
the purchase price allocation, the appraisal may contain allocations that
are
materially different than those presented in these Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements.
(d)(i)
Estimate
of fair value of property, plant and equipment:
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
Life
/ Yr.
|
|
Yearly
|
|
Nine
Months
|
|
Property,
Plant & Equipment
|
|
$
|
5,600,000
|
|
|
3-10
|
|
$
|
818,519
|
|
$
|
613,889
|
|
(d)(ii)
Estimate
of fair value adjustment of RiceX intellectual property (patents, trademarks,
and trade secrets):
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
Life
/ Yr.
|
|
Yearly
|
|
Nine
Months
|
|
Intellectual
Property
|
|
$
|
2,000,000
|
|
|
10
|
|
$
|
200,000
|
|
$
|
150,000
|
|
(e)
The
Unaudited Pro Forma Condensed Financial Statements have been adjusted for
compensation to RiceX employees in accordance with the Merger Agreement as
follows: (i) retention bonuses for three RiceX executives (at $50,000 each)
totaling $150,000; and (ii) accrued vacation payout to RiceX employees in
the
aggregate amount of $110,000.
(f)
The
Unaudited Pro Forma Condensed Combined Financial Statements have been adjusted
for compensation to NutraCea as follows: (i) in accordance with an employment
agreement, a merger success bonus for a NutraCea executive for $250,000 was
awarded following the closing of the merger; and (ii) a corporate discretionary
merger success bonus was awarded to two NutraCea executives totaling $200,000
(at $50,000 and $150,000, respectively).
(g)
The
Unaudited Pro Forma Condensed Combined Financial Statements have been adjusted
to eliminate a cash dividend of $20,473 owed by NutraCea to RiceX by virtue
of
RiceX’s prior ownership of certain shares of NutraCea Series A Convertible
Preferred Stock.
(h)
These
entries reflect NutraCea satisfying its closing requirement of debt retirement
and the infusion of an additional $2.5 million in cash through a private
placement of its securities. On September 28, 2005, NutraCea entered into
a
Securities Purchase Agreement and a Registrations Rights Agreement in connection
with a private placement of its securities to certain investors for aggregate
gross proceeds of approximately $7.85 million (approximately $7.3 million
after
estimated offering expenses). Upon the closing of the transaction on October
4,
2005, the investors purchased an aggregate of 7,850 shares of Series B
Convertible Preferred Stock at a price of $1,000 per share pursuant to the
Purchase Agreement. The preferred shares can be converted to shares of common
stock at a conversion rate of 2,000 shares of common stock for each preferred
share issued in the transaction. Additionally, pursuant to the Purchase
Agreement, the investors were issued warrants to purchase an aggregate of
7,850,000 shares of common stock at an exercise price of $0.70 per share.
The
warrants have a term of five years and are immediately exercisable. An advisor
for the financing received a customary fee based on aggregate gross proceeds
received from the investors and a warrant to purchase 1,099,000 shares of
common
stock at an exercise price per share of $0.50 per share.
Total
NutraCea merger financing transaction and use of funds
:
|
|
Series
B Preferred Stock
|
|
Additional
Capital
|
|
Total
|
|
|
|
|
|
|
|
|
|
Sale
of series B convertible preferred stock, 7,850 shares at $1,000
per
share
|
|
$
|
7,850,000
|
|
|
—
|
|
$
|
7,850,000
|
|
Offering
fees (7%) associated with financing transaction
|
|
|
(549,500
|
)
|
|
—
|
|
|
(549,500
|
)
|
Valuation
of 1,099,000 warrant shares issued in conjunction with Offering
(non-cash
transaction)
|
|
|
(911,071
|
)
|
|
—
|
|
|
(911,071
|
)
|
Investment
advisor legal fees associated with the financing
transaction
|
|
|
(25,000
|
)
|
|
—
|
|
|
(25,000
|
)
|
NutraCea
legal fees associated with the merger and financing
transaction
|
|
$
|
(448,521
|
)
|
|
—
|
|
|
(448,521
|
)
|
Total
financing, net
|
|
|
|
|
|
|
|
|
5,915,908
|
|
|
|
|
|
|
|
|
|
|
|
|
Retire
debt in connection with December 22, 2004 private placement of
secured
promissory note
|
|
|
|
|
|
|
|
|
(2,400,000
|
)
|
Discount
on promissory note
|
|
|
|
|
|
|
|
|
178,316
|
|
Interest
expense non-cash
|
|
|
|
|
|
|
|
|
(178,316
|
)
|
Accrued
interest on private placement secured promissory note
|
|
|
|
|
|
|
|
|
(137,043
|
)
|
Total
debt and accrued interest retired
|
|
|
|
|
|
|
|
$
|
(2,537,043
|
)
|
3.
|
Federal
Income Tax Consequences of Merger
.
|
The
Unaudited Pro Forma Condensed Combined Consolidated Financial Statements
assume
that the merger qualifies as a tax-free reorganization for federal income
tax
purposes.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
The
following discussion on ours financial condition and results of operations
should be read in conjunction with the consolidated financial statements and
notes thereto included elsewhere in this Prospectus.
Note
Regarding Forward-Looking Statements
This
discussion contains forward-looking statements that relate to future events
or
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as "
may
,"
"
will
,"
"
should
,"
"
expects
,"
"
plans
,"
"
anticipates
,"
"
believes
,"
"
estimates
,"
"
predicts
,"
"
intends
,"
"
potential
"
or
"
continue
"
or the
negative of such terms or other comparable terminology. These statements are
only predictions. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Actual results could differ
materially from those anticipated in these forward-looking statements as a
result of various factors, including the risks outlined under "Risk Factors"
and
elsewhere in this Prospectus.
Recent
Developments
Merger
with The RiceX Company
.
On
October 4, 2005, NutraCea acquired The RiceX Company, or RiceX, by merger
pursuant to the terms of an Agreement and Plan of Merger and Reorganization,
dated April 4, 2005, by and among NutraCea, Red Acquisition Corporation, a
wholly owned subsidiary of NutraCea and RiceX (“Merger Agreement”). At the
effective time of the merger, Red Acquisition Corporation merged with and into
RiceX, with RiceX surviving the merger as a wholly-owned subsidiary of NutraCea.
Pursuant to the Merger Agreement and as a result of the Merger, each share
of
RiceX common stock outstanding immediately prior to the effective time of the
merger was converted into the right to receive 0.76799 shares of NutraCea’s
common stock.
In
connection with the merger, NutraCea issued 28,272,226 shares of NutraCea common
stock to holders of RiceX common stock. In addition, NutraCea assumed each
outstanding option and warrant to purchase RiceX common stock and converted
those options and warrants into options and warrants to purchase an aggregate
of
11,810,507 shares of NutraCea common stock.
Pursuant
to the terms of the merger, the number of directors serving on NutraCea’s board
of directors increased from five to seven.
Financing
Transaction
.
On
September 28, 2005, NutraCea entered into a Securities Purchase Agreement (the
“Purchase Agreement”) and a Registration Rights Agreement (the “Registration
Rights Agreement”) in connection with a private placement of its securities to
certain investors for aggregate gross proceeds of approximately $7.85 million.
Upon closing of the transaction on October 4, 2005, the investors purchased
an
aggregate of 7,850 shares of NutraCea’s Series B Convertible Preferred Stock
(the “Preferred Shares”) at a price of $1,000.00 per share pursuant to the
Purchase Agreement. The Preferred Shares can be converted to shares of NutraCea
common stock at a conversion rate of 2,000 shares of common stock for each
Preferred Share issued in the transaction. Additionally, pursuant to the
Purchase Agreement, the investors were issued warrants to purchase an aggregate
of 7,850,000 shares of NutraCea common stock at an exercise price of $0.70
per
share. The warrants have a term of five years and are immediately
exercisable.
On
September 13, 2005 NutraCea entered into an agreement with Dominican Republic
rice mill whereby the two companies will form a joint venture to install
equipment to annually produce at least 5,000 metric tons of stabilized rice
bran. The joint venture will be equally owned by the two companies and will
commercially sell stabilized rice bran products through retail and government
in
the Dominican Republic and Haiti.
In
November 2005 NutraCea signed a Supply and Distribution Agreement with T. Geddes
Grant, a Jamaican Corporation. The agreement requires NutraCea to deliver a
customized formulated and fortified RiSolubles mix to T. Geddes Grant. The
agreement requires that T. Geddes Grant purchase a minimum of $4,500,000 of
the
custom formulation per year for a term of two years. Under the terms of the
agreement, T. Geddes Grant is also appointed as exclusive distributor for the
territory of Jamaica, Barbados and Trinidad. T. Geddes Grant is obligated to
obtain all necessary regulatory approvals for marketing NutraCea products in
the
Territory and use its best efforts to develop commercial sales in the
Territory.
Comparison
of Results for the Years Ended December 31, 2004 and 2003
Our
revenues decreased by $311,924, to $1,224,229 in 2004, from $1,536,153 in 2003.
The 20% decrease resulted from a decrease of approximately $730,500 in sales
by
our equine division from $1,248,996 in 2003 to $600,976 in 2004. This decrease
was partially offset by product licensing fees of $214,500 in 2004 ($0 in 2003).
Cost
of
goods sold decreased by $245,539 to $600,129 in 2004, from $845,668 in 2003.
This 29% decrease results primarily from a decrease in cost of goods sold from
our equine division of $321,371 in 2004.
Gross
profit decreased by $66,385 to $624,100 in 2004, from $690,485 in 2003. This
10%
decrease is due to lower equine division sales, which have been partially offset
by the licensing fees revenue in 2004.
Operating
expenses increased by $15,257,973 to $24,175,462 in 2004, from $8,917,489 in
2003. This increase was primarily due to increased non-cash expenses related
to
issuances of common stock and common stock warrant and option awards. These
non-cash items totaled $21,911,193 in 2004 and $1,577,938 in 2003.
During
2004, these non-cash expenses included $8,360,000 relating to the issuance
of
5.5 million restricted shares of common stock to our CEO for services rendered
and repayment of debt; $4,100,603 representing the value of restricted shares
and shares covered by the our S-8 registration statement issued to officers,
directors and consultants for services; and $8,537,516 representing the value
of
options and warrants issued to various employees and consultants. During 2003,
non-cash expenses included $14,795 representing the value of restricted stock
issued to consultants for services; $1,233,567 representing the value of options
issued to consultants; and $329,576 representing the value of options issued
to
employees and directors. The increased issuance of restricted stock, options
and
warrants during 2004 was deemed necessary by management to retain and compensate
officers, directors, consultants and employees while conserving cash assets
that
would otherwise have been expended for these purposes. Management expects in
the
future to reduce the amount of securities issued as compensation in light of
expected future increases in cash assets due to anticipated increases in revenue
and anticipated availability of additional investment capital from outside
sources. However, if additional invested capital is not realized as anticipated,
we may be required to issue additional restricted stock, options and/or warrants
to compensate service providers in the current fiscal year.
Also,
professional fees increased $703,360 to $1,122,250 in 2004 from $418,890 in
2003. Primary reasons for the increase in professional fees include the use
of
consultants instead of hiring permanent employees ($351,820), legal fees
associated with transactions ($157,570), and additional costs associated with
public filings ($109,042). Employee wages and related expense increased by
$153,640 due to increased bonuses of $305,000 which were partially offset by
reductions in the total number of employees.
Interest
expense decreased by $4,283,194 to $27,602 in 2004, from $4,310,796 in 2003
primarily due to the recording of $4,224,246 in interest expense in 2003
relating to modifications of stock option and warrant awards attached to debt
as
a result of the 1 for 10 reverse stock split occurring on November 12,
2003.
Comparison
of Results for the Nine-Months Ended September 30, 2005 and 2004
Our
revenues increased by $397,361, to $1,060,271 for the nine months ended
September 30, 2005 from $662,910 for the nine months ended September 30, 2004.
Human product sales increased by 24% due to increased medical food sales while
the NutraGlo animal products subsidiary accounted for 76% of the increase in
revenues due to increased orders from its primary equine customer.
Costs
of
goods sold increased by $308,075 to $704,569 for the nine months ended September
30, 2005 from $396,494 for the nine months ended September 30, 2004. The
increase in costs of goods sold generally reflects the increase in products
sold
during the first nine months of 2005 as well as a small deterioration in our
gross profit margin from 37% in 2004 to 34% in 2005.
Operating
expenses decreased by $18,109,638, to $3,457,937 for the nine months ended
September 30, 2005 from $21,567,575 for the nine months ended September 30,
2004. Most of the decrease is due to an $18,075,295 reduction in expenses
related to non-cash stock and option awards in 2005 as compared to 2004. During
the first nine months of 2005, we issued stock valued at $812,200 to consultants
and employees as compensation and stock options valued at $479,449 to
consultants and employees as compensation. The significant decrease in non-cash
expenses reflects management’s intention to reduce the amount of compensation
paid with our stock or options/warrants. Management expects the reduced amount
of securities issued as compensation during 2005 to be indicative of the future
levels of securities issuances for compensation purposes. Management hopes
that
increasing revenues and the availability of invested capital will allow us
to
pay more of its operating expenses with cash rather than
securities.
Other
decreases in expenses include reduced commissions and finders fees in the amount
of $209,437 and marketing expense of $77,961. Offsetting these decreases in
expenses during the nine months ended September 30, 2005 compared to the nine
months ended September 30, 2004, were the increase in salaries of $91,496 to
$451,191 from $359,695; the increase in legal fees of $208,519 to $241,781
from
$33,263; and the increase in travel and entertainment of $45,278 to $108,646
from $63,367. The salary and travel expense increases related primarily to
more
executive employees generating additional business during the quarter while
the
significant increase in legal fees relate primarily to the merger transaction
with The RiceX Company.
A
customer forfeited its $100,000 deposit by terminating a technology rights
agreement which resulted in $100,000 of other income for the nine months ended
September 30, 2005.
Interest
expense increased substantially to $715,046 for the nine months ended September
30, 2005 from $495 for the nine months ended September 30, 2004. The increase
is
due to $128,536 of interest expense on notes payable that were funded in
December 2004 and amortization of debt discount of $586,510 related to the
same
notes payable.
The
net
loss for the nine months ended September 30, 2005 was $3,559,689 compared to
a
net loss of $21,297,570 recorded for the nine months ended September 30, 2004.
The lower net loss for the first nine months of 2005 was due primarily to the
higher non-cash stock and options expensed during the first nine months of
2004.
Liquidity
and Capital Resources
We
have
incurred significant operating losses since its inception, and, as of September
30, 2005 we had an accumulated deficit of $48,639,037. We used approximately
$557,000 of cash to fund operations during the quarter ended September 30,
2005
leaving a cash and cash equivalents balance of $389,034 at September 30, 2005
and a working capital deficit of $1,973,288. The cash is not deemed sufficient
to cover our operating deficits, expanded business plan and growth, nor the
repayment of debt obligations.
To
date,
we have funded our operations, in addition to sales revenues, through a
combination of short-term debt and the issuance of common and preferred stock.
During the nine months ended September 30, 2005, we issued a total of 2,388,897
shares of common stock of which 1,957,897 shares were issued as compensation
to
our officers and consultants. We continue to pursue cost cutting and expense
deferral strategies in order to conserve working capital.
Subsequent
to September 30, 2005, on October 4, 2005 we completed a private placement
of
securities which generated aggregate gross proceeds of approximately $7.85
million (approximately $7.3 million after estimated offering expenses). This
subsequent sale of securities will provide additional operating capital for
at
least the next 12 months for NutraCea.
As
of
September
30, 2005
,
our
principal commitments include a lease commitment for our corporate offices
of $
6,366 per month that expires in September 2006.
In
addition to the capital raised on October 4, 2005, our management believes
that
it may need to raise additional capital to continue to develop, promote and
conduct its operations. Such additional capital may be raised through public
or
private financing as well as borrowing from other sources. Although we believe
that current and/or future investors will continue to fund our expenses, there
is no assurance that such investors will continue to fund our ongoing operations
or that the terms upon which such investments would be made will be favorable
to
us.
Critical
Accounting Policies
The
discussion and analysis of NutraCea's financial condition and results of
operations is based upon NutraCea's consolidated financial statements, which
have been prepared in accordance with generally accepted accounting principles
in the United States. The preparation of financial statements requires managers
to make estimates and disclosures on the date of the financial statements.
On an
on-going basis, NutraCea evaluates its estimates, including, but not limited
to,
those related to revenue recognition. NutraCea uses authoritative
pronouncements, historical experience and other assumptions as the basis for
making judgments. Actual results could differ from those estimates. NutraCea
believes the following critical accounting policies affect its more significant
judgments and estimates in the preparation of its consolidated financial
statements.
Revenue
recognition
NutraCea
is required to make judgments based on historical experience and future
expectations, as to the realizability of shipments made to its customers. These
judgments are required to assess the propriety of the recognition of revenue
based on Staff Accounting Bulletin No. 101, "Revenue Recognition," and
related guidance. NutraCea makes these assessments based on the following
factors: (a) customer-specific information, (b) return policies, and
(c) historical experience for issues not yet identified.
Valuation
of long-lived assets
Long-lived
assets, consisting primarily of property and equipment, patents and trademarks,
and goodwill, comprise a significant portion of NutraCea's total assets.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that their carrying values may not be recoverable.
Recoverability of assets is measured by a comparison of the carrying value
of an
asset to the future net cash flows expected to be generated by those assets.
The
cash flow projections are based on historical experience, management's view
of
growth rates within the industry, and the anticipated future economic
environment.
Factors
NutraCea considers important that could trigger a review for impairment include
the following:
(a)
significant underperformance relative to expected historical or projected future
operating results,
(b)
significant changes in the manner of its use of the acquired assets or the
strategy of its overall business, and
(c)
significant negative industry or economic trends.
When
NutraCea determines that the carrying value of patents and trademarks,
long-lived assets and related goodwill and enterprise-level goodwill may not
be
recoverable based upon the existence of one or more of the above indicators
of
impairment, it measures any impairment based on a projected discounted cash
flow
method using a discount rate determined by its management to be commensurate
with the risk inherent in its current business model.
Marketable
securities
Marketable
securities are marked to market at each period end. Any unrealized gains and
losses on the marketable securities are excluded from operating results and
are
recorded as a component of "Other comprehensive income (loss)." If declines
in
value are deemed other than temporary, losses are reflected in "Net income
(loss)."
Inventory
Inventory
is stated at the lower of cost (first-in, first-out) or market and consists
of
nutraceutical products manufactured by RiceX, which NutraCea then enhances
for
final distribution to its customers. While NutraCea has an inventory of these
products, which contain ingredients supplied by RiceX, any significant prolonged
shortage of these ingredients or of the supplies used to enhance these
ingredients could materially adversely affect NutraCea's results of operations.
Property
and equipment
Property
and equipment are stated at cost. NutraCea provides for depreciation using
the
straight-line method over the estimated useful lives as follows:
Furniture
and equipment
|
|
5-7
years
|
Automobile
|
|
5
years
|
Software
|
|
3
years
|
Leasehold
Improvements
|
|
2.4
years
|
Expenditures
for maintenance and repairs are charged to operations as incurred while renewals
and betterments are capitalized. Gains or losses on the sale of property and
equipment are reflected in the statements of operations.
Fair
value of financial instruments
For
certain of NutraCea's financial instruments, including cash, accounts
receivable, inventory, prepaid expenses, accounts payable, accrued salaries
and
benefits, deferred compensation, accrued expenses, customer deposits, due to
related party, notes payable—related party, and notes payable, the carrying
amounts approximate fair value due to their short maturities.
Stock-based
compensation
Compensation
is recorded for stock-based compensation grants based on the excess of the
estimated fair value of the common stock on the measurement date over the
exercise price. Additionally, for stock-based compensation grants to
consultants, NutraCea recognizes as compensation expense the fair value of
such
grants as calculated pursuant to Statement of Financial Accounting Standard
("
SFAS
")
No. 123, recognized over the related service period. SFAS No. 148
requires companies to disclose pro forma results of the estimated effect on
net
income and earnings per share to reflect application of the fair value
recognition provision of SFAS No. 123.
Debt
satisfaction
NutraCea
has adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and
64, Amendment of FASB Statement No. 13 and Technical Corrections" which
requires gains and losses from extinguishment of debt to be reported as part
of
recurring operations.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE RICEX COMPANY
The
following discussion of the financial condition and results of operations
of The
RiceX Company should be read in conjunction with the consolidated financial
statements and notes thereto regarding The RiceX Company included elsewhere
in
this Prospectus.
Consolidated
revenues for the year ended December 31, 2004 were $4,010,000, an increase
of $499,000, or 14% on a comparative basis to the year ended December 31,
2003. RiceX experienced an increase of $303,000 in sales to its domestic
animal
SRB Regular and an increase to its human SRB Fine markets of $97,000, compared
to the year ended December 31, 2003. RiceX also had increased sales in
domestic SRB Fiber of $71,000. Central American Solubles sales increased
$539,000 from zero sales last year internationally. RiceX added the SRB
Dextrinized product line in 2004, which produced $82,000 in sales for the
year
ended December 31, 2004. RiceX experienced decreases in human SRB Regular
of $60,000, animal SRB Fine of $64,000, and domestic SRB Solubles of $469,000,
compared to the same period last year.
Gross
margins for the year ended December 31, 2004 were $2,354,000, or 59%,
compared to $1,646,000, or 47%, during the same period last year. The increase
in percentage as well as gross margin dollars of $708,000 was the result
of
increased sales of $499,000 and decreased cost of sales of $209,000. The
decrease in cost of sales was mostly the result of production efficiencies
and
decreased depreciation costs of production equipment at RiceX's Montana
manufacturing facility. Gross margins on RiceX's different products vary
widely
and the gross margins are impacted from period to period by sales mix and
utilization of production capacity.
R&D
expenses decreased $2,000, to $224,000 for the year ended December 31,
2004, compared to the same period in 2003. The change in R&D expenses is
mostly due to reduced activity in research and development. R&D expenses
were mostly based on allocating SG&A costs dedicated to research personnel
and process research.
SG&A
expenses were $2,465,000 for the year ended December 31, 2004, an increase
of $284,000. The increase was due primarily to employee costs related to
an
accrual for severance expenses of two executives that resigned from RiceX.
Adding to SG&A expenses was $101,000 of commission expenses related to
shipments to Central America and a portion relating to marketing to the equine
market. RiceX put back 130,000 shares of Preferred Stock priced at $1 per
share
in the amount of $130,000 per a Put Agreement to NutraCea and sold 60,000
shares
of NutraCea common stock offsetting SG&A expenses by approximately $181,000.
Because of NutraCea financial position at the time the Put Agreement was
entered
into and the common stock was received, RiceX booked an allowance for loss
on
investment of $190,000.
Professional
fees increased $62,000, to a total of $502,000, for the year ended
December 31, 2004 compared to last year. The increase is primarily due to
higher legal fees from increased general corporate legal activity in 2004.
Investor
relations' fees decreased $42,000, to a total of $62,000, for the year ended
December 31, 2004. The decrease was primarily associated with expenses
related to an investor relations firm and webpage design work performed and
paid
for in 2003. Investor relations' fees included expenses related to printing
and
distribution of RiceX's annual report, annual meeting costs, and costs related
to SEC reporting requirements.
RiceX
had
a net loss of $883,000 for the year ended December 31, 2004, or $0.02 per
share, compared to $1,292,000 for 2003, or $0.03 per share. The net loss
improvement of $410,000 was due to increased total revenues, better utilization
of production capacity, and an increase in higher margin SRB Solubles sales
internationally through year ended December 31, 2004. This improvement was
offset by $250,000 in additional employee expenses related to the severance
of
two executives, but was increased by related party debt recovery of
approximately $181,000.
The
provision of income taxes for the years ended December 31, 2004 and 2003
consists of the $1,650 minimum state income tax.
Deferred
taxes arise from temporary differences in the recognition of certain expenses
for tax and financial statement purposes. At December 31, 2004, RiceX's
management determined that realization of these benefits is not assured and
has
provided a valuation allowance for the entire amount of such benefits. At
December 31, 2004, net operating loss carryforwards were approximately
$14,510,000 for federal tax purposes that expire at various dates from 2011
through 2025 and $10,782,000 for state tax purposes that expire in 2005 through
2014. Utilization of net operating loss carryforwards may be subject to
substantial annual limitations due to the "change in ownership" provisions
of
the Code and similar state regulations. The annual limitation may result
in
expiration of net operating loss carryforwards before utilization.
Comparison
of Results for the Nine-Months Ended September 30, 2005 and
2004
For
the
nine months ending September 30, 2005, the RiceX’s net loss was $3,705,000, or
$.10 per share, compared to $528,000 net loss, or $.01 per share, in 2004,
showing a greater net loss of $3,178,000 compared to the same period last
year.
The increase in net loss for the year comparably was mostly due to non cash
charges of $2,968,000 to compensation expense required by the variable
accounting treatment to re-price director and employee stock options as well
as
increased professional and investor relation fees in the amount of approximately
$505,000 related to merger activity as of September 30, 2005.
RiceX’s
consolidated revenues through September 30, 2005 of $2,781,000 increased
$44,000, or 2%, from the same period last year. The revenue increase is
primarily attributed to increased sales in three categories, SRB Regular,
SRB
Fine and Fiber. SRB Fine increased $22,000. Solubles showed a decrease in
revenue of $338,000, mostly due to no international sales through September
2005
compared to $477,000 in Solubles sales to Central America through September
2004. SRB Regular increased $263,000, and Fiber increased $73,000 compared
to
sales through September 2004.
Product
volume movement through September 2005 was up 1,487,000 lbs., or 18%, to
9,842,000 lbs. Year to date product volume was up in all product lines except
for Solubles. Solubles were down 61,000 lbs., SRB Regular volume was up
1,419,000 lbs., SRB Fine was up 64,000 lbs., and Fiber was up 65,000 lbs.
over
the same period last year.
RiceX’s
Gross margins through September 2005 were $1,657,000, or 60%, compared to
$1,658,000, or 61%, during the same period last year. The variance in gross
margin dollars of $1,000 was essentially even to the same period last year.
RiceX’s
SG&A expenses were $5,369,000 and $2,213,000 through period ended September
30, 2005 and 2004 respectively, an increase of $3,156,000. The increase was
mostly due to a $2,968,000 non-budgeted non-cash charge to compensation expense
which was the result of variable accounting treatment required for the
re-pricing of director and employee stock options. Added to SG&A expenses
year to date was $63,000 in final tax and legal costs related to the severance
of two executives in January of 2005. RiceX experienced an increase in R&D
expenses of $17,000, due to increased allocations of SG&A to research.
Professional fees increased $382,000 mostly due to a year to date increase
in
legal costs relating to merger activity. Investor relations fees increased
$11,000 compared to last year at $68,000 due to proxy material printing and
filing related to merger activity.
Year-to-date
through September 30, 2005, RiceX incurred approximately $505,000 in legal,
investor relation and professional fees that are directly associated with
the
merger of NutraCea and RiceX. Legal fees were $407,000 and professional fees
were $50,000. Additional accounting, edgarizing, and printing costs, which
are
accrued and included in investor relation fees, amount to over $48,000 and
are
directly associated with merger activity.
RiceX’s
cash balance for period ended September 30, 2005 was $546,000 versus $1,207,000
for the period last year. The Company’s operating cash position improved by
$252,000 for period ending September 30, 2005 compared to September 30, 2004
monthly activities.. Our cash disbursements exceeded cash receipts by $485,000
in 2005 while cash disbursements exceeded cash receipts by $737,000 in 2004.
In
September 2005 RiceX received $40,000 in cash for the exercise of employee
stock
options. In 2004 there were no non-operations cash receipts or disbursements.
Cash
used
in operating activities for period ended September 30, 2005 was $483,000.
Cash
used in investing activities for period ended September 30, 2005 was $46,000.
Investing activities include the purchase of extrusion machinery equipment
and a
new warehouse fork lift. There was $40,000 cash provided by financing activities
during the period ended September 30, 2005.
Liquidity
and Capital Resources
As
discussed above, NutraCea acquired all the outstanding capital stock of RiceX
on
October 4, 2005 in a merger transaction. As a result of the merger, RiceX’s
capital stock will no longer be traded publicly. Immediately following the
merger with NutraCea, RiceX had $546,000 of cash and cash equivalents.
Critical
Accounting Policies
A
summary
of RiceX's significant accounting policies is included in Note 1 to its
Notes to Consolidated Financial Statements for the year ended December 31,
2004.
BUSINESS
OF NUTRACEA
General
We
are a
California corporation formerly known as Alliance Consumer
International, Inc. As a result of the reorganization transaction discussed
below, we conduct the business previously carried on by NutraStar Technologies
Incorporated, or NTI, a Nevada corporation that was formed and started doing
business in February 2000. In addition, we conduct business through our
wholly-owned subsidiary, The RiceX Company, or RiceX, a Delaware corporation
that we acquired on October 4, 2005 (For a description of the business of The
RiceX Company, see the section of this prospectus titled “BUSINESS OF THE RICEX
COMPANY”). We are a relatively new health science company focused on the
development and distribution of products based upon the use of stabilized rice
bran and proprietary rice bran formulations. Rice bran is the outer layer of
brown rice which until recently was a wasted by-product of the commercial rice
industry. These products include food supplements and medical foods, or
"
nutraceuticals,
"
which
provide health benefits for humans and animals, as well as cosmetics and beauty
aids based on stabilized rice bran, rice bran derivatives and rice bran oil.
We
believe that stabilized rice bran products can deliver beneficial physiological
effects with fewer of the adverse side effects commonly associated with many
prescription drugs. As a result, we believes that certain of our products may
be
used in place of, or as a supplement to, some of the most commonly used
pharmaceuticals. We have conducted and are currently involved in ongoing
clinical trials and third party analyses in order to support the uses for and
effectiveness of our products.
We
have
developed a number of product lines that are currently or soon will be available
for sale in the market through our four divisions:
TheraFoods®
,
which
provides health food supplements to the retail market;
ProCeuticals®
,
which
distributes medical foods through the medical community;
NutraGlo®
,
which
distributes animal feed products; and
NutraBeauticals®
,
which
is developing and marketing cosmetics
and
beauty aids. We anticipate developing strategic distribution and marketing
agreements with retail merchandisers, pharmaceutical companies and medical
practices, including HMOs, hospitals and institutions.
Our
corporate offices are located at 1261 Hawk's Flight Court, El Dorado Hills,
California 95762. Our telephone number is (916) 933-7000. We have two
wholly owned subsidiaries, NTI, which in turn wholly owns NutraGlo Incorporated,
a Nevada corporation, and RiceX, which wholly owns RiceX Nutrients, Inc., a
Montana corporation. We also own part of NutraStarSport, Inc., a Nevada
corporation.
History
We
originally incorporated on March 18, 1998 in California as Alliance
Consumer International, Inc. On December 14, 2001, NTI effected a
reorganization with the inactive publicly-held company, Alliance Consumer
International, Inc., and the name was changed to NutraStar Incorporated. As
a result of the reorganization NTI became a wholly-owned subsidiary of NutraStar
Incorporated and NutraStar Incorporated assumed the business of NTI.
On
October 1, 2003, NutraStar Incorporated changed our name to NutraCea and
the common stock began trading on the OTCBB under the symbol "NTRC." On
November 12, 2003, we declared a 1:10 reverse stock split. Our common stock
trades on the OTCBB under the symbol "NTRZ."
On
April 27, 2000, NutraStar formed NutraGlo Incorporated, or NutraClo, a
Nevada corporation, which was owned 80% by NTI and 20% by NaturalGlo Investors
L.P. During 2001, NutraGlo started marketing, manufacturing and distributing
one
of our products to the equine market. In 2002, we issued 250,001 shares of
our
common stock to NaturalGlo Investors L.P. in exchange for the remaining 20%
of
the common stock of NutraGlo. The value of the shares was $250,001. As a result,
NutraGlo is now a wholly-owned subsidiary of NTI.
On
October 4, 2005, we acquired RiceX in a merger transaction in which our
wholly-owned subsidiary, Red Acquisition Corporation, merged with and into
RiceX, with RiceX surviving the merger as our wholly-owned subsidiary. For
a
description of the business of RiceX, see the portion of this prospectus titled
“BUSINESS OF THE RICEX COMPANY.”
Industry
Overview
By
definition, nutraceuticals are products from natural sources that have
biologically therapeutic effects in humans and mammals. These compounds include
vitamins, antioxidants, polyphenols, phytosterols, as well as macro and trace
minerals. Rice bran and rice bran oil are good sources for some of these
compounds, including tocotrienols, a newly discovered complex of vitamin E,
and
gamma-oryzanol, which is found only in rice bran. Among other things, these
compounds act as potent antioxidants. Stabilized rice bran and its derivatives
also contain high levels of B-complex vitamins and beta-carotene, a vitamin
A
precursor. Stabilized rice bran also contains high levels of carotenoids and
phytosterols, both essential fatty acids, as well as a balanced amino acid
profile and both soluble and insoluble fiber which promote colon health.
Rice
is
one of the world's major cereal grains, although United States production of
rice is only a small fraction of total world production. According to the United
States Department of Agriculture, approximately 65% of the nutritional value
of
rice is contained in the rice bran, the outer brown layer of the rice kernel
which is removed during the milling process. However, raw, unstabilized rice
bran deteriorates rapidly. Because of the rapid degradation and short shelf
life, rice bran has not been widely accepted as a component of nutrition, health
or beauty products notwithstanding the known benefits. RiceX
has
developed a method of stabilizing rice bran that we believe is superior to
other
methods, and provides a shelf life of approximately two years, which we believe
is longer than any other stabilized rice bran. Using stabilized rice bran as
an
ingredient provides the longer shelf life necessary for economical production
of
nutrition products which incorporate rice bran ingredients.
As
the
population of the United States ages over the next 30 years, we believe
demand for our products will increase materially. Since stabilized rice bran
is
a safe food product, we believe that its beneficial effects can be obtained
with
no known deleterious side effects, such as those that may be present in
pharmaceuticals. Many physicians have taken an interest in our nutraceutical
products as a means of offering alternative or complementary approaches for
treating serious healthcare problems. If further clinical trials support the
beneficial effects of our nutraceutical and medical foods products and if the
medical community widely endorses such use of our products, we believe that
our
products may be used as a nutritional therapy either prior to or as a complement
to traditional pharmaceutical therapies for the treatment of a variety of
ailments including diabetes and coronary heart disease.
Products
In
addition to the products sold by The RiceX Company, we have two segments with
four primary divisions through which we currently sell our products.
Products
of NutraStar Technologies Incorporated:
|
·
|
TheraFoods®
Nutrition Supplements.
We
distribute our consumer products through our TheraFoods® Nutritional
Supplements division. The primary products currently sold through
this
division are RiSolubles®, RiceMucil®, CeaFlex®, FlexBoost®, DiaBoost®,
MigraCea®, ProstaCea®, Cea100®, NutraImmune™, LiverBoost®, SuperSolubles®,
SynBiotics™ and StaBran® Nutritional Supplements. All the products are
currently available in either capsule or powdered form for use as
food
supplements. The powdered form can also be used as a food additive
in
breads, cookies, snacks, beverages, and similar foods. We have also
developed and currently produces CeaFlex® Cream, a topical, cream product
for arthritic joint and muscle pain.
|
|
·
|
NutraBeauticals®
Beauty Products.
We
distribute our natural beauty products through our NutraBeauticals® Beauty
Products Division. The principal product sold through this division
is
NutraBeauticals® Skin Cream, a topical emollient containing rice bran oil
and other natural ingredients to support the health and improve the
appearance of skin. We do not have an established distribution system
for
our beauty and skin care products.
|
Products
of NutraGlo Incorporated:
|
·
|
NutraGlo®
Animal Products
.
We developed a derivative of our CeaFlex® Nutritional Supplement to
prevent and rehabilitate joint degeneration in horses and markets
CeaFlex®
Equine Nutritional Supplements and Absorbine Flex+® Equine Pain Relief
though our NutraGlo® Animal Products Division. Our Absorbine Flex+™ Equine
products are distributed exclusively through W.F. Young, Inc.
pursuant to a distribution agreement in the United States and many
foreign
countries. Other equine and animal health care products will be
distributed through this or other channels.
|
Other
Products
On
September 13, 2005, we entered into a Production Facility Development and Rice
Bran Supply and Purchase Agreement (“Purchase Agreement”) with Food Trading
Company Dominicana, S.A. (“FTCD”), a Dominican Republic company that owns and
operates a substantial rice milling operation located in the Dominican Republic.
We and FTCD have agreed to form one or more entities to operate in the Dominican
Republic and Haiti and that will be equally owned by us and FTCD (the “Jointly
Owned Company”). The term of the Agreement is ten years.
Under
the
terms of the Agreement, we will construct or improve a production facility
for
the processing of stabilized rice bran into a bulk fiber soluble mixture. The
Jointly Owned Company will then package individual servings of the rice fiber
solubles mixed with water (the “Products”). The Products are intended to be sold
and distributed through government sponsored feeding programs within the
Dominican Republic and Haiti. NutraCea has agreed to grant to the Jointly Owned
Company an exclusive license in the Dominican Republic and Haiti to manufacture,
package and distribute the Products.
FTCD
is
responsible for the purchase agreements for the Jointly Owned Company’s Products
in the aggregate amount of at least $10.8 million annually for the first two
years of the agreement, with purchase orders beginning no later than 45 days
from the effective date of the Agreement and at least $4 million monthly for
years three and four of the agreement. Additionally, FTCD has agreed to obtain
all appropriate governmental and legal permits relating to the operation of
the
Jointly Owned Company, and to sell quantities of raw rice bran to the Jointly
Owned Company for production of the Products.
Should
we
and FTCD elect to construct a Dominican Republic production facility, FTCD
has
agreed to lease land to the Jointly Owned Company for the construction of the
production facility and we have agreed to secure financing to construct or
improve the production facility. We have agreed to ship bulk fiber soluble
mixture from our production facilities in the United States until we and FTCD
elect to construct a facility in the Dominican Republic.
Marketing
Our
TheraFoods® Division is currently marketing its products domestically through
various distribution channels including our toll-free phone number and through
the Internet at
http://www.nutracea.com/products.html
.
In
addition, we distribute products under the names FlexProtex™, Rice'n Shine™,
Flex Protex Cream™, RiceMucil Wafers®, SuperSolubles®, ZymeBoost® and CeaBars™
through ITV Global, Inc. ("
ITV
"),
a
direct response marketing company. We and ITV entered into a Private Label
Supply Agreement (the "
Supply
Agreement
")
and
Strategic Alliance on August 24, 2005. The Supply Agreement has an initial
term of two years and allows for a subsequent one-year term renewal. We have
agreed in the Supply Agreement to fulfill ITV's requirements for the products
specified in the agreement while ITV will use its best efforts to market,
distribute and sell such products.
Our
equine products are distributed under the name "
Absorbine
Flex
+®"
by
W.F. Young, Inc. pursuant to agreements. We and W.F. Young entered into a
distribution agreement on May 1, 2001 which provides for NutraGlo to
manufacture, package and ship all W.F. Young's sales requirements while W.F.
Young is granted a license to use and market our equine products. NutraGlo
has
agreed to sell its equine healthcare products exclusively through W.F. Young
at
preferred product prices. W.F. Young has agreed to use its best efforts to
promote NutraGlo's current and future equine products and make minimum product
purchases. In May of 2003, the purchase requirements for the three-year contract
had been met. The distribution agreement was for an initial term of three years
ending on August 31, 2004. On September 18, 2003, NutraCea, W.F. Young
and Wolcott Farms, Inc. entered into a Technology Agreement which, among
other things, extended the initial term of the Distribution Agreement through
September 12, 2006, allowed for subsequent one-year term renewals and
amended the minimum purchase requirement. On April 12, 2005, NutraCea and
W.F. Young entered into a Manufacturing Agreement which granted to us the
exclusive worldwide rights to manufacture certain equine products for W.F.
Young. On the same date, NutraCea and W.F. Young entered into an Assignment
of
Interests in which W.F. Young transferred to us certain rights held by W.F.
Young under the Technology Agreement in exchange for 1,222,222 shares of
our common stock. In addition, certain rights to the Technology Agreement,
held
by NaturalGlo Specialty Products, LLC, a subsidiary of W.F. Young, were also
transferred to NutraGlo in exchange for 166,667 shares of our common stock
and
W.F. Young's agreement to decline to exercise its options to acquire additional
rights to certain NutraCea technologies under the Technology Agreement.
Additionally, on April 12, 2005, NutraCea and W.F. Young entered into a
Distribution Agreement under which we granted W.F. Young (i) the right of
first offer and right of first refusal to market our stabilized rice bran food
supplements (other than Equine Flex+) for the equine market and (ii) the
right of first offer and right of first refusal to market the Flex+ product
and
Flex+ technology for the non-equine, non-human market.
We
have
developed a number of other animal products, which we are seeking to distribute,
subject to rights granted to W.F. Young, through various distribution channels
such as the Internet and strategic joint ventures in the large animal, pet
and
veterinarian industries.
International
Initiatives
We
have
initiated discussions with governmental agencies within various Central and
South America countries to explore securing contracts for the introduction
of
our highly nutritious and proprietary food supplements for use in local and
national school feeding initiatives and family nutritional support programs.
We
are pursuing a strategy to introduce our technology to both the public and
private sectors simultaneously using the strength of our local partners in
foreign markets.
We
are
building alliances with strong partners demonstrating our commitment to building
the type of mutually beneficial strategic relationships that could launch our
products through distribution channels in commercial and retail outlets in
Latin
America countries as well as supply a better, more cost effective solution
for
government feeding programs.
Product
Supply
We
currently purchase all of our stabilized rice bran, rice bran solubles, rice
bran fiber concentrates, and other rice bran products from RiceX. We believe
RiceX has a proprietary manufacturing process for stabilizing the rice bran
it
processes. This process results in an estimated shelf life for the rice bran
products of approximately two years under proper storage conditions, compared
to
a typical shelf life of approximately two months for rice bran products
processed by other suppliers. The extended shelf life is a critical factor
in
the use of rice bran products as an ingredient since the availability of rice
bran products would otherwise be seasonal and inventories of products using
rice
bran products would spoil or become unusable between seasons.
RiceX
is
a wholly owned subsidiary of NutraCea. We purchase our rice bran products at
RiceX's standard prices. We believe that RiceX will be able to continue
supplying our requirements of stabilized rice bran products. There are no other
known sources of stabilized rice bran of the quality comparable to that produced
by RiceX. The interruption of supply from RiceX, either because of other
significant purchasers or the damage or destruction of the RiceX processing
facility, could interrupt the production of our products, and a prolonged
interruption would have a material adverse effect on our business, financial
condition and results of operation if we did not quickly locate another suitable
supplier.
Competition
We
compete with other companies that offer products incorporating stabilized rice
bran as well as companies that offer other food ingredients and nutritional
supplements. Suppliers of nutritional supplements and other products that use
stabilized rice bran provided by other suppliers are subject to the higher
costs
of shorter shelf life and the seasonal availability of stabilized rice bran
ingredients. We also face competition from companies providing products that
use
oat bran and wheat bran in the nutritional supplements as well as health and
beauty aids. Many consumers may consider such products to be a replacement
for
the products manufactured and distributed by us even though they have a higher
incidence of allergic reactions and adverse health indications. Many of our
competitors have greater marketing, research, and capital resources than we
do,
and may be able to offer their products at lower costs because of their greater
purchasing power or the lower cost of oat and wheat bran ingredients. There
are
no assurances that our products will be able to compete successfully.
Government
Regulation
The
Federal Food, Drug, and Cosmetic Act, or FFDCA
,
and the
U.S. Food and Drug Administration regulations govern the marketing of our
products.
The
FFDCA
provides the statutory framework governing the manufacturing, distribution,
composition and labeling of dietary supplements for human consumption. These
requirements apply to our products distributed by the TheraFoods® and
ProCeutical® divisions.
Marketers
of dietary supplements may make three different types of claims in labeling:
nutrient content claims; nutritional support claims; and health claims.
Nutrient
content claims are those claims that state the nutritional content of a dietary
supplement and include claims such as "high in calcium" and "a good source
of
vitamin C." The FFDCA prescribes the form and content of nutritional labeling
of
dietary supplements and requires the marketer to list all of the ingredients
contained in each product. A manufacturer is not required to file any
information with the Food and Drug Administration, or FDA, regarding nutrient
content claims, but must have adequate data to support any such claims.
Nutritional
support claims may be either statements about classical nutritional deficiency
diseases, such as "vitamin C prevents scurvy" or statements regarding the effect
of a nutrient on the structure or function of the body, such as "calcium builds
strong bones." The FFDCA requires that any claim regarding the effect of a
nutrient on a structure or function of the body must be substantiated by the
manufacturer as true and not misleading. In addition, the label for such
products must bear the prescribed disclaimer: "This statement has not been
evaluated by the Food and Drug Administration. This product is not intended
to
diagnose, treat, cure, or prevent any disease."
Health
claims state a relationship between a nutrient and a disease or a health-related
condition. FDA's regulations permit certain health claims regarding the
consumption of fiber and the reduction of risk for certain diseases, such claims
may relate to rice bran ingredients.
The
FDA
has broad authority to enforce the provisions of federal law applicable to
dietary supplements, including the power to seize adulterated or misbranded
products or unapproved new drugs, to request product recall, to enjoin further
manufacture or sale of a product, to issue warning letters, and to institute
criminal proceedings. In the future, we may be subject to additional laws or
regulations administered by the FDA or other regulatory authorities, the repeal
of laws or regulations that we might consider favorable or more stringent
interpretations of current laws or regulations. We are not able to predict
the
nature of such future laws or regulations, nor can we predict the effect of
such
laws or regulations on our operations. We may be required to reformulate certain
of our products, recall or withdraw those products that cannot be reformulated,
keep additional records, or undertake expanded scientific substantiation. Any
or
all of such requirements could have a material adverse effect on our business
and financial condition.
The
Federal Trade Commission, or FTC, regulates the advertising of dietary
supplement and other health-related products. The FTC's primary concern is
that
any advertising must be truthful and not misleading, and that a company must
have adequate substantiation for all product claims. The FTC actively enforces
requirements that companies possess adequate substantiation for product claims.
FTC enforcement actions may result in consent decrees, cease and desist orders,
judicial injunctions, and the payment of fines with respect to advertising
claims that are found to be unsubstantiated.
In
addition to the foregoing, our operations will be subject to federal, state,
and
local government laws and regulations, including those relating to zoning,
workplace safety, and accommodations for the disabled, and our relationship
with
our employees are subject to regulations, including minimum wage requirements,
anti-discrimination laws, overtime and working conditions, and citizenship
requirements.
We
believe that we are in substantial compliance with all material governmental
laws and regulations.
Results
of Trials and Scientific Research
The
beneficial attributes of stabilized rice bran, including the RiSolubles® and
RiceMucil® Nutritional Supplements, have been studied and reported by several
laboratories, including Medallion Laboratories, Craft's Technologies, Inc.,
Southern Testing & Research Laboratories, and Ralston Analytical
Laboratories. We have no affiliation with any of the laboratories that performed
these studies but did pay for certain portions of these studies. These analyses
have verified the presence of antioxidants, polyphenols, and phytosterols,
as
well as beneficial macro and trace minerals, in our stabilized rice bran
products. Antioxidants are compounds which scavenge or neutralize damaging
compounds called free radicals. Polyphenols are organic compounds which
potentially act as direct antioxidants. Phytosterols are plant-derived sterol
molecules that help improve immune response to fight certain diseases.
A
57-subject clinical trial conducted by Advanced Medical Research with funding
by
RiceX suggested that consumption of the stabilized rice bran used in our
RiSolubles® and RiceMucil® Nutritional Supplements may lower blood glucose
levels of type 1 and type 2 diabetes mellitus patients and may be beneficial
in
reducing high blood cholesterol and high blood lipid levels. If warranted,
we
may develop products which address the use of stabilized rice bran products
as
medical foods for, and to potentially make health benefit claims relating to,
the effects of dietary rice bran on diabetes and cardiovascular disease.
Through
several consulting physicians, we have relationships with several medical
institutions and practicing physicians who may continue to conduct clinical
trials and beta work for our products. Some of these previous clinical trials
are reviewed in an article published in the March 2002 issue of the Journal
of Nutritional Biochemistry. The trials produced positive results by showing
that the levels of blood lipids and glycosylated hemoglobin were reduced.
Subsequently, six domestic and international patents were issued.
The
W.F.
Young Company, distributors of Absorbine® Equine Pain Relief Products, sponsored
a 50-horse equine clinical trial, which demonstrated the our Absorbine Flex+®
Equine Products to be effective products for treating joint degeneration as
well
as inflammation in horses.
Intellectual
Property
We,
through NTI, filed applications with the U.S. Patent and Trademark Office and
has successfully registered our logo, StaBran®, RiSolubles®, RiceMucil®, and 24
other product names, as registered federal trademarks and service marks. We
also
have an additional 36 trademark and service mark applications in various
stages in the U.S Patent and Trademark Office.
RiceX®
and RiceX Solubles® are RiceX's registered trade names. Mirachol®, Max "E"® and
Max "E" Glo® are RiceX's registered trademarks.
We,
through NTI, filed a non-provisional patent application with 47 claims entitled
"Methods of Treating Joint Inflammation, Pain and Loss of Mobility" on
November 6, 2001. In a December 3, 2002 office action, the U.S. Patent
and Trademark Office allowed 26 and disallowed 21 of the patent's 47 claims.
Subsequently, in February 2004, the 26 claims which were allowed in
December of 2002 were disallowed. In March 2004, we appealed the
disallowance of the 26 claims which were previously allowed. Additionally,
in
October 2003, nine additional preventive claims were added to the patent.
In February 2005, we received a written notification that the U.S. Patent
and Trademark Office had allowed 11 claims and the prosecution of the
application was closed. On June 8, 2005, NutraCea was granted U.S. Patent Number
6,902,739.
We,
through RiceX, have been assigned five U.S. patents relating to the production
or use of Nutraceutical or HVF products. The patents include Patent Number
5,512,287 "PRODUCTION OF BETA-GLUCAN AND BETA-GLUCAN PRODUCT," which issued
on
April 30, 1996; Patent Number 5,985,344 "PROCESS FOR OBTAINING
MICRONUTRIENT ENRICHED RICE BRAN OIL," which issued on Nov. 16, 1999;
Patent Number 6,126,943 "METHOD FOR TREATING HYPERCHOLESTEROLEMIA,
HYPERLIPIDEMIA, AND ATHEROSCLEROSIS," which issued on Oct. 3, 2000; Patent
Number 6,303,586 B1 "SUPPORTIVE THERAPY FOR DIABETES, HYPERGLYCEMIA AND
HYPOGLYCEMIA," which issued on Oct. 15, 2001 and Patent Number 6,350,473 B1
"METHOD FOR TREATING HYPERCHOLESTEROLEMIA, HYPERLIPIDEMIA AND ATHEROSCLEROSIS,"
which issued on Feb. 26, 2002. We plan to apply for additional patents in
the future as new products, treatments and uses are developed.
The
RiceX
Process is an adaptation and refinement of standard food processing technology
applied to the stabilization of rice bran. We has chosen to treat the RiceX
Process as a trade secret and not to pursue process or process equipment patents
on the original processes. However, process improvements will be reviewed for
future patent protection. We believe that the unique products, and their
biological effects, resulting from RiceX's Stabilized Rice Bran are patentable.
We
endeavor to protect our intellectual property rights through patents,
trademarks, trade secrets and other measures. However, there can be no assurance
that we will be able to protect our technology adequately or that competitors
will not develop similar technology. There can be no assurance that any patent
application we may file will be issued or that foreign intellectual property
laws will protect our intellectual property rights. Other companies and
inventors may receive patents that contain claims applicable to our systems
and
processes. The use of our systems covered by such patents could require licenses
that may not be available on acceptable terms, if at all. In addition, there
can
be no assurance that patent applications will result in issued patents.
Although
there currently are no pending claims or lawsuits against us regarding possible
infringement claims, there can be no assurance that infringement claims by
third
parties, or claims for
indemnification
resulting from infringement claims, will not be asserted in the future or that
such assertions, if proven to be true, will not have a material adverse affect
on our financial condition and results of operations. In the future, litigation
may be necessary to enforce our patents, to protect our trade secrets or
know-how or to defend against claimed infringement of the rights of others
and
to determine the scope and validity of the proprietary rights of others. Any
such litigation could result in substantial cost and diversion of our resources,
which could have a material adverse effect on our financial condition and
results of operations. Adverse determinations in such litigation could result
in
the loss of our proprietary rights, subject us to significant liabilities to
third parties, require us to seek licenses from third parties or prevent us
from
manufacturing or selling our systems or products, any of which could have a
material adverse effect on our financial condition and results of operations.
In
addition, there can be no assurance that a license under a third party's
intellectual property rights will be available on reasonable terms, if at all.
Research
and Development Expenditures
During
fiscal years 2004 and 2003, we spent $78,331 and $63,873, respectively, on
product research and development.
Employees
As
of
October 21, 2005, NutraCea had seven full-time employees, two hourly temporary
employees and three independently contracted staff members, and RiceX had a
total of twelve employees, all of whom were full-time employees. From year
to
year RiceX experiences normal variable labor fluctuation at its production
facility in Dillon, Montana.
None
of
our employees are employed pursuant to a collective bargaining or union
agreement, and we consider that our relationship with our employees is good.
Description
of Property
We
sublease our executive offices, warehouse and laboratory, located at 1261 Hawk's
Flight Court, El Dorado Hills, California, from RiceX for a monthly rental
of
$6,366. We have subleased this 10,080 square foot facility, and RiceX has leased
the facility, through September 30, 2006. We believe that this facility
will be adequate for current operations.
RiceX
currently leases a 5,600 square-foot office facility at 1241 Hawk's Flight
Court, El Dorado Hills, California, a 2,000 square-foot office facility at
1901
Conant Avenue, Burly, Idaho and a 17,000
square
foot warehouse facility at 1755 Enterprise Boulevard, West Sacramento,
California. RiceX's subsidiary, RiceX Nutrients, Inc. (formally Food
Extrusion, Montana), owns a 15,700 square-foot production facility in Dillon,
Montana. The lease for the El Dorado Hills facility expires in
September 2006. The lease for the offices in Burley, Idaho expires in
May 2009 and the lease for the West Sacramento, California warehouse
facility is on a month to month basis. RiceX has aggregate annual lease payments
for all of its facilities approximating $109,000, net of sub-lease payment
collections approximating $76,000 per year. We believe that these facilities
are
adequate for current operation and that the properties are adequately covered
by
insurance.
Legal
Proceedings
From
time
to time we are involved in litigation incidental to the conduct of our business.
While the outcome of lawsuits and other proceedings against us cannot be
predicted with certainty, in the opinion of our management, individually or
in
the aggregate, no such lawsuits are expected to have a material effect on our
financial position or results of operations.
BUSINESS
OF THE RICEX COMPANY
RiceX
was
incorporated under Delaware law in May 1998. RiceX succeeded to the
business of its predecessor corporation, Food Extrusion, Inc., a Nevada
Corporation, pursuant to a re-incorporation that was effective upon completion
of the merger of the Nevada corporation with the Delaware corporation on
August 4, 1998. Food Extrusion, Inc, was incorporated in California in
May 1989 and subsequently merged in a stock-for-stock exchange into Core
Iris, a Nevada corporation and subsequently changed its name to Food
Extrusion, Inc. Food Extrusion, Inc. changed its name to The RiceX
Company in May 1998. RiceX Nutrients, Inc. (formally Food Extrusion
Montana, Inc.) was incorporated in Montana in December 1996, as
RiceX's wholly-owned subsidiary. In January 1997, RiceX
Nutrients, Inc. acquired certain assets of Centennial Foods, Inc., an
Idaho corporation in exchange for common stock and the assumption of certain
liabilities, which were paid in full in January 1999.
The
RiceX
Process stabilizes rice bran, which is the portion of the rice kernel that
lies
beneath the hull and over the white rice. Rice bran contains over 60% of the
nutritional value of rice. However, without stabilization, the nutritional
value
of rice bran is lost shortly after the milling process. This is due to the
lipase-induced rancidity caused by the rice milling process. Consequently,
a
rich nutrient resource must either be thrown away or disposed of as low value
animal feed. The RiceX Process deactivates the lipase enzyme and makes the
bran
shelf life stable for a minimum of one year. While other competing processes
have been able to stabilize rice bran for a limited time, the RiceX Process
naturally preserves more of the higher value nutritional and antioxidant
compounds found in rice bran for a significantly longer period of time.
The
RiceX
Process has enabled RiceX to develop a variety of nutritional food products,
including its primary product, RiceX® Stabilized Rice Bran. The RiceX®
Stabilized Rice Bran RiceX produces meets microbiological standards for human
consumption. RiceX's customers include consumer nutrition and healthcare
companies, domestic and international food companies, and companion animal
feed
manufacturers.
Through
RiceX's wholly-owned subsidiary, RiceX Nutrients, Inc., RiceX is engaged in
custom manufacturing of grain based products for food ingredient companies
at
its production facility in Dillon, Montana. RiceX Nutrients, Inc. has
specialized processing equipment and techniques for the treatment of grain
products to cook, convert, isolate, dry and package finished food ingredients
used in the formulation of health food and consumer food finished products.
RiceX Solubles, a highly nutritious, carbohydrate and lipid rich fraction,
is
produced at the Dillon, Montana facility. RiceX believes that these
manufacturing capabilities are unique among grain processors, with custom
processing capabilities suited to numerous food applications.
RiceX
Products
RiceX
produces stabilized, nutrient-rich rice bran that may be used in a wide variety
of new products. RiceX is pursuing the development of proprietary rice bran
products from stabilized rice bran. RiceX's current products include:
RiceX
Stabilized Rice Bran:
|
|
Stable
whole rice bran and germ. This is RiceX's basic stabilized rice bran
product that is both a food supplement and an ingredient for cereals,
baked goods, companion animal feed, health bars, etc., and also the
base
material for producing RiceX Solubles, oils and RiceX Fiber
Complex.
|
RiceX
Stabilized Rice Bran Fine:
|
|
This
is the same product as the RiceX Stabilized Rice Bran, except that
it has
been ground to a particle size that will pass through a 20 mesh screen.
It
is used primarily in baking applications.
|
|
|
|
Dextrinized
Rice Bran:
|
|
A
carbohydrate converted RiceX Stabilized Rice Bran that is more suitably
used in baking and mixed health drink applications. This product
contains
all of the nutrient-rich components of RiceX Stabilized Rice
Bran.
|
|
|
|
RiceX
Solubles:
|
|
A
highly concentrated soluble carbohydrate and lipid rich fraction
component
of RiceX Stabilized Rice Bran with the fiber removed. RiceX Solubles
also
embodies a concentrated form of the vitamins and nutrients found
in RiceX
Stabilized Rice Bran.
|
|
|
|
RiceX
Fiber Complex:
|
|
Nutrient-rich
insoluble fiber source that contains rice bran oil and associated
nutrients. This product, designed for use by the baking and health
food
markets, is the remaining ingredient when RiceX Stabilized Rice Bran
is
processed to form RiceX Solubles.
|
In
addition to the above, further refining RiceX Stabilized Rice Bran into oil
and
its by-products can produce Max RiceX Defatted Fiber and Higher Value Fractions.
Max
"E" Oil:
|
|
Nutrient-rich
oil made from RiceX Stabilized Rice Bran. This oil has a high flash
point,
which provides a very long fry life, and it is not readily absorbed
into
food. In addition, the oil maintains many of the nutritional benefits
of
the whole rice bran products.
|
|
|
|
RiceX
Defatted Fiber:
|
|
Low
fat soluble fiber that does not contain rice bran oil. This is a
product
designed for use by the baking industry for its high fiber nutritional
benefits.
|
|
|
|
Higher
Value Fractions:
|
|
Nutraceutical
like compounds naturally occurring in RiceX Stabilized Rice Bran
and Rice
Bran Oil that provide specific health benefits. Tocopherols, tocotrienols,
and gamma oryzanol are some of the antioxidant-rich fractions that
are
found in rice bran and are enhanced by stabilization, with the gamma
oryzanol being unique to rice.
|
The
Importance of Rice
Rice
is
the staple food for approximately 70% of the world's population, and is the
staple food source for several of the world's largest countries. World rice
production is expected to be more than 500 million metric tons in the
2004-2005 crop year (according to the United States Department of Agriculture),
constituting more than one quarter of all cereal grains produced worldwide.
The
United States accounts for less than 2% of the world's rice production. Ninety
percent (90%) of world rice tonnage is produced in 13 countries with aggregate
populations of 3.2 billion people (according to the USA Rice Federation,
Rice Notes). Approximately 75% of all rice production occurs in China, India,
South East Asia, Africa and South America. Combined, these regions have a
population of 2.3 billion people (nearly 50% of the world's population),
and an average per capita gross domestic product of $2,000 (less than one-tenth
of the U.S. average).
Malnutrition
is a common problem in this group of nations, particularly for people located
in
rural villages where subsistence rice farming is a primary livelihood.
Transportation and storage are poor. Consequently, locally grown rice is
consumed locally and the amount of food available varies widely over time with
changes in seasons and weather. Children are especially susceptible to
variations in local agricultural output due to their heightened nutritional
needs and dependency on others for food. Per capita rice consumption in many
of
the poorer rice belt countries exceeds one pound per day.
Despite
the importance of rice as a worldwide food source and the problems associated
with nutritional deficiencies in rice-dependent nations, more than 60% of the
nutrients found in rice are destroyed during milling. Most of the rice nutrients
are contained in the outer brown layer of the rice kernel known as the bran
layer, which, because of poor stability, becomes inedible due to lipase-induced
rancidity or microbiological spoilage shortly after the milling process.
Rice
Processing and Rice Bran Stabilization
When
harvested from the field, rice is in the form of paddy, or "rough" rice. In
this
form, the rice kernel is fully enveloped by the rice hull. The hull is dried
and
then removed in the first stage of milling, yielding brown rice. In the second
stage of milling, the outer brown layer, or rice bran, is removed to produce
white rice. Rice bran is composed of the rice germ and several sub-layers,
which
accounts for approximately 8% by weight of paddy rice and contain over 60%
of
the nutrients found in each kernel of rice. (See Juliano, B.O., 1985 Rice:
Chemistry and Technology, American Assoc. of Cereal Chemists, St. Paul, MN,
pp.
37-50.)
Under
normal milling conditions, when brown rice is milled into white rice, the oil
in
the bran and a potent lipase enzyme found on the surface of the bran come into
contact with one another. The lipase enzyme causes very rapid hydrolysis of
the
oil, converting it into glycerol, monoglycerides, diglycerides and free fatty
acid, or FFA. As the FFA content increases, the rice bran becomes unsuitable
for
human or animal consumption. At normal room temperature, the FFA level increases
to 5-8% within 24 hours and thereafter increases at the rate of
approximately 4-5% per day. Rice bran is unfit for human consumption at 5%
FFA,
which typically occurs within 24 hours of milling.
When
the
lipase enzyme can be deactivated, rice bran can be stabilized, thus preserving
a
potentially important nutrient source that is largely wasted today. Heat will
deactivate the lipase enzyme, reduce microbiological load and reduce moisture
levels. Although heat serves as the basis for most attempts to stabilize rice
bran, most of the rice bran nutrients are lost in this process. Parboiled,
or
converted rice, is subjected to soaking and steaming prior to being dried and
milled. This process softens the rice kernel and reduces the problem of
lipase-induced hydrolysis. The bran produced from parboiled rice, however,
is
only semi-stabilized, typically spoiling in 20 days or less. The parboiling
process also destroys much of the nutritional value of the bran because many
of
the micro nutrients are water-soluble and are leached out during the parboiling
process. There have been a number of attempts to develop alternative rice bran
stabilization processes that deactivate the lipase enzyme using
chemicals,
microwave heating and variants on extrusion technology. RiceX believes each
of
these efforts results in an inferior product that uses chemicals or does not
remain stable for a commercially reasonable period, or the nutrients in the
bran
are lost thereby significantly reducing the nutritional value in the bran.
The
RiceX Solution
The
RiceX
Process uses proprietary innovations in food extrusion technology to create
a
combination of temperature, pressure and other conditions necessary to
deactivate the lipase enzyme without significantly damaging the structure or
activity of other, higher value compounds, oils and proteins found in the bran.
The RiceX Process does not use chemicals to stabilize raw rice bran, and
produces an "all natural" nutrient-rich product.
RiceX's
processing equipment is designed to be installed on the premises of any
two-stage rice mill and is located downstream from the rice polishers. After
hulling, the rice is transported pneumatically to the rice polishing room where
the brown rice kernels are tumbled and the rice bran is polished from the
surface of each kernel. The bran is separated from the denser polished rice
grain and is transported pneumatically to a loop conveyor system designed by
RiceX. The loop conveyor system immediately carries the fresh, unstabilized
rice
bran to the RiceX stabilization system.
Bran
leaving RiceX's stabilization system is packaged in multi-walled bags or bulk
for transport to RiceX customers. RiceX Bran has a shelf life of at least one
year and is rich in tocopherols, tocotrienols, oryzanols, a complete and
balanced amino acid profile and other nutritional and natural compounds that
exhibit positive health properties.
The
RiceX
Process system is modular. Each stabilization module can process approximately
2,000 pounds of RiceX Bran per hour and has a capacity of over 5,700 tons per
year. Stabilization production capacity can be doubled or tripled by installing
additional units sharing a common conveyor and stage system, which can handle
the output of the world's largest rice mills. RiceX has developed and tested
a
smaller production unit, which has a maximum production capacity of 840 tons
per
year, for installation in countries or locations where rice mills are
substantially smaller than those in the United States.
The
processing conditions created by the RiceX Process are unique. However, the
ancillary equipment used to achieve these processing conditions is in wide
use
throughout the food industry. It is in the stabilizer unit that RiceX's
proprietary technology resides; all of the other processing, material handling,
control, and storage components are off-the-shelf equipment items.
Benefits
of RiceX Stabilized Rice Bran
Rice
bran
is a rich source of protein, oil, vitamins, antioxidants, dietary fiber and
other nutrients. The approximate composition and caloric content of RiceX
Stabilized Rice Bran is as follows:
Fat
|
|
18%-23%
|
Protein
|
|
12%-16%
|
Total
Dietary Fiber
|
|
23%-35%
|
Soluble
Fiber
|
|
2%-6%
|
Moisture
|
|
4%-8%
|
Ash
|
|
7%-10%
|
Calories
|
|
3.2
kcal/gram
|
Rice
bran
is unique in the plant kingdom. Its protein is hypoallergenic and contains
all
of the essential amino acids, the necessary building blocks of protein in the
body. Rice bran contains approximately 20% oil, which closely resembles peanut
oil in fatty acid composition and heat stability. Rice bran oil contains
essential fatty acids and a broad range of nutraceutical compounds that have
been demonstrated to have therapeutic properties. (See Cheruvanky and Raghuram,
1991 Journal of the American College of Nutrition, Vol. 10, No. 4, pp.
593-691.)
Nutraceuticals
are food constituents that have human therapeutic effects. Some of these
compounds include a newly discovered complex of Vitamin E called "tocotrienols,"
and gamma oryzanol, which is only found in rice. These compounds are potent
antioxidants that have been shown to aid in reducing damage from free radicals
in the body. RiceX Bran also contains very high levels of B-complex vitamins,
betacarotene (a vitamin A precursor), other carotenoids and phytosterols, as
well as both soluble and insoluble fiber. (See Saunders, 1990, Rice Bran Oil,
presented at Calorie Control Council Meeting, February 14, 1990,
Washington, D.C.)
Business
Strategy
RiceX's
goal is to become the world's leading producer and distributor of stabilized
rice bran and rice bran based products in the premium consumer food and animal
feed sectors of the marketplace. RiceX produces stabilized rice bran and related
products in manufacturing facilities RiceX owns or through joint venture
arrangements.
RiceX
believes that clinical support for stabilized rice bran products will further
enhance the value of its products as nutraceuticals and functional food
ingredients. Finally, RiceX intends to aggressively market its products in
four
distinct product areas. These areas are nutraceuticals, functional food
ingredients, performance feed and companion pet food supplements, and rice
bran
oils. In further pursuit of this goal, RiceX has focused and will continue
to
focus its marketing and development efforts in developed regions, including
the
U.S., Europe, South Africa, Argentina, Japan, Korea and Taiwan; and in
developing regions, including in Central and South America, India, China,
Indonesia and most of the other countries in Asia and Africa.
Developed
Nations
Developing
Nations
RiceX's
strategic development has been focused on making its nutrient-dense stabilized
rice bran products available to developing countries where nutritional
deficiencies are a major concern, particularly among school-aged children.
RiceX
remains on the cutting edge in developing nations by reducing malnutrition
and
enhancing nutritional growth potential school-aged children. RiceX believes
that
the school nutritional and diet upgrading programs in developing countries
worldwide represent a market opportunity for RiceX in excess of $100 million
per
year. The Food and Agriculture Organization of the United Nations and the
Foreign Agricultural Service of the United States Department of Agriculture
have
targeted over 800 million nutritionally deficient humans for assistance in
the worldwide program titled "American Special Supplemental Food Programs for
Women, Infants and Children."
RiceX's
first international strategic alliance was established in December 2000
with PRODESA and the Christian Children's Fund in Guatemala. Under this
alliance, RiceX supplied nutritionally dense ingredients throughout Guatemala
over a twelve-month period starting in January 2001. As a result, RiceX's
stabilized rice bran product, RiceX Solubles, has been used as a base for
nutritionally enhanced drink for school breakfast and lunch programs to over
67,000 children in rural communities throughout Guatemala. The twelve-month
program in Guatemala was highly successful in reducing malnutrition in school
age children and enhancing their nutritional growth potential. This
proof-of-concept program in Guatemala generated nearly $2,300,000 in revenues
for RiceX for the year ended December 31, 2001. In 2002, El Salvador's
Ministry of Education in San Salvador purchased RiceX's stabilized rice bran
product, RiceX Solubles, for applications in its school nutrition programs
for
El Salvadorian children. The agreement, which follows the similar program of
Guatemala, resulted in revenues of approximately $1,000,000 for the year ended
December 31, 2002. Other similar programs in the region resulted in
receiving payment for RiceX Solubles of approximately $600,000 in
December 2003, and recognizing the revenue during the calendar year 2004.
RiceX
is
in the process of broadening its presence in the international markets. Building
on RiceX's year 2001 successful proof-of-concept program in Guatemala, RiceX
continues to develop and expand international market development activities
in
Central America. RiceX has two program approaches, 1) year-to-year
applications and 2) multi-year self sustaining programs. The year-to-year
applications approach calls for direct sales contracts financed in part through
the United States government's Public Law 416 program. The multi-year self
sustaining strategy will require funding from the USAID programs, philanthropic
contributions and joint participation by the host country government. RiceX
believes that product sales and shipments will continue and expand into Central
American countries during 2005 and beyond.
RiceX
continues to work with major rescue and relief agencies, congressional
supporters and government offices of the USDA and the United States Agency
for
International Development to bring a multi-year program to provide nutritional
drinks to one million children each school day from a RiceX facility located
within the Central American region. RiceX has secured a financing commitment
from Overseas Private Investment Corporation to assist in funding the facility.
However, there can be no assurance that this financial commitment will lead
to
building a facility in the Central American region.
RiceX
also intends to partner with local governments and companies in developing
nations, on a joint venture basis, to stabilize locally grown rice bran for
local consumption and for future export. RiceX plans to introduce its
stabilization process systems in large rice mills located in Central and South
America, China, India and Southeast Asia in the future. In many developing
nations, the average person has a 300-500 calorie daily diet deficit. (See
The
Food and Agriculture Organization of the United Nations (FAO), Agrostat PC,
on
diskette (FAO, Rome, 12993); and the World Resources Institute in collaboration
with the United Nations Environment Programme and the United Nations Development
Programme, World Resources 1994-95 (Oxford University Press; New York, 1994),
p.
108.) If RiceX is able to expand into these areas, the installation of 100
RiceX
processing systems has the capacity to provide up to 500 nutritionally dense
calories per day to over 15 million people each year. The diet supplement
provided by the locally grown and stabilized rice bran would help those people
approach U.S. levels of nutrition.
RiceX
has
had preliminary discussions regarding the demonstration of its system and the
end products for its technology with a number of companies and governments
including countries in Central America, India, China, Argentina, Brazil,
Malaysia and certain African countries. However, there can be no assurance
that
these discussions will lead to implementation of the RiceX Process with these
companies or governments.
Sales
and Marketing
RiceX
has
targeted four distinct product areas in which RiceX Bran and related products
may be used as the primary ingredient. RiceX's key marketing strategy is to
form
strategic alliances with industry leaders in each of its target markets. This
strategy will allow RiceX to leverage the research, marketing and distribution
strengths of its partners in order to more economically and efficiently
introduce and market products. RiceX has formed alliances, or has entered into
negotiations to form alliances, in each of its target markets, which are
nutraceuticals, functional food ingredients, performance feed and companion
pet
food supplements. RiceX continues to develop its rice bran oil marketing
initiatives.
RiceX's
overall marketing plans in each of the target markets are discussed below.
Nutraceuticals
Nutraceuticals
are food-derived substances with pharmaceutical-like properties, including
vitamins and dietary supplements. RiceX Bran can be used as a nutraceutical
to
provide certain specific nutrients or food components (including antioxidants,
oryzanols, Vitamin E, Vitamin B, and bran fiber) or to address specific health
applications such as cardiovascular health, diabetes control, fighting free
radicals and general nutritional supplementation. RiceX has sold RiceX Bran
products as ingredients to consumer nutrition and healthcare companies, national
nutritional retailers, and multi-level personal product marketers. However,
there can be no assurance that such marketing efforts will be successful or
that
any of the proposed products will be developed in a commercially reasonable
time
or at all.
Functional
Food Ingredients
RiceX
Bran is a low cost, all natural food product that contains a unique combination
of oil, protein, carbohydrates, vitamins, minerals, fibers, and antioxidants
that can be used to enhance the nutritional value of popular consumer products.
Foods that are ideally suited for the addition of RiceX Bran to their products
include cereals, snack foods and breads. RiceX is marketing RiceX Bran to
consumer food companies for use in already established products and for
development of new products.
Performance
Feed and Companion Pet Food Supplements
RiceX
also markets RiceX Bran as a feed supplement for animals. RiceX Bran is used
as
an equine feed supplement and has proven to provide greater muscle mass,
improved stamina, and hair-coat luster when added to a normal diet. Show and
performance horses represent the premium end of the equine market and present
a
$12 to $15 million market share opportunity for RiceX's future revenue
growth. During 2003, RiceX launched its own equine supplement label "Max E
Glo".
In 2004, RiceX entered into a distribution agreement with MannaPro, a national
feed distributor. RiceX continued to hold numerous discussions with several
major domestic equine feed manufacturers and distributors. However, there can
be
no assurance that these discussions will be successful.
Rice
Bran Oils
Nutrient-rich
oil made from RiceX Stabilized Rice Bran has a high flash point, which provides
a long fry life and is not readily absorbed into food. The oil also maintains
many of the nutritional benefits of whole rice bran products, making it ideally
suited for healthy salad and cooking oils. RiceX holds a patent on the process
for obtaining micronutrient enriched rice bran oil. There can be no assurance
that any of RiceX's Stabilized Rice Bran Oil marketing efforts will be
successful.
Marketing
Methods
RiceX
has
an Executive Vice President of Sales and Marketing and two domestic sales
representatives. In addition, RiceX has entered into agreements with PRODESA
for
Central America markets, and Kreglinger Europe for the United Kingdom and
Benelux markets, for developing and marketing RiceX Bran products. RiceX also
continues to work to develop additional significant alliances in efforts to
increase its sales volume.
Pursuant
to the Stabilized Rice Bran Processing Sales and Marketing Agreement between
Farmers' Rice Cooperative, or Farmers, a cooperative association organized
under
the California Food and Agriculture Code, and RiceX, dated May 1, 2002,
Farmers has an exclusive license to use RiceX's rice bran processing equipment
for production of stabilized rice bran for sale to a limited number of Farmers
customers.
Customers
RiceX
has
in excess of 125 active customer accounts. For 2004, RiceX's major customers
were Project Concern International, Natural Glo, NutraCea, MannaPro and PGP
International. RiceX depended on these customers for approximately 50% of all
sales revenue during 2004. Loss of any of these customers could have a material
adverse effect on RiceX's business, financial condition and results of
operations.
Supply
and Manufacturing
As
required, RiceX ships RiceX Bran from its facility in California to its plant
in
Dillon, Montana for further processing into RiceX Solubles, Dextrinized Rice
Bran and RiceX Fiber Complex. Current monthly production capacity is
approximately 50 tons of RiceX Solubles, 50 tons of Dextrinized Rice Bran and
50
tons of RiceX Fiber Complex. Additional equipment could more than double
production capacity. RiceX intends to acquire or construct an additional
processing facility when and if the demand for RiceX Solubles, Dextrinized
Rice
Bran and RiceX Fiber Complex justifies expansion.
Every
food product that RiceX manufactures is produced under published FDA and USDA
regulations for "Good Manufacturing Practices." RiceX's General Manager oversees
quality control and quality assurance testing. Product samples for each product
code are analyzed for microbiological adherence to a predetermined set of
product specifications and each lot is released only when it demonstrates its
compliance with specifications.
Competition
RiceX
competes with other companies attempting to stabilize rice bran, as well as
companies producing other food ingredients and nutritional supplements. RiceX
believes that its only significant competitor is Producer's Rice Mill. This
competitor may have greater capital resources than RiceX; however, RiceX believe
that it has more experience in the rice bran industry. However, there can be
no
assurance that RiceX will be able to compete successfully in the rice bran
industry. RiceX believes that its major nutritional supplement competitors
include producers of wheat bran and oat bran, particularly in the functional
food ingredients market segment.
Research
and Development
Rice
bran
contains a wide variety of antioxidants, vitamins and other nutrients associated
with good health and resistance to disease. RiceX has conducted a preliminary
clinical evaluation that indicates RiceX products have efficacy in the
nutritional management of certain conditions and diseases, such as diabetes
mellitus and coronary vascular disease. Data from this study has been analyzed
and the data supports the initiation of clinical trials. RiceX intends to
vigorously conduct these trials and, if successful, will develop foods
containing the active nutraceutical components of RiceX Bran to manufacture
products targeted at specific conditions or suitable for the maintenance
of
general health and well-being. However, there can be no assurance that the
results of additional clinical trials will prove successful or that RiceX
will
be able to develop additional new products.
RiceX’s
expenditures for research and development for the years ended December 31,
2004 and 2003 totaled $224,000 and $226,000, respectively. RiceX expects to
continue research and development expenditures to establish the scientific
basis
for health claims of existing products and to develop new products and
applications.
MANAGEMENT
Our
directors, executive officers and key employees and their ages as of October
21,
2005 are as follows:
Name
|
|
Age
|
|
Position
|
Directors
and Executive Officers:
|
|
|
|
|
Bradley
D. Edson
|
|
46
|
|
Chief
Executive Officer, President and Director
|
Todd
C Crow
|
|
57
|
|
Chief
Financial Officer
|
Ike
E. Lynch
|
|
60
|
|
Chief
Operating Officer
|
Margie
D. Adelman
|
|
45
|
|
Secretary
and Senior Vice President
|
David
Bensol
|
|
50
|
|
Director
|
Eliot
Drell
|
|
51
|
|
Director
|
James
C. Lintzenich
|
|
51
|
|
Director
|
Edward
L. McMillan
|
|
59
|
|
Director
|
Patricia
McPeak
|
|
64
|
|
Director
|
Steven
W. Saunders
|
|
50
|
|
Director
|
Biographical
information for directors and executive officers:
Bradley
D. Edson
,
has
served as our Chief Executive Officer since October 2005 and as our President
and as one of our directors since December 2004. Mr. Edson was formerly the
Chairman and CEO of Vital Living Inc. (OTC BB: VTLV), a company that primarily
developed and marketed nutraceuticals. Prior to Vital Living, Mr. Edson spent
a
decade developing a nationwide insurance agency focused on distribution channels
for specialty products for the retail market. Prior to that, Mr. Edson was
a
former principal and officer of a NASD broker/dealer firm.
Todd
C. Crow
,
has
served as our Chief Financial Officer since October 2005. Mr. Crow has served
as
Vice President of Finance and Chief Financial Officer of The RiceX Company
since
November 1998, and as Secretary of The RiceX Company since January 1999. From
September 1997 to November 1998, Mr. Crow was Controller of The RiceX Company
and from May 1996 to September 1997, he was The RiceX Company’s Chief Financial
Officer. Prior to joining The RiceX Company, Mr. Crow held senior financial
positions with the Morning Star Group, an agri-business holding company, and
Harter, Inc., a food-processing manufacturer.
Ike
E. Lynch
has
served as our Chief Operating Officer since October 2005. Mr. Lynch also
currently serves as Chief Operating Officer of The RiceX Company. From January
1997 to October 2005, Mr. Lynch served as Chief Executive Officer and Vice
President of International Business Development and since January 1997,
President and Chief Operating Officer of RiceX Nutrients, Inc. From 1966 through
1982, Mr. Lynch was employed by the H. J. Heinz Company in various management
roles, culminating with the President and CEO position of the Hubinger Company,
a subsidiary of Heinz. In 1982, Mr. Lynch left Heinz to become President and
CEO
of Dawn Enterprises LLC, specializing in Ethanol production and marketing.
Mr.
Lynch left Dawn Enterprises in 1989 to form Centennial Foods, Incorporated,
where he served as President and Chief Executive Officer until the acquisition
of Centennial Foods by The RiceX Company in 1997.
Margie
D. Adelman
,
was
appointed Senior Vice President in January 2005 and Secretary of NutraCea in
February 2005. From 2000 to 2004 Ms. Adelman owned and operated Adelman
Communications a full service public relations firm based in Boca Raton,
Florida. From 1994 to 2000 Ms. Adelman was President of TransMedia Group, the
largest public relations firm in Florida. Ms. Adelman holds a doctorate in
Naturopathic Medicine from the Clayton School of Natural Medicine.
David
Bensol,
has
served as one of our directors since March 2005. Mr. Bensol currently is a
management consultant. Mr. Bensol was the former CEO of Critical Home Care,
which recently merged with Arcadia Resources, Inc. (OTC BB: ACDI). Mr. Bensol
was the Executive Vice President and Director of Arcadia Resources from May
2004
until his resignation from those positions in December 2004. In 2000, Mr. Bensol
founded what eventually became Critical Home Care, through a series of
acquisitions and mergers. From 1979 to 1999 Mr. Bensol founded several companies
which became successful companies in the areas of home medical equipment
providers, acute care pharmacy providers and specialty support surface
providers. Mr. Bensol became a registered pharmacist in 1979.
Dr.
Eliot Drell
,
has
been on of our directors since February 2004. Dr. Drell has been the Chief
of
Gastroenterology at Mercy Hospital, Folsom, California since 1984. Dr. Drell’s
past medical appointments including acting as a Director of the Endoscopic
unit
at Mercy Hospital of Folsom, California and Marshall Hospital; Chief of Medicine
at Mercy Hospital; Member of the Medical Executive Committee at both Mercy
Hospital and Marshall Hospital; and Assistant Professor at U.C. Davis Medical
Center. Dr. Drell is an active speaker and lecturer for major pharmaceutical
companies.
James
C. Lintzenich
,
has
served as one of our directors since October 2005. Mr. Lintzenich has been
a
director of The RiceX Company since June 2003. Mr. Lintzenich has been a
management consult since April 2001
.
From
August 2000 to April 2001 Mr. Lintzenich served as President and Chief Operating
Officer of SLM Corporation (Sallie Mae), an educational loan institution. From
December 1982 to July 2000, Mr. Lintzenich held various senior management and
financial positions including Chief Executive Officer and Chief Financial
Officer of USA Group, Inc., a guarantor and servicer of educational loans.
Mr.
Lintzenich currently serves on the Board of Directors of the Student Loan
Marketing Association (an SLM Corp subsidiary) and the Lumina Foundation for
Education.
Edward
L. McMillan
,
has
served as one of our directors since October 2005. From January 2000 to
present Mr. McMillan owns and manages McMillan LLC., a transaction
consulting firm which provides strategic consulting services and facilitates
mergers and/or acquisitions predominantly to food and agribusiness industry
sectors. From July 2004 to October 2005, Mr. McMillan was a director of The
RiceX Company. From June 1969 to December 1987 he was with Ralston
Purina, Inc. and Purina Mills, Inc. where he held various senior level
management positions including marketing, strategic planning, business
development, product research, and business segment management. From
January 1988 to March 1996, McMillan was President and CEO of Purina
Mills, Inc. From August 1996 to July 1997, McMillan presented a
graduate seminar at Purdue University. From August 1997 to April 1999
he was with Agri Business Group, Inc. Mr. McMillan currently serves on
the boards of directors of Balchem, Inc. (AMEX:BCP); Durvet, Inc.;
Newco Enterprises, Inc.; CHB LLC.; and Hintzsche, Inc.
Mr. McMillan also serves as Chair of the University of Illinois Research
Park, LLC and the University of Illinois Alumni Association.
Patricia
McPeak
,
founder, has served as one of our directors since December 2001. From December
2001 to October 2005, Ms. McPeak served as our Chief Executive Office and Board
Chairman. She was the founder of NutraStar Technologies Incorporated and was
the
Chief Executive Officer, President and a director of NutraStar Technologies
Incorporated from its formation in February 2000 until the reorganization
transaction with NutraCea. From May 1989 until February 2000 she was the
President and a director of The RiceX Company, which she co-founded. From 1981
to 1989, Ms. McPeak was an executive officer of Brady International, Inc. a
company engaged in providing stabilized rice bran, which she also co-founded.
Ms. McPeak has extensive experience in the field of protein and ingredient
production, having served as an executive in the industry for 25
years.
Steven
W. Saunders
,
has
served as one of our directors since October 2005. He was a director of The
RiceX Company from August 1998 to October 2005. Mr. Saunders has been President
of Saunders Construction, Inc., a commercial construction firm, since February
7, 1991, and President of Warwick Corporation, a business-consulting
firm.
All
directors are elected annually and serve until the next annual meeting of
shareholders or until the election and qualification of their successors. Each
of our directors has served continuously since the date indicated above.
Directors are elected annually at the meeting of the shareholders to serve
a
term of one year or until the next annual meeting of shareholders unless they
die, resign or are removed. The remaining directors, though less than a quorum,
may fill vacancies occurring on the Board of Directors and persons elected
to
fill vacancies serve until the next annual meeting of shareholders unless they
die, resign or are removed. The Board of Directors has not designated a separate
Audit Committee. Drs. Drell and Messrs. Lintzenich, Bensol and McMillan are
considered independent directors according to Rule 4200(a)(15) of the NASD’s
listing standards. The Board of Directors has determined that Mr. Lintzenich
meets the requirements of an audit committee financial expert.
All
executive officers serve at the discretion of our board of directors. There
are
no family relationships between any of our directors or executive officers.
Our
success, if any, will be dependent to a significant extent upon certain key
management employees, including Messrs. Edson, Crow and Lynch and Mesdames
McPeak and Adelman. We have entered into employment agreements with them as
described under caption “Employment Contracts.”
Director
Compensation
NutraCea
provides compensation to its directors for serving in such capacity in the
form
of grants of common stock from our 2003 Stock Compensation Plan. NutraCea
provides 35,000 shares of restricted common stock to each board member, whether
an employee or non-employee, for each year of service on the board plus
reimbursement of expenses.
Common
Stock Grants to Directors in the Year Ended December 31,
2004
Name
|
|
Shares
Acquired
|
|
Value
Realized
|
Patricia
McPeak
|
|
35,000
|
|
$53,200
|
John
Howell *
|
|
35,000
|
|
$53,200
|
Eliot
Drell
|
|
35,000
|
|
$53,200
|
Ernie
Bodai, MD **
|
|
35,000
|
|
$53,200
|
________________
|
*
Mr. Howell resigned as President and Director on July 20,
2004.
|
**
Mr. Bodai resigned as Director on September 28,
2005.
|
Executive
Compensation
The
following Summary Compensation Table shows the aggregate compensation paid
or
accrued by NutraCea during fiscal years 2004, 2003 and 2002 to (i) each person
who served as NutraCea’s Chief Executive Officer during 2004, and (ii) the four
most highly compensated officers other than the Chief Executive Officer who
were
serving as executive officers at the end of 2004 and whose total annual salary
and bonus in such year exceeded $100,000 (of which there was only one such
persons), and (iii) up to two additional individuals for whom disclosures would
have been provided in this table but for the fact that such persons were not
serving as executive officers as of the end of fiscal 2004 (collectively with
the Chief Executive Officer, the “Named Executive Officers”).
|
|
|
|
Summary
Compensation Table
|
|
|
|
|
|
|
|
for
Years Ended December 31, 2004, 2003 and 2002
|
|
|
|
|
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation
|
|
|
|
|
|
|
|
|
|
Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
and
|
|
|
|
|
|
|
|
Other
annual
|
|
Restricted
stock
|
|
Securities
underlying
|
|
All
other
|
|
principal
position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
compensation
|
|
awards
|
|
options
|
|
compensation
|
|
Bradley
Edson,
|
|
|
2004
|
|
$
|
2,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,000,000
|
|
|
125,000
|
(2)
|
Chief
Executive
|
|
|
2003
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Officer(1)
|
|
|
2002
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patricia
McPeak,
|
|
|
2004
|
|
$
|
150,000
|
|
$
|
100,000
|
|
$
|
85,096
|
(5)
|
$
|
53,200
|
|
|
2,000,000
|
|
$
|
8,360,000
|
(3)
|
Chief
Executive
|
|
|
2003
|
|
|
150,000
|
|
|
100,000
|
|
|
12,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Officer(4)
|
|
|
2002
|
|
|
150,000
|
|
|
100,000
|
|
|
12,000
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Howell,
|
|
|
2004
|
|
|
106,412
|
|
|
80,000
|
|
|
4,154
|
|
|
—
|
|
|
—
|
|
|
—
|
|
President(6)
|
|
|
2003
|
|
|
120,000
|
|
|
101,284
|
|
|
6,000
|
|
|
—
|
|
|
1,000,000
|
|
|
—
|
|
|
|
|
2002
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
(1)
|
Mr.
Edson became President of the Registrant on December 17, 2004 and
Chief
Executive Officer of the Registrant on October 4,
2005.
|
(2)
|
Consists
of $125,000 paid as consulting fees prior to Mr. Edson becoming
President.
|
(3)
|
Represents
the market value at time of issuance of 5,500,000 shares of NutraCea
common stock issued to Ms. McPeak for services rendered and stock
reimbursements.
|
(4)
|
Ms.
McPeak resigned as Chief Executive Officer on October 4,
2005.
|
(5)
|
Includes
$73,096 paid by NutraCea to purchase an automobile for Ms.
McPeak.
|
(6)
|
Mr.
Howell resigned from NutraCea on July 20,
2004.
|
Option
Grants in Last Fiscal Year
NutraCea’
Board of Directors adopted the 2003 Stock Compensation Plan, or the 2003 Plan,
on October 31, 2003. Under the terms of the 2003 Plan, NutraCea may grant up
to
10,000,000 warrants, options, restricted common or preferred stock, or
unrestricted common or preferred stock to officers, directors, employees or
consultants providing services to NutraCea on such terms as are determined
by
the NutraCea board of directors. The 2003 Plan provides that the NutraCea board
of directors may also permit officers, directors, employees or consultants
to
have their bonuses and/or consulting fees payable in warrants, restricted common
stock, unrestricted common stock and other awards, or any combination thereof.
In addition, NutraCea has granted options to certain officers, directors and
employees outside of the 2003 Plan.
The
following table summarizes the options granted by NutraCea to its Named
Executive Officers during the year ended December 31, 2004. None of the options
granted to the Named Executive Officers during the year ended December 31,
2004
were granted pursuant to the 2003 Plan.
|
|
Individual
Grants
|
|
Name
|
|
Number
of Securities Underlying Options
Granted
|
|
%
of Total Options
Granted
to
Employees
in Fiscal Year
|
|
Exercise
Price
Per
Share
|
|
Expiration
Date
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
Edson(1)
|
|
|
6,000,000
|
|
|
75%
|
|
|
$0.30
|
|
|
12/17/14
|
|
Patricia
McPeak (2)
|
|
|
2,000,000
|
|
|
25%
|
|
|
$0.30
|
|
|
12/14/14
|
|
John
Howell
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
Consists
of a warrant to purchase 6,000,000 shares of NutraCea common stock.
This
warrant is fully vested and
exercisable.
|
|
(2)
|
Consists
of a warrant to purchase 2,000,000 shares of NutraCea common stock.
This
warrant is fully vested and
exercisable.
|
Aggregated
Option/SAR Exercises In Last Fiscal Year and Fiscal Year End Option/SAR
Values
The
following table sets forth information regarding options and warrants to
purchase NutraCea common stock held by the Named Executive Officers as of
December 31, 2004.
|
|
Shares
Acquired
|
|
Value
|
|
Number
of Securities Underlying Unexercised Options at
12/31/04
|
|
Value
of Unexercised In-the-Money Options at 12/31/04
(1)
|
|
Name
|
|
on
Exercise
|
|
Realized
|
|
Exercisable
|
|
Unexercisable
|
|
Exercisable
|
|
Unexercisable
|
|
Bradley
Edson
|
|
|
—
|
|
|
—
|
|
|
6,000,000
|
|
|
—
|
|
$
|
780,000
|
|
|
—
|
|
Patricia
McPeak
|
|
|
—
|
|
|
—
|
|
|
2,002,306
|
|
|
576
|
|
$
|
260,000
|
|
|
—
|
|
John
Howell
|
|
|
500,000
|
|
$
|
454,500
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Employment
Agreements
On
December 17, 2004, NutraCea entered into an employment agreement that expires
December 31, 2007 with its current President and Chief Executive Officer,
Bradley D. Edson, pursuant to which NutraCea is to pay Mr. Edson a base salary
of $50,000 in year one; a base salary of $150,000 in year two; and a base salary
of $250,000 in year three. The agreement also provides that Mr. Edson is
entitled to an annual incentive bonus based upon performance and to be provided
a car allowance of $600 per month. The incentive bonus is payable annually
within 10 days of the completion of NutraCea’s annual independent audit. The
bonus is one percent of NutraCea’s “Gross Sales over $25,000,000,” but only if
NutraCea reports a positive EBITDA for the period. The bonus amount is limited
to a maximum of $750,000 in any calendar year. In addition, Mr. Edson was issued
warrants to purchase 6,000,000 shares of NutraCea’s common stock at an exercise
price of $0.30 per share. The warrants are immediately exercisable and expire
ten years from the date of issuance.
On
January 25, 2005, NutraCea entered into a three year employment agreement with
Margie D. Adelman, NutraCea’s Senior Vice President and Secretary, pursuant to
which NutraCea is to pay Ms. Adelman a base salary of $150,000 per year. The
agreement also provides that Ms. Adelman is entitled to a one-time initial
bonus
of $25,000 and will be eligible for future incentive bonuses based solely on
the
discretion of NutraCea’s Chief Executive Officer or President and the approval
of NutraCea’s Compensation Committee. Ms. Adelman was issued a warrant to
purchase 1,000,000 shares of NutraCea’s common stock at an exercise price of
$0.30 per share, 500,000 shares of which vested upon signing and 500,000 shares
of which will vest on January 25, 2006, subject to forfeiture under certain
terms and conditions. In addition, Ms Adelman was issued warrants to purchase
1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 that
will vest upon the achievement of NutraCea obtaining “Gross Sales over
$25,000,000” and NutraCea reporting a positive EBITDA for the period. All
warrants expire ten years from the date of issuance.
In
September 2005, we entered into a First Amendment to employment agreement with
Todd C. Crow, pursuant to which we assumed the employment agreement between
Mr.
Crow and The RiceX Company. The employment agreement, as amended, provides
that
Mr. Crow will serve as
Chief
Financial Officer of NutraCea and the RiceX Company. Mr. Crow’s employment
agreement, as amended, provides that Mr. Crow will receive an annual base
salary of $150,000, which salary will be reviewed annually and be adjusted
to
compensate for cost of living adjustments in the Sacramento metropolitan area.
The agreement terminates on October 4, 2008. The term will be automatically
extended for an additional one-year term unless either party delivers notice
of
election not to extend the employment at least 90 days prior to the
expiration of the initial term. Mr. Crow's employment may be terminated
prior to the expiration of the agreement by the mutual written agreement of
the
parties or in the event of Mr. Crow's disability. For the purposes of the
employment agreement, "disability" means Mr. Crow's inability, due to
physical or mental impairment, to perform his duties and obligations, despite
reasonable accommodation by us, for a period exceeding three months.
Mr. Crow's employment may also terminated in the event of his death, notice
by us of termination for cause (as defined in the agreement), or written notice
by us of termination without cause, upon fourteen (14) days notice.
Mr. Crow is entitled to compensation for early termination. If
Mr. Crow is terminated without cause, we will pay to Mr. Crow, as
liquidated damages and in lieu of any and all other claims which Mr. Crow
may have against us, the amount equal to Mr. Crow's monthly base salary
multiplied by the number of months remaining in the term of this agreement,
or a
payment amount equal to one year of Mr. Crow's base salary, whichever is
greater. If Mr. Crow is terminated as the result of a change in control
transaction (as defined in the employment agreement, as amended) and Mr. Crow
is
not employed in the same capacity or being paid the same base salary as he
was
employed with us, then Mr. Crow will receive a severance payment equal to two
(2) years of Mr. Crow’s Base Salary, or the balance remaining to be paid under
the terms of the agreement, whichever is greater.
In
September 2005, we entered into a First Amendment to employment agreement with
Ike E. Lynch, pursuant to which we assumed the employment agreement between
Mr.
Lynch and The RiceX Company. The employment agreement, as amended, provides
that
Mr. Lynch will serve as Chief Operating Officer of NutraCea, The RiceX
Company and RiceX Nutrients, Inc., a subsidiary of The RiceX Company. The
employment agreement, as amended, provides that Mr. Lynch will receive an
annual base salary of $150,000, which salary will be reviewed annually and
be
adjusted to compensate for cost of living adjustments in the Sacramento
metropolitan area. The agreement terminates on October 4, 2008. The term will
be
automatically extended for an additional one-year term unless either party
delivers notice of election not to extend the employment at least 90 days
prior to the expiration of the initial term. Mr. Lynch's employment may be
terminated prior to the expiration of the agreement by the mutual written
agreement of the parties or in the event of Mr. Lynch's disability. For the
purposes of the employment agreement, "disability" means Mr. Lynch's
inability, due to physical or mental impairment, to perform his duties and
obligations, despite reasonable accommodation by us, for a period exceeding
three months. Mr. Lynch's employment may also terminated in the event of
his death, notice by us of termination for cause (as defined in the agreement),
or written notice by us of termination without cause, upon fourteen
(14) days notice. Mr. Lynch is entitled to compensation for early
termination. If Mr. Lynch is terminated without cause, we will pay to
Mr. Lynch, as liquidated damages and in lieu of any and all other claims
which Mr. Lynch may have against us, the amount equal to Mr. Lynch's
monthly base salary multiplied by the number of months remaining in the term
of
this agreement, or a payment amount equal to one year of Mr. Lynch's base
salary, whichever is greater. If Mr. Lynch is terminated as the result of a
change in control transaction (as defined in the employment agreement, as
amended) and Mr. Lynch is not employed in the same capacity or being paid the
same base salary as he was employed with us, then Mr. Lynch will receive a
severance payment equal to one hundred eighty thousand dollars
($180,000).
On
December 10, 2004, Patricia McPeak entered into an employment agreement with
us.
The employment agreement has a term of three years and provides that Ms.
McPeak
will be paid a base salary of $150,000 per year for the first two years of
the
term and $250,000 for the third year of the term. The agreement also provides
that Ms. McPeak is entitled to an annual incentive bonus based upon performance.
The incentive bonus is payable annually within 10 days of the completion
of
NutraCea’s annual independent audit. The bonus is one percent of our “Gross
Sales over $25,000,000,” but only if we report a positive EBITDA for the period.
The bonus amount is limited to a maximum of $750,000 in any calendar year.
In
addition, we issued to Ms. McPeak a warrant to purchase 2,000,000 shares
of our
common stock at an exercise price of $0.30 per share. The warrant is immediately
exercisable and expires ten years from the date of issuance.
Limitation
of Liability and Indemnification Matters
NutraCea’s
Articles of Incorporation provide that it will indemnify its officers and
directors, employees and agents and former officers, directors, employees and
agents unless their conduct is finally adjudged as involving intentional
misconduct, fraud or a knowing violation of the law and were material to the
cause of action. This indemnification includes expenses (including attorneys’
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by these individuals in connection with such action, suit, or
proceeding, including any appeal thereof, subject to the qualifications
contained in California law as it now exists. Expenses (including attorneys’
fees) incurred in defending a civil or criminal action, suit, or proceeding
will
be paid by NutraCea in advance of the final disposition of such action, suit,
or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer, employee or agent to repay such amount, unless it shall ultimately
be
determined that he or she is entitled to be indemnified by NutraCea as
authorized in the Articles of Incorporation. This indemnification will continue
as to a person who has ceased to be a director, officer, employee or agent,
and
will benefit their heirs, executors, and administrators. These indemnification
rights are not deemed exclusive of any other rights to which any such person
may
otherwise be entitled apart from the Articles of Incorporation. California
law
generally provides that a corporation shall have the power to indemnify persons
if they acted in good faith in a manner reasonably believed to be in, or not
opposed to, the best interests of NutraCea and, with respect to any criminal
action or proceeding, had no reasonable cause to believe the conduct was
unlawful. In the event any such person is judged liable for negligence or
misconduct, this indemnification will apply only if approved by the court in
which the action was pending. Any other indemnification shall be made only
after
the determination by NutraCea’s board of directors (excluding any directors who
were party to such action), by independent legal counsel in a written opinion,
or by a majority vote of shareholders (excluding any shareholders who were
parties to such action) to provide such indemnification.
NutraCea
carries Officers and Directors insurance. The aggregate limit of liability
for
the policy period (inclusive of costs of defense) is $3,000,000. The policy
period ends on October 1, 2006.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of NutraCea pursuant
to
the foregoing provisions, or otherwise, NutraCea has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed
in
the Securities Act and is, therefore, unenforceable.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Loans
from Officer and Related Parties
At
December 31, 2002, NutraCea owed Ms. Patricia McPeak, then Chief Executive
Officer of NutraCea, $175,800 on a demand note payable bearing interest at
10%.
NutraCea executed an additional demand note payable in the amount of $20,422,
bearing interest at 10%, to her during 2003. Additionally, Ms. McPeak made
short-term advances to NutraCea amounting to $210,000 during 2003. All of this
debt was repaid prior to December 31, 2003. Cash payments retired $258,335
of
the debt, while $147,887 was retired by conversion to 344,956 shares of common
stock.
In
November 2004 the Board of Directors resolved to purchase a new automobile
from
Patricia McPeak in exchange for her waiving a monthly car allowance provided
in
her employment agreement. At December 31, 2004, NutraCea booked the purchase
price of this automobile ($73,096) as a payable to a related party.
Private
Placement Transaction
In
October 2005, we sold approximately 7,850 shares of our Series B preferred
stock
at a price of $1,000.00 per share, and warrants to purchase an aggregate of
7,850,000 shares of our common stock with an exercise price of $0.70 per share,
to a small number of sophisticated investors in a private placement
transactions. Our Series B preferred stock can be converted to shares of our
common stock at a conversion rate of 2,000 shares of common stock for each
share
of Series B preferred Stock. Gross proceeds from the offering were approximately
$7.85 million. The investors included Leonardo, L.P., funds related to Pequot
Capital Management, Inc., The Pinnacle Fund, L.P., funds related to Enable
Partners, and funds related to Xerion Partners, which purchased 2,500, 1,750,
1,000, 750 and 700 shares of Series B preferred stock, respectively. Information
concerning the beneficial ownership of our securities by such persons is set
forth below under the heading “Security Ownership of Certain Beneficial Owners
and Management.”
The
following table sets forth certain information regarding beneficial ownership
of
our common stock and Series B preferred stock as of October 21, 2005, by (i)
each person or entity who is known by us to own beneficially more than 5% of
the
outstanding shares of that class of our stock, (ii) each of our directors,
(iii)
each of the Named Executive Officers, and (iv) all directors and executive
officers as a group. We have authorized Series A preferred stock, but none
of
these shares are outstanding.
The
table
is based on information provided to us or filed with the Securities and Exchange
Commission (“SEC”) by our directors, executive officers and principal
shareholders. Beneficial ownership is determined in accordance with the rules
of
the SEC, and includes voting and investment power with respect to shares. Shares
of common stock issuable upon conversion of Series B Preferred Stock or issuable
upon exercise of options and warrants that are currently exercisable or are
exercisable within 60 days after October 21, 2005, are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for computing the percentage
of any other shareholder in the first four columns. The shares of common stock
issuable upon conversion of Series B Preferred Stock are deemed outstanding
for
the purposes of computing the percentage ownership of all persons in the last
two columns. Unless otherwise indicated, the address for each shareholder listed
in the following table is c/o NutraCea, 1261 Hawk’s Flight Court, El Dorado
Hills, CA 95762.
|
|
Shares
of Common Stock
Beneficially
Owned
|
|
Shares
of Series B
Preferred
Stock Beneficially Owned
|
|
Shares
of Common Stock
Beneficially
Owned
(Assuming
Preferred
Stock
Conversion)
|
|
Name
and Address of Beneficial Owner
|
|
Number
(1)
|
|
Percentage
(1)
|
|
Number
(2)
|
|
Percentage
(2)
|
|
Number
(3)
|
|
Percentage
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patricia
McPeak(4)
|
|
|
14,043,557
|
|
|
19.86
|
%
|
|
-
|
|
|
*
|
%
|
|
14,043,557
|
|
|
17.02
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonardo,
L.P.(5)
245
Park Avenue, 26
th
Floor
New
York, NY 10167
|
|
|
7,500,000
|
|
|
10.09
|
|
|
2,500
|
|
|
31.95
|
|
|
7,500,000
|
|
|
9.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bradley
D. Edson(6)
|
|
|
6,115,000
|
|
|
8.40
|
|
|
-
|
|
|
*
|
|
|
6,115,000
|
|
|
7.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monsanto(7)
800
N. Lindbergh
St.
Louis, MO 63167
|
|
|
5,498,818
|
|
|
8.23
|
|
|
-
|
|
|
*
|
|
|
5,498,818
|
|
|
6.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
related to Pequot Capital Management, Inc.(8)
500
Myala Farm Road
Westport,
CT 06880
|
|
|
5,250,000
|
|
|
7.29
|
|
|
1,750
|
|
|
22.29
|
|
|
5,250,000
|
|
|
6.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
Pinnacle Fund, L.P.(9)
|
|
|
3,000,000
|
|
|
4.30
|
|
|
1,000
|
|
|
12.74
|
|
|
3,000,000
|
|
|
3.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
C. Lintzenich(10)
|
|
|
2,883,019
|
|
|
4.22
|
|
|
-
|
|
|
*
|
|
|
2,883,019
|
|
|
3.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds
related to Enable Partners(11)
One
Ferry Building, Suite 255
San
Francisco, CA 94111
|
|
|
2,250,000
|
|
|
3.26
|
|
|
750
|
|
|
9.55
|
|
|
2,250,000
|
|
|
2.73
|
|
Funds
related to Xerion Partners Equity(12)
|
|
|
2,100,000
|
|
|
3.05
|
|
|
700
|
|
|
8.92
|
|
|
2,100,000
|
|
|
2.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven
W. Saunders(13)
|
|
|
1,028,788
|
|
|
1.53
|
|
|
-
|
|
|
*
|
|
|
1,028,788
|
|
|
1.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eliot
Drell(14)
|
|
|
946,655
|
|
|
1.41
|
|
|
-
|
|
|
*
|
|
|
946,655
|
|
|
1.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Howell(15)
|
|
|
790,000
|
|
|
1.18
|
|
|
-
|
|
|
*
|
|
|
790,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Edward
L. McMillan(16)
|
|
|
158,538
|
|
|
*
|
|
|
-
|
|
|
*
|
|
|
158,538
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David
Bensol
|
|
|
35,000
|
|
|
*
|
|
|
-
|
|
|
*
|
|
|
35,000
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (10
persons)(17)
|
|
|
28,727,466
|
|
|
35.11
|
|
|
|
|
|
|
|
|
28,727,466
|
|
|
28.58
|
|
(1)
|
Applicable
percentage of ownership is based on 66,815,055 shares of our common
stock
outstanding as of October 21, 2005, together with applicable options
and
warrants for such shareholder exercisable within 60 days of October
21,
2005.
|
(2)
|
Applicable
percentage of ownership is based on 7,850 shares of Series B preferred
stock outstanding as of October 21, 2005.
|
(3)
|
Applicable
percentage of ownership is based on 66,815,055 shares of our capital
stock
outstanding as of October 21, 2005, 15,700,000 shares of our capital
stock
issuable upon conversion of all of the Series B Convertible Preferred
Stock outstanding as of October 21, 2005, together with applicable
options
or warrants for such shareholder exercisable within 60 days of
October 21,
2005.
|
(4)
|
Includes
8,687,202 shares of common stock and 2,002,882 shares issuable
upon
the exercies of options and warrants. Also includes
1,311,899
shares owned and 1,887,975 shares issuable upon exercise of options
held
by reporting person’s spouse. Also includes 153,598 shares held by a trust
controlled by the reporting person and her spouse. The reporting
person
disclaims beneficial ownership with regard to all shares owned
by her
spouse.
|
(5)
|
Includes
2,500,000 shares issuable upon exercise of warrants and 5,000,000
shares
issuable upon conversion of Series B Convertible Preferred Stock.
Leonardo Capital Management Inc. ("LCMI") is the sole general partner
of
Leonardo, L.P. Andelo, Gordon & Co., L.P. ("Angelo, Gordon") is the
sole director of LCMI. John M. Angelo and Michael L. Gordon are
the
principal executive officers of Angelo, Gordon. Each of Angelo,
Gordon and Messers. Angelo and Gordon disclaim beneficial ownership
of the
shares held by Leonardo, L.P.
|
(6)
|
Includes
6,000,000 shares issuable upon exercise of
warrants.
|
(7)
|
The
natural person who has voting and dispositive power for the shares
held by
the reporting person is Charles
Burson.
|
(8)
|
Shares
beneficially owned by Pequot Capital Management, Inc. represent Shares
of
common stock underlying Series B convertible preferred, of which
2,062,000
shares are held of record by Pequot Scout Fund, L.P. and 1,438,000
shares
are held of record by Pequot Mariner Master Fund L.P.. In addition,
represents shares of common stock underlying warrants immediately
exercisable of which 1,031,000 shares are held of record by Pequot
Scout
Fund L.P. and 719,000 shares are held of record by Pequot Mariner
Master
Fund, L.P. Pequot Capital Management, Inc, which is the Investment
Manager/Advisor to the above named funds exercises sole dispositive,
investment and voting power for all the shares. Arthur J. Samberg
is the
sole shareholder of Pequot Capital Management, Inc. and disclaims
beneficial ownership of the shares except for his pecuniary
interest.
|
(9)
|
Shares
beneficially owned by The Pinnacle Fund, L.P. represent 2,000,000
shares
of common stock underlying Series B convertible preferred stock
and
1,000,000 shares of common stock underlying warrants immediately
exercisable. Pinnacle Advisers, L.P., which is the investment
advisor and
general partner of The Pinnacle Fund, L.P., has sole dispositive,
investment and voting power for all the shares. Pinnacle Fund
Management,
L.L.C is the general partner of Pinnacle Advisors, L.P. Barry
M. Kitt is
the sole member of Pinnacle Fund Management, L.L.C. and disclaims
beneficial ownership of the shares except for his pecuniary interest.
The
address for The Pinnacle Fund, L.P. is 4965 Preston Park Blvd.,
Suite 240,
Plano, Texas 75093.
|
(10)
|
Includes
1,396,411 shares and an additional 1,371,411 shares issuable upon
exercise
of a warrant held b
y
Intermark Group Holdings, LLC of which the filing person is the
owner.
Also includes 115,197 shares issuable upon exercise of options
held by the
reporting person.
|
(11)
|
Shares
beneficially owned by Enable Partners represent shares of common
stock
underlying Series B convertible preferred stock, of which 1,200,000
shares
are held of record by Enable Growth Partners LP and 300,000 shares
are
held of record by Enable Opportunity Partners LP. In addition,
represents
shares of common stock underlying warrants immediately exercisable
of
which 600,000 shares are hold of record by Enable Growth Partners
LP and
150,000 shares are held of record by Enable Opportunity Partners
LP. The
natural person who has voting and dispositive power for the shares
held by
both funds named above is Mitch Levine, who is Managing Partner
of both
funds. Mr. Levine disclaims beneficial ownership of the shares
except for
his pecuniary interest.
|
(12)
|
Shares
beneficially owned by Xerion Partners Equity represent shares of
common
stock underlying Series B convertible preferred stock, of which
700,000
shares are held of record by Xerion Partners I LLC and 700,000
shares are
held of record by Xerion Partners II Master Fund Limited. In addition,
represents shares of common stock underlying warrants immediately
exercisable of which 350,000 shares are held of record by Xerion
Partners
I LLC and 350,000 shares are hold of record by Xerion Partners
II Master
Fund Limited. The natural persons who have voting and dispositive
power
for the shares held by Xerion Partners I LLC are S. Donald Sussman
and
Daniel J. Arbess. Messrs. Sussman and Arbess disclaim beneficial
ownership
of the shares except for their pecuniary interests. The natural
person who
has voting and dispositive power for the shares held by Xerion
Partners II
Master Fund Limited is Daniel J. Arbess. Mr. Arbess disclaims beneficial
ownership of the shares except for his pecuniary interest. The
address for
Xerion Partners I LLC is Two American Lane, Greenwich, Connecticut
06836.
The address for Xerion Partners II Master Fund Limited is 450 Park
Avenue,
New York, New York 10022.
|
(13)
|
Includes
394,396 shares issuable upon exercise of
options.
|
(14)
|
Includes
252,141 shares issuable upon exercise of options and warrants.
Also
includes 304,282 shares owned and 164,987 shares issuable under
options or
warrants exercisable by Drell-Pecha Partnership of which the
reporting
person is a partner.
|
(15)
|
The
reporting person resigned as the Chief Executive Officer of NutraCea
on
July 20, 2004. Share holdings are as of December 31, 2004.
|
(16)
|
Includes
140,798 shares issuable upon exercise of options and
warrants.
|
(17)
|
Includes
an aggregate of 15,497,077 shares issuable upon exercise of options
and
warrants.
|
DESCRIPTION
OF SECURITIES
Our
authorized capital stock consists of 200,000,000 shares of common stock, no
par
value, and 20,000,000 shares of Preferred Stock, no par value, of which
3,000,000 shares are designated Series A Preferred Stock and 25,000 shares
are
designated Series B Preferred Stock. As of October 21, 2005, there were
66,891,667 shares of common stock outstanding, no shares of Series A Preferred
Stock outstanding and 7,850 shares of Series B Preferred Stock outstanding.
Common
Stock
Holders
of NutraCea common stock are entitled to receive ratably dividends when, as,
and
if declared by NutraCea’s board of directors out of funds legally available
therefor. Upon the liquidation, dissolution, or winding up of NutraCea, the
holders of the common stock are entitled to receive ratably the net assets
of
NutraCea available after the payment of all debts and other liabilities and
subject to the prior rights of outstanding NutraCea preferred shares, if any.
However, there are no assurances that upon any such liquidation or dissolution,
there will be any net assets to distribute to the holders of NutraCea common
stock.
The
holders of NutraCea common stock are entitled to one vote for each share held
on
all matters submitted to a vote of NutraCea shareholders. Under certain
circumstances, California law permits the holders of NutraCea common stock
to
cumulate their votes for the election of directors, in which case holders of
less than a majority of the outstanding shares of NutraCea common stock could
elect one or more of NutraCea’s directors. Holders of NutraCea common stock have
no preemptive, subscription, or redemption rights. The outstanding shares of
NutraCea common stock are fully paid and nonassessable. The rights and
privileges of holders of NutraCea common stock are subject to, and may be
adversely affected by, the rights of holders of shares of NutraCea preferred
stock that NutraCea may designate and issue in the future.
Preferred
Stock
NutraCea’s
board of directors is authorized to issue preferred stock in one or more series
and to fix the rights, preferences, privileges, qualifications, limitations
and
restrictions thereof, including dividend rights and rates, conversion rights,
voting rights, terms of redemption, redemption prices, liquidation preferences
and the number of shares constituting any series or the designation of such
series, without any vote or action by NutraCea’s shareholders. Any preferred
stock to be issued could rank prior to the NutraCea common stock with respect
to
dividend rights and rights on liquidation. NutraCea’s board of directors,
without shareholder approval, may issue preferred stock with voting and
conversion rights which could adversely affect the voting power of holders
of
NutraCea common stock and discourage, delay or prevent a change in control
of
NutraCea.
Series
A Preferred Stock
We
have
authorized a total of 3,000,000 shares of Series A Preferred Stock. No shares
of
Series A Preferred Stock are outstanding.
Series
B Preferred Stock
We
have
authorized a total of 25,000 shares of Series B preferred stock, 7,850 of which
are issued and outstanding.
Voting
Series
B
preferred stock shall not be entitled to vote unless required by law or unless
we take certain actions, which actions will require the affirmative vote of
the
holders of a majority of the outstanding shares of Series B preferred stock.
These actions include, among other things, amending our Certificate of
Determination, Rights and Privileges of Series B preferred stock, authorizing
or
creating any capital stock senior to, or on parity with, the Series B preferred
stock, altering the powers, preferences or rights of the Series B preferred
stock, issuing additional shares of Series B preferred stock and incurring
certain debt.
Conversion
Each
share of Series B preferred stock is convertible into the number of shares
of
our common stock equal to $1,000.00 divided by the conversion price, which
is
currently $0.50. The conversion price is subject to anti-dilution protection
if
we issue our common stock at prices less than the then current conversion price
and for stock splits, stock dividends and other similar transactions.
Liquidation
Preference
Upon
occurrence of (1) our liquidation, (2) a merger or consolidation involving
us
where our existing shareholders do not retain more than 50% of the voting power
in us, (3) a sale of all or substantially all of our assets or (4) a tender
offer or other business combination involving us where our existing shareholders
do not retain more than 50% of the voting power in us, each share of Series
B
preferred stock will be entitled to receive in preference to holders of our
common stock an amount equal to $1,000, plus any accrued but unpaid dividends,
if any. After receiving this preference, the holders of Series B preferred
stock
will not be entitled to any further distribution of our assets.
Transfer
Agent
American
Stock Transfer & Trust Company, New York, New York, serves as transfer agent
for the shares of common stock.
The
table
below lists the selling shareholders and other information regarding the
beneficial ownership of the common stock by each of the selling shareholders.
The first column lists the name of each selling shareholder. The second column
lists the number of shares of common stock beneficially owned by each selling
shareholder as of October 21, 2005. The third column lists the number of shares
of common stock that may be resold under this prospectus. The fourth and fifth
columns list the number of shares of common stock owned and the percentage
of
common stock owned after the resale of the common stock registered under this
prospectus. The total number of shares of our common stock outstanding as of
October 21, 2005 was 66,891,667. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission, and
includes voting and investment power with respect to such shares. Shares of
common stock issuable upon conversion of preferred stock and shares of common
stock subject to options or warrants that are currently exercisable or
exercisable within 60 days after October 21, 2005 are deemed to be beneficially
owned by the person holding such options for the purpose of computing the
percentage ownership of such person but are not treated as outstanding for
the
purpose of computing the percentage ownership of any other shareholder.
|
|
Common Shares
Beneficially Owned
|
|
Common Shares
Offered
by this
|
|
Common Shares
Beneficially
Owned
After
Offering
|
|
Name
of Selling Shareholder
|
|
Prior
to Offering
|
|
Prospectus
|
|
Number
|
|
Percentage
|
|
|
|
_____________________
|
|
|
|
|
|
|
|
Leonardo,
L.P.
|
|
|
7,500,000
|
|
|
7,500,000
|
|
|
—
|
|
|
|
*
|
Pequot
Capital Management, Inc.
|
|
|
5,250,000
|
|
|
5,250,000
|
|
|
—
|
|
|
|
*
|
The
Pinnacle Fund, L.P.
|
|
|
3,000,000
|
|
|
3,000,000
|
|
|
—
|
|
|
|
*
|
Enable
Growth Partners, L.P.
|
|
|
1,800,000
|
|
|
1,800,000
|
|
|
—
|
|
|
|
*
|
SDS
Capital Group SPC, Ltd.
|
|
|
1,500,000
|
|
|
1,500,000
|
|
|
—
|
|
|
|
*
|
Xerion
Partners II Master Fund Limited
|
|
|
1,050,000
|
|
|
1,050,000
|
|
|
—
|
|
|
|
*
|
Xerion
Partners I LLC
|
|
|
1,050,000
|
|
|
1,050,000
|
|
|
—
|
|
|
|
*
|
Richard
Gonda
|
|
|
1,000,000
|
|
|
1,000,000
|
|
|
—
|
|
|
|
*
|
Nite
Capital, L.P.
|
|
|
900,000
|
|
|
900,000
|
|
|
—
|
|
|
|
*
|
Halpern
Capital, Inc.
|
|
|
879,200
|
|
|
879,200
|
|
|
—
|
|
|
|
*
|
Baruch
Halpern & Shoshana Halpern WROS
|
|
|
859,900
|
|
|
859,900
|
|
|
—
|
|
|
|
*
|
SMJ
Partners, Inc.
|
|
|
800,000
|
|
|
800,000
|
|
|
—
|
|
|
|
*
|
Steven
Lee
|
|
|
1,001,123
|
|
|
500,000
|
|
|
501,123
|
|
|
|
*
|
SRB
Greenway Capital (QP), L.P.
|
|
|
486,000
|
|
|
486,000
|
|
|
—
|
|
|
|
*
|
Broadlawn
Master Fund, Ltd.
|
|
|
450,000
|
|
|
450,000
|
|
|
—
|
|
|
|
*
|
Enable
Opportunity Partners, L.P.
|
|
|
450,000
|
|
|
450,000
|
|
|
—
|
|
|
|
*
|
Craig
& Susan Musick
|
|
|
1,202,851
|
|
|
400,000
|
|
|
802,851
|
|
|
1.2
|
|
Presidio
Partners
|
|
|
382,500
|
|
|
382,500
|
|
|
—
|
|
|
|
*
|
Geary
Partners
|
|
|
284,250
|
|
|
284,250
|
|
|
—
|
|
|
|
*
|
Danny
Lowell
|
|
|
152,180
|
|
|
132,180
|
|
|
20,000
|
|
|
|
*
|
David
Kolb
|
|
|
109,900
|
|
|
109,900
|
|
|
—
|
|
|
|
*
|
Elaine
Johnson
|
|
|
200,693
|
|
|
100,000
|
|
|
100,693
|
|
|
|
*
|
Ronnie
Kinsey
|
|
|
200,693
|
|
|
100,000
|
|
|
100,693
|
|
|
|
*
|
Edwin
Bindseil
|
|
|
100,000
|
|
|
100,000
|
|
|
—
|
|
|
|
*
|
Gary
Loomis
|
|
|
198,489
|
|
|
85,500
|
|
|
112,989
|
|
|
|
*
|
Brady
Retirement Fund
|
|
|
83,250
|
|
|
83,250
|
|
|
—
|
|
|
|
*
|
SRB
Greenway Capital, L.P.
|
|
|
66,000
|
|
|
66,000
|
|
|
—
|
|
|
|
*
|
Laurence
Smith
|
|
|
110,108
|
|
|
55,000
|
|
|
55,108
|
|
|
|
*
|
SRB
Greenway Offshore Operating Fund, L.P.
|
|
|
48,000
|
|
|
48,000
|
|
|
—
|
|
|
|
*
|
William
Suhs
|
|
|
80,079
|
|
|
40,000
|
|
|
40,079
|
|
|
|
*
|
Mark
Gladden
|
|
|
75,064
|
|
|
25,000
|
|
|
50,064
|
|
|
|
*
|
*
|
Represents
holdings of less than one percent
|
PLAN
OF DISTRIBUTION
Each
of
the selling shareholders, and any of their donees, pledgees, transferees or
other successors-in-interest selling shares of common stock or interests in
shares of common stock received after the date of this prospectus from a selling
shareholder as a gift, pledge, partnership distribution or other transfer,
may,
from time to time, sell, transfer or otherwise dispose of any or all of their
shares of common stock or interests in shares of common stock on any stock
exchange, market or trading facility on which the shares are traded or in
private transactions. These dispositions may be at fixed prices, at prevailing
market prices at the time of sale, at prices related to the prevailing market
price, at varying prices determined at the time of sale, or at negotiated
prices. A selling shareholder will act independently of NutraCea in making
decisions with respect to the timing, manner and size of each sale.
Each
of
the selling shareholders may use any one or more of the following methods when
selling shares:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales entered into after the date of this
prospectus;
|
|
·
|
broker-dealers
may agree with the selling shareholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of
sale;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
or
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling shareholders may also sell shares under Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"), if available, rather than under
this prospectus.
Broker-dealers
engaged by the selling shareholders may arrange for other brokers-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling shareholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. Each
selling shareholder does not expect these commissions and discounts relating
to
its sales of shares to exceed what is customary in the types of transactions
involved.
In
connection with the sale of our common stock or interests therein, the selling
shareholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
shareholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
shareholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or
more
derivative securities which require the delivery to such broker-dealer or
other
financial institution of shares offered by this prospectus, which shares
such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
selling shareholders and any broker-dealers or agents that are involved in
selling the shares may be deemed to be “underwriters” within the meaning of the
Securities Act in connection with such sales. In such event, any commissions
received by such broker-dealers or agents and any profit on the resale of the
shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. Discounts, concessions, commissions and
similar selling expenses, if any, that can be attributed to the sale of
securities will be paid by the selling shareholders and/or the purchasers.
Each
selling shareholder has informed NutraCea that it does not have any agreement
or
understanding, directly or indirectly, with any person to distribute the common
stock.
NutraCea
is required to pay certain fees and expenses incurred by it incident to the
registration of the shares. NutraCea has agreed to indemnify the selling
shareholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
Because
selling shareholders may be deemed to be “underwriters” within the meaning of
the Securities Act, they will be subject to the prospectus delivery requirements
of the Securities Act. In addition, any securities covered by this prospectus
which qualify for sale pursuant to Rule 144 under the Securities Act may be
sold
under Rule 144 rather than under this prospectus. Each selling shareholder
has
advised us that they have not entered into any agreements, understandings or
arrangements with any underwriter or broker-dealer regarding the sale of the
shares. There is no underwriter or coordinating broker acting in connection
with
the proposed sale of the shares by the selling shareholders.
We
agreed
to keep this prospectus effective until the earlier of (i) October 4, 2008,
(ii)
the date on which the shares may be resold by the selling shareholders pursuant
to Rule 144(k) under the Securities Act or any other rule of similar effect
or
(iii) all of the shares have been sold pursuant to the prospectus or Rule 144
under the Securities Act or any other rule of similar effect. The resale shares
will be sold only through registered or licensed brokers or dealers if required
under applicable state securities laws. In addition, in certain states, the
resale shares may not be sold unless they have been registered or qualified
for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Securities Exchange Act of 1934,
as
amended (the "Exchange Act"), any person engaged in the distribution of the
shares may not simultaneously engage in market making activities with respect
to
our common stock for a period of two business days prior to the commencement
of
the distribution. In addition, the selling shareholders will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including Regulation M, which may limit the timing of purchases
and
sales of shares of our common stock by the selling shareholders or any other
person. We will make copies of this prospectus available to the selling
shareholders and have informed them of the need to deliver a copy of this
prospectus to each purchaser at or prior to the time of the sale.
LEGAL
MATTERS
Weintraub
Genshlea Chediak Law Corporation will pass upon legal matters in connection
with
the validity of the shares of common stock offered hereby for us.
EXPERTS
The
consolidated financial statements of NutraCea as of December 31, 2004, and
for
each of the years in the two-year period ended December 31, 2004, have been
included in the prospectus in reliance upon the report of Malone & Bailey,
PC, independent auditor, appearing elsewhere herein, and upon the authority
of
said firm as experts in accounting and auditing.
The
consolidated financial statements of The RiceX Company as of December 31, 2004,
and for the year ended December 31, 2004, have been included in the
prospectus in reliance upon the report of Perry-Smith LLP, independent auditor,
appearing elsewhere herein, and upon the authority of said firm as experts
in
accounting and auditing.
The
consolidated financial statements of The RiceX Company as of December 31, 2003,
and for the year then ended, have been included in the prospectus in
reliance upon the report of Moss Adams LLP, independent registered public
accounting firm, appearing elsewhere herein, and upon the authority of said
firm
as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
file
annual, quarterly and special reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy any reports,
statements or other information filed by us at the SEC’s public reference room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the public reference room. Our filings
with the SEC are also available to the public from commercial document retrieval
services and at the SEC’s web site at “http://www.sec.gov.”
This
prospectus is part of a registration statement we have filed with the SEC
relating to the securities that may be offered by the selling shareholders.
As
permitted by SEC rules, this prospectus does not contain all of the information
we have included in the registration statement and the accompanying exhibits
and
schedules we file with the SEC. You may refer to the registration statement,
the
exhibits and schedules for more information about our securities and us. The
registration statement, exhibits and schedules are available at the SEC’s Public
Reference Room.
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
NutraCea
and Subsidiaries
|
|
Page
|
|
|
|
Annual
Financial Statements
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
|
|
Consolidated
Balance Sheet as of December 31, 2004
|
|
F-2
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2004 and
2003
|
|
F-3
|
|
|
|
|
|
Consolidated
Statements of Comprehensive Losses for the years ended December 31,
2004
and 2003
|
|
F-4
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity as of December 31,
2004 and
2003
|
|
F-5
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2004 and
2003
|
|
F-8
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-9
|
|
|
|
|
Interim
Financial Statements
|
|
|
|
Consolidated
Balance Sheet as of September 30, 2005 (Unaudited)
|
|
F-28
|
|
|
|
|
|
Consolidated
Statements of Operations for the nine and three months ended
September 30, 2005 and 2004 (Unaudited)
|
|
F-29
|
|
|
|
|
|
Consolidated
Statements of Comprehensive Losses for the nine and three months
ended
September 30, 2005 and 2004 (Unaudited)
|
|
F-30
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the nine months ended September 30, 2005
and 2004 (Unaudited)
|
|
F-31
|
|
|
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
|
F-32
|
|
|
|
|
The
RiceX Company and Subsidiaries
|
|
|
|
|
|
Annual
Financial Statements
|
|
|
|
Reports
of Independent Registered Public Accounting Firms
|
|
F-41
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2004 and 2003
|
|
F-43
|
|
|
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2004 and
2003
|
|
F-44
|
|
|
|
|
|
Consolidated
Statement of Shareholders' Equity as of December 31, 2004 and
2003
|
|
F-45
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2004 and
2003
|
|
F-46
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-47
|
|
|
|
|
Interim
Financial Statements
|
|
|
|
Consolidated
Balance Sheet as of September 30, 2005 (Unaudited)
|
|
F-57
|
|
|
|
|
|
Consolidated
Statements of Operations for the nine and three months ended September
30, 2005 and 2004 (Unaudited)
|
|
F-58
|
|
|
|
|
|
Consolidated
Statements of Cash Flows for the nine months ended September 30, 2005
and 2004 (Unaudited)
|
|
F-59
|
|
|
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
|
F-60
|
REPORT
OF
INDEPENDENT REGISTERED
PUBLIC
ACCOUNTING FIRM
Board
of
Directors
NutraCea
and subsidiaries
El
Dorado
Hills, California
We
have
audited the accompanying consolidated balance sheet of NutraCea as of December
31, 2004, and the related statements of operations, changes in stockholders’
deficit, and cash flow for each of the two years then ended. These financial
statements are the responsibility of NutraCea’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on
our
audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of NutraCea as of December
31,
2004, and the results of its operations and its cash flows for each of the
two
years then ended, in conformity with accounting principles generally accepted
in
the United States of America.
MALONE
& BAILEY, PC
www.malone-bailey.com
Houston,
Texas
February
14, 2005
NUTRACEA
AND SUBSIDIARIES
Consolidated
Balance Sheet
December
31, 2004
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash
|
|
$
|
1,928,281
|
|
Marketable
securities
|
|
|
183,801
|
|
Accounts
receivable
|
|
|
7,681
|
|
Inventory
|
|
|
304,064
|
|
Prepaid
expenses
|
|
|
30,755
|
|
Total
current assets
|
|
|
2,454,582
|
|
|
|
|
|
|
Restricted
marketable securities
|
|
|
183,801
|
|
Property
and equipment
,
net
|
|
|
119,650
|
|
Patents
and trademarks
,
net
|
|
|
329,851
|
|
Goodwill
|
|
|
250,001
|
|
|
|
|
|
|
Total
assets
|
|
$
|
3,337,885
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts
payable
|
|
$
|
261,073
|
|
Accrued
expenses
|
|
|
180,049
|
|
Due
to related parties
|
|
|
73,978
|
|
Notes
payable
|
|
|
1,635,174
|
|
Convertible,
mandatorily redeemable series A preferred stock, no par value, $1
stated
value 20,000,000 shares authorized 0 shares issued and
outstanding
|
|
|
20,473
|
|
Total
current liabilities
|
|
|
2,170,747
|
|
Commitments
and contingencies
|
|
|
|
|
Shareholders'
equity
|
|
|
|
|
Common
stock, no par value 100,000,000 shares authorized 36,130,544shares
issued
and outstanding
|
|
|
48,123,282
|
|
Deferred
compensation
|
|
|
(15,954
|
)
|
Accumulated
deficit
|
|
|
(44,927,792
|
)
|
Accumulated
other comprehensive income, unrealized loss on marketable
securities
|
|
|
(2,012,398
|
)
|
Total
shareholders' equity
|
|
|
1,167,138
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$
|
3,337,885
|
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Operations
|
|
For
the years ended
December
31
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
Net
product sales
|
|
$
|
1,009,729
|
|
$
|
1,536,153
|
|
Licensing
fees
|
|
|
214,500
|
|
|
-
|
|
Total
revenues
|
|
|
1,224,229
|
|
|
1,536,153
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
600,129
|
|
|
845,668
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
624,100
|
|
|
690,485
|
|
|
|
|
|
|
|
|
|
Operating
Expense
|
|
|
|
|
|
|
|
Sales,
general and administrative expense
|
|
|
11,621,288
|
|
|
6,926,689
|
|
Research
and development expense
|
|
|
126,212
|
|
|
224,760
|
|
Professional
fees
|
|
|
12,389,905
|
|
|
1,667,253
|
|
Depreciation
and amortization expense
|
|
|
38,057
|
|
|
98,787
|
|
Operating
expenses
|
|
|
24,175,462
|
|
|
8,917,489
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(23,551,362
|
)
|
|
(8,227,004
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
Interest
income
|
|
|
4,497
|
|
|
2
|
|
Interest
expense
|
|
|
(27,602
|
)
|
|
(4,310,796
|
)
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(23,105
|
)
|
|
(4,310,794
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(23,574,467
|
)
|
|
(12,537,798
|
)
|
|
|
|
|
|
|
|
|
Cumulative
preferred dividends
|
|
|
8,373
|
|
|
124,411
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$
|
(23,582,840
|
)
|
$
|
(12,662,209
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss available to common shareholders per
share
|
|
$
|
(1.18
|
)
|
$
|
(2.07
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted-average shares outstanding
|
|
|
19,905,965
|
|
|
6,106,548
|
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
|
|
For
the years ended December 31
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(23,574,467
|
)
|
$
|
(12,537,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
Unrealized
loss on marketable securities
|
|
|
(2,012,398
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
$
|
(25,586,865
|
)
|
$
|
(12,537,798
|
)
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders’ Equity
For
the Years Ended December 31, 2004 and 2003
|
|
Convertible,
Redeemable
|
|
|
|
Committed
|
|
Deferred
|
|
Other
Com-
|
|
|
|
|
|
|
|
Series
A Preferred Stock
|
|
Common
Stock
|
|
Common
|
|
Compen-
|
|
prehensive
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Stock
|
|
sation
|
|
Loss
|
|
Deficit
|
|
Total
|
|
Balance,
December 31, 2002
|
|
|
2,144,707
|
|
$
|
2,060,931
|
|
|
2,375,807
|
|
$
|
5,861,702
|
|
$
|
571,674
|
|
$
|
(873,273
|
)
|
$
|
-
|
|
$
|
(8,682,746
|
)
|
$
|
(3,122,643
|
)
|
Preferred
stock issued for accrued interest
|
|
|
200,000
|
|
|
8,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock dividend
|
|
|
|
|
|
124,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(124,411
|
)
|
|
(124,411
|
)
|
Preferred
stock converted to common stock
|
|
|
(1,674,707
|
)
|
|
(1,633,453
|
)
|
|
254,323
|
|
|
1,651,860
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,651,860
|
|
Preferred
dividends converted to common stock
|
|
|
|
|
|
(208,450
|
)
|
|
278,766
|
|
|
190,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190,043
|
|
Common
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
committed stock
|
|
|
|
|
|
|
|
|
145,917
|
|
|
571,674
|
|
|
(571,674
|
)
|
|
|
|
|
|
|
|
|
|
|
__
|
|
for
cash
|
|
|
|
|
|
|
|
|
134,048
|
|
|
111,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,500
|
|
for
services rendered
|
|
|
|
|
|
|
|
|
28,688
|
|
|
29,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,795
|
|
for
deferred salaries
|
|
|
|
|
|
|
|
|
475,555
|
|
|
416,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
416,899
|
|
for
accounts payable
|
|
|
|
|
|
|
|
|
80,114
|
|
|
62,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,724
|
|
for
convertible notes payable
|
|
|
|
|
|
|
|
|
3,431,251
|
|
|
823,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
823,119
|
|
for
loan collateral
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
costs
|
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,000
|
)
|
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,114
|
|
|
|
|
|
|
|
|
140,114
|
|
Reversal
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
(243,605
|
)
|
|
|
|
|
243,605
|
|
|
|
|
|
|
|
|
__
|
|
Stock
options exercised for cash
|
|
|
|
|
|
|
|
|
4,519,373
|
|
|
427,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
427,575
|
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders’ Equity (Continued)
For
the Years Ended December 31, 2004 and 2003
Stock
options issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in
lieu of deferred salaries
|
|
|
|
|
|
|
|
|
|
|
|
150,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150,465
|
|
for
services rendered
|
|
|
|
|
|
|
|
|
|
|
|
1,274,584
|
|
|
|
|
|
(109,000
|
)
|
|
|
|
|
|
|
|
1,165,584
|
|
for
accounts payable
|
|
|
|
|
|
|
|
|
|
|
|
40,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,527
|
|
for
convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
183,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
183,855
|
|
Beneficial
conversion feature for convertible debt
|
|
|
|
|
|
|
|
|
|
|
|
99,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,516
|
|
Stock
options cancelled
|
|
|
|
|
|
|
|
|
|
|
|
(476,362
|
)
|
|
|
|
|
476,362
|
|
|
|
|
|
|
|
|
__
|
|
Modification
of options and warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
non-employees
|
|
|
|
|
|
|
|
|
|
|
|
9,507,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,507,253
|
|
employees
|
|
|
|
|
|
|
|
|
|
|
|
303,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
303,750
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,537,798
|
)
|
|
(12,537,798
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
670,000
|
|
$
|
351,790
|
|
|
11,773,842
|
|
$
|
20,979,874
|
|
$
|
-
|
|
$
|
(122,192
|
)
|
$
|
-
|
|
$
|
(21,344,955
|
)
|
$
|
(487,273
|
)
|
Preferred
stock dividend
|
|
|
|
|
|
8,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,373
|
)
|
|
(8,373
|
)
|
Preferred
stock dividend paid
|
|
|
|
|
|
(48,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock repurchased
|
|
|
(130,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock converted to common stock
|
|
|
(540,000
|
)
|
|
(348,351
|
)
|
|
630,000
|
|
|
348,351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348,351
|
|
Preferred
dividends converted to common stock
|
|
|
|
|
|
(5,986
|
)
|
|
5,759
|
|
|
5,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,986
|
|
Common
stock issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
marketable securities
|
|
|
|
|
|
|
|
|
7,000,000
|
|
|
2,380,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,380,000
|
|
for
services rendered
|
|
|
|
|
|
|
|
|
4,407,950
|
|
|
3,470,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,470,100
|
|
for
patent incentive plan
|
|
|
|
|
|
|
|
|
180,000
|
|
|
239,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
239,100
|
|
for
accounts payable
|
|
|
|
|
|
|
|
|
168,626
|
|
|
57,944
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,944
|
|
for
settlements
|
|
|
|
|
|
|
|
|
5,780,000
|
|
|
8,837,816
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,837,816
|
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Changes in Stockholders’ Equity (Continued)
For
the Years Ended December 31, 2004 and 2003
Amortization
of deferred compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,648
|
|
|
|
|
|
|
|
|
57,648
|
|
Reversal
of stock options
|
|
|
|
|
|
|
|
|
|
|
|
(48,590
|
)
|
|
|
|
|
48,590
|
|
|
|
|
|
|
|
|
-
|
|
Common
stock cancelled
|
|
|
|
|
|
|
|
|
(50,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
Stock
options exercised for cash
|
|
|
|
|
|
|
|
|
6,579,323
|
|
|
2,776,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,776,468
|
|
Stock
options issued
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
services rendered
|
|
|
|
|
|
|
|
|
|
|
|
8,582,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,582,516
|
|
for
notes payable
|
|
|
|
|
|
|
|
|
|
|
|
786,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
786,370
|
|
Reclass
of options to preferred stock
|
|
|
|
|
|
62,651
|
|
|
|
|
|
(62,651
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62,651
|
)
|
Common
stock repurchased
|
|
|
|
|
|
|
|
|
(344,956
|
)
|
|
(230,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(230,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,012,398
|
)
|
|
|
|
|
(2,012,398
|
)
|
Net
loss
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(23,574,467
|
)
|
|
(23,574,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
-
|
|
$
|
20,473
|
|
|
36,130,544
|
|
$
|
48,123,284
|
|
$
|
-
|
|
$
|
(15,954
|
)
|
$
|
(2,012,398
|
)
|
$
|
(44,927,795
|
)
|
$
|
1,167,137
|
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
|
|
For
the Year Ended
December
31,
|
|
|
|
2004
|
|
2003
|
|
Cash
flows from operating activities
|
|
|
|
|
|
Net
loss
|
|
$
|
(23,574,467
|
)
|
$
|
(12,537,798
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
Accretion
of warrants used as a debt discount
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
38,057
|
|
|
238,900
|
|
Non-cash
issuances of preferred stock
|
|
|
(354,337
|
)
|
|
-
|
|
Non-cash
issuances of common stock
|
|
|
15,339,296
|
|
|
29,795
|
|
Non-cash
issuances of stock options & warrants
|
|
|
9,306,234
|
|
|
1,349,439
|
|
Beneficial
conversion feature
|
|
|
-
|
|
|
99,516
|
|
Modifications
of options and warrants, non-employees
|
|
|
62,651
|
|
|
9,507,253
|
|
Modifications
of options and warrants, employees
|
|
|
(48,590
|
)
|
|
303,750
|
|
(Increase)
decrease in
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
22,772
|
|
|
(23,180
|
)
|
Inventory
|
|
|
(233,170
|
)
|
|
(28,199
|
)
|
Prepaid
expenses
|
|
|
(15,898
|
)
|
|
12,323
|
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
Advances
from related parties
|
|
|
55,590
|
|
|
(8,206
|
)
|
Accounts
payable
|
|
|
(43,280
|
)
|
|
(231,061
|
)
|
Accrued
salaries and benefits
|
|
|
7,287
|
|
|
19,149
|
|
Deferred
compensation
|
|
|
106,238
|
|
|
289,244
|
|
Accrued
expenses
|
|
|
(51,058
|
)
|
|
(53,107
|
)
|
Customer
deposits
|
|
|
-
|
|
|
57,170
|
|
Net
cash provided (used) in operating activities
|
|
|
617,325
|
|
|
(975,012
|
)
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Purchase
of marketable securities
|
|
|
(2,380,000
|
)
|
|
-
|
|
Purchase
of property and equipment
|
|
|
(117,421
|
)
|
|
(20,075
|
)
|
Purchase
of patents and trademarks
|
|
|
(295,284
|
)
|
|
(17,770
|
)
|
Net
cash used in investing activities
|
|
|
(2,792,705
|
)
|
|
(37,845
|
)
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from notes payable, net
|
|
|
1,635,174
|
|
|
544,000
|
|
Proceeds
from notes payable-related parties
|
|
|
-
|
|
|
320,422
|
|
Principal
payments on notes payable
|
|
|
-
|
|
|
(60,000
|
)
|
Principal
payments on notes payable-related parties
|
|
|
-
|
|
|
(258,335
|
)
|
Payment
of preferred dividends
|
|
|
(48,004
|
)
|
|
|
|
Repurchase
of preferred stock
|
|
|
(130,000
|
)
|
|
|
|
Repurchase
of common stock
|
|
|
(230,000
|
)
|
|
|
|
Proceeds
from the issuance of common stock, net
|
|
|
|
|
|
104,500
|
|
Proceeds
from exercise of stock options
|
|
|
2,776,468
|
|
|
427,575
|
|
Net
cash provided by financing activities
|
|
|
4,003,638
|
|
|
1,078,162
|
|
Net
increase (decrease) in cash
|
|
|
1,828,258
|
|
|
65,305
|
|
Cash,
beginning of year
|
|
|
100,023
|
|
|
34,718
|
|
Cash,
end of year
|
|
$
|
1,928,281
|
|
$
|
100,023
|
|
Cash
paid for interest
|
|
$
|
1,391
|
|
$
|
21,631
|
|
Cash
paid for income taxes
|
|
$
|
-
|
|
$
|
-
|
|
Non-cash
disclosure:
|
|
|
|
|
|
|
|
Purchase
of Langley PLC Shares with common stock
|
|
$
|
2,380,000
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these financials
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
NOTE
1 - ORGANIZATION AND LINE OF BUSINESS
General
NutraCea
was originally incorporated on February 4, 2000 in California as NutraStar
Technologies Incorporated. On December 14, 2001, NutraStar Technologies
Incorporated (“NTI”) effected a reorganization with the inactive publicly-held
company, Alliance Consumer International, Inc., and the name was changed to
NutraStar Incorporated. The name was changed again to NutraCea on October 1,
2003.
NutraCea
is a relatively new health science company focused on the development and
distribution of products based upon the use of stabilized rice bran and
proprietary rice bran formulations. Rice bran is the outer layer of brown rice
which until recently was a wasted by-product of the commercial rice industry.
These products include food supplements and medical foods which provide health
benefits for humans and animals (known as "nutraceuticals") as well as cosmetics
and beauty aids based on stabilized rice bran, rice bran derivatives and the
rice bran oils.
On
April
27, 2000, NTI formed NutraGlo Incorporated ("NutraGlo"), a Nevada corporation,
which was owned 80% by NTI and 20% by NaturalGlo Investors L.P. During 2001,
NutraGlo started marketing, manufacturing and distributing one of NutraCea's
products to the equine market. In 2002, NutraCea issued 250,001 shares of its
common stock to NaturalGlo Investors L.P. in exchange for the remaining 20%
of
the common stock of NutraGlo. The value of the shares was $250,001. As a result,
NutraGlo is now a wholly owned subsidiary of NTI.
For
internal reporting purposes, management segregates NutraCea into two segments:
(1) NutraCea, including the transactions of TheraFoods®, ProCeuticals®, and
NutraBeauticals®, and (2) NutraGlo.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
-
The
consolidated financial statements include the accounts of NutraCea and its
wholly owned subsidiaries, NutraCea Technologies Incorporated and
NutraGlo®
(collectively,
the "Company"). All significant inter-company accounts and transactions are
eliminated in consolidation.
Revenue
Recognition
-
Revenue
is generally recognized upon shipment of product with a provision for estimated
returns and allowances recorded at that time, if applicable. Commission revenue
is generally recognized when earned and collection is reasonably assured.
Licensing revenue is recognized when earned and collection is reasonably
assured.
Accounts
Receivable
-The
Company provides for the possible inability to collect accounts receivable
by
recording an allowance for doubtful accounts. As of December 31, 2004, there
were no uncollectible accounts.
Marketable
Securities
-Marketable
securities are marked to market at each period end. Any unrealized gains and
losses on the marketable securities are excluded from operating results and
are
recorded as a component of Other comprehensive income (loss). If declines in
value are deemed other than temporary, losses are reflected in Net income
(loss).
Inventory
-Inventory
is stated at the lower of cost (first-in, first-out) or market and consists
of
nutraceutical products manufactured by an affiliated company, RiceX, which
the
Company enhances for final distribution to its customers. While the Company
has
an inventory of these products, which contain ingredients supplied by RiceX,
any
significant prolonged shortage of these ingredients or of the supplies used
to
enhance these ingredients could materially adversely affect the Company's
results of operations.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
Property
and Equipment
-Property
and equipment are stated at cost. The Company provides for depreciation using
the straight-line method over the estimated useful lives as
follows:
Furniture
and equipment
|
5-7
years
|
Automobile
|
5
years
|
Software
|
3
years
|
Leasehold
Improvements
|
2.4
years
|
Expenditures
for maintenance and repairs are charged to operations as incurred while renewals
and betterments are capitalized. Gains or losses on the sale of property and
equipment are reflected in the statements of operations.
Patents
and Trademarks
-The
Company has exclusive licenses for several patents, which were acquired from
independent third parties and a related party. All costs associated with the
patents are capitalized. Patents acquired from related parties are recorded
at
the carryover basis of the transferor. The Company paid cash as consideration
for all patents and trademarks acquired, except the Via-Bran registered
trademark, which was acquired for 21,409 shares of common stock valued at
$21,409.
Amortization
is computed on the straight-line method based on estimated useful lives of
17 to
20 years. The Company also has registered trademarks, which are amortized over
estimated useful lives of 10 years.
The
Company recorded a loss reserve totaling $75,359 as of December 31, 2002 related
to the impairment of certain patents.
Deferred
Compensation
-Deferred
compensation at December 31, 2004 represents the intrinsic value of options
previously issued to employees that have not been vested.
Fair
Value of Financial Instruments
-For
certain of the Company’s financial instruments, including cash, accounts
receivable, inventory, prepaid expenses, accounts payable, accrued salaries
and
benefits, deferred compensation, accrued expenses, customer deposits, due to
related party, notes payable - related party, and note payable the carrying
amounts approximate fair value due to their short maturities.
Stock-Based
Compensation
-Compensation
is recorded for stock-based compensation grants based on the excess of the
estimated fair value of the common stock on the measurement date over the
exercise price. Additionally, for stock-based compensation grants to
consultants, NutraCea recognizes as compensation expense the fair value of
such
grants as calculated pursuant to SFAS No. 123, recognized over the related
service period. SFAS No. 148 requires companies to disclose pro forma results
of
the estimated effect on net income and earnings per share to reflect application
of the fair value recognition provision of SFAS No. 123.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
|
|
For
the years ended December 31,
|
|
|
|
2004
|
|
2003
|
|
Net
loss available to common shareholders:
|
|
|
|
|
|
As
reported:
|
|
$
|
(23,582,840
|
)
|
$
|
(12,662,209
|
)
|
Pro
forma:
|
|
$
|
(25,955,080
|
)
|
$
|
(12,754,495
|
)
|
Basic
loss per common share:
|
|
|
|
|
|
|
|
As
reported:
|
|
$
|
(1.18
|
)
|
$
|
(2.07
|
)
|
Pro
forma:
|
|
$
|
(1.31
|
)
|
$
|
(2.09
|
)
|
Advertising
Expense-
The
Company expenses all advertising costs, including direct response advertising,
as they are incurred. Advertising expense for 2004 and 2003 was $22,074 and
$21,959, respectively.
Income
Taxes-
The
Company accounts for income taxes under the liability method, which requires
the
recognition of deferred tax assets and liabilities for the expected future
tax
consequences of events that have been included in the financial statements
or
tax returns. Under this method, deferred income taxes are recognized for
the tax
consequences in future years of differences between the tax bases of assets
and
liabilities and their financial reporting amounts at each period end based
on
enacted tax laws and statutory tax rates applicable to the periods in which
the
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.
Loss
Per Share-
Basic
loss per share is computed by dividing loss available to common shareholders
by
the weighted-average number of common shares outstanding. Diluted loss per
share
is computed similar to basic loss per share except that the denominator is
increased to include the number of additional common shares that would have
been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive. As such, basic and diluted
loss
per share is the same.
Estimates-
The
preparation of financial statements 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 revenue and expenses during the reporting
period. Actual results could differ from those estimates.
Concentrations
of Credit Risk-
On
May 1,
2001, the Company entered into a three-year, exclusive distribution agreement
with a customer, in which the customer is required to purchase a minimum
of
90,000 pounds of the Company's product on or before July 1, 2001, 120,000
pounds
before September 1, 2002, 275,000 pounds between September 1, 2002 and August
31, 2003, and 350,000 pounds between September 1, 2003 and August 31, 2004.
During 2004, sales to this customer totaled $600,976 (59% of total sales).
During 2003, sales to this customer totaled $1,247,086 (81% of total sales).
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
Recently
Issued Accounting Pronouncements-
SFAS
No.
150, “Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity” establishes standards for how an issuer classifies and
measures in its statement of financial position certain financial instruments
with characteristics of both liabilities and equity. In accordance with the
standard, financial instruments that embody obligations for the issuer are
required to be classified as liabilities. SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003 and otherwise
will be effective at the beginning of the first interim period beginning
after
June 15, 2003. Having adopted of SFAS No. 150 in 2003, NutraCea has reclassified
its preferred dividends as a current liability.
In
December 2004, the FASB issued SFAS No. 123R, “Accounting for Stock-Based
Compensation” SFAS No. 123R establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods
or
services. This Statement focuses primarily on accounting for transactions
in
which an entity obtains employee services in share-based payment transactions.
SFAS No. 123R requires that the fair value of such equity instruments be
recognized as expense in the historical financial statements as services
are
performed. Prior to SFAS No. 123R, only certain pro forma disclosures of
fair
value were required. SFAS No. 123R shall be effective for small business
issuers
as of the beginning of the first interim or annual reporting period that
begins
after December 15, 2005. The impact of the adoption of this new accounting
pronouncement would be similar to the Company’s calculation of the pro forma
impact on net income of SFAS 123 included above.
NOTE
3 - MARKETABLE SECURITIES
On
September 8, 2004 NutraCea purchased 1,272,026 shares of Langley Park Investment
Trust, PLC, a United Kingdom closed-end mutual fund that is actively traded
on a
London exchange. Per the Stock Purchase Agreement, NutraCea paid with 7,000,000
shares of its own common stock.
Per
the
Agreement, NutraCea may sell 636,013 shares of Langley at any time, and the
remaining 636,013 shares of Langley and the 7,000,000 shares of NutraCea
are
escrowed for a 2-year period. At the end of the period, Langley’s NutraCea
shares are measured for any loss in market value and if so, NutraCea must
give
up that pro-rata portion of its Langley shares up to the escrowed 636,013
shares.
As
of
December 31, 2004 the NutraCea shares had not lost any value. However, the
Langley shares are marked down to their fair market value of $367,602, with
one-half or $183,801 shown as a current asset because they may be sold at
any
time, and the other one-half shown as long-term because they are held in
escrow
pending the 2-year review of NutraCea’s stock valuation.
NOTE
4 - PROPERTY AND EQUIPMENT
Property
and equipment at December 31, 2004 consisted of the following:
Furniture
and equipment
|
|
$
|
62,007
|
|
Automobile
|
|
|
73,096
|
|
Software
|
|
|
286,047
|
|
Leasehold
improvements
|
|
|
13,870
|
|
|
|
|
|
|
Subtotal
|
|
$
|
435,020
|
|
|
|
|
|
|
Less
accumulated depreciation
|
|
|
(315,370
|
)
|
|
|
|
|
|
Total
|
|
$
|
119,650
|
|
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
Depreciation
expense was $16,303 and $88,589 for 2004 and 2003, respectively.
NOTE
5 - PATENTS AND TRADEMARKS
Patents
and trademarks at December 31, 2004 consisted of the following:
Patents,
net of $75,359 of impairment expense from 2002
|
|
$
|
317,024
|
|
Trademarks
|
|
|
62,328
|
|
|
|
|
379,352
|
|
Less
accumulated amortization
|
|
|
(49,501
|
)
|
|
|
|
|
|
Total
|
|
$
|
329,851
|
|
At
December 31, 2004, $91,009 of the NutraCea's patents and trademarks had been
purchased from RiceX. Amortization expense was $21,754 and $10,198 for 2004
and
2003, respectively.
NOTE
6 - NOTES PAYABLE
In
December 2004 NutraCea executed three promissory notes to third party investors
totaling $2,400,000. The notes are for a one year term, bear interest at
7%
interest compounded quarterly and are secured by all of the assets of NutraCea.
The holders were issued warrants to purchase a total of 2,400,000 shares
of
NutraCea’s common stock at an exercise price of $0.30 per share. The warrants
are immediately exercisable and expire in seven years from the date of issuance.
A discount on the debt of $786,370 was recorded for these warrants and is
being
amortized over the life of the notes.
NOTE
7 - PUT OPTION
During
the year ended December 31, 2001, NutraCea issued 130,000 shares of Series
A
preferred stock to a related party as payment of accounts payable totaling
$130,000. On January 15, 2002, these holders of the Series A preferred stock
executed a put/call agreement. The put allowed for the holder to sell to
NutraCea all, but not less than all, of the 130,000 shares of NutraCea’s Series
A preferred stock, or common stock if any of the Series A preferred stock
were
converted, for $130,000, plus all accumulated, but unpaid dividends, at any
time
after six months from January 15, 2002. In addition, NutraCea maintained
the
right to call the option and purchase back the shares of the Series A preferred
stock for $130,000, plus any unpaid and accrued dividends at any time, subject
to certain provisions. Prior to December 31, 2004 NutraCea purchased back
the
shares of the Series A preferred stock for $130,000.
NOTE
8 - INCOME TAXES
NutraCea
has had losses since inception and, therefore, has not been subject to federal
or state income taxes. As of December 31, 2004, NutraCea had accumulated
net
operating loss ("NOL") carryforwards for income tax purposes of approximately
$28.2 million, resulting in a deferred tax asset amount of $9.6 million.
All
deferred tax asset amounts are fully reserved. These carryforwards expire
in
2019 through 2024.
NOTE
9 - COMMITMENTS AND CONTINGENCIES
Lease
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
NutraCea
leases its office space under a non-cancelable operating lease with RiceX
that
expires in September 2006 and requires monthly payments of $6,366. Future
minimum payments under this lease agreement at December 31, 2004 were as
follows:
Year
Ending
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
2005
|
|
$
|
76,389
|
|
2006
|
|
|
57,292
|
|
|
|
|
|
|
Total
|
|
$
|
133,681
|
|
Rent
expense was $64,688 and $63,899 for the years ended December 31, 2004 and
2003,
respectively.
Agreements
For
all
agreements where stock is awarded as partial or full consideration, the expense
is valued at the fair value of the stock. Expense for stock options and warrants
issued to consultants is calculated at fair value using the Black-Scholes
valuation method.
Effective
January 1, 2004, NutraCea amended two executive employment contracts to reflect
quarterly bonuses. Under the contract, compensation shall be $45,000 per
calendar quarter, with 250,000 shares of common stock to be granted in the
event
NutraCea achieves gross revenues of $1 million or more for the quarter. In
addition, a one-time stock grant of 550,000 shares of common stock will be
awarded for the first quarter gross revenues equal or exceed $5 million.
This
bonus agreement is effective until April 15, 2006, unless extended by the
board.
NutraCea also agreed to maintain an annual bonus program for members of the
senior management group, including the Chief Executive Officer. The Chief
Executive Officer shall be eligible to receive an annual bonus under terms
otherwise governing the annual bonus program.
Effective
January 1, 2004, NutraCea amended the stock options section of an executive
employment contract dated April 15, 2003. The amendment changed the vesting
conditions on 250,000 shares of common stock to “upon the
completion
of the twelfth month of employment “instead of “upon the Company achieving two
successful calendar quarters of net profits from operations of the business
of
the Company before interest, taxes, depreciation and amortization as
conclusively determined by the independent certified public accountant for
the
Company”.
On
January 12, 2004, NutraCea entered into a one-year consulting agreement with
a
sales and marketing company. Under the terms of the agreement, compensation
shall be warrants to purchase 4,000,000 shares of common stock as follows:
300,000 shares at $.50 per share on or before January 12, 2004; 400,000 shares
at $.50 per share on or before February 17, 2004; and 3,300,000 shares at
$.50
per share on or before April 19, 2004. Non-cash compensation expense of
$3,911,886 was recorded relating to this agreement. All of the warrants had
been
exercised at March 31, 2004.
On
January 28, 2004, NutraCea entered into a one-year consulting agreement with
a
sales and marketing company. Under the terms of the agreement, compensation
shall be warrants to purchase 90,000 shares of common stock at an exercise
price
of $.01 per share. Non-cash compensation expense of $137,158 was recorded
relating to this agreement. As of March 31, 2004, these warrants had been
exercised.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
On
February 2, 2004, NutraCea entered into a six -month consulting agreement
with a
communications company. Under the terms of the agreement, compensation shall
be
$2,500 per month, plus shares of common stock valued at $6,000 issued at
signing
of contract. Either party may terminate the agreement with sixty days written
notice. At March 31, 2004, the shares had been issued in full.
On
February 23, 2004, NutraCea entered into a one-year consulting agreement
with a
marketing company. Under the terms of the agreement, compensation shall be
monthly
issuance
of shares of common stock valued at $7,500 per month. In addition, the
consultant is entitled to a
3%
commission on equity or debt financing introduced to NutraCea.
On
March
1, 2004, NutraCea entered into a 90-day consulting agreement with a financial
relations company. Compensation shall be the issuance of 100,000 shares of
common stock per month. As of March 31, 2004, 100,000 shares valued at $142,000
had been issued to the consultant.
On
March
1, 2004, NutraCea entered into a one-year consulting agreement with a sales
and
marketing company. Compensation shall be the issuance of 25,000 shares of
common
stock. At March 31, 2004, these shares had been issued. Non-cash compensation
expense of $35,500 was recorded relating to this agreement.
On
March
9, 2004, NutraCea entered into a one-year consulting agreement with a
communications company. Under the terms of the agreement, compensation shall
be
issuance of shares of common stock valued at $36,000. At March 31, 2004,
these
shares have been issued in full.
On
March
15, 2004, NutraCea entered into a six-month consulting agreement with a sales
and marketing company. Under the terms of the agreement, compensation shall
be
warrants to purchase 400,000 shares of common stock, at an exercise price
of
$.001 and warrants to purchase up to 1,000,000 shares of common stock at
an
exercise price of $1.20, to be exercised within three years. At March 31,
2004,
the 400,000 warrants exercisable at $.001 had been exercised. Non-cash
compensation expense of $2,149,598 was recorded relating to this
agreement.
On
March
19, 2004, NutraCea approved granting a one-time cash bonus of 2/3 of normal
salary to the CEO and President. The bonus amount for both
executives
is
$180,000, was paid by April 1, 2004.
On
March
25, 2004, NutraCea entered into two, two-year consulting agreements with
two
medical advisors. Under the terms of the agreement, compensation shall be
100,000 shares of common stock each, payable in advance
,
and
options to purchase 100,000 shares of common stock at a price of $.50 per
share
for the second year of service. The 200,000 shares of common stock are valued
at
$286,000, and the options are valued at $107,684. Expense for these amounts
was
recorded in April 2004 when the shares and options were issued.
On
March
25, 2004, NutraCea entered into a three-year consulting agreement with a
development and marketing company. Under the terms of the agreement,
compensation shall be $1 per unit
(a
minimum 30-day supply of NutraCea product)
for up
to a total accumulated payment of $750,000, and $.50 per unit thereafter,
payable quarterly within 45 days after the end of the quarter. In addition,
NutraCea will issue 100,000 shares of common stock for each probiotic
formulation NutraCea markets, and options to purchase 300,000 shares of common
stock at an exercise price of $1 per share
with
100,000 options to be vested immediately and 50,000 shares per year thereafter.
The vested options are valued at $102,782.
On
April
2, 2004, NutraCea entered into a 180-day consulting agreement with a marketing
and investor relations company. The term can be extended another 180 days
by
mutual agreement. Under the terms of the agreement, compensation shall be
400,000 shares of common stock, and $4,000 cash per month. Compensation shall
also include an 8% cash commission on equity or debt financing introduced
to
NutraCea, as well as a warrant, exercisable within 3 years, for common shares
to
equal 10% of the gross financing proceeds. The warrant is to be priced at
110%
of the closing bid price for the preceding 30 business days of the day of
closing, such warrant or shares to be issued at closing.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
On
April
15, 2004, NutraCea entered into a one-year consulting agreement with a sales
and
marketing consultant. Under the terms of the agreement, compensation shall
be
warrants to purchase 50,000 shares of common stock at $.80 per share upon
the
completion of certain benchmarks. The warrants are valued at $46,758 and
expire
in 3 years.
On
April
29, 2004, NutraCea entered into a one-year consulting agreement (with options
to
extend for four successive terms of one year each) with two retired employees
of
NutraCea. Under the terms of the agreements, annual compensation of $70,000
and
$80,000 each is payable on a monthly basis. In addition, each of the consultants
received warrants to purchase 50,000 shares of common stock at $.20 a share.
The
100,000 warrants are valued at $91,370 and expire in 5 years. Either party
can
cancel this agreement with 30-day written notice.
On
April
15, 2004, NutraCea entered into a one-year consulting agreement with a sales
and
marketing consultant. Under the terms of the agreement, compensation shall
be
warrants to purchase 50,000 shares of common stock at $.80 per share upon
the
completion of certain benchmarks. The warrants are valued at $46,758 and
expire
in 3 years.
On
June
2, 2004, NutraCea entered into two consulting agreements with sales and
marketing consultants. Under the terms of the agreements, each consultant
was
issued 150,000 restricted shares of common stock, valued at $161,500. The
agreement called for these shares to be included in the next registration
statement filed.
On
July
14, 2004, NutraCea entered into a six-month consulting agreement with a business
consultant to provide NutraCea with consulting services and advice pertaining
to
NutraCea’s business affairs. Compensation was $12,000 payable in cash monthly.
In addition, should the consultant provide assistance to NutraCea in the
raising
of capital either in the form of equity or debt, NutraCea agreed to pay an
additional future bonus or fee, which the consultant would receive based
on the
efforts expended and results obtained.
On
August
1, 2004, NutraCea entered in a 90-day Independent Contractor Agreement with
a
contractor to prepare reports regarding investor relations, prepare advertising
and marketing materials, and prepare press releases. Compensation was $12,000
payable in cash monthly.
On
September 2, 2004, NutraCea entered into a 90-day consulting agreement with
a
securities firm to serve as NutraCea’s investment advisor regarding acquisitions
or similar corporate transactions and to provide assistance and advice with
respect to raising capital required to consummate an acquisition or similar
corporate transaction. A non-reimbursable initial fee of $50,000, to be credited
again Phase I fees, was paid at execution of the agreement. Services were
to be
rendered as Phase I and Phase II services and compensated as
follows.
Phase
I
services: A fee of two percent of the total value of a target acquisition
to be
paid simultaneously with the closing of the acquisition or similar corporate
transaction, to be paid 50% in cash and 50% in newly issued stock by NutraCea
based on the closing values of the transaction on that day.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
Phase
II
services: A cash fee of ten percent of the total amount of capital raised
pursuant to sources introduced to NutraCea by the consultant. In the event
NutraCea shall issue any equity or convertible securities to raise capital
in
connection with an acquisition or similar corporate transaction, NutraCea
shall
issue warrants for ten percent of the total amount of securities issued.
The
warrants shall have an exercise price equal to one hundred and twenty percent
(120%) of the per share equity valuation established in the capital raising
transaction, but in no case less than 100% of the market value of the shares
on
the date of the transaction, and shall be exercisable for a term of five
years.
A cash fee of six percent will be paid in any capital raising transaction
involving unsecured debt securities.
On
November 26, 2004, the Company hired a consultant to help in the facilitation
of
the Company’s business model. As compensation, the consultant was paid with
715,000 shares of common stock. Additionally, the consultant also entered
into a
non-exclusive, non-transferable, revocable licensing agreement to import
and
distribute the Company’s products in accordance with its marketing plan. The
consultant paid the Company $214,500 for these distribution rights.
On
December 10, 2004 the Company entered into an employment agreement that expires
December 31, 2007 with its Chief Executive Officer whereby the Company is
to pay
the officer a base salary of $150,000 in year one; a base salary of $150,000
in
year two; and a base salary of $250,000 in year three. The agreement also
provides that the officer is entitled to an annual incentive bonus based
upon
performance and to be provided a car of the employee’s choice. The incentive
bonus shall be paid annually within 10 days of the completion of the Company’s
annual independent audit. Such bonuses shall be one percent of NutraCea’s “Gross
Sales over $25,000,000” on an annualized basis or $6,250,000 per quarter and the
Company reports a positive EBITDA for the period. The bonus amount shall
be
limited to a maximum of $750,000 in any calendar year and shall continue
so long
as the officer is an employee or consultant for the Company. In addition,
the
officer was issued warrants to purchase 2,000,000 shares of the Company’s common
stock at an exercise price of $0.30 per share. The warrants are immediately
exercisable and expire in ten years from the date of issuance.
On
December 17, 2004 the Company entered into an employment agreement that expires
December 31, 2007 with its President whereby the Company is to pay the officer
a
base salary of $50,000 in year one; a base salary of $150,000 in year two;
and a
base salary of $250,000 in year three. The agreement also provides that the
officer is entitled to an annual incentive bonus based upon performance and
to
be provided a car allowance of $600 per month. The incentive bonus shall
be paid
annually within 10 days of the completion of the Company’s annual independent
audit. Such bonuses shall be one percent of NutraCea’s “Gross Sales over
$25,000,000” on an annualized basis or $6,250,000 per quarter and the Company
reports a positive EBITDA for the period. The bonus amount shall be limited
to a
maximum of $750,000 in any calendar year. In addition, the officer was issued
warrants to purchase 6,000,000 shares of the Company’s common stock at an
exercise price of $0.30 per share. The warrants are immediately exercisable
and
expire in ten years from the date of issuance.
Minimum
future payments under these two agreements at December 31, 2004 were as
follows:
Year
Ending
|
|
|
|
December
31,
|
|
|
|
|
|
|
|
2005
|
|
$
|
200,000
|
|
2006
|
|
|
300,000
|
|
2007
|
|
|
500,000
|
|
|
|
|
|
|
Total
|
|
$
|
1,000,000
|
|
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
Generally,
if the Company terminates these agreements without cause or the employee
resigns
with good reason, as defined, the Company will pay the employees' salaries,
bonuses, and benefits payable for the remainder of the term of the
agreements.
Litigation
On
July
16, 2002, the Company was summoned to answer a Complaint filed by Faraday
Financial, Inc. (“Faraday”) in District Court, County of Salt Lake, Utah (Case
No. 020906477). The Complaint alleges that the Company issued convertible
promissory notes totaling $450,000 and a promissory note totaling $50,000.
On
December 13, 2001, Faraday entered into a settlement agreement with the Company,
whereby Faraday agreed to cancel the promissory notes in exchange for 735,730
shares of preferred stock. Faraday claims that the settlement agreement required
that the Company effect a registration statement covering the preferred stock
by
June 30, 2002, which the Company failed to do, and demands the Company
immediately forfeit to Faraday 735,730 shares of common stock owned by the
Chief
Executive Officer of the Company. Faraday has filed its fourth claim for
relief
for a judgment against the Company for $500,000, plus accrued, but unpaid
interest, attorneys’ fees and costs, and other such costs. A Settlement
Agreement was executed on December 10, 2003. In consideration for the mutual
releases, Faraday converted 735,730 preferred into 735,730 common shares
and
$90,127 of accrued preferred dividends into 1,201,692 common shares. Within
the
next year, if Faraday cannot realize $551,797 and approximately $9800 in
legal
expenses from the sale of the common shares, NutraCea will make up any
deficiency. If stock sale exceeds $561,597, Faraday is entitled to keep any
excess. Subsequent to December 31, 2003, the Company issued an additional
250,000 shares to Faraday. Concurrently, with the executed Settlement Agreement,
a joint stipulated motion to stay all proceedings was filed with the Court.
After all the above conditions are met, if Faraday has not lifted the stay
within 18 months of December 10, 2003, NutraCea shall deliver to Faraday
an
executed stipulation for dismissal with prejudice of the Complaint and
Counterclaim.
NOTE
10 - PREFERRED AND COMMON STOCK
Effective
November 12, 2003 and pursuant to adoption of the Company’s “Certificate of
Amendment of Restated Articles of Incorporation” dated October 27, 2003, the
Company effected a reverse split of all previously issued common stock on
the
basis of one-for-ten shares. Additionally, per the “Certificate of Amendment of
Restated Articles of Incorporation”, the number of authorized shares of common
stock was increased from 50,000,000 to 100,000,000, and the number of authorized
shares of preferred stock was increased from 10,000,000 to 20,000,000. All
share
amounts reflected in the following discussion of common stock and elsewhere
in
this Form 10-KSB/A have been adjusted to account for the one-for-ten reverse
split.
Convertible,
Redeemable Series A Preferred Stock
In
December 2001, the Company approved the issuance of 3,000,000 shares of
convertible, redeemable Series A preferred stock and executed a certificate
of
designation of the rights, preferences, and privileges of the Series A preferred
stock. Each shareholder of Series A preferred stock is entitled to receive
a 7%
cumulative dividend, which is only payable in the case of liquidation or
redemption. The Series A preferred stock has a $1 per share stated value
and
will receive certain liquidation preferences after satisfaction of claims
of
creditors, but before payment or distributions of assets and surplus funds.
On
November 12, 2003, the number of authorized shares of preferred stock was
increased from 10,000,000 shares to 20,000,000 shares.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
Furthermore,
the Series A preferred stock is convertible at the option of the holder at
$1
per share into the Company’s common stock, subject to certain anti-dilution
provisions. In addition, the Series A preferred stock will automatically
convert
into common stock in the event of a qualified public trading benchmark, which
is
defined as (i) the common stock is listed on a national exchange at twice
its
conversion price or (ii) the common stock is quoted on the over-the-counter
bulletin board at an average bid price of at least $1.25 per share over any
30-day trading period. At December 31, 2004, all the outstanding preferred
stock
was converted under option (ii) above.
On
July
7, 2003, the Company cancelled 634,121 shares of preferred stock previously
issued to a shareholder as collateral and issued 20,000 shares of preferred
stock for accrued interest totaling $8,351 on a promissory note dated September
23, 2002.
During
the year ended December 31, 2003, the Company converted 1,674,707 shares
of
preferred stock to 254,323 shares of common stock valued at $1,651,860.
During
the year ended December 31, 2003, the Company issued 278,766 shares of common
stock in payment of preferred stock dividends due in the amount of $190,043.
During
the year ended December 31, 2004 the Company repurchased 130,000 shares of
preferred stock for $130,000.
During
the year ended December 31, 2004, the Company converted 540,000 shares of
preferred stock to 630,000 shares of common stock valued at $348,351.
During
the year ended December 31, 2004, the Company issued 5,759 shares of common
stock in payment of preferred stock dividends due in the amount of $5,986.
The
Company may redeem any and all outstanding shares of Series A preferred stock.
Upon the five-year anniversary of the date of issuance, the Company is required
to redeem all of its outstanding shares of Series A preferred stock at $1
per
share, plus all accrued and unpaid dividends declared. As of December 31,
2004
all outstanding shares of preferred stock had either been repurchased or
converted into shares of common stock. As of December 31, 2004 there was
a
balance of unpaid and accrued dividends of $20,473.
As
of
December 31, 2004, cumulative dividends totaled $20,473.
Common
Stock
During
2003, NutraCea issued 134,048 shares of common stock for $104,500, net of
$7,000
in related commissions.
During
2003, NutraCea issued 4,519,373 shares of common stock pursuant to the exercise
of stock options and warrants for $427,575.
During
2003, NutraCea issued 28,688 shares of common stock to various consultants
for
services rendered with a fair value of $29,795.
On
August
18, 2003, NutraCea agreed to pay a consultant for unpaid fees in the amount
of
$9,236. NutraCea will pay $4,636 in monthly installments of $1,159, payable
on
the first of each month beginning October 1, 2003. NutraCea also agreed to
issue
2,421 shares of common stock, valued at $4,600, to the consultant as payment
in
full.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
In
September 2003, NutraCea agreed to pay $38,771 of unpaid fees to a consultant,
of which $8,771 is payable upon execution of the agreement and the balance,
$30,000, is payable in monthly installments of $2000, payable on the first
of
each month beginning October 1, 2003. NutraCea also agreed to issue 73,519
shares of common stock, valued at $56,037, to the consultant as payment in
full.
On
October 31, 2003, the Board of Directors approved the issuance of common
stock
in lieu of compensation to the Company’s Chief Operating Officer and Chief
Executive Officer. Chief Operating Officer John Howell received 72,911 shares
of
common stock in lieu of $94,784 in salary and other compensation accrued
for
past services; Chief Executive Officer Patricia McPeak received 402,644 shares
of common stock in lieu of $322,115 in salary and other accrued compensation
for
past services. These shares of common stock were issued under the 2003 Stock
Compensation Plan.
Due
to
the termination of certain employees during 2003, the Company recorded a
reversal of deferred compensation totaling $243,605.
During
2003, the Company issued 3,431,251 shares of common stock, valued at $823,119,
to various parties for conversion of convertible notes payable and accrued
interest in the amount of $776,887 and $46,232, respectively.
On
March
25, 2004, NutraCea established the NutraCea Patent Incentive Plan, which
grants
15,000 shares of common stock to each named inventor on each granted patent,
which is assigned to NutraCea. Under the terms of this plan during the year
ended December 31, 2004, NutraCea issued 180,000 shares of common stock valued
at $239,100.
During
the year ended December 31, 2004, NutraCea issued 280,000 shares of common
stock
to two consultants in settlement of contractual agreements valued at
$477,816.
During
the year ended December 31, 2004, NutraCea issued 5,500,000 shares of common
stock to NutraCea’s Chief Executive Officer for services and cancellation of
indebtedness. Pursuant to the Restricted Stock Agreement between NutraCea
and
the Chief Executive Officer (“Agreement”), the shares are subject to a
repurchase option at a price of $5,000 for any unreleased shares based upon
a
vesting schedule. The shares vest 50% on January 1, 2006 and the remaining
50%
vest on January 1, 2007 contingent on the Chief Executive Officer’s continuous
employment with NutraCea. Vesting may accelerate under the Agreement and
100% of
the shares not already released from the repurchase option will be immediately
released upon any of: (i) a Change of Control, as defined in the Agreement;
(ii)
the Chief Executive Officer’s death or disability; (iii) the Chief Executive
Officer’s retirement after the second anniversary of the effective date of the
Agreement; (iv) termination of the Chief Executive Officer’s employment by
NutraCea other than for Cause, as defined in the Agreement; or (v) at the
sole
discretion of NutraCea’s Board of Directors.
On
April
1, 2004, NutraCea repurchased 344,956 shares of common stock valued at $230,000
from the Chief Executive Officer of NutraCea pursuant to a repurchase agreement
of that date.
During
the year ended December 31, 2004, NutraCea converted preferred dividends
in the
amount of $5,986 into 5,759 shares of common stock.
On
September 8, 2004, NutraCea and Langley Park Investments PLC (“Langley”) signed
a Stock Purchase Agreement under which NutraCea agreed to sell 7,000,000
shares
of its common stock to Langley. The transaction will close at the time that
Langley’s shares are trading on the London Stock Exchange for anticipated
consideration to NutraCea (i) immediately following the closing of approximately
$1,190,000 U.S.D. in Langley stock, and (ii) additional consideration of
that
number of Langley shares which, as of the closing, will have a value of
approximately $1,190,000 (the “Langley Shares”). NutraCea has agreed to hold the
Langley Shares in escrow for two years from the date of closing. After the
two-year holding period, the Langley Shares will be subject to possible
reduction in number if NutraCea’s common shares are trading at a value of less
than $0.34 U.S.D. After such reduction, if any, the remaining Langley Shares
may
be sold by NutraCea at their then current value.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
(continued)
Pursuant
to the Purchase Agreement, Langley has agreed that it will not sell, transfer
or
assign any or all of the NutraCea shares for a period of two years following
the
closing without the prior written consent of NutraCea, which consent may
be
withheld by NutraCea in its sole discretion.
During
the year ended December 31, 2004, Nutracea issued 3,767,950 shares of common
stock to consultants for services rendered valued at $2,542,300.
During
the year ended December 31, 2004, Nutracea issued 640,000 shares of common
stock
to officers and directors for services rendered valued at 927,800.
During
the year ended December 31, 2004, NutraCea issued 168,626 shares of common
stock
to vendors in payment of accounts payable totaling $57,944.
During
the year ended December 31, 2004, Nutracea issued 6,579,323 shares of common
stock pursuant to the exercise of stock options for cash totaling
$2,776,468.
During
the year ended December 31, 2004, NutraCea converted 540,000 shares of preferred
stock to 630,000 shares of common stock pursuant to the Mandatory Conversion
paragraph of the Private Placement Memorandum dated November 9,
2001.
NOTE
11 - STOCK OPTIONS AND WARRANTS
Expense
for stock options and warrants issued to consultants is calculated at fair
value
using the Black-Scholes valuation method.
On
October 31, 2003, the Board of Directors approved and adopted the 2003 Stock
Compensation Plan and authorized the President of the Company to execute
a
registration statement under the Securities Act of 1933 for 10,000,000 shares
of
common stock.
The
expense, if any, of stock options issued to employees is recognized over
the
shorter of the term of service or vesting period. The expense of stock options
issued to consultants or other third parties are recognized over the term
of
service. In the event services are terminated early, the entire amount is
recognized. The unamortized portion of the expense to be recognized is recorded
as deferred compensation.
In
April
2003, the Company issued warrants to purchase 1,000,000 shares of common
stock
to its Chief Operating Officer in accordance with an employment agreement
dated
April 15, 2003. The warrants have an exercise price of $0.001 per share and
vest
as follows:
|
§
|
250,000
on April 15, 2003
|
|
§
|
250,000
upon the fourth month of employment
|
|
§
|
250,000
upon the eighth month of employment
|
|
§
|
250,000
upon the twelfth month of
employment
|
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
In
relation to this transaction, the Company recorded deferred compensation
expense
totaling $109,000. In addition, because this grant as modified due to the
reverse split of November 21, 2003 must be accounted for as a variable award,
an
additional $303,750 was recorded relating to this award as of December 31,
2003.
On
June
20, 2003, the Company issued warrants to purchase 32,900 shares of common
stock
to a vendor as payment on accounts payable totaling $27,786. The warrants
have
an exercise price of $.01 per share and expire June 18, 2008. In addition,
the
Company entered into a note payable agreement with the consultant totaling
$17,000, payable at $3,000 per month beginning September 2003.
On
July
31, 2003, the Company issued warrants to purchase 7,143 shares of common
stock
to a vendor as payment on accounts payable totaling $5,676. The warrants
have an
exercise price of $0.01 per share and expire June 12, 2008. In addition,
the
Company entered into a note payable agreement with the consultant totaling
$4,000, payable at $1,000 a month beginning October 1, 2003.
During
September 2003, the Company entered into a compensation agreement with a
consultant, whereby the Company will pay a total of $5,356 of unpaid fees
due to
the consultant in monthly payments of $670, payable on the first of the month
beginning October 1, 2003. Per the agreement, the Company also issued warrants
valued at $7,065 to purchase 4,167 shares of common stock at an exercise
price
of $0.01 per share. The warrants expire on August 5, 2008.
During
the six months ended June 30, 2003, the Company issued warrants to purchase
321,285 shares of common stock at exercise prices ranging from $0.01 to $0.70
per share to employees in lieu of deferred salaries totaling $150,465. The
warrants expire five years from date of issue.
During
the year ended December 31, 2003, options and warrants representing 4,519,373
shares of common stock were exercised for a total value of
$427,575.
During
the year ended December 31, 2003 the Company issued 3,796,563 options to
various
consultants for services rendered. The options have exercise prices between
$.001 and $5.00 and expire at varying times between six months and five years.
Non-cash consulting expense of $1,165,584 was recorded relating to these
agreements.
During
the year ended December 31, 2003, the Company issued warrants to purchase
2,545,000 shares of common stock exercisable at $.20 per share and expiring
five
years from date of issue. The warrants were issued in connection with the
conversion of $823,119 of convertible notes payable and accrued interest
to
common shares of the Company, and non-cash expense of $183,855 was recorded
relating to these warrants.
During
the year ended December 31, 2004, NutraCea issued 6,998,493 warrants with
exercise prices between $.001 and $5.00 per share to consultants. The warrants
expire at varying times between six months and five years. A total of $7,761,515
in non-cash compensation expense was recorded relating to the issue of these
warrants.
On
July
9, 2004, NutraCea issued 25,000 stock options with an exercise price of $.20,
expiring in five years, to an employee of the Company. Non-cash compensation
expense of $21,000 was recorded relating to the issue of these options.
During
the quarter ended December 31, 2004, Nutracea issued 2,400,000 warrants with
an
exercise price of $0.30, in conjunction with notes payable issued by the
Company
during the quarter. The warrants are immediately exercisable and expire in
seven
years from the date of issuance. A total of $786,371 of accrued debt discount
expense was recorded relating to the issue of these warrants and is being
amortized over the term of the notes payable.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
During
the quarter ended December 31, 2004, Nutracea issued 8,000,000 stock options
with an exercise price of $0.30, expiring in 10 years to officers of the
Company. Non-cash compensation expense of $800,000 was recorded relating
to the
issue of these options.
Modification
of Employee Awards Accounted for Under APB 25
NutraCea
granted 1,000,000 options in 2003 to an employee where the option agreement
contained a provision whereby neither the number of options nor the exercise
price would be adjusted by reverse splits. Effective November 12, 2003, NutraCea
authorized a 1 for 10 reverse split. This triggered variable accounting for
this
award. As of November 12, 2003, 500,000 options had been exercised and only
500,000 remained. Variable accounting requires any intrinsic value at the
modification date in excess of the amount measured at the original measurement
date shall be recognized as compensation cost over the remaining future service
period if the award is unvested, or immediately if the award is vested, for
any
employee who could benefit from the modification. The award vested 75% in
2003
and 25% in 2004. The award will be marked to market each balance sheet date
with
the changes charged to compensation expense and additional paid in capital.
As
of December 31, 2003, the additional intrinsic value on the vested portion
totaled $303,750.
Modification
of Non-Employee Awards Accounted for Under FAS 123
Nutracea
granted 5,725,000 warrants to outsiders in 2003 where the warrant agreements
contained a provision whereby neither the number of warrants nor the exercise
price would be adjusted by reverse splits. Effective November 12, 2003, NutraCea
authorized a 1 for 10 reverse split. This triggered a modification for this
award. A modification of the terms of an award that makes it more valuable
shall
be treated as an exchange of the original award for a new award. In substance,
the entity repurchases the original instrument by issuing a new instrument
of
greater value, incurring additional compensation cost for that incremental
value. The incremental value shall be measured by the difference between
(a) the
fair value of the modified option/warrant determined in accordance with the
provisions of this section and (b) the value of the old option/warrant
immediately before its terms are modified, determined based on the shorter
of
(1) its remaining expected life or (2) the expected life of the modified
option/warrant. As of December 31, 2003, the additional value totaled $9,811,002
which was recorded as non-cash compensation expense.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
The
following table summarizes all of the Company’s stock option and warrant
transactions:
|
|
EMPLOYEES
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
December
31, 2004
|
|
December
31, 2003
|
|
|
|
Weighted
Average Exercise Price
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
Beginning of Period
|
|
$
|
0.56
|
|
|
764,700
|
|
$
|
0.41
|
|
|
1,090,564
|
|
Granted
|
|
$
|
0.30
|
|
|
8,025,000
|
|
$
|
0.11
|
|
|
1,371,285
|
|
Expired
|
|
$
|
0.00
|
|
|
0
|
|
$
|
6.60
|
|
|
(24,361
|
)
|
Reverse
Split
|
|
$
|
0.00
|
|
|
0
|
|
$
|
4.17
|
|
|
(981,503
|
)
|
Exercised
|
|
$
|
0.01
|
|
|
(500,000
|
)
|
$
|
0.02
|
|
|
(691,285
|
)
|
Outstanding,
End of Period
|
|
$
|
0.34
|
|
|
8,289,700
|
|
$
|
0.56
|
|
|
764,700
|
|
Exercisable,
End of Period
|
|
$
|
0.34
|
|
|
8,289,700
|
|
$
|
0.56
|
|
|
764,700
|
|
|
|
CONSULTANTS
|
|
|
|
Year
Ended
|
|
Year
Ended
|
|
|
|
December
31, 2004
|
|
December
31, 2003
|
|
|
|
Weighted
Average Exercise Price
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
|
Number
of Shares
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
Beginning of Period
|
|
$
|
0.98
|
|
|
3,196,819
|
|
$
|
0.90
|
|
|
2,096,890
|
|
Granted
|
|
$
|
0.62
|
|
|
9,598,493
|
|
$
|
0.29
|
|
|
6,989,105
|
|
Expired
|
|
$
|
4.94
|
|
|
(220,833
|
)
|
$
|
5.31
|
|
|
(76,182
|
)
|
Reverse
Split
|
|
$
|
0.00
|
|
|
0
|
|
$
|
8.42
|
|
|
(1,884,951
|
)
|
Exercised
|
|
$
|
0.43
|
|
|
(6,479,323
|
)
|
$
|
0.12
|
|
|
(3,928,043
|
)
|
Outstanding,
End of Period
|
|
$
|
0.85
|
|
|
6,095,156
|
|
$
|
0.98
|
|
|
3,196,819
|
|
Exercisable,
End of Period
|
|
$
|
0.85
|
|
|
5,845,156
|
|
$
|
0.98
|
|
|
3,196,819
|
|
Other
information regarding stock options and warrants outstanding at December
31,
2004 is as follows:
|
|
|
|
Options/Warrants
Outstanding
|
|
Options/Warrants
Exercisable
|
|
Range
of Exercise Price
|
|
Remaining
Life (Years)
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
|
Number
of Shares
|
|
Weighted
Average Exercise Price
|
|
$
|
.001-1.20
|
|
3-10
|
|
|
13,846,234
|
|
$
|
.40
|
|
|
13,596,230
|
|
$
|
.38
|
|
$
|
2.50-5.00
|
|
4-10
|
|
|
493,259
|
|
$
|
4.30
|
|
|
493,259
|
|
$
|
4.34
|
|
$
|
10.00
|
|
10
|
|
|
45,363
|
|
$
|
10.00
|
|
|
45,363
|
|
$
|
10.00
|
|
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
The
weighted average fair value of the stock options granted during 2004 and
2003
was $0.69 and $1.04 respectively. Variables used in the Black Scholes
option/warrant-pricing model include (1) 2.0% risk-free interest rate, (2)
expected option/warrant life is the actual remaining life of the
options/warrants as of each year-end, (3) expected volatility ranged from
77% to
251%, and (4) zero expected dividends.
NOTE
12 - RELATED PARTY TRANSACTIONS
In
November 2004 the Board of Directors resolved to purchase a new automobile
valued at $73,096 for use by the Chief Executive Officer. The CEO waived
a car
allowance in exchange for use of the automobile. At December 31, 2004, the
Company has booked a payable to related party for $73,096.
RiceX
Company is a publicly owned company. The spouse of our majority stockholder
owns
approximately 5% of RiceX and is the former CEO and the current Chairman
of the
Board and a current director of Ricex. RiceX is NutraCea®’s sole supplier for
rice bran derivatives, which are integral to NutraCea®’s sales strategy and
which account for about 72% of NutraCea®’s total cost of sales.
On
December 12, 2001, NutraCea agreed with RiceX to be their exclusive distributor
of rice solubles and rice bran fiber concentrate in the United States of
America
and to have the exclusive rights to various patents and trademarks owned
by
RiceX under a 15-year agreement. Under the terms of this agreement, RiceX
agreed
to cancel certain indebtedness by NutraCea in exchange for 130,000 shares
of
Series A preferred stock and payment of $41,335 in interest, agreed to new
minimum purchase requirements, and agreed to extend the term of the agreement
for five years, with two additional renewal periods of five years each. The
sales price to NutraCea will be the lower of RiceX's published standard price
or
the price negotiated by other customers for like quantities and products.
In
January 2002, NutraCea revised this 15-year agreement with RiceX. To maintain
rights under this revised agreement, NutraCea was to purchase $250,000 of
product from RiceX by April 2002, $500,000 by July 2002, $750,000 by October
2002, $1,250,000 by January 2003, $1,500,000 by July 2003, $2,250,000 by
January
2004, $6,000,000 by January 2005, and increasing thereafter by 10% per annum
through the remaining term of the agreement. During 2002, NutraCea received
notice from RiceX, stating that NutraCea was in default under the terms of
this
distribution agreement with RiceX. On July 9, 2002, RiceX exercised its right
to
terminate the exclusive distribution agreement and the related license
agreements with NutraCea due to NutraCea's default. However, RiceX has agreed
that NutraCea has a license to use the patents in its business
pursuits.
NOTE
13 - 401(K) PROFIT SHARING PLAN
Effective
April 2000, NutraCea adopted a 401(k) profit sharing plan (the "Plan") for
the
exclusive benefit of eligible employees and their beneficiaries. Substantially
all employees are eligible to participate in the Plan. Matching contributions
to
the Plan are 3% of the employees' gross salary, not to exceed a certain
percentage. For 2004 and 2003, NutraCea made matching contributions of $16,064
and $12,616, respectively.
NOTE
14 - BUSINESS SEGMENTS
For
internal reporting purposes, management segregates NutraCea into two segments
as
follows for 2004 and 2003:
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
|
|
|
|
SEGMENT
INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve
months ended December 31, 2004
|
|
Net
Sales
|
|
(Loss)
from Operations
|
|
Interest
Expense
|
|
Total
Assets
|
|
Depreciation/
Amortization
|
|
NutraStar
Technologies Incorporated
|
|
$
|
408,753
|
|
$
|
84,431
|
|
$
|
27,602
|
|
$
|
3,302,018
|
|
$
|
38,057
|
|
NutraGlo
Incorporated
|
|
|
600,976
|
|
|
213,023
|
|
|
-
|
|
|
35,867
|
|
|
-
|
|
Unallocated
corporate overhead
|
|
|
-
|
|
|
(23,848,816
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Total,
NutraCea
|
|
$
|
1,009,729
|
|
$
|
(23,551,362
|
)
|
$
|
27,602
|
|
$
|
3,337,885
|
|
$
|
38,057
|
|
Twelve
months ended December 31, 2003
|
|
Net
Sales
|
|
(Loss)
from Operations
|
|
Interest
Expense
|
|
Total
Assets
|
|
Depreciation/
Amortization
|
|
NutraStar
Technologies Incorporated
|
|
$
|
251,157
|
|
$
|
(1,946,352
|
)
|
$
|
4,292,109
|
|
$
|
482,089
|
|
$
|
98,787
|
|
NutraGlo
Incorporated
|
|
|
1,284,996
|
|
|
541,091
|
|
|
18,687
|
|
|
58,992
|
|
|
-
|
|
Unallocated
corporate overhead
|
|
|
-
|
|
|
(6,821,743
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Total,
NutraCea
|
|
$
|
1,536,153
|
|
$
|
(8,227,004
|
)
|
$
|
4,310,796
|
|
$
|
541,081
|
|
$
|
98,787
|
|
NOTE
15 - SUBSEQUENT EVENTS (UNAUDITED)
Effective
January 1, 2005, NutraCea entered into a four month consulting agreement
with an
individual to act as the interim Chief Financial Officer of the Company.
Minimum
monthly compensation is $6,250 payable in cash monthly.
On
January 25, 2005 the Company entered into a three year employment agreement
with
its Senior Vice President whereby the Company is to pay the officer a base
salary of $150,000 per year. The agreement also provides that the officer
is
entitled to a one-time initial bonus of $25,000 and will be eligible for
future
incentive bonuses based solely on the discretion of the Chief Executive Officer
or President of the Company and to be approved by the Company’s Compensation
Committee. Warrants to purchase 1,000,000 shares of the Company’s common stock
at an exercise price of $0.30 per share were issued and will vest 500,000
at
signing of the employment agreement and 500,000 on January 25, 2006. Warrants
to
purchase 1,000,000 shares of the Company’s common stock at an exercise price of
$0.30 per share were also issued and will vest upon the achievement of NutraCea
obtaining “Gross Sales over $25,000,000” and the Company reports a positive
EBITDA for the period. All warrants expire in ten years from the date of
issuance.
On
January 26, 2005 the Company entered into a non-exclusive distribution agreement
to distribute the Company’s rice based nutraceutical products in the United
States. An initial order for $25,000 was made concurrently with the signing
of
the agreement. The term of the agreement is for three years. Products are
sold
to the distributor at NutraCea’s standard price schedule; purchases above
certain annual minimum requirements will then receive a 5% discount.
Additionally, failure to meet these minimum purchase requirements is cause
for
termination of the agreement at the Company’s option. NutraCea may also at its
option terminate the agreement upon 60 days written notice to the
distributor.
On
February 9, 2005, NutraCea issued 200,000 stock options with an exercise
price
of $0.45 per share, vesting in three years, expiring in ten years, to two
employees of the Company with each receiving 100,000 options. Non-cash
compensation expense of $2,000 was recorded relating to the issue of these
options.
NUTRACEA
AND SUBSIDIARIES
Notes
to Consolidated Financial Statements (continued)
On
February 10, 2005 NutraCea entered into a one year consulting agreement with
a
financial relations company. Compensation shall be $10,000 per month and
the
issuance of 700,000 warrants to purchase shares of common stock at a price
of
$.45 per share; 700,000 warrants to purchase shares of common stock at a
price
of $.65 per share; and 700,000 warrants to purchase shares of common stock
at a
price of $.85 per share. In conjunction with this agreement the Company agreed
to pay a finder’s fee to a consulting company consisting of stock options to
purchase 135,000 shares of common stock at a price of $0.45 per
share.
On
February 28, 2005 the Company terminated an existing consulting agreement
with a
retired employee that was entered into on April 19, 2004. At the Company’s sole
discretion it may retain the services of the consultant on a monthly basis
at a
rate of $80 per hour, not to exceed 10 hours per month for the first three
months following the termination of the agreement. Additionally, for each
patent
granted to the Company whereby the consultant is listed as inventor, the
consultant shall receive 15,000 shares of restricted common stock; however
the
maximum value of the stock grant shall not exceed $15,000 based on the closing
bid price of the Company’s common stock on the date the patent is granted, with
the total shares granted reduced accordingly.
On
March
1, 2005, NutraCea amended and restated a consulting agreement (with Company
options to extend on an annual basis) with a retired employee of NutraCea.
Under
the terms of the agreement, monthly compensation of $7,500 is payable. In
addition, the consultant received warrants to purchase 10,000 shares of common
stock at $.43 a share. The 10,000 warrants are valued at $3,131 and expire
in
three years. Either party can cancel this agreement with 30-day written notice.
If the agreement is extended past the first year then monthly compensation
will
be increased to $8,333 with additional warrants to purchase 15,000 shares
of
common stock at the market price per share at the date of extension.
Additionally, for each patent granted to the Company whereby the consultant
is
listed as inventor, the consultant shall receive 15,000 shares of restricted
common stock; however the maximum value of the stock grant shall not exceed
$15,000 based on the closing bid price of the Company’s common stock on the date
the patent is granted, with the total shares granted reduced
accordingly.
On
March
23, 2005, NutraCea agreed to pay $15,000 of unpaid fees to a consultant.
NutraCea also agreed to issue 26,786 shares of common stock, valued at $15,000,
to the consultant as payment in full
During
the quarter ended March 31, 2005, Nutracea issued 33,067 shares of common
stock
to consultants for services rendered valued at $15,000.
During
the quarter ended March 31, 2005, Nutracea issued 6,000 shares of common
stock
pursuant to the exercise of warrants for cash totaling $432.
NUTRACEA
AND SUBSIDIARIES
Consolidated
Balance Sheet
September
30, 2005
(unaudited)
ASSETS
|
|
|
|
|
|
Current
assets
|
|
|
|
Cash
|
|
$
|
389,034
|
|
Marketable
securities
|
|
|
170,977
|
|
Accounts
receivable
|
|
|
87,801
|
|
Inventory
|
|
|
391,740
|
|
Prepaid
expenses
|
|
|
410,808
|
|
Total
current assets
|
|
|
1,450,360
|
|
|
|
|
|
|
Restricted
marketable securities
|
|
|
170,977
|
|
Property
and equipment
,
net
|
|
|
108,807
|
|
Patents
and trademarks
,
net
|
|
|
354,600
|
|
Goodwill
|
|
|
250,001
|
|
|
|
|
|
|
Total
assets
|
|
$
|
2,334,745
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' DEFICIT
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Accounts
payable
|
|
$
|
882,684
|
|
Accrued
expenses
|
|
|
296,797
|
|
Due
to related parties
|
|
|
2,010
|
|
Notes
payable
|
|
|
2,221,684
|
|
Convertible,
mandatorily redeemable series A preferred stock, no par value,
$1 stated
value 20,000,000 shares authorized 0 shares issued and
outstanding
|
|
|
20,473
|
|
Total
current liabilities
|
|
|
3,423,648
|
|
Commitments
and contingencies
|
|
|
|
|
Shareholders'
deficit
|
|
|
|
|
Common
stock, no par value 100,000,000 shares authorized 38,519,441 shares
issued
and outstanding
|
|
|
49,608,419
|
|
Deferred
compensation
|
|
|
(20,239
|
)
|
Accumulated
deficit
|
|
|
(48,639,037
|
)
|
Accumulated
other comprehensive income, unrealized loss on marketable
securities
|
|
|
(2,038,046
|
)
|
Total
shareholders' deficit
|
|
|
(1,088,903
|
)
|
Total
liabilities and shareholders' deficit
|
|
$
|
2,334,745
|
|
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Operations
(unaudited)
|
|
For
the nine months ended
September
30,
|
|
For
the three months ended
September
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
Net
product sales
|
|
$
|
1,060,271
|
|
$
|
662,910
|
|
$
|
301,726
|
|
$
|
249,840
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold
|
|
|
704,569
|
|
|
396,494
|
|
|
232,713
|
|
|
165,069
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
355,702
|
|
|
266,416
|
|
|
69,013
|
|
|
84,771
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales,
general and administrative expense
|
|
|
1,840,794
|
|
|
10,025,278
|
|
|
365,488
|
|
|
274,245
|
|
Research
and development expense
|
|
|
67,959
|
|
|
105,717
|
|
|
13,112
|
|
|
22,403
|
|
Professional
fees
|
|
|
1,501,259
|
|
|
11,330,383
|
|
|
475,406
|
|
|
862,818
|
|
Depreciation
and amortization expense
|
|
|
47,925
|
|
|
106,197
|
|
|
16,325
|
|
|
10.225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expense
|
|
|
3,457,937
|
|
|
21,567,575
|
|
|
870,331
|
|
|
1,169,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,102,235
|
)
|
|
(21,301,159
|
)
|
|
(801,318
|
)
|
|
(1,084,920
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer
deposit forfeiture
|
|
|
100,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
Interest
income
|
|
|
6,036
|
|
|
4,084
|
|
|
1,172
|
|
|
1,027
|
|
Interest
expense
|
|
|
(715,046
|
)
|
|
(495
|
)
|
|
(235,398
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other income (expense)
|
|
|
(609,010
|
)
|
|
3,589
|
|
|
(234,226
|
)
|
|
1,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,711,245
|
)
|
|
(21,297,570
|
)
|
|
(1,035,544
|
)
|
|
(1,083,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
preferred dividends
|
|
|
-
|
|
|
(8,373
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders
|
|
$
|
(3,711,245
|
)
|
$
|
(21,305,943
|
)
|
$
|
(1,035,544
|
)
|
$
|
(1,083,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss available to common shareholders per
share
|
|
$
|
(0.10
|
)
|
$
|
(1.12
|
)
|
$
|
(0.03
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted-average shares outstanding
|
|
|
36,756,797
|
|
|
18,946,026
|
|
|
38,033,352
|
|
|
26,537,529
|
|
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Loss
(unaudited)
|
|
For
the nine months ended
September
30,
|
|
For
the three months ended
September
30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available tocommon shareholders
|
|
$
|
(3,711,245
|
)
|
$
|
21,305,943
|
)
|
$
|
(1,035,544
|
)
|
$
|
(1,083,893
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain (loss) on marketable securities
|
|
|
(25,378
|
)
|
|
(1,667,666
|
)
|
|
54,984
|
|
|
(1,667,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
and comprehensive loss
|
|
$
|
(3,736,623
|
)
|
$
|
(20,213,677
|
)
|
$
|
(980,560
|
)
|
$
|
(2,751,559
|
)
|
NUTRACEA
AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
(unaudited)
|
|
For
the nine months ended
September
30,
|
|
|
|
2005
|
|
2004
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,711,245
|
)
|
$
|
(21,297,570
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities
|
|
|
|
|
|
|
|
Accretion
of warrants used as a debt discount
|
|
|
586,510
|
|
|
-
|
|
Depreciation
and amortization
|
|
|
108,640
|
|
|
73,826
|
|
Non-cash
issuances of common stock
|
|
|
920,255
|
|
|
11,627,484
|
|
Non-cash
issuances of stock options & warrants
|
|
|
414,449
|
|
|
7,782,515
|
|
(Increase)
decrease in
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(80,120
|
)
|
|
(83,355
|
)
|
Inventory
|
|
|
(87,676
|
)
|
|
(112,738
|
)
|
Prepaid
expenses
|
|
|
(380,053
|
)
|
|
(23,134
|
)
|
Increase
(decrease) in
|
|
|
|
|
|
|
|
Advances
from related parties
|
|
|
(71,968
|
)
|
|
(9,578
|
)
|
Accounts
payable
|
|
|
621,611
|
|
|
(21,711
|
)
|
Accrued
salaries and benefits
|
|
|
(9,371
|
)
|
|
(37,130
|
)
|
Deferred
compensation
|
|
|
-
|
|
|
(47,842
|
)
|
Accrued
expenses
|
|
|
130,354
|
|
|
10,025
|
|
Customer
deposits
|
|
|
(4,235
|
)
|
|
5,000
|
|
Net
cash (used) in operating activities
|
|
|
(1,562,849
|
)
|
|
(2,130,208
|
)
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(16,100
|
)
|
|
(35,110
|
)
|
Payment
for patents and trademarks
|
|
|
(45,720
|
)
|
|
(51,534
|
)
|
Net
cash used in investing activities
|
|
|
(61,830
|
)
|
|
(86,644
|
)
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from exercise of stock options
|
|
|
85,432
|
|
|
2,771,868
|
|
Payment
of preferred dividends
|
|
|
-
|
|
|
(48,004
|
)
|
Repurchase
of common stock
|
|
|
-
|
|
|
(230,000
|
)
|
Net
cash provided by financing activities
|
|
|
85,432
|
|
|
2,493,864
|
|
Net
increase (decrease) in cash
|
|
|
(1,539,247
|
)
|
|
277,012
|
|
Cash,
beginning of period
|
|
|
1,928,281
|
|
|
100,023
|
|
Cash,
end of period
|
|
$
|
389,034
|
|
$
|
377,035
|
|
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements
NOTE
1
|
BASIS
OF PRESENTATION:
|
The
accompanying unaudited interim consolidated financial statements of NutraCea
have been prepared in accordance with accounting principles generally accepted
in the United States of America and the rules of the Securities and Exchange
Commission (“SEC”), and should be read in conjunction with the audited financial
statements and notes thereto contained in NutraCea’s Annual Report filed with
the SEC on Form 10-KSB. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation
of
financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations for interim
periods are not necessarily indicative of the results to be expected for
the
full year. Notes to the financial statements that would substantially duplicate
the disclosure contained in the audited financial statements for 2004 as
reported in the 10-KSB have been omitted.
NOTE
2
|
STOCK-BASED
COMPENSATION:
|
Compensation
is recorded for stock-based compensation grants based on the excess of the
estimated fair value of the common stock on the measurement date over the
exercise price. Additionally, for stock-based compensation grants to
consultants, NutraCea recognizes as compensation expense the fair value of
such
grants as calculated pursuant to SFAS No. 123, recognized over the related
service period. SFAS No. 148 requires companies to disclose proforma results
of
the estimated effect on net income and earnings per share to reflect application
of the fair value recognition provision of SFAS No. 123.
|
|
For
the nine months
|
|
For
the three months
|
|
|
|
ended
September 30,
|
|
ended
September 30,
|
|
|
|
2005
|
|
2004
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss available to common shareholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported:
|
|
|
($3,711,245
|
)
|
|
($21,305,943
|
)
|
|
($1,035,544
|
)
|
|
($1,083,893
|
)
|
Less:
compensation expensed charged to income:
|
|
|
789,251
|
|
|
7,782,515
|
|
|
552,245
|
|
|
490,455
|
|
Plus:
proforma compensation expense:
|
|
|
(1,226,529
|
)
|
|
(7,784,542
|
)
|
|
(552,245
|
)
|
|
(490,455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proforma
net loss available to common shareholders:
|
|
|
($4,148,523
|
)
|
|
($21,307,970
|
)
|
|
($1,035,544
|
)
|
|
($1,083,893
|
)
|
Basic
loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported:
|
|
|
($0.10
|
)
|
|
($1.12
|
)
|
|
($0.03
|
)
|
|
($0.04
|
)
|
Proforma:
|
|
|
($0.11
|
)
|
|
($1.12
|
)
|
|
($0.03
|
)
|
|
($0.04
|
)
|
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
NOTE
3
|
MARKETABLE
SECURITIES
|
On
September 8, 2004, NutraCea purchased 1,272,026 shares of Langley Park
Investment Trust, PLC, a United Kingdom closed-end mutual fund that is actively
traded on a London exchange. Per the Stock Purchase Agreement, NutraCea paid
with 7,000,000 shares of its own common stock.
Per
the
Agreement, NutraCea may sell 636,013 shares of Langley at any time, and the
remaining 636,013 shares of Langley and the 7,000,000 shares of NutraCea
are
escrowed together for a 2-year period. At the end of the period, Langley’s
NutraCea shares are measured for any loss in market value and if so, NutraCea
must give up that pro-rata portion of its Langley shares up to the escrowed
636,013 shares.
As
of
September 30, 2005, the NutraCea shares have not lost any value. However,
the
Langley shares are marked down to their fair market value of $341,954, with
one-half or $170,977 shown as a current asset because they may be sold at
any
time, and the other one-half shown as long-term because they are held in
escrow
pending the 2-year review of NutraCea’s stock valuation.
Any
unrealized holding gains and losses on the marketable securities are excluded
from operating results and are recognized as other comprehensive income.
The
fair value of the securities is determined based on prevailing market prices.
NOTE
4
|
COMMITMENTS
AND CONTINGENCIES
|
Agreements
For
all
agreements where stock is awarded as partial or full consideration, the expense
is valued at the fair value of the stock. Expense for stock options and warrants
issued to consultants is calculated at fair value using the Black-Scholes
valuation method.
On
January 25, 2005, NutraCea entered into a three year employment agreement
with
its Senior Vice President whereby NutraCea is to pay the officer a base salary
of $150,000 per year. The agreement also provides that the officer is entitled
to a one-time initial bonus of $25,000 and will be eligible for future incentive
bonuses based solely on the discretion of the Chief Executive Officer or
President of NutraCea and to be approved by NutraCea’s Compensation Committee.
Warrants to purchase 1,000,000 shares of NutraCea’s common stock at an exercise
price of $0.30 per share were issued and will vest 500,000 at signing of
the
employment agreement and 500,000 on January 25, 2006. Warrants to purchase
1,000,000 shares of NutraCea’s common stock at an exercise price of $0.30 per
share were also issued and will vest upon the achievement of NutraCea obtaining
“Gross Sales over $25,000,000” and NutraCea reports a positive EBITDA for the
period. All warrants expire in ten years from the date of issuance.
On
January 26, 2005 NutraCea entered into a non-exclusive distribution agreement
to
distribute NutraCea’s rice based nutraceutical products in the United States. An
initial order for $25,000 was made concurrently with the signing of the
agreement. The term of the agreement is for three years. Products are sold
to
the distributor at NutraCea’s standard price schedule; purchases above certain
annual minimum requirements will then receive a 5% discount. Additionally,
failure to meet these minimum purchase requirements is cause for termination
of
the agreement at NutraCea’s option. NutraCea may also at its option terminate
the agreement upon 60 days written notice to the distributor.
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
On
February 9, 2005, NutraCea issued 200,000 stock options with an exercise
price
of $0.45 per share, vesting over three years, with lockup provisions through
December 31, 2005 to two employees of NutraCea with each receiving 100,000
options. Non-cash compensation expense of $2,000 was recorded relating to
the
issue of these options.
On
February 10, 2005, NutraCea entered into a one year consulting agreement
with
Trilogy, a financial relations company. Payments to Trilogy consisted of
$10,000
per month and the issuance of 700,000 warrants to purchase shares of common
stock at an exercise price of $.45 per share; 700,000 warrants to purchase
shares of common stock at an exercise price of $.65 per share; and 700,000
warrants to purchase shares of common stock at an exercise price of $.85
per
share. This agreement was subsequently terminated in April 2005. As a result,
NutraCea has no further financial obligations pursuant to this contract and
all
warrants originally issued under the contract were cancelled. In conjunction
with this agreement NutraCea agreed to pay a finder’s fee to a consulting
company consisting of stock options to purchase 135,000 shares of common
stock
at a price of $0.45 per share.
On
February 28, 2005, NutraCea terminated an existing consulting agreement with
a
retired employee that was entered into on April 19, 2004. At NutraCea’s sole
discretion it may retain the services of the consultant on a monthly basis
at a
rate of $80 per hour, not to exceed 10 hours per month for the first three
months following the termination of the agreement. Additionally, for each
patent
granted to NutraCea whereby the consultant is listed as inventor, the consultant
shall receive 15,000 shares of restricted common stock; however the maximum
value of the stock grant shall not exceed $15,000 based on the closing bid
price
of NutraCea’s common stock on the date the patent is granted, with the total
shares granted reduced accordingly.
On
March
1, 2005, NutraCea amended and restated a consulting agreement (with Company
options to extend on an annual basis) with a retired employee of NutraCea.
Under
the terms of the agreement, monthly compensation of $7,500 is payable. In
addition, the consultant received warrants to purchase 10,000 shares of common
stock at $.43 a share. The 10,000 warrants are valued at $3,131 and expire
in
three years. Either party can cancel this agreement with 30-day written notice.
If the agreement is extended past the first year then monthly compensation
will
be increased to $8,333 with additional warrants to purchase 15,000 shares
of
common stock at the market price per share at the date of extension.
Additionally, for each patent granted to NutraCea whereby the consultant
is
listed as inventor, the consultant shall receive 15,000 shares of restricted
common stock; however the maximum value of the stock grant shall not exceed
$15,000 based on the closing bid price of NutraCea’s common stock on the date
the patent is granted, with the total shares granted reduced
accordingly.
On
March
15, 2005, NutraCea entered into a five year consulting agreement with a medical
advisor. Under the terms of the agreement, annual compensation shall be 15,000
warrants to purchase shares of common stock at the market price on each
anniversary date. The option price for the first year of service is a price
of
$.50 per share.
On
March
23, 2005, NutraCea agreed to pay $15,000 of unpaid fees to a web design
consultant by issuing 26,786 shares of common stock.
On
April
5, 2005, NutraCea hired a financial services firm to assist in evaluating
the
proposed merger with RiceX and to provide a fairness opinion. A fee of $50,000
for this work was paid.
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
On
April
5, 2005, NutraCea hired an information technology and marketing firm to assist
in the development of sales of NutraCea’s products over the Internet. The IT
firm purchases from NutraCea products at 50% of the suggested retail price
and
has the non-exclusive right to sell them on the Internet. All sales, marketing,
shipping, and handling costs are the responsibility of the IT firm. The term
of
the contract is for three years. Additionally, options to purchase 360,000
shares of common stock of NutraCea at an exercise price of $0.60 per share
were
issued at the effective date of the contract, with 45,000 options vesting
at the
signing of the contract and the remainder of the options vesting at 15,000
options per month over the next 21 months. All options that vest are locked
up
until December 31, 2007. A total of 105,000 options vested during the term
that
this contract was effective. This agreement was subsequently terminated in
August 2005 and total of 105,000 options vested during the term that this
contract was effective. As a result, NutraCea has no further financial
obligations pursuant to this contract.
On
April
12, 2005, NutraCea granted various rights to its principal equine division
products customer that specifically include:
|
·
|
The
grant to NutraCea of exclusive worldwide rights to manufacture
certain
equine products for the customer.
|
|
·
|
The
transfer and assignment of the customer’s technology rights granted to it
in a prior Technology Agreement dated September 13, 2003. 1,222,222
shares
of NutraCea’s common stock were issued to the customer as consideration
for the transfer and assignment.
|
|
·
|
The
transfer and assignment of technology rights of a limited liability
corporation formed by the customer and granted to it in a prior
Technology
Agreement dated September 13, 2003. 166,667 shares of NutraCea’s common
stock are to be issued to the limited liability corporation as
consideration for the transfer and
assignment.
|
|
·
|
The
grant of marketing and distribution rights to the customer covering:
1)
the right of first offer to market new products as may be developed
by
NutraCea or proposed to be developed by the customer for non-human
markets; and 2) the right of first refusal in the event that a
third party
independently contacts NutraCea regarding the marketing and distribution
of new, non-human products. Also, the customer agrees to use NutraCea
as
the exclusive manufacturer for any new, non-human products as defined.
Additionally, NutraCea may earn a 5% royalty on new products on
revenues
exceeding specified annual volume
levels.
|
On
April
18, 2005, a direct response marketing company hired the Chief Executive Officer
of NutraCea whereby she will receive a royalty of $1 per unit sold resulting
from infomercials that will demonstrate specific products of NutraCea. Royalty
payments will be made by the direct response marketing company and are not
an
obligation of NutraCea.
On
April
19, 2005, NutraCea signed an agreement with a direct response marketing company
to market and sell products through infomercials. The agreement is for one
year
and may be extended for an additional year. The agreement covers pricing
of
specific products at wholesale prices which will be private labeled for direct
sale by the marketing company. During the term of the agreement NutraCea
will
not sell its products through any other infomercials so long as the marketing
company maintains minimum quarterly orders beginning October 1, 2005 of
$500,000.
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
On
May 5,
2005, NutraCea’s hired a consulting company to provide patent and license
analysis. The agreement is for one year and may be terminated by either party
with 30 days written notice. Compensation shall be 448,980 shares of common
stock valued at $220,000 granted to the consulting company which was booked
entirely in this period. 50% of the shares vest upon the signing of the
agreement; a minimum of 134,693 shares vest within three months of certain
reporting requirements being made by the consulting company; and the remaining
shares vest upon NutraCea taking action on recommendations of the consulting
company.
On
May
17, 2005, NutraCea entered into a one year consulting agreement (with Company
options to extend on an annual basis) with a retired employee of NutraCea
primarily for research and development work. Under the terms of the agreement,
monthly compensation of $6,667 is payable. In addition, the consultant received
warrants to purchase 10,000 shares of common stock at $0.50 a share. The
10,000
warrants are valued at $3,395 and expire in three years. Either party can
cancel
this agreement with 30-day written notice. Additionally, for each patent
granted
to NutraCea whereby the consultant is listed as inventor, the consultant
shall
receive 15,000 shares of restricted common stock.
Effective
June 1, 2005, NutraCea entered into a one year consulting agreement with
an
investor relations firm. Either party may terminate the agreement upon four
months written notice to the other party. Under the terms of the agreement
monthly compensation is $5,000. In addition, the consulting firm received
options to purchase 250,000 shares of common stock at $0.65 per share. The
250,000 options are valued at $90,044, expire in five years, and may not
be
exercised for the first year from the date of grant.
On
July
1, 2005 NutraCea hired a company to provide potential qualified customer
introductions. The term of the service agreement is 12 months and may be
terminated by either party upon written notice. NutraCea granted the company
an
option to purchase 250,000 shares of restricted common stock at a price of
$0.65
per share. The option shall not vest until NutraCea has received purchase
orders
of at least $2,000,000 from a qualifying agreement during the term of the
agreement plus 12 months from the termination of the service agreement from
any
qualifying agreement. Additionally, upon vesting of the option NutraCea shall
pay the company a reasonable royalty fee based on the net profits received
from
a qualifying agreement.
On
July
1, 2005 NutraCea entered into a consulting agreement with an individual to
assist in the research and validation of NutraCea’s products in the medical
foods market. The term of the agreement is for six months. NutraCea granted
the
individual an option to purchase 250,000 shares of restricted common stock
at a
price of $0.65 per share.
On
July
13, 2005 NutraCea hired a financial advisory services company to act as the
exclusive financial advisor in connection with the issuance of equity securities
during the term of the agreement. The term of the agreement is 12 months.
Compensation consists of an initial $10,000 advisory fee; transaction fees
of
varying amounts based on the amount of capital raised by NutraCea through
the
efforts of the financial advisor; and warrants of varying amounts based on
the
amount of capital raised by NutraCea through the efforts of the financial
advisor.
On
July
14, 2005 NutraCea hired an individual to assist in forming a joint operating
agreement with a rice mill in two certain foreign countries. The term of
the
finder’s agreement is for nine months and may be terminated by either party for
any reason at any time. NutraCea shall pay the finder a fee based on net
income.
The joint entity transaction must include a purchase commitment arranged
by the
venture party from the applicable country for a minimum of one hundred thousand
servings per day for the first two years while a production plant is being
constructed and a subsequent commitment for an additional one million servings
per day for at least two additional years after the production plant has
been
constructed. The venture party must fund the construction of the production
plant.
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
On
August
23, 2005 NutraCea entered into a one year consulting agreement with a medical
advisor. NutraCea granted the individual an option to purchase 30,000 shares
of
restricted common stock at a price of $0.60 per share. Additionally, NutraCea
will pay the individual a $500 per day per diem for attendance at meetings
and
appearances on behalf of NutraCea.
On
August
24, 2005, NutraCea signed an agreement with a direct response marketing company
to market and sell products through infomercials. The agreement is for two
years
and may be extended for an additional year. The agreement covers pricing
of
specific products at wholesale prices which will be private labeled for direct
sale by the marketing company. During the term of the agreement NutraCea
will
not sell its products through any other infomercials so long as the marketing
company maintains minimum quarterly orders beginning October 1, 2005 of
$500,000. Additionally, NutraCea granted the company an option to purchase
250,000 shares of restricted common stock at a price of $1.275 per share.
The
options vest 50,000 shares upon payment in full of the contract quarter minimum
purchase orders during the term of the agreement.
On
September 13, 2005 NutraCea entered into an agreement with Dominican Republic
rice mill whereby the two companies will form a joint venture to install
equipment to annually produce at least 5,000 metric tons of stabilized rice
bran. The joint venture will be equally owned by the two companies and will
commercially sell stabilized rice bran products through retail and government
in
the Dominican Republic and Haiti.
Merger
with The RiceX Company
At
special meetings of shareholders held on September 28, 2005 the shareholders
of
NutraCea and The RiceX Company ("RiceX") approved various matters relating
to
the proposed merger between the two companies.
On
October 4, 2005, NutraCea, through its wholly-owned subsidiary, Red Acquisition
Corporation, a Delaware corporation (“Merger Sub”), consummated its acquisition
of RiceX by merger (the “Merger”) pursuant to the terms of an Agreement and Plan
of Merger and Reorganization, dated April 4, 2005, by and among NutraCea,
Merger
Sub and RiceX (the “Merger Agreement”). At the effective time of the Merger,
Merger Sub merged with and into RiceX, with RiceX surviving the Merger as
a
wholly-owned subsidiary of NutraCea. Pursuant to the Merger Agreement and
as a
result of the Merger, each share of RiceX common stock outstanding immediately
prior to the effective time of the Merger was converted into the right to
receive 0.76799 shares of NutraCea’s common stock.
At
the
completion of the Merger, the stockholders of RiceX received 28,272,226 shares
of NutraCea common stock in exchange for their shares of RiceX common stock,
and
NutraCea assumed the outstanding options and warrants to purchase 11,810,507
shares of RiceX common stock.
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
On
September 28, 2005, NutraCea entered into a Securities Purchase Agreement
and a
Registrations Rights Agreement in connection with a private placement of
its
securities to certain investors for aggregate gross proceeds of approximately
$7.85 million (approximately $7.3 million after estimated offering expenses).
Upon closing of the transaction on October 4, 2005, the investors purchased
an
aggregate of 7,850 shares of Series B Convertible Preferred Stock at a price
of
$1,000 per share pursuant to the Purchase Agreement. The preferred shares
can be
converted to shares of common stock at a conversion rate of 2,000 shares
of
common stock for each preferred share issued in the transaction. Additionally,
pursuant to the Purchase Agreement, the investors were issued warrants to
purchase an aggregate 7,850,000 shares of common stock at an exercise price
of
$0.70 per share. The warrants have a term of five years and are immediately
exercisable. An advisor for the financing received a customary fee based
on
aggregate gross proceeds received from the investors and a warrant to purchase
1,099,000 shares of common stock at an exercise price per share of $0.50
per
share.
Common
and Preferred Stock
All
stock
issued is valued at the fair value of the stock.
During
the quarter ended September 30, 2005, NutraCea issued 174,667 shares of common
stock to consultants for services rendered valued at $85,400.
During
the quarter ended September 30, 2005, NutraCea issued 97,000 shares of common
stock in settlement of contractual agreements valued at $97,655.
During
the quarter ended September 30, 2005, Nutracea issued 425,000 shares of common
stock pursuant to the exercise of stock options for cash totaling
$85,000.
Stock
Options & Warrants
Expense
for stock options and warrants issued to consultants is calculated at fair
value
using the Black-Scholes valuation method.
During
the quarter ended September 30, 2005, NutraCea issued 310,000 warrants with
exercise prices of $0.60 per share to consultants. The warrants expire between
four years and five years from the date of issue. A total of $177,443 in
non-cash compensation expense was recorded relating to the issue of these
warrants.
For
internal reporting purposes, management segregates NutraCea into operating
segments as follows for the nine and the three months ended September 30,
2005
and 2004:
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
Nine
months ended September 30, 2005
|
|
Net
Sales
|
|
(Loss)
from Operations
|
|
Interest
Expense
|
|
Total
Assets
|
|
Depreciation/
Amortization
|
|
NutraStar
Technologies Incorporated
|
|
$
|
698,465
|
|
$
|
795,692
|
|
$
|
715,046
|
|
$
|
2,
292,3178
|
|
$
|
47,925
|
|
NutraGlo
Incorporated
|
|
|
659,536
|
|
|
256,443
|
|
|
-
|
|
|
42,428
|
|
|
-
|
|
Unallocated
corporate overhead
|
|
|
|
|
|
(4,154,370
|
)
|
|
|
|
|
|
|
|
60,715
|
|
Total,
NutraCea
|
|
$
|
1,358,001
|
|
$
|
(3,102.235
|
)
|
$
|
715,046
|
|
$
|
2,334,745
|
|
$
|
108,640
|
|
Nine
months ended September 30, 2004
|
|
Net
Sales
|
|
(Loss)
from Operations
|
|
Interest
Expense
|
|
Total
Assets
|
|
Depreciation/
Amortization
|
|
NutraStar
Technologies Incorporated
|
|
$
|
306,113
|
|
$
|
(9,505,506
|
)
|
$
|
495
|
|
$
|
1,914,563
|
|
$
|
24,167
|
|
NutraGlo
Incorporated
|
|
|
356,797
|
|
|
109,200
|
|
|
-
|
|
|
136,669
|
|
|
-
|
|
Unallocated
corporate overhead
|
|
|
-
|
|
|
(11,904,853
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Total,
NutraCea
|
|
$
|
662,910
|
|
$
|
(21,301,159
|
)
|
$
|
495
|
|
$
|
2,051,232
|
|
$
|
24,167
|
|
Three
months ended September 30, 2005
|
|
Net
Sales
|
|
(Loss)
from Operations
|
|
Interest
Expense
|
|
Total
Assets
|
|
Depreciation/
Amortization
|
|
NutraStar
Technologies Incorporated
|
|
$
|
484,122
|
|
$
|
264,505
|
|
$
|
235,398
|
|
$
|
2,292,317
|
|
$
|
16,326
|
|
NutraGlo
Incorporated
|
|
|
115,334
|
|
|
28,592
|
|
|
-
|
|
|
42,428
|
|
|
-
|
|
Unallocated
corporate overhead
|
|
|
|
|
|
(1,094,415
|
)
|
|
|
|
|
|
|
|
20,234
|
|
Total,
NutraCea
|
|
$
|
599,456
|
|
$
|
(801,318
|
)
|
$
|
235,398
|
|
$
|
2,334,7451
|
|
$
|
36,560
|
|
Three
months ended September 30, 2004
|
|
Net
Sales
|
|
(Loss)
from Operations
|
|
Interest
Expense
|
|
Total
Assets
|
|
Depreciation/
Amortization
|
|
NutraStar
Technologies Incorporated
|
|
$
|
88,916
|
|
$
|
304,277
|
|
$
|
-
|
|
$
|
1,914,563
|
|
$
|
10,225
|
|
NutraGlo
Incorporated
|
|
|
160,924
|
|
|
49,091
|
|
|
-
|
|
|
136,669
|
|
|
-
|
|
Unallocated
corporate overhead
|
|
|
-
|
|
|
(1,438,288
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
Total,
NutraCea
|
|
$
|
249,840
|
|
$
|
(1,084.920
|
)
|
$
|
-
|
|
$
|
2,051,232
|
|
$
|
10,225
|
|
On
October 1, 2005, NutraCea entered into a one-year consulting agreement with
an
independent contractor. Under the terms of the agreement, compensation shall
be
an initial issuance of 50,000 shares
of
common
stock plus $15,000 in cash or its equivalent value in shares of common stock.
Also, during the term of the contract, NutraCea shall pay monthly either
$5,000
cash or common stock valued at $5,000, with the type of payment at NutraCea’s
discretion. In addition, the independent contractor is entitled to a
2%
commission based on net profits resulting from contracts with customers
introduced to NutraCea by the independent contractor.
On
October 4, 2005 NutraCea completed the merger with The RiceX Company. See
Note 4
for additional information.
On
October 6, 2005 NutraCea issued 100,000 shares of common stock pursuant to
the
exercise of stock options and warrants for cash totaling $20,000.
On
October 25, 2005 NutraCea signed a binding letter of intent with an industrial
consortium in Columbia.
The
terms
of the binding letter of intent include the creation of a joint entity to
share
equally in the profits generated from sales of NutraCea products in the
Colombian market. The agreement includes provisions for the Colombian consortium
to provide 50% of all the financing necessary to construct the plants (with
NutraCea providing the remaining 50% of the financing) and to be responsible
for
providing all the necessary land and space required for the implementation
of
the plants to be constructed. The Colombian consortium is responsible for
providing all of the sales and distribution as part of its contribution to
the
joint entity. As dictated by the letter of intent, it is the intention of
the
parties to execute a formal definitive agreement on or before December 25,
2005.
Unless
the parties to the binding letter of intent agree to extend, the binding
letter
of intent will expire 60 days after signing.
NUTRACEA
AND SUBSIDIARIES
Notes
to Unaudited Consolidated Financial Statements (continued)
On
October 28, 2005 NutraCea signed a binding letter of intent with an Ecuadorian
company. The letter of intent provides for an exclusive 60 day period of
time
during, in which NutraCea and the Ecuadorian company will attempt to arrive
at a
definitive agreement for a working arrangement that will allow the Ecuadorian
company the right to utilize NutraCea's proprietary ingredients and value-added
processing in their multi-faceted food business, which includes animal feed,
poultry and cereals. Unless the parties to the binding letter of intent agree
to
extend, the binding letter of intent will expire 60 days after
signing.
In
November 2005 NutraCea signed a Supply and Distribution Agreement with T.
Geddes
Grant, a Jamaican Corporation. The agreement requires NutraCea to deliver
a
customized formulated and fortified RiSolubles mix to T. Geddes Grant. The
agreement requires that T. Geddes Grant purchase a minimum of $4,500,000
of the
custom formulation per year for a term of two years. Under the terms of the
agreement, T. Geddes Grant is also appointed as exclusive distributor for
the
territory of Jamaica, Barbados and Trinidad. T. Geddes Grant is obligated
to
obtain all necessary regulatory approvals for marketing NutraCea products
in the
Territory and use its best efforts to develop commercial sales in the
Territory.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors
The
RiceX Company
We
have
audited the accompanying consolidated balance sheet of
The
RiceX Company
and
Subsidiary (the Company) as of December 31, 2004 and the related consolidated
statements of operations, shareholders’ equity and cash flows for the year then
ended. 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 audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards 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. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of The RiceX Company
and
Subsidiary as of December 31, 2004, and the results of their consolidated
operations and their consolidated cash flows for the year then ended in
conformity with U.S. generally accepted accounting principles.
/s/
Perry-Smith LLP
Sacramento,
California
March
4,
2005
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The
Board
of Directors and Shareholders
The
RiceX Company
We
have
audited the accompanying consolidated balance sheet of
The
RiceX Company
and
Subsidiary (the Company) as of December 31, 2003, and the related consolidated
statements of operations, shareholders’ equity (deficit) and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of The RiceX
Company and Subsidiary as of December 31, 2003, and the results of their
consolidated operations and their consolidated cash flows for the year then
ended in conformity with accounting principles generally accepted in the
United
States of America.
/s/
Moss
Adams LLP
Stockton,
California
February
20, 2004
THE
RICEX COMPANY
CONSOLIDATED
BALANCE SHEETS
ASSETS
|
|
DECEMBER
31,
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,034,913
|
|
$
|
2,219,091
|
|
Trade
accounts receivable, net of allowance for doubtful accounts, $20,000
in
2004 and 2003
|
|
|
499,413
|
|
|
679,243
|
|
Inventories
|
|
|
401,554
|
|
|
340,513
|
|
Deposits
and other current assets
|
|
|
91,978
|
|
|
76,214
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
2,027,858
|
|
|
3,315,061
|
|
|
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
542,576
|
|
|
694,161
|
|
OTHER
ASSETS, net
|
|
|
27,186
|
|
|
59,586
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,597,620
|
|
$
|
4,068,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
811,055
|
|
$
|
607,742
|
|
Deferred
revenue
|
|
|
2,959
|
|
|
539,899
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
814,014
|
|
|
1,147,641
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
Preferred
stock, par value $.00l per share, 10,000,000 shares authorized,
no shares
issued and outstanding
|
|
|
-
|
|
|
-
|
|
Common
stock, par value $.001 per share, 100,000,000 shares authorized,
36,713,274 and 38,060,238 shares issued and outstanding in 2004
and 2003,
respectively
|
|
|
36,714
|
|
|
38,060
|
|
Additional
paid-in capital
|
|
|
28,900,767
|
|
|
29,154,428
|
|
Accumulated
deficit
|
|
|
(27,153,875
|
)
|
|
(26,271,321
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
shareholders’ equity
|
|
|
1,783,606
|
|
|
2,921,167
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,597,620
|
|
$
|
4,068,808
|
|
The
accompanying notes are an integral part of these statements.
THE
RICEX COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
YEARS
ENDED DECEMBER 31,
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
REVENUES:
|
|
|
|
|
|
|
|
Sales
|
|
$
|
4,010,186
|
|
$
|
3,511,295
|
|
|
|
|
|
|
|
|
|
TOTAL
REVENUES
|
|
|
4,010,186
|
|
|
3,511,295
|
|
|
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
1,655,940
|
|
|
1,865,055
|
|
|
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
|
2,354,246
|
|
|
1,646,240
|
|
|
|
|
|
|
|
|
|
RESEARCH
AND DEVELOPMENT EXPENSES
|
|
|
223,685
|
|
|
226,452
|
|
SELLING,
GENERAL AND ADMINISTRATIVE EXPENSES
|
|
|
2,465,380
|
|
|
2,180,963
|
|
STOCK
OPTION AND WARRANT EXPENSE
|
|
|
15,000
|
|
|
3,000
|
|
INVESTOR
RELATIONS
|
|
|
61,948
|
|
|
104,423
|
|
PROFESSIONAL
FEES
|
|
|
502,207
|
|
|
440,039
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(913,974
|
)
|
|
(1,308,637
|
)
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
33,070
|
|
|
17,864
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(880,904
|
)
|
|
(1,290,773
|
)
|
|
|
|
|
|
|
|
|
INCOME
TAX expense
|
|
|
1,650
|
|
|
1,650
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(882,554
|
)
|
$
|
(1,292,423
|
)
|
|
|
|
|
|
|
|
|
BASIC
AND DILUTED EARNINGS PER SHARE,
|
|
|
|
|
|
|
|
Net
loss per share
|
|
$
|
(.02
|
)
|
$
|
(.03
|
)
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF SHARES OUTSTANDING
|
|
|
37,061,240
|
|
|
38,301,484
|
|
The
accompanying notes are an integral part of these statements.
THE
RICEX COMPANY
CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY
YEARS
ENDED DECEMBER 31, 2004 AND 2003
|
|
Common
Stock
|
|
Additional
Paid-In
|
|
Accumulated
|
|
Deferred
Expenses Related to Equity
|
|
Total
Shareholders’
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Issuance
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2003
|
|
|
38,680,724
|
|
$
|
38,681
|
|
$
|
29,315,287
|
|
$
|
(24,978,898
|
)
|
$
|
(57,418
|
)
|
$
|
4,317,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
repurchase
|
|
|
(620,486
|
)
|
|
(621
|
)
|
|
(163,859
|
)
|
|
-
|
|
|
-
|
|
|
(164,480
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of warrants issued to former employees
|
|
|
-
|
|
|
-
|
|
|
3,000
|
|
|
-
|
|
|
-
|
|
|
3,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of warrants issued for consulting fees
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
57,418
|
|
|
57,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,292,423
|
)
|
|
-
|
|
|
(1,292,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
38,060,238
|
|
|
38,060
|
|
|
29,154,428
|
|
|
(26,271,321
|
)
|
|
-
|
|
|
2,921,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
repurchase
|
|
|
(1,346,964
|
)
|
|
(1,346
|
)
|
|
(268,661
|
)
|
|
-
|
|
|
-
|
|
|
(270,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of warrants issued to employees
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
-
|
|
|
-
|
|
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(882,554
|
)
|
|
-
|
|
|
(882,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
36,713,274
|
|
$
|
36,714
|
|
$
|
28,900,767
|
|
$
|
(27,153,875
|
)
|
$
|
-
|
|
$
|
1,783,606
|
|
The
accompanying notes are an integral part of these statements.
THE
RICEX COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
YEARS
ENDED DECEMBER 31,
|
|
|
|
2004
|
|
2003
|
|
CASH
FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(882,554
|
)
|
$
|
(1,292,423
|
)
|
Adjustments
to reconcile net loss to net cash (used in) provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
230,475
|
|
|
380,019
|
|
Amortization
of shares and warrants issued for services, prepaid interest, and
debt
issuance cost
|
|
|
15,000
|
|
|
60,419
|
|
Net
changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
179,830
|
|
|
686,232
|
|
Inventories
|
|
|
(61,041
|
)
|
|
(33,202
|
)
|
Deposits
and other current assets
|
|
|
(15,764
|
)
|
|
24,968
|
|
Accounts
payable and accrued liabilities
|
|
|
203,313
|
|
|
18,772
|
|
Deferred
revenue
|
|
|
(536,940
|
)
|
|
539,898
|
|
|
|
|
|
|
|
|
|
Net
cash from operating activities
|
|
|
(867,681
|
)
|
|
384,683
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
Purchases
of property and equipment, and other assets
|
|
|
(46,490
|
)
|
|
75,177
|
|
|
|
|
|
|
|
|
|
Net
cash from investing activities
|
|
|
(46,490
|
)
|
|
75,177
|
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
Repurchase
of common stock and warrants
|
|
|
(270,007
|
)
|
|
(164,480
|
)
|
|
|
|
|
|
|
|
|
Net
cash from financing activities
|
|
|
(270,007
|
)
|
|
(164,480
|
)
|
|
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
|
|
|
(1,184,178
|
)
|
|
295,380
|
|
CASH
AND CASH EQUIVALENTS, beginning of year
|
|
|
2,219,091
|
|
|
1,923,711
|
|
CASH
AND CASH EQUIVALENTS, end of year
|
|
$
|
1,034,913
|
|
$
|
2,219,091
|
|
The
accompanying notes are an integral part of these statements.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
The
RiceX
Company (“RiceX”), formerly Food Extrusion, Inc., was incorporated in California
in 1989 and in 1998 was reincorporated in Delaware and changed its name to
The
RiceX Company. RiceX has a wholly owned subsidiary, RiceX Nutrients, Inc.
(formally Food Extrusion Montana, Inc.). The consolidated financial statements
include the accounts of RiceX and RiceX Nutrients (collectively “the Company”),
after the elimination of all inter-company balances and
transactions.
The
Company is an agribusiness food technology company, which has developed a
proprietary process to stabilize rice bran. RiceX is headquartered in El
Dorado
Hills, California and has stabilization equipment located at a rice mill
in
Northern California. The Company purchases raw rice bran from the mill and
mill
employees, under Company supervision, operate the Company’s equipment to
stabilize rice bran. The Company pays a processing fee to the mill for this
service. Under an agreement with the mill, the mill may use the Company’s
equipment to stabilize rice bran for its customers in exchange for the payment
of a royalty fee to the Company. The Company intends to enter into additional
relationships with rice processors as part of its overall business
strategy.
RiceX
Nutrients is engaged in the business of custom manufacturing grain-based
products for food ingredient companies at its production facility in Dillon,
Montana. The facility has specialized processing equipment and techniques
for
the treatment of grain products to cook, enzyme treat, convert, isolate,
dry and
package finished food ingredients. The soluble and fiber concentrate forms
of
the Company’s rice bran products are produced at the Montana
facility.
The
processing, formulation, packaging, labeling and advertising of the Company’s
products are subject to regulation by one or more federal agencies. Congress
enacted the Dietary Supplement Health Education Act of 1994 (“DSHEA”), which
limits the FDA’s jurisdiction in regulating dietary supplements.
A
summary
of the significant accounting principles and practices used in the preparation
of the consolidated financial statements follows:
Use
of estimates
- The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements
and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration
of credit risk
-
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist primarily of trade accounts receivable
for
sales to major customers. The Company performs credit evaluations on its
customers’ financial condition and generally does not require collateral on
accounts receivable. The Company maintains an allowance for doubtful accounts
on
its receivables based upon expected collectibility of all accounts receivable.
Uncollected accounts have not been significant.
In
2004,
three major customers each accounted for 13%, 12%, and 10% of sales,
respectively. Accounts receivable includes amounts due from three customers
comprising of 17%, 14%, and 12% of the total outstanding.
In
2003,
three major customers each accounted for 22%, 17%, and 7% of sales,
respectively. Accounts receivable includes amounts due from two customers
comprising 29% and 24% of the total outstanding.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Cash
and cash equivalents
-
Cash
equivalents consist of highly liquid investments with an original or remaining
maturity at the time of purchase of three months or less.
Allowance
for doubtful accounts
- The
Company provides an allowance for accounts receivable it believes it may
not
collect in full. It evaluates collectibility of its accounts based on a
combination of factors. In circumstances where it is aware of a specific
customer’s inability to meet its financial obligations such as bankruptcy, it
records a specific reserve. For all other customers, the Company recognized
reserves for bad debts based on current and historical collection experience.
Accounts receivable are considered delinquent based on contractual terms.
The
Company does not charge interest on delinquent accounts.
Inventories
-
Inventories are stated at the lower of cost or market determined on a first-in,
first-out basis. The costs associated with the milling process are allocated
to
inventory.
Property
and equipment
-
Property and equipment are stated at cost. Depreciation or amortization is
computed on the straight-line method over the shorter of the estimated life
of
the asset or the lease term, generally ranging from three to ten years. Upon
sales or retirement, the related cost and accumulated depreciation or
amortization are removed from the accounts and the resulting gain or loss,
if
any, is included in results of operations. The cost of additions, improvements,
and interest on construction are capitalized, while maintenance and repairs
are
charged to operations when incurred.
The
estimated lives used in determining depreciation and amortization
are:
Buildings
|
|
10
years
|
Equipment
|
|
5
-
7 years
|
Leasehold
improvements
|
|
7
years
|
Furniture
and fixtures
|
|
5
-
7 years
|
Deferred
expenses related to equity issuance
- Costs
incurred in connection with equity issuances are deferred and are amortized
over
the terms of the related service.
Revenue
recognition
-
Revenues from product sales are recognized as products are shipped and when
the
risk of loss has transferred to the buyer. Deposits are deferred until either
the product has shipped or conditions relating to the sale have been
substantially performed.
Shipping
and handling -
Shipping
and handling expenses totaled $61,000 and $74,000 in 2004 and 2003 respectively
and are captured in SG&A.
Research
and development
-
Research and development costs are expensed when incurred.
Stock
options
- At
December 31, 2004, the Company has one stock-based employee compensation
plan,
which is described more fully in Note 6. The Company accounts for this plan
under the recognition and measurement principles of Accounting Principles
Board
Opinions No. 25,
Accounting
for Stock Issued to Employees
,
and
related Interpretations. During 2004, the amount of $15,000
stock-based employee compensation cost is reflected in net income, as some
options granted under those plans had an exercise price lower than the market
value of the underlying common stock on the date of grant. The following
table
illustrates the effect on net income and earnings per share if the Company
had
applied the fair value recognition provisions of Financial Accounting Standards
Board (“FASB”) Statement No. 123,
Accounting
for Stock-Based Compensation
,
to
stock-based employee compensation.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
|
|
DECEMBER
31,
|
|
|
|
2004
|
|
2003
|
|
Net
loss, as reported
|
|
$
|
(882,554
|
)
|
$
|
(1,292,423
|
)
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards
|
|
|
(73,100
|
)
|
|
(45,600
|
)
|
|
|
|
|
|
|
|
|
Pro
forma net loss
|
|
$
|
(955,654
|
)
|
$
|
(1,338,023
|
)
|
Loss
per share:
|
|
|
|
|
|
|
|
Basic
and diluted net loss per share - as reported
|
|
$
|
(.02
|
)
|
$
|
(.03
|
)
|
Basic
and diluted net loss per share - pro forma
|
|
$
|
(.03
|
)
|
$
|
(.04
|
)
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted to employees during the
year
|
|
$
|
.21
|
|
$
|
.15
|
|
Net
loss per share
- Basic
net loss per share is computed based on the weighted average number of shares
of
common stock outstanding during each period. Diluted loss per share reflect
the
potential dilution that could occur if common shares were issued pursuant
to the
exercise of options or warrants. For the years ended December 31, 2004 and
2003
there is no diffeence between basic and diluted loss per share, as there
were no
dilutive stock options.
Income
taxes
-
Deferred income tax assets and liabilities result from the future tax
consequences associated with temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is
established to reduce deferred tax assets if it is more likely than not,
that
all, or some portion, of such deferred tax assets will not be
realized.
Accounting
for long-lived assets
-
Long-lived assets are recorded at the lower of amortized cost or fair value.
As
part of an ongoing review of the valuation of long-lived assets, management
assesses the carrying value of such assets if facts and circumstances suggest
they may be impaired. If this review indicates that the carrying value of
these
assets may not be recoverable, as determined by a non-discounted cash flow
analysis over the remaining useful life, the carrying value would be reduced
to
its estimated fair value. There has been no impairment recognized in these
consolidated financial statements.
Reclassifications
-
Certain reclassifications have been made to the 2003 financial information
to
conform to the 2004 presentation.
Recent
accounting pronouncements
Consolidation
of Variable Interest Entities
(VIE).
In
January 2003, the FASB issued Financial Interpretation No. 46 (“FIN 46”),
Consolidation
of Variable Interest Entities
(VIE).
It
defined a VIE as a corporation, partnership, trust, or any other legal structure
used for the business purpose that either a) does not have equity investors
with
voting rights or b) has equity investors that do not provide sufficient
financial resources for the entity to support its activities. This
interpretation will require a VIE to be consolidated or deconsolidated by
a
company if that company is subject to a majority of the risk of loss from
the
VIE's activities or entitled to receive a majority of the entity's residual
return. Most of the provisions of FIN 46 have been delayed until March 31,
2004.
The Company does not have any VIE and accordingly the implementation of FIN
46 did not have any impact on the Company’s financial position or results
of operations.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
1 - DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Recent
accounting pronouncements
(continued)
Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities
.
In
April
2003, FASB issued Statement No. 149 (“Statement No. 149”),
Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities
.
This
Statement amends and clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activities
under FASB Statement No. 133,
Accounting
for
Derivative
Instrumentsand Hedging Activities.
Statement
No. 149 is effective for contracts entered into or modified after June 30,
2003.
Adoption of Statement No. 149 did not result in an impact on the Company’s
statement of financial position or results of operations.
Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity.
In
May
2003, FASB issued Statement No. 150 (“Statement No. 150”),
Accounting
for Certain Financial Instruments with Characteristics of both Liabilities
and
Equity.
Statement No. 150 establishes standards for how an issuer classifies and
measures certain financial instruments with characteristics of both liabilities
and equity. It requires that an issuer classify a financial instrument that
is
within its scope as a liability (or an asset in some circumstances). Many
of
those instruments were previously classified as equity. Statement No. 150
is
effective for financial instruments entered into or modified after May 31,
2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003, except for mandatory redeemable financial
instruments of nonpublic entities. Adoption of Statement No. 150 did not
result
in an impact on the Company’s statement of financial position or results of
operations.
Share-Based
Payments
In
December 2004 the FASB issued Statement Number 123 (revised 2004) (FAS 123
(R)),
Share-Based
Payments.
FAS 123
(R) requires all entities to recognize compensation expense in an amount
equal
to the fair value of share-based payments, such as stock options, granted
to
employees. The company is required to apply FAS 123 (R) on a modified
prospective method. Under this method, the Company is required to record
compensation expense (as previous awards continue to vest) for the unvested
portion of previously granted awards that remain outstanding at the date
of
adoption. In addition, the Company may elect to adopt FAS 123 (R) by restating
previously issued financial statements, basing the expense on that previously
reported in their pro forma disclosures required by FAS 123. FAS 123 (R)
is
effective for the first reporting period beginning after June 15, 2005.
Management has not completed its evaluation of the effect that FAS 123 (R)
will
have, but believes that the effect will be consistent with its previous pro
forma disclosures.
Inventory
Costs
In
November 2004, the FASB issued Statement Number 151 (FAS 151),
Inventory
Costs.
FAS 151
amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify
the accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4,
previously stated that ". . . under some circumstances, items such as idle
facility expense, excessive spoilage, double freight, and rehandling costs
may
be so abnormal as to require treatment as current period charges. . . ."
FAS 151
requires that those items be recognized as current-period charges regardless
of
whether they meet the criterion of "so abnormal." In addition, FAS 151 requires
that allocation of fixed production overheads to the costs of conversion
be
based on the normal capacity of the production facilities. FAS 151 is effective
for fiscal years beginning after June 15, 2005. Management has not completed
its
evaluation of the effect that FAS 151 will have on the Company’s financial
statements.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
2 - INVENTORY
Inventory
consists of the following:
|
|
DECEMBER
31,
|
|
|
|
2004
|
|
2003
|
|
Finished
goods
|
|
$
|
307,456
|
|
$
|
240,708
|
|
Packaging
|
|
|
94,098
|
|
|
99,805
|
|
|
|
$
|
401,554
|
|
$
|
340,513
|
|
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consists of the following:
|
|
DECEMBER
31,
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Land
and buildings
|
|
$
|
380,154
|
|
$
|
380,154
|
|
Equipment
|
|
|
4,619,726
|
|
|
4,593,237
|
|
Leasehold
improvements
|
|
|
381,642
|
|
|
381,642
|
|
Furniture
and fixtures
|
|
|
228,071
|
|
|
208,071
|
|
|
|
|
5,609,593
|
|
|
5,563,104
|
|
Less
accumulated depreciation and amortization
|
|
|
(5,067,017
|
)
|
|
(4,868,943
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
542,576
|
|
$
|
694,161
|
|
NOTE
4 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts
payable and accrued liabilities consist of the following:
|
|
DECEMBER
31,
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Trade
accounts payable
|
|
$
|
287,751
|
|
$
|
203,591
|
|
Other
accrued liabilities
|
|
|
523,304
|
|
|
404,151
|
|
Deferred
revenue
|
|
|
2,959
|
|
|
539,899
|
|
|
|
|
|
|
|
|
|
|
|
$
|
814,014
|
|
$
|
1,147,641
|
|
Included
in Other accrued liabilities at December is $250,000 for the severance cost
of
two executives whose resignations from the Company were finalized in January
2005.
NOTE
5 - COMMITMENTS AND CONTINGENCIES
The
Company leases office, laboratory and warehouse space under operating leases
which expire in 2006 and 2009. The Company has the unilateral right to terminate
the facilities’ operating leases with six months’ written notice. Rent expense
under operating leases was $77,350 and $59,577 for the years ended December
31,
2004 and 2003, respectively.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
5 - COMMITMENTS AND CONTINGENCIES (
CONTINUED
)
The
following is a schedule of future minimum lease payments required under the
above leases:
Year
ending December 31,
|
|
2005
|
|
|
126,592
|
|
2006
|
|
|
94,944
|
|
Total
|
|
$
|
221,536
|
|
Lease
expenses of $4,000 per month on a month by month basis for a warehouse facility
in West Sacramento, California are included in the 2005 and 2006 minimum
lease
payments.
NOTE
6 - SHAREHOLDERS’ EQUITY
A.
|
Common
and preferred stock.
|
In
conjunction with RiceX’s re-incorporation in Delaware, the Company increased its
authorized number of common shares from 50,000,000 to 100,000,000, authorized
10,000,000 shares of preferred stock which may be issued from time to time,
in
one or more series, and authorized its Board of Directors to establish the
rights, preferences and privileges of each such series, when issued. At December
31, 2004, an aggregate of 18,971,047 shares of the Company’s common stock was
reserved for future issuance upon the exercise of stock options and
warrants.
B.
|
Stock
issued for services.
|
None
C.
|
Conversion
of debt to equity.
|
None
During
2000, the Company issued 182,137 shares of common stock and warrants to purchase
182,137 shares of common stock for cash proceeds of $116,400 in conjunction
with
a $6 million dollar private placement. The warrants, which expire three years
from issue date, have an exercise price for the first year of $1.00 per share,
for thesecond year of $1.25 per share and for the third year of $1.50 per
share.
As of December 31, 2003, all warrants issued in conjunction with this private
placement had expired.
E.
|
Repurchase
of common stock.
|
In
2002,
the Board of Directors approved resolutions authorizing the Company to
repurchase up to a total of $1,000,000 of its own stock on the open market
for a
period of one year. The Company repurchased 620,486 shares of its own stock
on
the open market during the year ended December 31, 2003.
In
April
2004, the Board of Directors approved an agreement authorizing us to purchase
1,346,964 common shares of our own stock and 3,030,669 warrants in a private
transaction. This was the only purchase transaction through the period ended
December 31, 2004. We paid $270,007 for the shares and warrants at an average
cost of $0.20 per share.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
6 - SHAREHOLDERS’ EQUITY
(continued)
F.
|
Warrants
and non-qualified stock options
issued.
|
At
December 31, 2004, warrants and non-qualified stock options outstanding were
as
follows:
Shares
issuable under warrants
and
non-qualified options
|
|
Number
of
Shares
|
|
Exercise
Price
Per
Share
|
|
Exercise
Period
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2003
|
|
|
18,330,923
|
|
$
|
0.70
- $1.65
|
|
|
1
- 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
during the year
|
|
|
(4,091,207
|
)
|
$
|
0.75
- $1.50
|
|
|
3
- 5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2003
|
|
|
14,239,716
|
|
$
|
0.70
- $1.65
|
|
|
1
- 10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
during the year
|
|
|
75,000
|
|
$
|
0.18
|
|
|
3
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
during the year
|
|
|
(25,000
|
)
|
$
|
0.75
|
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
during the year
|
|
|
(3,030,699
|
)
|
$
|
0.70
|
|
|
5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2004
|
|
|
11,259,047
|
|
$
|
0.18
- $1.65
|
|
|
3
- 10 years
|
|
The
balances outstanding at December 31, 2004 and 2003 includes incentive warrants
to purchase 6,030,582 and 7,714,287 shares, respectively, which are restricted
from sale and or transfer until such time when certain sales targets are
achieved.
The
Company has 10,000,000 shares of common stock reserved for grant to its
officers, directors and key employees under its stock option plan (the “Plan”).
At December 31, 2004, options to purchase 7,712,000 shares of common stock
had
been granted under the Plan and 2,288,000 shares were available for future
grants. Options granted pursuant to the Plan have lives of 10 years from
the
date subject to earlier expiration in certain cases, such as termination
of the
grantees’ employment. Options vest 1/3 on the date of the grant, 1/3 on the
first anniversary, and 1/3 on the second anniversary. Stock option information
is as follows:
|
|
Number
of
Shares
|
|
Weighted-Average
Exercise
Price
|
|
|
|
|
|
|
|
Shares
under option at January 1, 2003
|
|
|
6,849,000
|
|
$
|
.66
|
|
Granted
|
|
|
330,000
|
|
|
.24
|
|
Forfeited
|
|
|
(196,000
|
)
|
|
.32
|
|
|
|
|
|
|
|
|
|
Shares
under option at December 31, 2003
|
|
|
6,983,000
|
|
|
.65
|
|
Granted
|
|
|
750,000
|
|
|
.21
|
|
Forfeited
|
|
|
(21,000
|
)
|
|
.30
|
|
|
|
|
|
|
|
|
|
Shares
under option at December 31, 2004
|
|
|
7,712,000
|
|
$
|
.61
|
|
|
|
|
|
|
|
|
|
Options
exercisable at December 31, 2004
|
|
|
7,220,333
|
|
$
|
.64
|
|
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE
6 - SHAREHOLDERS’ EQUITY
(continued)
The
weighted average fair value of the options granted in 2004 and 2003 were
$0.21
and $0.15 respectively.
|
|
Options
Outstanding
|
|
Options
Exercisable
|
Range
of Exercise Prices
|
|
Number
Outstanding
|
|
Weighted
Average Remaining Contractual Life (Years)
|
|
Weighted
Average Exercise Price
|
|
Number
Exercisable
|
|
Weighted
Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
$
0.15-0.30
|
|
1,350,000
|
|
8.40
|
|
0.23
|
|
858,333
|
|
$
0.25
|
0.36-0.40
|
|
1,450,000
|
|
6.71
|
|
0.38
|
|
1,450,000
|
|
0.38
|
0.72-0.79
|
|
4,772,000
|
|
4.68
|
|
0.75
|
|
4,772,000
|
|
0.75
|
1.81
|
|
140,000
|
|
3.69
|
|
1.81
|
|
140,000
|
|
1.81
|
$.15
- $1.81
|
|
7,712,000
|
|
6.91
|
|
0.61
|
|
7,220,333
|
|
$
0.64
|
Pro
Forma Information related to Option Grants
Pro
forma
information regarding net income and earnings per share is required by SFAS
123
for awards granted after December 31, 1995, as if the Company had accounted
for
its stock-based awards to employees under
the
fair
value method of SFAS 123. The fair value of the Company’s stock-based awards to
employees was estimated using a Black-Scholes option pricing model. The
Black-Scholes options valuation model was developed for use in estimating
the
fair value of traded options which have no vesting restrictions and are fully
transferable. In
addition,
the Black-Scholes model requires the input of highly subjective assumptions
including the expected stock price volatility. Because the Company’s stock-based
awards to employees have characteristics significantly
different
from
those of traded options, and because changes in the opinion, the existing
models
do not necessarily provide a reliable single measure of the fair value of
its
stock-based awards to employees. The effects of applying SFAS 123 in this
pro
forma disclosure are not indicative of future amounts. The fair value of
the
Company’s options grants under the 1997 plan was estimated assuming no expected
dividends and the following weighted-average assumptions:
|
|
2004
|
|
2003
|
|
Expected
life (years)
|
|
|
3
|
|
|
3
|
|
Expected
volatility
|
|
|
104
|
%
|
|
103
|
%
|
Risk-free
interest rate
|
|
|
2.06
|
%
|
|
1.50
|
%
|
NOTE
7 - EMPLOYEE BENEFIT PLAN
The
Company has a 401(k) plan,
The
RiceX Company 401(k) Profit Sharing Plan & Trust
,
which
requires an employee to have completed one year of service and attained the
age
of 21 to participate in the plan. The Company contributes 3% of each employee’s
salary annually to the plan regardless of employee participation. Additionally,
the Company may, at its discretion, make additional employer contributions.
In
order to participate in the plan, the employee must work 1000 hours in and
be
employed on the last day of the plan year. Employees are immediately vested
in
company contributions. Plan contributions amounted to $36,000 in 2004 and
2003.
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
8 - RELATED PARTY TRANSACTIONS
Ms.
Patricia McPeak, the spouse of Daniel L. McPeak, Sr., Chairman of the Board
of
Directors of the Company and its Chief Executive Officer until March 31,
2004,
served as a director of the Company from its
formation
in 1989 until the expiration of her term on June 29, 2001. From February
1989 to
March 2000, Ms. McPeak also served as the President of the Company. Ms. McPeak,
who resigned that position on March 31, 2000, retained her seat on Board
of
Directors until June 29, 2001, at which time her term expired.
Ms.
McPeak is an officer and director of NutraCea (formally NutraStar) a California
corporation. NutraStar changed its name to NutraCea in November 2003. In
late
2001, the Company entered into an Exclusive Distribution Agreement and Licensing
Agreement with NutraStar. This agreement was terminated in July 2002 for
NutraStar’s failure to meet certain performance requirements as specified in the
Exclusive Distribution Agreement. Also during December 2001 the Company agreed
to cancel $190,000 of NutraStar’s indebtedness in exchange for 190,000 shares of
NutraStar’s Series A preferred stock. Subsequently, in 2004, the Company put
130,000 shares back to NutraCea for $130,000 under a put provision and sold
60,000 shares in the open market for $52,000. The Company has recognized
sales
to NutraCea of $405,000 and $229,000 during 2004 and 2003, respectively.
In
connection with the conversion of a $2,500,000 note to equity in 2000, the
Company issued common stock and warrants to two principle parties, one of
which
is GBV Intermark Fund, LLC. The manager of this fund
was
appointed to the Company’s Board of Directors in October 2000 until the
expiration of his term in June 2003. The shares of RiceX common stock and
warrants issued to GBV Intermark Fund, LLC, were acquired by Intermark
Group
Holdings, LLC, on April 4, 2002 in a private transaction. The principle owner
of
Intermark Group Holdings, LLC was elected to the Company’s Board of Directors in
June 2003. Mr. Lintzenich remains on our Board.
NOTE
9 - INCOME TAXES
The
provision for income taxes on the statements of income consists of $1,650
for
the years ended December 31, 2004 and 2003, respectively.
Deferred
tax assets (liabilities) are comprised of the following:
|
|
DECEMBER
31,
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
5,562,000
|
|
$
|
4,768,000
|
|
Options
and warrants
|
|
|
-
|
|
|
-
|
|
Accrued
reserves
|
|
|
64,000
|
|
|
326,000
|
|
Research
costs
|
|
|
714,000
|
|
|
770,000
|
|
Fixed
assets
|
|
|
124,000
|
|
|
228,000
|
|
Other
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
6,464,000
|
|
|
6,092,000
|
|
Less
valuation allowance
|
|
|
(6,464,000
|
)
|
|
(6,092,000
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE
9 - INCOME TAXES (
continued
)
Deferred
taxes arise from temporary differences in the recognition of certain expenses
for tax and financial statement purposes. At December 31, 2004 and 2003,
management determined that realization of these benefits is
not
assured and has provided a valuation allowance for the entire amount of such
benefits. At December 31, 2004, net operating loss carryforwards were
approximately $14,510,000 for federal tax purposes that expire at various
dates
from 2011 through 2025 and $10,782,000 for state tax purposes that expire
in
2005 through 2014.
Utilization
of net operating loss carryforwards may be subject to substantial annual
limitations due to the “change in ownership” provisions of the Internal Revenue
Code of 1986, as amended, and similar state regulations. The annual limitation
may result in the expiration of substantial net operating loss carryforwards
before utilization.
The
provision for income taxes differs from the amount computed by applying the
U.S.
federal statutory tax rate (34% in 2004 and 2003) to income before taxes
as
follows:
|
|
DECEMBER
31,
|
|
|
|
2004
|
|
2003
|
|
|
|
|
|
|
|
Computed
expected tax
|
|
$
|
(300,069
|
)
|
$
|
(438,863
|
)
|
Change
in valuation allowance
|
|
|
372,000
|
|
|
1,220,000
|
|
Change
in carryovers and tax attributes
|
|
|
(70,281
|
)
|
|
(779,487
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
1,650
|
|
$
|
1,650
|
|
NOTE
10 - SUPPLEMENTAL CASH FLOW INFORMATION
|
|
YEARS
ENDED DECEMBER 31,
|
|
|
|
2004
|
|
2003
|
|
Non
cash activities:
|
|
|
|
|
|
Amortization/issuance
of common stock and warrants for services
|
|
$
|
15,000
|
|
$
|
60,419
|
|
NOTE
11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The
fair
value of the Company’s financial instruments approximated carrying value at
December 31, 2004 and 2003. The Company’s financial instruments include cash and
accounts receivable for which the carrying amount approximates fair value
due to
the short maturity of the instruments.
THE
RICEX COMPANY
CONSOLIDATED
BALANCE SHEET
(Unaudited)
|
|
September
30, 2005
|
|
ASSETS
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
546,148
|
|
Trade
accounts receivable, net
|
|
|
407,618
|
|
Inventories
|
|
|
398,038
|
|
Deposits
and other current assets
|
|
|
44,043
|
|
|
|
|
|
|
Total
current assets
|
|
|
1,395,847
|
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
|
|
475,026
|
|
|
|
|
|
|
OTHER
ASSETS
|
|
|
2,886
|
|
|
|
|
|
|
|
|
$
|
1,873,759
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
765,876
|
|
Unrecognized
revenue
|
|
|
5,461
|
|
Current
portion of long-term debt
|
|
|
5,433
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
776,770
|
|
|
|
|
|
|
LONG-TERM
LIABILITIES:
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
11,059
|
|
|
|
|
|
|
Total
liabilities
|
|
|
787,829
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’
EQUITY (DEFICIT)
|
|
|
|
|
Preferred
stock, par value $0.00l per share, 10,000,000 shares authorized,
no shares
issued and outstanding
|
|
|
—
|
|
Common
stock, par value $0.001 per share, 100,000,000 shares authorized,
36,813,274 shares issued and outstanding
|
|
|
36,813
|
|
Additional
paid-in capital
|
|
|
31,908,417
|
|
Accumulated
deficit
|
|
|
(30,859,300
|
)
|
Total
shareholders’ equity
|
|
|
1,085,930
|
|
|
|
|
|
|
|
|
$
|
1,873,759
|
|
--
See
Notes to Consolidated Financial Statements --
THE
RICEX COMPANY
CONSOLIDATED
STATEMENTS OF OPERATIONS
For
the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
|
|
Nine
Months Ended
|
|
|
|
September
30,
2005
|
|
September
30,
2004
|
|
Revenues:
|
|
|
|
|
|
Sales
|
|
$
|
2,767,255
|
|
$
|
2,736,188
|
|
Royalties
|
|
|
13,324
|
|
|
—
|
|
Total
revenues
|
|
|
2,780,579
|
|
|
2,736,188
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
1,123,812
|
|
|
1,077,848
|
|
|
|
|
1,656,767
|
|
|
1,658,340
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
|
|
|
181,873
|
|
|
164,451
|
|
Selling,
general and administrative expenses
|
|
|
4,399,772
|
|
|
1,653,405
|
|
Professional
fees
|
|
|
719,808
|
|
|
338,001
|
|
Investor
relations fees
|
|
|
67,634
|
|
|
56,993
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,712,320)
|
)
|
|
(554,510
|
)
|
Other
income:
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
9,119
|
|
|
28,547
|
|
Loss
before provision for income taxes
|
|
|
(3,703,201
|
)
|
|
(525,963
|
)
|
Provision
for income taxes
|
|
|
(2,226
|
)
|
|
(1,589
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,705,427
|
)
|
$
|
(527,552
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share:
|
|
|
|
|
|
|
|
Net
loss per share
|
|
$
|
(0.10
|
)
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding
|
|
|
36,721,625
|
|
|
36,713,274
|
|
--
See
Notes to Consolidated Financial Statements -
THE
RICEX COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Nine Months Ended September 30, 2005 and 2004
(Unaudited)
|
|
Nine
Months Ended September 30,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Cash
flow from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,705,427
|
)
|
$
|
(527,552
|
)
|
Adjustments
to reconcile net loss to net cash (used in)/provided by operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
137,574
|
|
|
157,856
|
|
Issuance
of stock options
|
|
|
—
|
|
|
15,000
|
|
Stock-based
compensation
|
|
|
2,967,750
|
|
|
—
|
|
Deferred
revenue, net
|
|
|
2,502
|
|
|
(477,838
|
)
|
|
|
|
|
|
|
|
|
Net
changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Trade
accounts receivable
|
|
|
91,795
|
|
|
273,297
|
|
Inventories
|
|
|
3,516
|
|
|
(34,583
|
)
|
Deposits
and other current assets
|
|
|
47,935
|
|
|
(40,705
|
)
|
Accounts
payable and accrued liabilities
|
|
|
(28,687
|
)
|
|
(77,299
|
)
|
Net
cash used in operating activities
|
|
|
(483,042
|
)
|
|
(711,824
|
)
|
|
|
|
|
|
|
|
|
Cash
from investing activities:
|
|
|
|
|
|
|
|
Purchases
of property, and equipment, net
|
|
|
(45,723
|
)
|
|
(30,687
|
)
|
Net
cash used in investing activities
|
|
|
(45,723
|
)
|
|
(30,687
|
)
|
Cash
flows used in financing activities:
|
|
|
|
|
|
|
|
Proceeds
from issuance of common stock in exercise of options
|
|
|
40,000
|
|
|
—
|
|
Retirement
of common stock
|
|
|
—
|
|
|
(270,005
|
)
|
Net
cash provided by (used in) financing activities
|
|
|
40,000
|
|
|
(270,005
|
)
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(488,765
|
)
|
|
(1,012,516
|
)
|
Cash
and cash equivalents, beginning of period
|
|
|
1,034,913
|
|
|
2,219,091
|
|
Cash
and cash equivalents, end of period
|
|
$
|
546,148
|
|
$
|
1,206,575
|
|
--
See
Notes to Consolidated Financial Statements --
THE
RICEX COMPANY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
For
the Nine Months Ended September 30, 2005
1.
|
DESCRIPTION
OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES.
|
The
RiceX
Company (“RiceX”), formerly Food Extrusion, Inc., was incorporated in California
in 1989 and in 1998 was reincorporated in Delaware and changed its name to
The
RiceX Company. RiceX has a wholly-owned subsidiary, RiceX Nutrients, Inc.
(formally Food Extrusion Montana, Inc. and referred to hereinafter as “RiceX
Nutrients”). The consolidated financial statements include the accounts of RiceX
and RiceX Nutrients (collectively “we,” “us” or “our”), after the elimination of
all inter-company balances and transactions.
We
are an
agribusiness food technology company and have developed a proprietary process
to
stabilize rice bran. We are headquartered in El Dorado Hills, California
and
have stabilization equipment located at a rice mill in Northern California.
We
purchase raw rice bran from this mill and mill employees, under our supervision,
operate our equipment to stabilize the rice bran. We pay a processing fee
to the
mill for this service. Under an agreement with the mill, the mill may use
our
equipment to stabilize rice bran for its customers in exchange for the payment
of a royalty fee to us under certain conditions. As the need arises, we intend
to enter into additional relationships with rice processors as part of our
overall business strategy.
RiceX
Nutrients is engaged in the business of custom manufacturing grain-based
products for food ingredient companies at its production facility in Dillon,
Montana. The facility has specialized processing equipment and techniques
for
the treatment of grain products to cook, enzyme treat, convert, isolate,
dry and
package finished food ingredients. The soluble, dextrinized, and fiber
concentrate forms of our rice bran products are produced at the Montana
facility.
We
are
subject to regulations that govern the processing, formulation, packaging,
labeling and advertising of our products. However, our principal operations
are
governed by the Dietary Supplement Health Education Act of 1994, which limits
the regulatory authority and jurisdiction of most state and federal agencies,
including the U.S. Food and Drug Administration.
On
April
4, 2005, we entered into an Agreement and Plan of Merger and Reorganization
(the
“Merger Agreement”) with NutraCea and Red Acquisition Corporation, a
wholly-owned subsidiary of NutraCea (“Merger Sub”). On the effective date of the
merger, and pursuant to the Merger Agreement, Merger Sub will be merged with
and
into RiceX (the “Merger”), and RiceX will become a wholly-owned subsidiary of
NutraCea.
Simultaneous
with the execution of the Merger Agreement, on April 4, 2005, all of our
directors and three of our executive officers (collectively, the “RiceX
Affiliates”) each entered into voting agreements with NutraCea (the “NutraCea
Voting Agreements”). Additionally, on April 4, 2005, three of NutraCea’s
executive officers each entered into voting agreements with us (the “RiceX
Voting Agreements” and, together with the NutraCea Voting Agreements, the
“Voting Agreements”). Under the terms of the Voting Agreements, the executive
officers and directors of NutraCea and RiceX agreed to vote their shares
in
favor of the Merger, the Merger Agreement and the transactions contemplated
thereby. Also on April 4, 2005, each of the RiceX Affiliates entered into
Affiliate Agreements with NutraCea (the “Affiliate Agreements”), pursuant to
which the RiceX Affiliates have agreed to certain restrictions on the sale
of
the shares of NutraCea common stock to be received by them in connection
with
the Merger. For additional information regarding the Voting Agreements and
the
Affiliate Agreements, please refer to the form of Voting Agreement and form
of
Affiliate Agreement, copies of which are attached as exhibits to our Current
Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on
April 4, 2005.
At
separate special meetings of shareholders held on September 28, 2005, the
respective shareholders of NutraCea and RiceX approved the Merger between
the
two companies.
On
October 4, 2005, NutraCea, through Merger Sub, consummated its acquisition
of
RiceX pursuant to the terms of the Merger Agreement. At the effective time
of
the Merger, Merger Sub merged with and into RiceX, with RiceX surviving the
Merger as a wholly-owned subsidiary of NutraCea. Pursuant to the Merger
Agreement and as a result of the Merger, each share of RiceX common stock
outstanding immediately prior to the effective time of the Merger was converted
into the right to receive 0.76799 shares of NutraCea’s common
stock.
At
the
completion of the Merger, the stockholders of RiceX received 28,272,226 shares
of NutraCea common stock in exchange for their shares of RiceX common stock,
and
NutraCea assumed the outstanding options and warrants to purchase 11,810,507
shares of RiceX common stock.
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard (“FAS”) No. 123 (revised 2005),
Share
Based Payments
(“FAS
No. 123(R)”). FAS No. 123(R) requires us to recognize compensation expense in an
amount equal to the fair value of share-based payments such as stock options
granted to employees. In April 2005, the SEC adopted a rule that effectively
defers the compliance date of FAS No. 123(R) to January 1, 2006. Our management
has not completed its evaluation of the effect that FAS No. 123(R) will have
on
us, but believes that the effect will be consistent with our previous pro-forma
disclosure. For additional information regarding the effects of FAS No. 123(R),
please see Section 7 of these Notes to Unaudited Consolidated Financial
Statements.
In
November 2004, the FASB issued FAS No. 151,
Inventory
Costs
.
FAS No.
151 requires that abnormal amounts of idle facility expense, freight, handling
costs and spoilage be recognized as current-period charges. Further, FAS
No. 151
requires the allocation of fixed production overheads to inventory based
on the
normal capacity of the production facilities. Unallocated overheads must
be
recognized as an expense in the period in which they are incurred. FAS No.
151
is effective for inventory costs incurred beginning in the first quarter
of
2006. We are currently evaluating the effect of FAS No. 151 on our financial
statements and related disclosures.
On
June
7, 2005, the FASB issued FAS No. 154,
Accounting
Changes and Error Corrections
,
a
replacement of Accounting Principles Board (“APB”) Opinion No. 20,
Accounting
Changes
,
and FAS
No. 3,
Reporting
Accounting Changes in Interim Financial Statements
.
FAS No.
154 changes the requirements for the accounting for and reporting of a change
in
accounting principle. Previously, most voluntary changes in accounting
principles required recognition of a cumulative effect adjustment within
net
income of the period of the change. FAS No. 154 requires retrospective
application of prior periods’ financial statements, unless it is impracticable
to determine either the period-specific effect or the cumulative effect of
the
change. FAS No. 154 is effective for accounting changes made in fiscal years
beginning after December 15, 2005; however it does not change the transition
provisions of any existing accounting pronouncements. We do not believe adoption
of FAS No. 154 will have a material effect on our consolidated financial
position, results of operations or cash flows.
There
have been no changes in our significant accounting policies as set forth
in our
audited financial statements for the year ended December 31, 2004, which
statements were included in our Form 10-KSB for such year. These unaudited
financial statements for the three months and nine months ended September
30,
2005 have been prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of our management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. The results of operations for
the
three months and nine months ended September 30, 2005 are not necessarily
indicative of the results expected for the full year.
At
September 30, 2005, inventories are composed of $289,000 of finished goods
and
$109,000 of packaging supplies.
3.
|
PROPERTY
AND EQUIPMENT.
|
At
September 30, 2005, property and equipment consist of the
following:
Land
and buildings
|
|
$
|
380,154
|
|
Equipment
|
|
|
4,665,447
|
|
Leasehold
improvements
|
|
|
381,642
|
|
Furniture
and fixtures
|
|
|
228,071
|
|
|
|
|
5,655,314
|
|
Less
accumulated depreciation and amortization
|
|
|
(5,180,288
|
)
|
|
|
|
|
|
|
|
$
|
475,026
|
|
At
September 30, 2005, accounts payable and accrued liabilities consist of the
following:
Trade
accounts payable
|
|
$
|
538,212
|
|
Accrued
liabilities
|
|
|
227,664
|
|
|
|
$
|
765,876
|
|
5.
|
NET
INCOME (LOSS) PER SHARE.
|
Basic
net
income (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during all periods
presented. Options and warrants are excluded from the basic net income (loss)
per share calculation because they are currently anti-dilutive.
6.
|
CONCENTRATION
OF CREDIT RISK.
|
Financial
instruments that potentially subject us to significant concentrations of
credit
risk consist primarily of trade accounts receivable for sales to major
customers. We perform credit evaluations on our customers’ financial condition
and generally do not require collateral on accounts receivable. We maintain
an
allowance for doubtful accounts on our receivables based upon expected
collection of all accounts receivable. Uncollected accounts have not been
significant.
For
the
nine months ended September 30, 2005, one customer accounted for 12% of sales.
At September 30, 2005, accounts receivable due from this one customer were
22%
of the total aged outstanding accounts receivable.
Stock
Options
.
At
September 30, 2005, we had one stock-based employee compensation plan. We
account for this plan under the recognition and measurement principles of
APB
No. 25,
Accounting
for Stock Issued to Employees
,
and
related Interpretations. Options are granted under our employee compensation
plan at an exercise price equal to the market value of the underlying common
stock on the respective dates of grant; except that 6,595,000 options were
modified in March 2005 making them subject to variable accounting treatment.
The
following table illustrates the effect on net loss and earnings (loss) per
share
if we had applied the fair value recognition provisions of FAS No. 123,
Accounting
for Stock-Based Compensation
,
to
stock-based employee compensation.
|
|
Nine
Months Ended September 30,
|
|
|
|
2005
|
|
2004
|
|
Net
loss, as reported
|
|
$
|
(3,705,427
|
)
|
$
|
(527,552
|
)
|
Deduct:
Total stock-based employee compensation expense determined under
fair
value based method for all awards
|
|
$
|
(179,700
|
)
|
|
101,700
|
|
Pro
forma net income
|
|
$
|
(3,525,727
|
)
|
$
|
(629,252
|
)
|
Earnings
per share:
|
|
|
|
|
|
|
|
Basic
and diluted net income per share - as reported
|
|
$
|
(0.10
|
)
|
$
|
(0.01
|
)
|
Basic
and diluted net income per share - pro forma
|
|
$
|
(0.10
|
)
|
$
|
(0.01
|
)
|
Weighted
average fair value of options granted to employees during the
quarter
|
|
$
|
0.11
|
|
$
|
0.19
|
|
In
March
2005, our board of directors granted non-statutory stock options to our
officers, directors and key employees to acquire an aggregate of 2,917,333
shares of common stock at an exercise price of $0.30 per share. The estimated
fair value of $0.11 per share, determined by using the Black-Scholes
option-pricing model assuming a life of three years, volatility of 111% and
a
risk free rate of 3.79%. Approximately half of the options granted, or 1,334,000
options, were fully vested and exercisable on the date of grant. Another
1,333,333 options vest proportionately on a monthly basis over thirty-six
months
and 250,000 become fully vested at the end of twelve months. All options
expire
in September 2015.
Also
in
March 2005, our board of directors approved the modification of 6,595,000
non-statutory stock options ranging in exercise price from $0.19 to $1.81
per
share by changing the exercise prices to $0.30 per share. These non-statutory
options were granted to officers, directors and key employees from 1996 to
2005.
Our board of directors also approved the re-pricing of 400,000 non-statutory
stock options held by non-employee directors to change the exercise prices
thereof, which were below $0.30 per share, to $0.30 per share. An additional
700,000 stock options held by non-employee directors, with exercise prices
ranging from $0.30 to $1.66 per share, were not modified. According to the
pending Merger transaction with NutraCea, the underlying option shares may
not
be sold or otherwise transferred without the prior written consent of NutraCea
until after the third anniversary of the closing of the Merger. Our management
believes the consequence of re-pricing these options is that the awards will
be
subject to variable accounting treatment from the date of the modification
to
the date the award is exercised, forfeited or expires unexercised. In two
non-cash transactions relating to the variable accounting treatment of modified
options, compensation expense was recognized in June 2005 of $660,000 as
the
market price was $0.40 for the options that were re-priced at $0.30, and
in
September 2005 compensation expense was recognized in the amount of $2,298,000,
as the market price of $0.75 per share on September 30, 2005 was above the
modified exercise price of $0.40 per share previously adjusted for variable
accounting.
In
September 2005, a former employee exercised options pursuant to The RiceX
Company 1997 Stock Option Plan. We issued 100,000 shares of common stock
as a
result of this transaction.
Revenue
Recognition
.
We
derive our revenue primarily from product sales. Product is shipped when
an
approved purchase order is received. Products shipped by us are generally
sold
FOB Origin, with the customer taking title to the product once it leaves
our
warehouse via common carrier. At this point, the price to the customer is
fixed
and determinable, and collectibility is reasonably assured. On occasion,
we
enter into negotiated sales agreements to provide products to governments
in
underdeveloped countries. In these situations, each contract is individually
evaluated to determine appropriate revenue recognition. Each delivery is
generally considered to be a separate unit of accounting for the purposes
of
revenue recognition and, in all instances, persuasive evidence of an
arrangement, delivery, pricing and collectibility must be determined or
accomplished, as applicable, before revenue is recognized. In the case of
partial shipments, the specific amounts of revenue recognized upon each partial
shipment of the products is determined by allocating a portion of the aggregate
purchase price to each such shipment, based upon the proportion that the
amount
of products contained in each such shipment bears to the total amount of
products delivered under the memorandum of understanding. In addition, if
the
contract includes customer acceptance provisions, no revenue is recognized
until
customer acceptance occurs. We are not obligated, under the terms of our
contracts, to refund payments for which shipments have been made and, if
applicable, accepted, even under circumstances in which we would be unable
to
fulfill the remaining balance of product ordered under the
contract.
Regarding
sales from underdeveloped countries in which third party financing is involved,
all such revenue derived under these arrangements is historically prepaid
prior
to any shipments of our product. Revenue is accounted for at the point of
shipment FOB Origin, unless accompanied by a memorandum of understanding
detailing the requirement of customer acceptance in order to transfer title,
in
which case revenue is recognized at the time of such acceptance.
Our
royalty fees are generally recognized when it is probable that an economic
benefit will flow to us, the amount of the benefit can be reliably measured
and
collectibility is reasonably assured.
Income
Taxes
.
Future
tax benefits are subject to a valuation allowance when management is unable
to
conclude that our deferred tax assets will more likely than not be realized
from
the results of operations. The ultimate realization of deferred tax assets
is dependent upon generation of future taxable income during the periods
in
which those temporary differences become deductible. Management considers
projected future taxable income and tax planning strategies in making this
assessment. Based on historical taxable income and projections for future
taxable income over the periods in which the deferred tax assets become
deductible, management believes it more likely than not that we will not
realize
benefits of these deductible differences as of September 30, 2005.
Management has, therefore, established a full valuation allowance against
our
net deferred tax assets as of September 30, 2005.
PART
II
INFORMATION
REQUIRED IN THE REGISTRATION STATEMENT
Item
24:
|
Indemnification
of Directors and Officers
.
|
The
California General Corporation Law and our Restated Articles of Incorporation
and Bylaws provide that we may indemnify our officers, directors, employees
or
agents or former officers, directors, employees or agents, against expenses
actually and necessarily incurred by them, in connection with the defense
of any
legal proceeding or threatened legal proceeding, except as to matters in
which
such persons shall be determined to not have acted in good faith and in our
best
interest. This means that if indemnity is determined by the Board of Directors
to be appropriate in any case we and not the individual might bear the cost
of
any suit that is filed by a shareholder against the individual officer, director
or employee unless the court determines that the individual acted in bad
faith.
These provisions
are
sufficiently broad to permit the indemnification of such persons in certain
circumstances against liabilities arising under the Securities Act.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors and officers, and to persons controlling our company
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
Item
25:
|
Other
Expenses of Issuance and Distributions
.
|
The
estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, are as follows:
Registration
Fee
|
|
$
|
1,500
|
|
Blue
Sky Fees
|
|
|
2,500
|
|
Printing
|
|
|
2,000
|
|
Legal
Fees and Expenses
|
|
|
40,000
|
|
Accounting
Fees and Expenses
|
|
|
25,000
|
|
Miscellaneous
|
|
|
4,000
|
|
|
|
|
|
|
Total
|
|
$
|
75,000
|
|
Item
26:
|
Recent
Sales of Unregistered Securities
.
|
The
following issuances of stock, warrants, and other equity securities were
made
without any public solicitation to a limited number of investors or related
individuals or entities in separately negotiated transactions. Each investor
represented to us that the securities were being acquired for investment
purposes only and not with an intention to resell or distribute such securities.
Each of the individuals or entities had access to information about our business
and financial condition and was deemed capable of protecting their own
interests. The stock, warrants and other securities were issued pursuant
to the
private placement exemption provided by Section 4(2) or Section 4(6) of the
Securities Act of 1933. These are deemed to be “restricted securities” as
defined in Rule 144 under the 1933 Act and the warrant certificates and the
stock certificates bear a legend limiting the resale thereof. Each of the
transactions involving the common stock of the Company prior to the November
2003 1-for-10 reverse stock split are reported in post-split share
numbers.
(a)
|
In
March 2003, the Company sold an aggregate of 78,333 shares of its
common
stock to two individuals for total proceeds to the Company of $65,157.
In
April 2003, the Company sold 30,714 shares of its common stock
to one
individual for total proceeds to the Company of $25,547. We paid
a
commission of $7,000 to Hookipa Capital Partners relating to these
transactions.
|
(b)
|
In
June 2003, the Company sold 35,000 shares of its common stock to
one
individual for total proceeds to the Company of $47,250. There
were no
underwriting discounts or commissions associated with this
sale.
|
(c)
|
On
July 7, 2003 we issued 20,000 shares of our Series A Preferred
Stock to
Dr. Wade Harris for $8,351 in accrued interest on a promissory
note dated
September 23, 2002.
|
(d)
|
On
July 31, 2003, we issued warrants to purchase 7,142 shares of our
common
stock to a vendor to the company in settlement of $5,278 of accounts
payable.
|
(e)
|
On
August 15, 2003, we issued warrants to purchase 37,500 shares of
our
common stock to a vendor to the Company in settlement of $33,750
of
accounts payable for royalties.
|
(f)
|
On
August 18, 2003, we issued 2,421 shares of our common stock to
a
consultant to the company in settlement of $4,600 of accrued and
unpaid
fees under a consulting agreement.
|
(g)
|
In
August 2003, the Company sold an aggregate of 39,850 shares of
its common
stock to three individuals for total proceeds to the Company of
$400.
There were no underwriting discounts or commissions associated
with these
sales.
|
(h)
|
On
October 14, 2003, we issued 73,519 shares of our common stock in
settlement of $56,037 of accrued and unpaid fees under a consulting
agreement.
|
(i)
|
In
October 2003, the Company sold an aggregate of 103,921 shares of
its
common stock to four individuals for total proceeds to the Company
of
$1039. There were no underwriting discounts or commissions associated
with
these sales.
|
(j)
|
In
November 2003, the Company sold an aggregate of 500,000 shares
of its
common stock to one individual for total proceeds to the Company
of $500.
There were no underwriting discounts or commissions associated
with this
sale.
|
(k)
|
In
December 2003, the Company sold an aggregate of 4,093,146 shares
of its
common stock to fourteen individuals for total proceeds to the
Company of
$424,041. There were no underwriting discounts or commissions associated
with these sales.
|
(l)
|
During
2003 we issued an aggregate of 278,766 shares of our common stock
to the
holders of our Series A Preferred Stock in payment of $190,043
in
preferred stock dividends.
|
(m)
|
On
December 30, 2003, we issued 4,174 shares of our common stock to
a vendor
to the Company in settlement of $2,087 of accounts
payable.
|
(n)
|
During
2004 we issued an aggregate of 168,626 shares of our common stock
to three
venders in payment of $57,944 in accounts payable for goods and
services.
|
(o)
|
During
2004 we issued an aggregate of 280,000 shares of our common stock
to two
consultants in settlement of $477,816 of contractual
payments.
|
(p)
|
In
January 2004, the Company sold an aggregate of 1,897,143 shares
of its
common stock to eight individuals for total proceeds to the Company
of
$656,221.
|
(q)
|
In
February 2004, the Company sold an aggregate of 616,452 shares
of its
common stock to four individuals for total proceeds to the Company
of
$272,614.
|
(r)
|
In
March 2004, the Company sold an aggregate of 1,539,262 shares of
its
common stock to five individuals for total proceeds to the Company
of
$810,143.
|
(s)
|
During
the quarter ended March 31, 2004, the Company issued 168,095 shares
of
common stock to vendors in payment of accounts payable totaling
$57,111.
|
(t)
|
During
the quarter ended March 31, 2004, the Company issued a total of
280,000
shares of common stock to two consultants in settlement of contractual
agreements totaling $499,816.
|
(u)
|
On
March 24, 2004, we issued 5,500,000 shares of common stock to our
then
Chief Executive Officer, Ms. Patricia McPeak, in exchange for services
rendered.
|
(v)
|
In
April 2004, the Company sold an aggregate of 1,347,299 shares of
its
common stock to four individuals for total proceeds to the Company
of
$514,973.
|
(w)
|
In
May 2004, the Company sold an aggregate of 125,000 shares of its
common
stock to two individuals for total proceeds to the Company of $12,475.
|
(x)
|
During
the quarter ended June 30, 2004, the Company issued 531 shares
of common
stock to a vendor in payment of accounts payable totaling
$833.
|
(y)
|
In
September 2004, the Company sold an aggregate of 25,000 shares
of its
common stock to one individual for total proceeds to the Company
of
$4,500.
|
(z)
|
On
September 8, 2004, the Company and Langley Park Investments PLC
(“Langley”) signed a Stock Purchase Agreement under which the Company
agreed to sell 7,000,000 shares of its common stock to Langley.
The
transaction will close at the time that Langley’s shares are trading on
the London Stock Exchange for anticipated consideration to NutraCea
(i)
immediately following the closing of approximately $1,190,000 in
Langley
stock, and (ii) additional consideration of that number of Langley
shares
which, as of the closing, will have a value of approximately
$1,190,000.
|
(aa)
|
In
December 2004, the Company sold an aggregate of 25,000 shares of
its
common stock to one individual for total proceeds to the Company
of
$5,000. There were no underwriting discounts or commissions associated
with this sale.
|
(bb)
|
In
December 2004, the Company issued warrants to purchase an aggregate
of
2,400,000 shares of the Company’s common stock in connection with a
Promissory Note and Warrant Purchase Agreement entered into with
three
investors for an aggregate purchase amount of $2,400,000. A commission
of
$242,846 as paid to Sandgrain Securities upon consummation of the
financing and a finders fee of $25,000 was
paid.
|
(cc)
|
During
2004, we issued 3,048,315 shares of our common stock to 15 consultants
in
lieu of contractual payments in the amount of $2,192,013 pursuant
to
consulting contracts.
|
(dd)
|
During
2004, we issued warrants to purchase 9,598,493 shares of our common
stock
valued at $7,761,516 to 14 consultants pursuant to consulting agreements.
The warrants are exercisable at prices between $.01 and $5.00 per
share
and expire at varying times between six months and five years from
the
date of issuance.
|
(ee)
|
During
the quarter ended June 30, 2005, NutraCea issued 29,786 shares
of its
common stock valued at $15,000 to a web design consultant in respect
of
unpaid fees.
|
(ff)
|
During
the quarter ended June 30, 2005, NutraCea issued 1,222,222 shares
of its
common stock to repurchase technology and marketing rights valued
at
$550,000.
|
(gg)
|
During
the quarter ended June 30, 2005, NutraCea issued 448,980 shares
of common
stock to a consulting company for patent and license analysis.
One half of
the shares vested upon signing of the agreement while the balance
will
vest upon certain milestones being achieved. The vested shares
are valued
at $110,000.
|
(hh)
|
During
the quarter ended June 30, 2005, NutraCea issued options to purchase
360,000 shares of its common stock to a technology firm for assistance
in
developing an internet marketing system for NutraCea. The options
have an
exercise price of $0.60 per share and became exercisable over 21
months.
The option was valued at $118,165 and expires in five years. The
contract
was terminated on August 31, 2005 with 105,000 option shares
vested.
|
(ii)
|
On
August 24, 2005, NutraCea entered into a Private Label Supply Agreement
and Strategic Alliance (“Supply Agreement”). In connection with the Supply
Agreement and in return for an agreement to purchase a minimum
of $500,000
in NutraCea products, NutraCea issued to ITV Global, Inc. an option
to
acquire up to 250,000 shares of the Company’s common
stock.
|
The
following issuances of stock were made without any public solicitation to
holders of options, warrants. Each holder of an option or warrant represented
to
us that the securities were being acquired for investment purposes only and
not
with an intention to resell or distribute such securities. Each of the
individuals or entities had access to information about our business and
financial condition and was deemed capable of protecting their own interests.
As
such, the stock was issued pursuant to the private placement exemption provided
by Section 4(2) of the Securities Act of 1933. These are deemed to be
“restricted securities” as defined in Rule 144 under the 1933 Act and the stock
certificates bear a legend limiting the resale thereof.
(a)
|
During
the 2003, we issued an aggregate of 4,519,373 shares of our common
stock
upon exercise of outstanding options and
warrants.
|
(b)
|
During
2004, we issued an aggregate of 6,079,323 shares of our common
stock upon
exercise of outstanding options and
warrants.
|
(c)
|
During
the first nine months of 2005, we issued 431,000 shares of our
common
stock upon exercise of outstanding options and
warrants.
|
(d)
|
From
September 30, 2005 to November 9, 2005, we issued 100,000 shares
of our
common stock upon exercise of outstanding options and
warrants.
|
(e)
|
On
October 4, 2005, NutraCea completed a private placement of its
securities
to certain investors for aggregate gross proceeds of approximately
$7,850,000. NutraCea issued an aggregate of 7,850 shares of Series
B
Convertible Preferred Stock at a price of $1,000 per share, which
may be
converted to shares of NutraCea common stock at a conversion rate
of 2,000
shares of commons stock for each Preferred Share. Additionally,
NutraCea
issued warrants to purchase an aggregate of 7,850,000 share of
NutraCea
common stock at an exercise price of $0.70 per share. The placement
agent
for the transaction, Halpern Capital, Inc., was paid a commission
consisting of $549,500 and warrants to purchases up to an aggregate
of
1,099,000 shares of NutraCea common stock at an exercise price
of $0.50
per share.
|
The
following issuances of stock, warrants, and other equity securities were
exchanged by us with our existing security holders exclusively in transactions
in which no commission or other remuneration was paid or given directly or
indirectly to any person. As such, the issuance of the following securities
was
exempt from registration under Section 3(a)(9) of the Securities Act of 1933,
as
amended.
(a)
|
During
2003, we issued 254,323 shares of our common stock in exchange
for
1,674,707 outstanding shares of our Series A Preferred
Stock.
|
(b)
|
During
2003, we issued an aggregate of 3,431,251 shares of our common
stock
pursuant to the conversion of outstanding convertible notes.
|
(c)
|
During
2004, the Company issued 5,759 shares of common stock in payment
of
preferred dividends in the amount of
$5,986.
|
(d)
|
During
2004, we issued an aggregate of 540,000 shares of our common stock
pursuant to the conversion provisions of 630,000 shares of our
Series A
Preferred Stock.
|
The
following issuances of stock and assumption of options and warrants were
made
pursuant to an exemption provided by Section 3(a)(10) of the Securities Act
of
1933 after a fairness hearing before the California Department of
Corporations.
(a)
|
On
October 4, 2005, NutraCea completed its merger with The RiceX Company.
In
connection with the merger, NutraCea issued 28,272,226 shares of
its
common stock to holders of RiceX common stock. In addition, NutraCea
assumed each outstanding option and warrant to purchase RiceX common
stock
and converted those options and warrants into options and warrants
to
purchase an aggregate of 11,810,507 shares of NutraCea common
stock.
|
Exhibit
Number
|
|
Exhibit
Description
|
|
|
|
2.01(1)
|
|
Plan
and Agreement of Exchange.
|
|
|
|
2..02(2)
|
|
Agreement
and Plan of Merger and Reorganization, dated as of April 4, 2005,
by and
among the NutraCea, The RiceX Company and Red Acquisition
Corporation.
|
|
|
|
3.01(3)
|
|
Restated
and Amended Articles of Incorporation as filed with the Secretary
of State
of California on December 13, 2001.
|
|
|
|
3.01.1
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on August 4, 2003.
|
|
|
|
3.02(4)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on October 31, 2003.
|
|
|
|
3.03
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on September 29, 2005
|
|
|
|
3.04(5)
|
|
Certificate
of Designation of the Rights, Preferences, and Privileges of
the Series A
Preferred Stock as filed with the Secretary of State of California
on
December 13, 2001.
|
|
|
|
3.05(6)
|
|
Certificate
of Determination, Preferences and Rights of Series B Convertible
Preferred
Stock as filed with the Secretary of State of California on October
4,
2005.
|
|
|
|
3.06
|
|
Bylaws
of NutraCea, as amended effective October 4, 2005.
|
|
|
|
4.01(6)
|
|
Form
of warrant issued to subscribers in connection with NutraCea’s October
2005 private placement.
|
5.1
|
|
Opinion
of Weintraub Genshlea Chediak Law Corporation.
|
|
|
|
10.01(7)
|
|
NutraCea
2003 Stock Compensation Plan
|
|
|
|
10.02
|
|
NutraCea
2005 Equity Incentive Plan
|
|
|
|
10.03(6)
|
|
Securities
Purchase Agreement, dated September 28, 2005, by and among
NutraCea and
the investors named therein.
|
|
|
|
10.04(6)
|
|
Registration
Rights Agreement, dated September 28, 2005, by and among NutraCea
and the
investors named therein.
|
|
|
|
|
|
|
10.05
|
|
Employment
Agreement between NutraCea and Patricia McPeak.
|
|
|
|
10.06
|
|
Restricted
Stock Agreement between NutraCea and Patricia McPeak
|
|
|
|
10.07(8)
|
|
Executive
Employment Agreement between NutraCea and Bradley D.
Edson.
|
|
|
|
10.08(8)
|
|
Executive
Employment Agreement between NutraCea and Margie D.
Adelman.
|
|
|
|
10.09
|
|
Executive
Employment Agreement between The RiceX Company and Todd C.
Crow.
|
|
|
|
10.10
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Todd C. Crow
and The RiceX
Company.
|
|
|
|
10.11
|
|
Executive
Employment Agreement between The RiceX Company and Ike E.
Lynch.
|
|
|
|
10.12
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Ike E. Lynch
and The RiceX
Company.
|
|
|
|
10.13
|
|
Reserved
|
|
|
|
10.14(9)
|
|
Form
of Affiliate Agreement between certain affiliates of RiceX
and NutraCea
dated April 4, 2005
|
|
|
|
10.15(8)±
|
|
W.F.
Young Distribution Agreement.
|
|
|
|
10.16(8)±
|
|
W.F.
Young Technology Agreement.
|
|
|
|
10.17(10)
|
|
Stock
Purchase Agreement between NutraCea and Langley Park Investments
PLC
|
|
|
|
10.18+
|
|
Production
Facility Development and Rice Bran Supply and Purchase Agreement
dated
September 13, 2005 between NutraCea and Food Trading Company
Dominicana,
S.A.
|
|
|
|
10.19+
|
|
Assignment
dated April 12, 2005 from W.F. Young, Inc. to NutraCea
|
|
|
|
10.20+
|
|
Distribution
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
10.21
|
|
Manufacturing
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
10.22+
|
|
Supply
and Distribution Agreement dated November 4, 2005 between NutraCea
and T.
Geddes Grant.
|
|
|
|
10.23(11)
|
|
Commercial
Lease and Deposit Receipt between Roebbelen Land Company and
The RiceX
Company dated December 23, 1991.
|
|
|
|
10.24(11)
|
|
First
Amendment of Lease between Roebbelen Land Company and The RiceX
Company
dated January 19, 1994.
|
|
|
|
10.25(11)
|
|
Second
Amendment of Lease between Roebbelen Land Company and The RiceX
Company
dated July 11, 1996.
|
|
|
|
10.26(11)
|
|
Third
Amendment of Lease Agreement between Roebbelen Land Company
and The RiceX
Company dated February 1, 1998.
|
10.27(11)
|
|
Lease
Agreement between Roebbelen Land Company and The RiceX Company
dated July
11, 1996.
|
|
|
|
10.28(11)
|
|
First
Amendment of Lease between Roebbelen Land Company and The
RiceX Company
dated September 1996.
|
|
|
|
10.29(11)
|
|
Second
Amendment of Lease Agreement between Roebbelen Land Company
and The RiceX
Company dated February 1, 1998.
|
|
|
|
10.30(12)
|
|
Agreement
on Exclusive Distribution in Europe between The RiceX Company
and
KREGLINGER EUROPE N.V. dated October 1, 2002
.
|
|
|
|
10.31(13)±
|
|
Stabilized
Rice Bran Processing, Sales, and Marketing Agreement between
Farmers' Rice
Cooperative and The RiceX Company dated May 1, 2002.
|
|
|
|
10.32(14)
|
|
The
RiceX Company 1997 Stock Option Plan
|
|
|
|
10.33(11)
|
|
Form
of Directors Stock Option Agreement for The RiceX Company.
|
|
|
|
10.34(11)
|
|
Form
of Non-statutory Stock Option Agreement not issued under
The RiceX Company
1997 Stock Option Plan, governing options granted to The
RiceX Company
employees.
|
|
|
|
10.35(15)
|
|
Form
of non-statutory Stock Option Agreement issued under The
RiceX Company
1997 Stock Option Plan between The RiceX Company and The
RiceX Company
employees dated October 1, 1999.
|
|
|
|
10.36(15)
|
|
Form
of non-statutory Stock Option Agreement issued under The
RiceX Company
1997 Stock Option Plan between The RiceX Company and Ike
Lynch dated
November 1, 1999. Identical Agreements with Daniel McPeak,
Jr. and Todd C.
Crow.
|
|
|
|
10.37(16)
|
|
Form
of Board Member Non-statutory Stock Option Agreement issued
under The
RiceX Company 1997 Stock Option Plan between The RiceX Company
and the
Board Members of the RiceX Company dated February 22, 2001,
September 23
and 29, 2001.
|
|
|
|
10.38(13)
|
|
Form
of Non-statutory Stock Option Agreement issued under The
RiceX Company
1997 Stock Option Plan between The RiceX Company and employees
dated
January 2, 2000.
|
|
|
|
10.39(17)
|
|
Form
of Non-statutory Stock Option Agreement issued September
23, 2002 between
The RiceX Company and the members of The RiceX Company’s Board of
Directors.
|
|
|
|
10.40(17)
|
|
Form
of Non-statutory Stock Option Agreement issued July 1, 2004
between The
RiceX Company and Edward McMillan.
|
|
|
|
10.41(18)
|
|
Form
of Warrant agreement between
The
RiceX Company
and
The
RiceX Company’s
Global Advisory Board dated October 4, 2004.
|
|
|
|
10.42(18)
|
|
Form
of Non-statutory Stock Option Agreement issued October 18,
2004 between
The
RiceX Company
and two members of
The
RiceX Company
Board Directors.
|
|
|
|
10.43(19)
|
|
Form
of Non-statutory Stock Option Agreement issued under the
1997 Stock Option
Plan between The RiceX Company and certain non-employee RiceX
Directors
dated March 31, 2005.
|
|
|
|
10.44(19)
|
|
Form
of Non-statutory Stock Option Agreement issued under the
1997 Stock Option
Plan between The RiceX Company and certain employees of RiceX
dated March
31, 2005.
|
|
|
|
10.45
|
|
Form
of Option Assumption Agreement between NutraCea and Option
Holders
relating to assumed Options granted under The RiceX Company
1997 Stock
Option Plan.
|
|
|
|
10.46
|
|
Form
of Option Assumption Agreement between NutraCea and Option
Holders
relating to assumed non-plan RiceX Options.
|
|
|
|
10.47
|
|
Form
of Option Assumption Agreement between NutraCea and former
Directors of
The RiceX Company.
|
10.48
|
|
Form
of Resale Restriction Agreement entered into between NutraCea
and each of
Todd C. Crow and Ike E. Lynch.
|
|
|
|
10.49
|
|
Form
of Resale Restriction Agreement entered into between NutraCea
and each of
James Lintzenich, Edward McMillan and Steven Saunders.
|
|
|
|
10.50
|
|
Form
of Resale Restriction Agreement entered into between NutraCea
and each of
Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell
and David
Bensol.
|
|
|
|
21.01
|
|
List
of subsidiaries.
|
|
|
|
23.1
|
|
Consent
of Malone & Bailey, PC, Independent Registered Public Accounting
Firm
|
|
|
|
23.2
|
|
Consent
of Perry-Smith LLP, Independent Auditors.
|
|
|
|
23.3
|
|
Consent
of Moss Adams LLP, LLC, Independent Auditors.
|
|
|
|
24.1
|
|
Power
of Attorney (See signature page.)
|
|
|
|
±
|
Confidential
treatment granted as to certain
portions.
|
+
|
Confidential
treatment has been requested as to certain
portions.
|
(1)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on November 19,
2001.
|
(2)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on April 4,
2005.
|
(3)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Annual
Report on Form 10-KSB, filed on April 16,
2002.
|
(4)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Quarterly
Report on Form 10-QSB, filed on November 19,
2003.
|
(5)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form SB-2, filed on June 4,
2002.
|
(6)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on October 4,
2005.
|
(7)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form S-8, filed on November 18,
2003.
|
(8)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Annual
Report on Form 10-KSB, filed on March 31,
2005.
|
(9)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 8-K, filed on April 4,
2005.
|
(10)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on September 14,
2004.
|
(11)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Registration Statement No. 000-24285, filed on May 18,
1998.
|
(12)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 31,
2003.
|
(13)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 12,
2002.
|
(14)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Registration Statement Number Statement No. 000-24285, filed on
May 18,
1998.
|
(15)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2000.
|
(16)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 10,
2001.
|
(17)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on November 15,
2003.
|
(18)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2005.
|
(19)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on May 16,
2005.
|
The
undersigned registrant will:
(1)
File,
during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i)
include
any prospectus required by Section 10(a)(3) of the Securities Act;
(ii)
reflect,
in the prospectus any facts or events which, individually or together, represent
a fundamental change in the information in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed
that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement; and
(iii)
include
any additional or changed material information on the plan of
distribution.
(2)
For
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and
the
offering of the securities at that time to be the initial bona fide
offering.
(3)
File
a
post-effective amendment to remove from registration any of the securities
that
remain unsold at the end of the offering.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933
may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
In
the
event that a claim for indemnification against such liabilities (other than
the
payment by the registrant of expenses incurred or paid by a director, officer
or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person
in connection with the securities being registered, the registrant will,
unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
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 authorized this Registration Statement
to be signed on its behalf by the undersigned, in the City of El Dorado Hill,
State of California, on this 18 day of November , 2005.
|
NUTRACEA
|
|
|
|
|
|
|
|
BY:
|
/s/
Bradley D. Edson
|
|
|
Bradley
D. Edson
|
|
|
Chief
Executive Officer
|
POWER
OF ATTORNEY
KNOW
ALL
BY THESE PRESENTS that each individual whose signature appears below constitutes
and appoints Bradley D. Edson and Todd C. Crow, and each of them, his
attorneys-in-fact, and agents, each with the power of substitution, for him
and
in his name, place and stead, in any and all capacities, to sign any and
all
amendments (including post-effective amendments and registration statements
filed pursuant to Rule 462 of the Securities Act) to this Registration
Statement, and all post-effective amendments thereto, and to file the same,
with
all exhibits thereto and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact
and
agents, and each of them, full power and authority to do and perform each
and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
Principal
Executive Officer:
|
|
|
|
|
|
|
|
|
|
/s/
Bradley
D. Edson
|
|
President,
Chief Executive Officer
|
|
November
18, 2005
|
Bradley
D. Edson
|
|
and
Director
|
|
|
Principal
Financial Officer
and
Principal Accounting Officer:
|
|
|
|
|
/s/
Todd
C. Crow
|
|
Chief
Financial Officer
|
|
November
18 , 2005
|
Todd
C. Crow
|
|
|
|
|
|
|
|
|
|
Additional
Directors:
|
|
|
|
|
|
|
|
|
|
/s/
David
Bensol
|
|
Director
|
|
November
18 , 2005
|
David
Bensol
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Eliot
Drell
|
|
Director
|
|
November
18 , 2005
|
Eliot
Drell
|
|
|
|
|
/s/
James
C. Lintzenich
|
|
Director
|
|
November
14, 2005
|
James
C. Lintzenich
|
|
|
|
|
|
|
|
|
|
/s/
Edward
L. McMillan
|
|
Director
|
|
November
18 , 2005
|
Edward
L. McMillan
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
November
___, 2005
|
Patricia
McPeak
|
|
|
|
|
|
|
|
|
|
/s/
Steven
W. Saunders
|
|
Director
|
|
November
18, 2005
|
Steven
W. Saunders
|
|
|
|
|
Exhibit
Number
|
|
Exhibit
Description
|
|
|
|
2.01(1)
|
|
Plan
and Agreement of Exchange.
|
|
|
|
2..02(2)
|
|
Agreement
and Plan of Merger and Reorganization, dated as of April 4, 2005,
by and
among the NutraCea, The RiceX Company and Red Acquisition
Corporation.
|
|
|
|
3.01(3)
|
|
Restated
and Amended Articles of Incorporation as filed with the Secretary
of State
of California on December 13, 2001
.
|
|
|
|
3.01.1
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on August 4, 2003.
|
|
|
|
3.02(4)
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on October 31, 2003.
|
|
|
|
3.03
|
|
Certificate
of Amendment of Articles of Incorporation as filed with the Secretary
of
State of California on September 29, 2005
|
|
|
|
3.04(5)
|
|
Certificate
of Designation of the Rights, Preferences, and Privileges of
the Series A
Preferred Stock as filed with the Secretary of State of California
on
December 13, 2001.
|
|
|
|
3.05(6)
|
|
Certificate
of Determination, Preferences and Rights of Series B Convertible
Preferred
Stock as filed with the Secretary of State of California on October
4,
2005.
|
|
|
|
3.06
|
|
Bylaws
of NutraCea, as amended effective October 4, 2005.
|
|
|
|
4.01(6)
|
|
Form
of warrant issued to subscribers in connection with NutraCea’s October
2005 private placement.
|
|
|
|
5.1
|
|
Opinion
of Weintraub Genshlea Chediak Law Corporation.
|
|
|
|
10.01(7)
|
|
NutraCea
2003 Stock Compensation Plan
|
|
|
|
10.02
|
|
NutraCea
2005 Equity Incentive Plan
|
|
|
|
10.03(6)
|
|
Securities
Purchase Agreement, dated September 28, 2005, by and among NutraCea
and
the investors named therein.
|
|
|
|
10.04(6)
|
|
Registration
Rights Agreement, dated September 28, 2005, by and among NutraCea
and the
investors named therein.
|
|
|
|
10.05
|
|
Employment
Agreement between NutraCea and Patricia McPeak.
|
|
|
|
10.06
|
|
Restricted
Stock Agreement between NutraCea and Patricia McPeak
|
|
|
|
10.07(8)
|
|
Executive
Employment Agreement between NutraCea and Bradley D.
Edson.
|
|
|
|
10.08(8)
|
|
Executive
Employment Agreement between NutraCea and Margie D.
Adelman.
|
|
|
|
10.09
|
|
Executive
Employment Agreement between The RiceX Company and Todd C.
Crow.
|
|
|
|
10.10
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Todd C. Crow
and The RiceX
Company.
|
|
|
|
10.11
|
|
Executive
Employment Agreement between The RiceX Company and Ike E.
Lynch.
|
|
|
|
10.12
|
|
Amendment
No. 1 to Employment Agreement between NutraCea, Ike E. Lynch
and The RiceX
Company.
|
|
|
|
10.13
|
|
Reserved
|
10.14(9)
|
|
Form
of Affiliate Agreement between certain affiliates of RiceX
and NutraCea
dated April 4, 2005
|
|
|
|
10.15(8)±
|
|
W.F.
Young Distribution Agreement.
|
|
|
|
10.16(8)±
|
|
W.F.
Young Technology Agreement.
|
|
|
|
10.17(10)
|
|
Stock
Purchase Agreement between NutraCea and Langley Park Investments
PLC
|
|
|
|
10.18+
|
|
Production
Facility Development and Rice Bran Supply and Purchase Agreement
dated
September 13, 2005 between NutraCea and Food Trading Company
Dominicana,
S.A.
|
|
|
|
10.19+
|
|
Assignment
dated April 12, 2005 from W.F. Young, Inc. to NutraCea
|
|
|
|
10.20+
|
|
Distribution
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
10.21
|
|
Manufacturing
Agreement dated April 12, 2005 between W.F. Young, Inc. and
NutraCea
|
|
|
|
10.22+
|
|
Supply
and Distribution Agreement dated November 4, 2005 between NutraCea
and T.
Geddes Grant.
|
|
|
|
10.23(11)
|
|
Commercial
Lease and Deposit Receipt between Roebbelen Land Company and
The RiceX
Company dated December 23, 1991.
|
|
|
|
10.24(11)
|
|
First
Amendment of Lease between Roebbelen Land Company and The RiceX
Company
dated January 19, 1994.
|
|
|
|
10.25(11)
|
|
Second
Amendment of Lease between Roebbelen Land Company and The RiceX
Company
dated July 11, 1996.
|
|
|
|
10.26(11)
|
|
Third
Amendment of Lease Agreement between Roebbelen Land Company
and The RiceX
Company dated February 1, 1998.
|
|
|
|
10.27(11)
|
|
Lease
Agreement between Roebbelen Land Company and The RiceX Company
dated July
11, 1996.
|
|
|
|
10.28(11)
|
|
First
Amendment of Lease between Roebbelen Land Company and The RiceX
Company
dated September 1996.
|
|
|
|
10.29(11)
|
|
Second
Amendment of Lease Agreement between Roebbelen Land Company
and The RiceX
Company dated February 1, 1998.
|
|
|
|
10.30(12)
|
|
Agreement
on Exclusive Distribution in Europe between The RiceX Company
and
KREGLINGER EUROPE N.V. dated October 1, 2002
.
|
|
|
|
10.31(13)±
|
|
Stabilized
Rice Bran Processing, Sales, and Marketing Agreement between
Farmers' Rice
Cooperative and The RiceX Company dated May 1, 2002.
|
|
|
|
10.32(14)
|
|
The
RiceX Company 1997 Stock Option Plan
|
|
|
|
10.33(11)
|
|
Form
of Directors Stock Option Agreement for The RiceX Company.
|
|
|
|
10.34(11)
|
|
Form
of Non-statutory Stock Option Agreement not issued under The
RiceX Company
1997 Stock Option Plan, governing options granted to The RiceX
Company
employees.
|
|
|
|
10.35(15)
|
|
Form
of non-statutory Stock Option Agreement issued under The RiceX
Company
1997 Stock Option Plan between The RiceX Company and The RiceX
Company
employees dated October 1, 1999.
|
|
|
|
10.36(15)
|
|
Form
of non-statutory Stock Option Agreement issued under The RiceX
Company
1997 Stock Option Plan between The RiceX Company and Ike Lynch
dated
November 1, 1999. Identical Agreements with Daniel McPeak,
Jr. and Todd C.
Crow.
|
10.37(16)
|
|
Form
of Board Member Non-statutory Stock Option Agreement issued
under The
RiceX Company 1997 Stock Option Plan between The RiceX Company
and the
Board Members of the RiceX Company dated February 22, 2001,
September 23
and 29, 2001.
|
|
|
|
10.38(13)
|
|
Form
of Non-statutory Stock Option Agreement issued under The RiceX
Company
1997 Stock Option Plan between The RiceX Company and employees
dated
January 2, 2000.
|
|
|
|
10.39(17)
|
|
Form
of Non-statutory Stock Option Agreement issued September 23,
2002 between
The RiceX Company and the members of The RiceX Company’s Board of
Directors.
|
|
|
|
10.40(17)
|
|
Form
of Non-statutory Stock Option Agreement issued July 1, 2004
between The
RiceX Company and Edward McMillan.
|
|
|
|
10.41(18)
|
|
Form
of Warrant agreement between
The
RiceX Company
and
The
RiceX Company’s
Global Advisory Board dated October 4, 2004.
|
|
|
|
10.42(18)
|
|
Form
of Non-statutory Stock Option Agreement issued October 18,
2004 between
The
RiceX Company
and two members of
The
RiceX Company
Board Directors.
|
|
|
|
10.43(19)
|
|
Form
of Non-statutory Stock Option Agreement issued under the 1997
Stock Option
Plan between The RiceX Company and certain non-employee RiceX
Directors
dated March 31, 2005.
|
|
|
|
10.44(19)
|
|
Form
of Non-statutory Stock Option Agreement issued under the 1997
Stock Option
Plan between The RiceX Company and certain employees of RiceX
dated March
31, 2005.
|
|
|
|
10.45
|
|
Form
of Option Assumption Agreement between NutraCea and Option
Holders
relating to assumed Options granted under The RiceX Company
1997 Stock
Option Plan.
|
|
|
|
10.46
|
|
Form
of Option Assumption Agreement between NutraCea and Option
Holders
relating to assumed non-plan RiceX Options.
|
|
|
|
10.47
|
|
Form
of Option Assumption Agreement between NutraCea and former
Directors of
The RiceX Company.
|
|
|
|
10.48
|
|
Form
of Resale Restriction Agreement entered into between NutraCea
and each of
Todd C. Crow and Ike E. Lynch.
|
|
|
|
10.49
|
|
Form
of Resale Restriction Agreement entered into between NutraCea
and each of
James Lintzenich, Edward McMillan and Steven Saunders.
|
|
|
|
10.50
|
|
Form
of Resale Restriction Agreement entered into between NutraCea
and each of
Bradley Edson, Patricia McPeak, Margie Adelman, Eliot Drell
and David
Bensol.
|
|
|
|
21.01
|
|
List
of subsidiaries.
|
|
|
|
23.1
|
|
Consent
of Malone & Bailey, PC, Independent Registered Public Accounting
Firm
|
|
|
|
23.2
|
|
Consent
of Perry-Smith LLP, Independent Auditors.
|
|
|
|
23.3
|
|
Consent
of Moss Adams LLP, LLC, Independent Auditors.
|
|
|
|
24.1
|
|
Power
of Attorney (See signature page.)
|
|
|
|
±
|
Confidential
treatment granted as to certain
portions.
|
+
|
Confidential
treatment has been requested as to certain
portions.
|
(1)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on November 19,
2001.
|
(2)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on April 4,
2005.
|
(3)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Annual
Report on Form 10-KSB, filed on April 16,
2002.
|
(4)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Quarterly
Report on Form 10-QSB, filed on November 19,
2003.
|
(5)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form SB-2, filed on June 4,
2002.
|
(6)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on October 4,
2005.
|
(7)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s
Registration Statement on Form S-8, filed on November 18,
2003.
|
(8)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Annual
Report on Form 10-KSB, filed on March 31,
2005.
|
(9)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 8-K, filed on April 4,
2005.
|
(10)
|
incorporated
herein by reference to exhibits previously filed on Registrant’s Current
Report on Form 8-K, filed on September 14,
2004.
|
(11)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Registration Statement No. 000-24285, filed on May 18,
1998.
|
(12)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 31,
2003.
|
(13)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 12,
2002.
|
(14)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Registration Statement Number Statement No. 000-24285, filed on
May 18,
1998.
|
(15)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2000.
|
(16)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on August 10,
2001.
|
(17)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on November 15,
2003.
|
(18)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-KSB, filed on March 30,
2005.
|
(19)
|
incorporated
herein by reference to exhibits previously filed on The RiceX Company’s
Report on Form 10-QSB, filed on May 16,
2005.
|
EXHIBIT
3.01.1
CERTIFICATE
OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
NUTRASTAR
INCORPORATED
John
Howell and Edward Newton certify that:
1.
They
are
the President and Secretary, respectively, of NutraStar Incorporated, a
California corporation.
2.
Article
One. of the Articles of Incorporation is hereby amended to read in full as
follows:
“The
name
of this corporation is NutraCea”
3.
The
foregoing amendment of the Articles of Incorporation has been duly approved
by
the Board of Directors.
4.
The
foregoing amendment of the Articles of Incorporation has been duly approved
by
the required vote of shareholders in accordance with Section 902, California
Corporations Code. The total number of outstanding common shares of the
corporation is 25,633,547 and the total number of outstanding Series A Preferred
Stock of the corporation is 2,778,828. The number of shares voting in favor
of
the amendment equaled or exceeded the vote required. The percentage vote
required was more than fifty percent (50%) of the total outstanding shares
voting as a single class.
We
further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Dated:
July 25, 2003
|
/s/
John Howell
|
|
John
Howell, President
|
|
|
|
|
|
/s/
Edward Newton
|
|
Edward
Newton, Secretary
|
Exhibit
3.03
AMENDED
ARTICLES OF INCORORATION OF
NUTRACEA
A
California Corporation
The
undersigned, Brad Edson and Margie Adelman hereby certify that:
ONE:
Mr.
Edson
is the duly elected President and Ms. Adelman is the duly elected Secretary
of
NutraCea, a California corporation (“Corporation”).
TWO:
Article
Three of the Articles of Incorporation of the Corporation shall be amended
to
read in full as follows:
ARTICLE
THREE
“This
Corporation is hereafter authorized to issue two (2) classes of shares of stock
designated respectively “Common Stock” and “Preferred Stock.” The total number
of shares of Common Stock that this Corporation is authorized to issue is two
hundred million (200,000,000) and the total number of shares of Preferred Stock
that this Corporation is authorized to issue is twenty million
(20,000,000).
The
Preferred Stock may be divided into such number of series as the board of
directors may determine. The board of directors is authorized to determine
and
alter the rights, preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock, and to fix the number of
shares of any series of Preferred Stock and the designation of any such series
of Preferred Stock. The board of directors, within the limits and restrictions
stated in any resolution or resolutions of the board of directors originally
fixing the number of shares constituting any series, may increase or decrease
(but not below the number of shares of such series then outstanding) the number
of shares of any series subsequent to the issue of shares of that
series.”
THREE:
The
foregoing amendment of the Articles of Incorporation has been approved by the
board of directors of the Company.
FOUR:
The
foregoing amendment of the Articles of Incorporation has been approved by the
holders of the requisite number of shares of the corporation in accordance
with
Sections 902 and 903 of the California corporations code. The total number
of
outstanding shares entitled to vote with respect to the foregoing amendment
was
38,214,441 shares of Common Stock and the total number of outstanding shares
of
Preferred Stock was 0. The number of shares voting in favor of the foregoing
amendment equaled or exceeded the vote required in each class, such required
vote being a majority of the outstanding shares of Common Stock and a majority
of the outstanding shares of Preferred Stock.
We
further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date:
September
29, 2005
/s/ Brad
Edson
Brad
Edson, President
/s/ Margie Adelman
Margie
Adelman, Secretary
[AMENDED
ARTICLES OF INCORPORATION SIGNATURE PAGE]
Exhibit
3.06
CERTIFICATE
OF AMENDMENT
OF
BYLAWS OF
NUTRACEA
The
following amendment of the Bylaws of NutraCea, a California corporation (the
“Company”) has been approved and adopted by the Company’s board of directors and
approved by the Company’s shareholders pursuant to Sections 211 and 212 of the
California Corporations Code:
Article
III Section 2 of the Company’s Bylaws is hereby amended in its entirety to read
as follows:
“
Number,
Term and Election
.
The
authorized number of directors of the Corporation shall be such number, not
less
than five (5) and not more than nine (9), with the current number of directors
set at seven (7). The number of directors shall be provided from time to
time in
a resolution adopted by the board of directors, provided that no decrease
in the
number of directors shall have the effect of shortening the term of any
incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at
least
two-thirds of the directors then in office shall concur in said action and
this
Section 2 may not be amended except with the approval of the stockholders
representing a majority of the voting stock outstanding at any
time.”
[Remainder
of this page intentionally blank.]
I,
the
undersigned, being the Secretary of NutraCea, do hereby certify the foregoing
to
be the Bylaws of said corporation, as adopted at a meeting of the Board of
Directors held on the 28
th
day of
September, 2005.
|
/s/ Margie Adelman
|
|
|
Margie
Adelman, Secretary
|
|
BYLAWS
OF
NUTRACEA
ARTICLE
I
Offices
The
principal executive office of NutraCea (the "Corporation") shall be at 1261
Hawk's Flight, El Dorado Hills, California. The Corporation may also have
offices at such other places within or without the State of California, as
the
board of directors shall from time to time determine.
ARTICLE
II
Stockholders
SECTION
1.
Place
of Meetings.
All
annual and special meetings of stockholders shall be held at the principal
executive office of the Corporation or at such other place within or without
the
State of California as the board of directors may determine and as designated
in
the notice of such meeting.
SECTION
2.
Annual
Meetings.
A
meeting of the stockholders of the Corporation for the election of directors
and
for the transaction of any other business of
the
Corporation shall be held annually at such date and time as the board of
directors may
determine.
SECTION
3.
Special
Meetings.
Special
meetings of the stockholders of the Corporation for any purpose or purposes
may
be called at any time by the board of directors of the Corporation, or by a
committee of the board of directors which as been duly designated by the board
of directors and whose powers and authorities, as provided in a resolution
of
the board of directors or in the Bylaws of the Corporation, include the
power
and
authority to call such meetings but such special meetings may not be called
by
another
person or persons.
SECTION
4.
Conduct
of Meetings.
Annual
and special meetings shall be conducted in accordance with these Bylaws or
as
otherwise prescribed by the board of directors. The chairman or the chief
executive officer of the Corporation shall preside at such
meetings.
SECTION
5.
Notice
of Meeting.
Written
notice stating the place, day and hour of the meeting and, in the case of a
special meeting, the purpose or purposes for which
the
meeting is called, shall be mailed by the secretary or the officer performing
his duties,
not less
than ten (10) days nor more than sixty (60) days before the meeting to each
stockholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at his address as it appears on the stock transfer
books or records of the Corporation as of the record date prescribed in Section
6 of this Article II, with postagethereon prepaid. If a stockholder be present
at a meeting, or in writing waives notice thereof before or after the meeting,
notice of the meeting to such stockholder shall be unnecessary.
SECTION
6.
Fixing
of Record Date.
For the
purpose of determining stockholders entitled to notice of or to vote at any
meeting of stockholders, or any adjournment thereof, or entitled to express
consent to a corporate action in writing without a meeting, or entitled to
receive payment of any dividend, or in order to make a determination of
stockholders for any other proper purpose, the board of directors shall fix
in
advance a date as the record date for any such determination of stockholders.
Such date in any case shall be not more than sixty (60) days, and in case of
a
meeting of stockholders, not less than ten (10) days prior to the date on which
the particular action,
requiring
such determination of stockholders, is to be taken. If no record date is fixed
for
the
determination of stockholders entitled to notice
of
or
to
vote
at a meeting of stockholders, or entitled to express consent to a corporate
action in writing without a meeting, o r entitled t o receive payment of ad
ividend o r other distribution, o r for any other proper purpose, the close
of
business on the day next preceding the date on which notice of the meeting
is
mailed or if notice is waived, the close of business on the day next preceding
the day on which the meeting is held or the date on which the resolution
of
the
board of directors declaring such dividend or relating to such other proper
purpose
is
adopted, as the case may be, shall be the record date for such determination
of
stockholders. When a determination of stockholders entitled to vote at any
meeting of
stockholders
has been made as provided in this Section 6, such determination shall
apply
to any
adjournment thereof; provided that the board of directors may fix a new record
date for the adjourned meeting.
SECTION
7.
Voting
Lists.
The
officer or agent having charge of the stock
transfer
books for shares of the Corporation shall make, at least ten (10) days before
each
meeting
of stockholders, a complete record of the stockholders entitled to vote at
such
meeting
or any adjournment thereof, with the address of and the number of shares held
by
each.
The record, for a period of ten (10) days before such meeting, shall be kept
on
file
at
the
principal executive office of the Corporation, whether within or outside the
State of
California,
and shall be subject to inspection by any stockholder for any purpose
germane
to the
meeting at any time during usual business hours. Such record shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any stockholder for any purpose germane to the meeting
during the whole
time
of
the meeting. The original stock transfer books shall be prima facie evidence
as
to
who are
the stockholders entitled to examine such record or transfer books or to vote
at
any meeting of stockholders.
SECTION
8.
Quorum.
Unless
otherwise provided in the Corporation's Articles
of
Incorporation or applicable law, the holders of a majority of the shares
entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
the
stockholders. If, however, a quorum shall not be present or represented at
any
meeting of the stockholders, the stockholders present in person or represented
by proxy shall have power to adjourn the meeting from time to time, without
notice other than announcementof location, day and hour of the adjourned
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may
be
transacted which might have been transacted at the meeting as originally
notified, unless the adjournment is for more than thirty (30) days or if after
the adjournment a new record date is fixed for the adjourned meeting, in which
case notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at such meeting. The stockholders present at a duly
organized meeting may continue to transact business until adjournment, and
the
subsequent withdrawal of any stockholder or the refusal of any stockholder
to
vote shall not affect the presence of quorum at the meeting.
SECTION
9.
Proxies.
At all
meetings of stockholders, a stockholder may vote
by
proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact.
Proxies
solicited on behalf of the management shall be voted as directed by the
stockholder or, in the absence of such direction, as determined by a majority
of
the board of directors. No proxy shall be valid after eleven months from the
date of its execution unless otherwise provided in the proxy.
SECTION
10.
Voting.
Except
with respect to the election of directors, the vote of the holders of a majority
of the shares entitled to vote and represented in person or by proxy a t a
meeting at which a quorum i s present shall b e the act o f the stockholders'
meeting, unless the vote of a greater number is required by law or the
Corporation's Articles of Incorporation. Directors shall be elected by a
plurality of the votes of the
shares
entitled to vote in the election of directors and represented in person or
by
proxy at
a
meeting at which a quorum is present, unless a greater number is required by
law
or the Corporation's Articles of Incorporation. Where a separate vote by a
class
or classes is required, a majority of the outstanding shares of such class
or
classes, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and the
affirmative vote of the majority of shares of such class or classes present
in
person or represented by proxy at the meeting shall be the act of such class.
The board of directors, in its discretion, or the officer of the Corporation
presiding at a meeting of stockholders, in his discretion, may require that
any
votes cast at such meeting shall be cast by written ballot.
Each
outstanding share shall be entitled to one (1) vote on each matter submitted
to
a vote
at a meeting of the stockholders, except to the extent that the voting rights
of
the
shares
of any class are expanded, limited or denied by the Corporation's Articles
of
Incorporation or by a resolution of the board of directors designating a series
of preferred stock. At each election for directors, every stockholder entitled
to vote at such election shall have the right to vote the number of shares
owned
by him for as many persons as there are directors to be elected and for whose
election he has the right to vote. Unless permitted by the Corporation's
Articles of Incorporation, no stockholder shall be entitled to cumulate his
votes in an election of directors.
SECTION
11.
Action
by Written Consent Without a Meeting.
Any
action required or permitted by law, the Corporation's Articles of Incorporation
or these Bylawsto be taken at a meeting of the stockholders may be taken without
a meeting, without prior otice, and without a vote, if a consent in writing,
setting forth the action so taken, is signed by the holders of stock having
not
less than the minimum number of votes that would be necessary to take such
action at a meeting at which the holders of all shares entitled to vote on
the
action were present and voting. Consent does not have to be unanimous. Every
written consent must bear the date of signature of each stockholder who signs
the consent. No written consent shall be effective to take the action that
is
the subject of the consent unless, within sixty (60) days after the date of
the
earliest dated consent delivered to the Corporation in the manner required
by
this Section 11, a consent or consents signed by the holder or holders of shares
having not less than the minimum number of votes that would be necessary to
take
the action that is the subject of the consent are delivered to the Corporation
by delivery to its registered office, its principal
place
of
business, or an officer or agent of the Corporation having custody of the books
in
which
proceedings of meetings of stockholders are recorded. Delivery shall be by
hand
or c ertified o r registered mail, return receipt requested. D elivery t o
the
Corporation's principal place of business shall be addressed to the President
or
Chief Executive Officer of the Corporation. Unless consents were solicited
from
all shareholders, at least ten (10) days' notice of any action by stockholders
without a meeting by less than unanimous written consent shall be given to
those
stockholders from whom consents were not solicited.
ARTICLE
III
Board
of
Directors
SECTION
1.
General
Powers.
The
business and affairs of the Corporation shall be managed by or under the
direction of the board of directors, which may exercise all such powers of
the
Corporation and do all such lawful acts and things as are not by statute or
by
the Corporation's Articles of Incorporation or by these Bylaws directed or
required to be exercised and done by the stockholders.
SECTION
2.
Number,
Term and Election.
The
number of directors of the Corporation shall be such number, not less than
three
(3), as shall be provided from time to time in a resolution adopted by the
board
of directors, provided that no decrease in the number of directors shall have
the effect of shortening the term of any incumbent director, and provided
further that no action shall be taken to decrease or increase the number of
directors from time to time unless at least two-thirds of the directors then
in
office shall concur in said action and this Section 2 may not be amended except
with the approval of the stockholders representing a majority of the voting
stock outstanding at any time.
SECTION
3.
Regular
Meetings.
A
regular meeting of the board of directors shall be held at such time and place
as shall be determined by resolution of the board of directors without other
notice than such resolution.
SECTION
4.
Special
Meetings.
Special
meetings of the board of directors may be called by or at the request of the
chairman, the chief executive officer or two-thirds ofthe directors. The person
calling the special meeting of the board of directors may fix any place as
the
place for holding any special meeting of the board of directors called by such
persons.
Members
of the board of the directors may participate in special meetings by means
of
telephone conference or similar communications equipment by which all persons
articipating in the meeting can hear each other. Such participation shall
constitute presence in person.
SECTION
5.
N
otice.
W ritten
notice of any special meeting shall be given to each director by mail, at least
two (2) days previous thereto, by facsimile, telephone or telegraph, one (1)
day
previous thereto, or on such shorter notice as the person or persons calling
such notice may deem necessary or appropriate in the circumstances. Any director
may waive notice of any meeting by a writing filed with the secretary. The
attendance of a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the
purpose of, any meeting of the board of directors need be specified in the
notice or waiver of notice of such meeting.
SECTION
6.
Quorum.
A
majority of the total number of directors shall constitute a quorum for the
transaction of business at any meeting of the board of directors, but if less
than such majority is present at a meeting, a majority of the directors present
may adjourn the meeting from time to time. Notice of any adjourned meeting
shall
be given in the same manner as prescribed by Section 5 of this Article
III.
SECTION
7.
Manner
of Acting.
The act
of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the board of directors, unless a greater number
is
prescribed by these Bylaws, the Corporation's Articles of Incorporation, or
the
General Corporation Law of the State of California.
SECTION
8.
Action
Without a Meeting.
Any
action required or permitted to be taken at a meeting of the board of directors
or any committee thereof may be taken without a meeting if a consent in writing
setting forth the action so taken is signed by all members of the board of
directors or of the committee, as the case may be, and the writing or writings
are filed with the minutes or proceedings of the board or
committee.
SECTION
9.
Resignation.
Any
director may resign at any time by sending a written notice of such resignation
to the home office of the Corporation addressed to the chairman. Unless
otherwise specified therein, such resignation shall take effect upon receipt
thereof by the chairman.
SECTION
10.
Vacancies.
Any
vacancy occurring on the board of directors shall be filled in accordance with
the provisions of the Corporation's Articles of Incorporation. Any directorship
to be filled by reason of an increase in the number of directors may be filled
by the affirmative vote of a majority of the directors then in office, though
less than
a
quorum,
or by election at an annual meeting or at a special meeting of the
stockholders
held
for
that purpose. The term of such director shall be in accordance with the
provisions
of the
Corporation's Articles of Incorporation.
SECTION
11.
Compensation.
Directors, as such, may be paid their expenses, if any, of attendance at each
meeting, and receive compensation for service on the board of directors. Members
of either standing or special committees may be allowed such compensation as
the
board of directors may determine.
SECTION
12.
Interested
Directors.
No
contract or transaction between the Corporation and one or more of its directors
or officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be
void
or voidable solely for this reason, or solely because the director or officer
is
present at or participates in the meeting of the board of directors or committee
thereof which authorizes the contract or transaction, or solely because his
or
their votes are counted for such purpose if (i) the material facts as to his
or
their relationship or interest and as to the contract or transaction are
disclosed or are known to the board of directors or the committee, and the
board
of directors or committee in good faith authorizes the
contract
or transaction by the affirmative votes of a majority of the disinterested
directors,
even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to his or their relationship or interest and as to the contract or
transaction are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved in good faith
by vote of the stockholders; (iii) the contract or transaction is fair as to
the
Corporation as of the time it is authorized, approved or ratified, by the board
of directors, a committee thereof or the stockholders; or (iv) the
material
facts as to his or their relationship or interest and as to the contract or
transaction
is not
known to the director or officer at the time the transaction is brought before
the
board
o f
directors o r c ommittee o f t he C orporation for action. C ommon o
n
nterested
directors may be counted in determining the presence of a quorum at a meeting
of
the board of directors or
of
a
committee
which authorizes the contract or transaction.
ARTICLE
IV
Committees
of the Board of Directors
The
board
of directors may, by resolution passed by a majority of the whole board,
designate one or more committees, as they may determine to be necessary or
appropriate for the c onduct o f t he b usiness o f t he C orporation, and
m ay
prescribe the duties, constitution and procedures thereof. Each committee shall
consist of one or more directors of the Corporation appointed by the chairman.
The board of directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee.
Any
member of any such committee may resign at any time by giving notice to the
Corporation; provided, however, that notice to the board, the chairman of the
board, the chief executive officer, the chairman of such committee, or the
secretary shall be d
eemed
to
constitute notice to the Corporation. Such resignation shall take effect upon
receipt of such notice or at any later time specified therein; and, unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective. Any member of any such committee may be removed
at any time, either with or without cause, by the affirmative vote of a majority
of the authorized number of directors at any meeting of the
board.
All
committees shall keep regular minutes of its proceedings and report the same
to
the board of directors when required. To the extent applicable, the provisions
of
Article
III of these Bylaws governing the meetings of the board of directors shall
likewise
govern
the meetings of any committee thereof.
ARTICLE
V
Officers
SECTION
1.
Positions.
The
officers of the Corporation shall be a Chairman, a President, a Secretary and
a
Treasurer, each of whom shall be elected by the board of directors. The board
of
directors may also elect one or more vice presidents and designate any such
vice
president as an executive vice president or senior vice president. The board
of
directors may also elect or authorize the appointment of such other officers
as
the
business of the Corporation may require. The officers shall have such authority
and
perform
such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices. Any two or more offices may be held by the same person.
SECTION
2.
Election
and
Term
of
Office.
The
officers of the Corporation shall be elected annually by the board of directors
at the first meeting of the board of directors held after each annual meeting
of
the stockholders. If the election of officers is not held at such meeting,
such
election shall be held as soon thereafter as possible. Each officer
shall
hold office until his successor shall have been duly elected and qualified
or
until his
death or
until he shall resign or shall have been removed in the manner hereinafter
provided.
Election
or appointment of an officer, employee or agent shall not of itself create
contract rights. The board of directors may authorize the Corporation to enter
into an employment contract with any officer in accordance with state law;
but
no such contract shall impair the right of the board of directors to remove
any
officer at any time in accordance with Section 3 of this Article V.
SECTION
3.
Removal.
Any
officer may be removed at any time, with or without cause, by the vote of a
majority of the board of directors.
SECTION
4.
Vacancies.
A
vacancy in any office because of death, resignation, removal, disqualification
or otherwise, may be filled by the board of directors for the unexpired portion
of the term.
SECTION
S.
Remuneration.
The
remuneration of the officers shall be fixed from time to time by the board
of
directors, and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the Corporation.
ARTICLE
VI
Contracts,
Loans, Checks and Deposits
SECTION
1.
Contracts.
To the
extent permitted by applicable law, and except as otherwise prescribed by the
Corporation's Articles of Incorporation or these Bylaws, the board of directors
or a duly authorized committee thereof may authorize any officer, employee,
or
agent of the Corporation to enter into any contract or execute and deliver
any
instrument in the name of and on behalf of the Corporation. Such authority
may
be general or confined to specific instances.
SECTION
2. Loans. No loans shall be contracted on behalf of the Corporation and no
evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
SECTION
3.
Checks,
Drafts,
Etc.
All
checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the Corporation shall be signed
by one or more officers, employees or agents of the Corporation in such manner,
including in facsimile form, as shall from time to time be determined by
resolution of the board of directors.
SECTION
4.
DD
eposits.
A
11
funds o f t he C orporation n of o therwise e mployed
shall be
deposited from time to time to the credit of the Corporation in any of its
duly
authorized depositories as the board of directors may select.
ARTICLE
VII
Certificates
for Shares and Their Transfer
SECTION
1.
Certificates
for
Shares.
The
shares of the Corporation shall be represented by Certificates signed by the
chairman of the board of directors or the president or a vice president and
by
the treasurer or an assistant treasurer or the secretary or an assistant
secretary of the Corporation, and may be sealed with the seal of the Corporation
or a facsimile thereof. Any or all of the signatures upon a Certificate may
be
facsimiles. If any officer who has signed or whose facsimile signature has
been
placed upon such Certificate shall have ceased to be such officer before the
Certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer at the date of its issue.
SECTION
2.
Transfer
of
Shares.
Transfer
of shares of capital stock of the Corporation shall be made only on its stock
transfer books. Authority for such transfer shall be given only to the holder
of
record thereof or by his legal representative, who shall furnish proper evidence
of such authority, or by his attorney thereunto authorized by
power
of
attorney duly executed and filed with the Corporation. Such transfer shall
be
made only on surrender for cancellation of the Articles for such shares. The
person in whose name shares of capital stock stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for
all
purposes.
SECTION
3.
Lost
Certificates.
The
board of directors may direct a new Certificate to be issued in place of any
Certificate theretofore issued by the Corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the Certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new Certificate, the board of directors may, in
its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed Certificate, or his legal
representative, to give the Corporation a bond in such sum as it may direct
as
indemnity against any claim that may be made against the Corporation with
respect to the Certificate alleged to have been lost, stolen, or
destroyed.
SECTION
4.
Nominees.
For the
purpose of securing the stockholders against fraud and manipulation, no share
of
the c ommon stock o f the Corporation m ay b e s old, transferred or otherwise
registered in the name of The Depository Trust Corporation, The Canadian
Depository for Securities Limited, Cede & Co. or any other person as a
nominee for the beneficial owner thereof Each share of the Corporation's common
stock from time to time outstanding shall be registered on the books of the
Corporation by the beneficial
owner
thereof and no person whose shares are not so registered shall have any right
to
vote,
receive
notice of meetings, or receive dividends or other distributions relating to
such
shares
until
they are so registered on the books and records of the Corporation. All
certificates representing shares of the Corporation shall bear a restrictive
legend restricting the transfer thereof in accordance with this provision.
As
used herein, the terms "beneficial owner" shall mean the person or group who
has
the sole or joint right to dispose of the shares or direct the disposal of
shares, the sole or joint economic interest in the shares, or the sole or joint
right to receive or direct the receipt of dividends or other distributions
relating to the shares.
ARTICLE
VIII
Fiscal
Year
The
fiscal year of the Corporation shall be established by the board of
directors.
ARTICLE
IX
Dividends
Dividends
upon the stock of the Corporation, subject to the provisions of the
Corporation's Articles of Incorporation, if any, may be declared by the board
of
directors at any regular or special meeting, pursuant to law. Dividends may
be
paid in cash, in property or in the Corporation's own stock.
indemnification
SECTION
1.
Power
to Indemnify in Actions, Suits or Proceedings Other Than
Those
by or in the Right of the Corporation.
Subject
to Section 3 of this Article X, the Corporation shall indemnify any person
who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
o r investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he or she is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving
at
the request of the Corporation as a director or officer, employee or agent
of
another corporation, partnership, joint venture, trust, employee benefit plan
or
other enterprise, against expenses (including attorneys' fees), judgments,
fines
and amounts paid in settlement actually and reasonably incurred by him or her
in
connection with such action, suit or proceeding if he or she acted in good
faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and, with respect to any criminal action
or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of
nolo
contendere
or
its
equivalent, shall not, of itself, create a presumption that the person did
not
act in good faith and in a manner which he or she reasonably believed to be
in
or not opposed to the best interests of the Corporation, and, with respect
to
any criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
SECTION
2.
Power
to Indemnify in Actions Suits or Proceedings by or in the
Right
of the Corporation.
Subject
to Section 3 of this Article X, the Corporation shall indemnify any person
who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure
a
judgment in its favor by reason of the fact that he or she is or was a director
or officer of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation; except that no indemnification shall be
made
in respect of any claim, issue or m after as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent
that
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all
the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper.
SECTION
3.
Authorization
of Indemnification.
Any
indemnification under this Article X (unless ordered by a court) shall be made
by the Corporation only as authorized in the specific case upon a determination
that indemnification of the director or officer is proper in the circumstances
because he or she has met the applicable standard of conductset forth in Section
1 or Section 2 of this Article X, as the case may be. Such
determination
shall be made (i) by the Board of Directors by a majority vote of a
quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if
such
a
quorum is not obtainable, or, even if obtainable a quorum of disinterested
directors
so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. To the extent, however, that a director or officer of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue
or
matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith, without the necessity of authorization in the specific
case.
SECTION
4.
Good
Faith Defined.
For
purposes of any determination under Section 3 of this Article X, a person shall
be deemed to have acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the Corporation,
or,
with respect to any criminal action or proceeding, to have had no reasonable
cause to believe his conduct was unlawful, if his or her action is based on
the
records or books of account of the Corporation or another enterprise, or on
information supplied to him or her by the officers of the Corporation or another
enterprise in the course of their duties, or on the advice of legal counsel
for
the Corporation or another enterprise or on information or records given or
reports made to the Corporation or another enterprise b y an independent c
ertified p ublic accountant or b y an appraiser o r other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise
of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall
not
be deemed to be exclusive or to limit in any way the circumstances in which
a
person may be deemed to have met the applicable standard of conduct set forth
in
Sections 1 or 2 of this Article X, as the case may be.
SECTION
5.
Indemnification
by a Court.
Notwithstanding any contrary determination in the specific case under Section
3
of this Article X, and notwithstanding the absence of any determination
thereunder, any director or officer may apply to any
court
of
competent jurisdiction in the State of California for indemnification to the
extent
otherwise permissible under Sections 1 and 2 of this Article X. The basis of
such indemnification by a court shall be a determination by such court that
indemnification of the director or officer is proper in the circumstances
because he or she has met the applicable standards of conduct set forth in
Sections 1 or 2 of this Article X, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article X nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification
has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing o f s uch application. Ifs uccessful, i n w hole or
i n
p art, the director o r officer seeking indemnification shall also be entitled
to be paid the expense of prosecuting such application.
SECTION
6.
Expenses
Payable in Advance.
Expenses
incurred by a director or officer in defending or investigating a threatened
or
pending action, suit or proceeding
shall
be
paid by the Corporation in advance of the final disposition of such action,
suit
or
proceeding upon receipt of an undertaking by or on behalf of such director
or
officer to repay such amount if it shall ultimately be determined that he or
she
is not entitled to be indemnified by the Corporation as authorized in this
Article X.
SECTION
7.
Nonexclusivity
of Indemnification and Advancement of Expenses.
The
indemnification and advancement of expenses provided by or granted pursuant
to
this Article X shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
Bylaw, agreement, contract, vote of stockholders or disinterested directors
or
pursuant to the
direction
(howsoever embodied) of any court of competent jurisdiction or otherwise,
both
as to
action in his or her official capacity and as to action in another capacity
while
holding
such o ffice, i t b eing the p olicy of the C orporation t hat i ndemnification
o f t he
persons
specified in Sections 1 and 2 of this Article X shall be made to the fullest
extent permitted by law. The provisions of this Article X shall not be deemed
to
preclude the indemnification of any person who is not specified in Sections
1 or
2 of this Article X, but whom the Corporation has the power or obligation to
indemnify under the provisions of the General Corporation Law of the State
of
California, or otherwise.
SECTION
8.
Insurance.
The
Corporation may purchase and maintain insurance on behalf of any person who
is
or was a director or officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him or her and incurred by
him
or her in any such capacity, or arising out of his status as such, whether
or
not the Corporation would have the power or the obligation to indemnify him
or
her against such liability under the provisions of this Article X.
SECTION
9.
Certain
Definitions.
For
purposes of this Article X, references to "the Corporation" shall include,
in
addition to the resulting corporation, any constituent
corporation
( including any c onstituent o f a constituent) absorbed i n a c onsolidation
o
r
merger
which, if its separate existence had continued, would have had power and
authority
to indemnify its directors or officers, so that any person who is or was a
director
or
officer of such constituent corporation, or is or was a director or officer
of
such constituent corporation serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
shall stand in the same position under the provisions of this Article X with
respect to the resulting or surviving corporation as he or she would have with
respect to such constituent corporation if its separate existence had continued.
For purposes of this Article X, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by,such director or officer with respect
to an employee benefit plan, its participants or beneficiaries; and a person
who
acted in good faith and in a manner he or she reasonably believed to be in
the
interest of the participants and beneficiaries of an employee benefit plan
shall
be deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article X.
SECTION
10.
Survival
of Indemnification and Advancement of Expenses.
The
indemnification and advancement of expenses provided by, or granted pursuant
to,
this Article X shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the b enefit of the heirs, executors and administrators of such a
person.
SECTION
11.
Limitation
on Indemnification.
Notwithstanding anything contained in this Article X to the contrary, except
for
proceedings to enforce rights to indemnification (which shall be governed by
Section 5 of this Article X), the Corporation shall not be obligated to
indemnify any director or officer in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof)
was
authorized or consented to by the Board of Directors of the
Corporation.
SECTION
12.
Indemnification
of Employees and Agents.
The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of expenses
to employees and agents of the Corporation similar to those conferred in this
Article X to directors and officers of the Corporation.
ARTICLE
XI
Corporate
Seal
The
corporate seal shall have inscribed thereon the name of the Corporation and
may
be used by causing it or a facsimile thereof to be impressed or affixed or
in
any other manner reproduced.
ARTICLE
XII
Amendments
In
accordance with the Corporation's Articles of Incorporation, these Bylaws may
be
repealed, altered, amended or rescinded by the stockholders of the Corporation
or the board of directors; provided that notice of such repeal, alteration,
amendment or rescission be contained in the notice of such meeting of
stockholders or the board of directors, as the case may be. All such action
must
be approved by either the holders of not less than a majority of the outstanding
shares of capital stock of the Corporation entitled to vote thereon or by two
thirds of the entire board of directors, in each case at a legal meeting held
in
accordance with the provisions of these Bylaws.
EXHIBIT
5.1
November
17, 2005
NutraCea
1261
Hawk’s Flight Court
El
Dorado
Hills, CA 95762
Gentlemen/Ladies:
At
your
request, we have examined the Registration Statement on Form SB-2 (the
"Registration
Statement"
)
filed
by NutraCea, a California corporation (the
"Company"
),
with
the Securities and Exchange Commission (the
"Commission"
)
on or
about November 18, 2005, in connection with the registration under the
Securities Act of 1933, as amended (the
"Securities
Act"
),
of the
resale of up to 29,486,680 shares of the Company's Common Stock (collectively,
the “
Shares
”),
including 525,000 shares that are outstanding (“
Outstanding
Shares
”)
that
were issued upon exercise of certain warrants (“
Outstanding
Shares Warrants
”),
up to
15,700,000 shares (the
“Conversion
Shares”
)
that
are issuable upon conversion of our outstanding Series B Convertible Preferred
Stock (“
Series
B Preferred
”),
and
up to 13,261,680 shares of Common Stock (
“Warrant
Shares”
)
that
are issuable upon exercise of certain other warrants (the “
Warrants
”),
all
of which were issued to certain of the selling security holders identified
in
the table appearing in the prospectus under the heading
“Selling
Security Holders.”
In
rendering this opinion, we have examined such matters of fact as we have
deemed
necessary in order to render the opinion set forth herein, which included
examination of the following documents:
|
(1)
|
The
Registration Statement.
|
|
(2)
|
The
Securities Purchase Agreement dated as of September 28, 2005 (“Purchase
Agreement”) and the Registration Rights Agreement dated as of October 4,
2005 (“Registration Rights Agreement”) that are Exhibits to the
Registration Statement.
|
NutraCea
November
17, 2005
Page
2
|
(3)
|
The
Warrants and the Outstanding Shares
Warrants.
|
|
(3)
|
Copies
of the Company's (i) Restated and Amended Articles of Incorporation
filed
with the California Secretary of State on December 13, 2001, (ii)
Certificate of Amendment of Articles of Incorporation filed with
the
California Secretary of State on August 4, 2003, (iii) Certificate
of
Amendment of Articles of Incorporation filed with the California
Secretary
of State on October 31, 2003, (iv) Certificate of Amendment of
Articles of
Incorporation filed with the California Secretary of State on September
29, 2005, (v) Certificate of Designation of the Rights, Preferences,
and
Privileges of the Series A Preferred filed with the California
Secretary
of State on December 13, 2001, and (vi) Certificate of Determination,
Preferences and Rights of Series B Convertible Preferred Stock
filed with
the California Secretary of State on October 4, 2005, certified
by the
Company’s Secretary (collectively, “
Articles
”).
|
|
(4)
|
A
copy of the Company's Bylaws, certified to us by the Company in
the
Management Certificate as being complete and correct (the
"Bylaws"
).
|
|
(5)
|
Minutes
of meetings and actions by written consent of the Company's Board
of
Directors (and committees thereof) relating to the Purchase Agreement,
the
Registration Rights Agreement, the Outstanding Shares Warrants,
the
Warrants and the adoption and amendment of the Articles, which
were
certified to us by the Company in the Management Certificate as
being
complete and correct.
|
|
(6)
|
A
Management Certificate addressed to us and dated of even date herewith
executed by the Company containing certain factual representations
(the
"Management
Certificate"
).
|
NutraCea
November
17, 2005
Page
3
As
to
matters of fact relevant to this opinion, we have relied solely upon our
examination of the documents referred to above and such additional examination
as we consider relevant to this opinion and have assumed the current accuracy
and completeness of the information obtained from the documents referred
to
above and such additional examination. We have made no independent investigation
or other attempt to verify the accuracy of any of such information or to
determine the existence or non-existence of any other factual matters; however,
we are not aware of any facts that would cause us to believe that the opinion
expressed herein is not accurate.
In
our
examination of documents for purposes of this opinion, we have assumed, and
express no opinion as to, the authenticity and completeness of all documents
submitted to us as originals, the conformity to originals and completeness
of
all documents submitted to us as copies, the legal competence or capacity
of all
persons or entities executing the same, the lack of any undisclosed termination,
modification, waiver or amendment to any document entered into by the Selling
Security Holders and the due authorization, execution and delivery of all
documents by the Selling Security Holders where due authorization, execution
and
delivery are prerequisites to the effectiveness thereof. We have also assumed
that the certificates representing the Shares that are issued have been or
will
be properly signed by authorized officers of the Company or their
agents.
We
are
admitted to practice law in the State of California, and we render this opinion
only with respect to, and express no opinion herein concerning the application
or effect of the laws of any jurisdiction other than, the existing laws of
the
United States of America and the State of California.
In
connection with our opinion expressed below, we have assumed that, at or
before
the time of any resale of Shares pursuant to the Registration Statement,
the
Registration Statement will have been declared effective under the Securities
Act, that the registration will apply to such resale of Shares and will not
have
been modified or rescinded and that there will not have occurred any change
in
law affecting the validity or issuance of such shares or their status as
fully
paid and nonassessable.
NutraCea
November
17, 2005
Page
4
The
Company has informed us that the Selling Security Holders may resell Shares
from
time to time on a delayed or continuous basis. This opinion is limited to
the
laws, including the rules and regulations, as in effect on the date hereof.
We
are basing this opinion on our understanding that, prior to any Selling Security
Holder's resale of Shares pursuant to the Registration Statement, the Company
will advise us in writing of the terms thereof and other information material
thereto and will afford us an opportunity to review the operative documents
pursuant to which such Shares are to be resold (including the Registration
Statement, the prospectus and applicable prospectus supplement, if any, as
then
in effect) and will file such supplement or amendment to this opinion (if
any)
as we may reasonably consider necessary or appropriate with respect to such
resale. However, we undertake no responsibility to monitor the Company's
or any
Selling Security Holder's future compliance with applicable laws, rules or
regulations of the Commission or other governmental body. We also assume
the
Company will timely file any and all supplements to the Registration Statement
and prospectus as are necessary to comply with applicable laws in effect
from
time to time.
In
rendering any opinion that the Shares are "fully paid," we have assumed that
such shares were issued or will be issued, as applicable, in accordance with
the
terms of the Purchase Agreement, the Articles, the Outstanding Shares Warrants
and the Warrants, and that the Company has received full consideration for
the
issuance of such shares provided for in the Purchase Agreement, the Articles,
the Outstanding Shares Warrants and the Warrants (as applicable), and we
have
relied solely, without independent investigation, upon the representation
of the
Company to that effect in the Management Certificate referred to
above.
In
rendering any opinion that the Shares are “validly issued,” we have assumed that
the Company will not issue Common Stock in the future that would cause the
issuance of the Shares upon conversion of the Series B Preferred or upon
exercise of the Warrants to exceed the number of shares of Common Stock that
are
then authorized for issuance under the Articles.
NutraCea
November
17, 2005
Page
5
Based
upon the foregoing, it is our opinion that the Outstanding Shares that may
be
sold by the Selling Security Holders pursuant to the Registration Statement
are,
and the Conversion Shares and the Warrant Shares, when issued upon conversion
of
the Series B Preferred or exercise of the Warrants and fully paid for as
provided in the Purchase Agreement, the Articles and the Warrants will be,
validly issued, fully paid and nonassessable.
We
consent to the use of this opinion as an exhibit to the Registration Statement
and further consent to all references to us, if any, in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto. We assume no obligation to advise you of any fact, circumstance,
event
or change in the law or the fact that may hereafter be brought to our attention
whether or not such occurrence would affect or modify the opinions expressed
herein. This opinion is intended solely for use in connection with issuance
and
sale of shares subject to the Registration Statement and is not to be relied
upon for any other purpose.
|
Very
truly yours,
|
|
|
|
|
|
/s/
WEINTRAUB GENSHLEA CHEDIAK
|
|
WEINTRAUB
GENSHLEA CHEDIAK
|
|
A
LAW CORPORATION
|
2005
EQUITY INCENTIVE PLAN
As
Adopted May 26, 2005
1.
PURPOSE
.
The
purpose of this Plan is to provide incentives to attract, retain and motivate
eligible persons whose present and potential contributions are important to
the
success of the Company, its Parent, Subsidiaries and Affiliates, by offering
them an opportunity to participate in the Company's future performance through
awards of Options, Restricted Stock and Stock Bonuses. Capitalized terms not
defined in the text are defined in Section 24.
2.
SHARES SUBJECT TO THE PLAN
.
2.1
Number of Shares Available
.
Subject
to Sections 2.2 and 18, the total number of Shares reserved and available for
grant and issuance pursuant to this Plan will be 10,000,000. Subject to Sections
2.2 and 18, Shares that: (a) are subject to issuance upon exercise of an Option
but cease to be subject to such Option for any reason other than exercise of
such Option; (b) are subject to an Award granted hereunder but are forfeited
or
are repurchased by the Company at the original issue price; or (c) are subject
to an Award that otherwise terminates without Shares being issued; will again
be
available for grant and issuance in connection with future Awards under this
Plan. In order that ISO’s may be granted under this Plan, no more than
10,000,000 Shares shall be issued as ISOs. At all times the Company shall
reserve and keep available a sufficient number of Shares as shall be required
to
satisfy the requirements of all outstanding Options granted under this Plan
and
all other outstanding but unvested Awards granted under this Plan.
2.2
Adjustment of Shares
.
In the
event that the number of outstanding Shares is changed by a stock dividend,
recapitalization, stock split, reverse stock split, subdivision, combination,
reclassification or similar change in the capital structure of the Company
without consideration, then (a) the number of Shares reserved for issuance
under
this Plan, (b) the Exercise Prices of and number of Shares subject to
outstanding Options, (c) the maximum number of Shares that may be issued as
ISOs
set forth in Section 2.1, and (d) the number of Shares subject to other
outstanding Awards will be proportionately adjusted, subject to any required
action by the Board or the shareholders of the Company and compliance with
applicable securities laws;
provided
,
however
,
that
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will
be
rounded up to the nearest whole Share, as determined by the
Committee.
3.
ELIGIBILITY
.
ISOs
(as defined in Section 5 below) may be granted only to employees (including
officers and directors who are also employees) of the Company or of a Parent
or
Subsidiary of the Company. All other Awards may be granted to employees,
officers, directors, consultants and advisors of the Company or any Parent,
Subsidiary or Affiliate of the Company; provided such consultants and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction. A person may be granted more than
one Award under this Plan.
4.
ADMINISTRATION
.
4.1
Committee Authority
.
This
Plan will be administered by the Committee or by the Board acting as the
Committee. Subject to the general purposes, terms and conditions of this Plan,
and to the direction of the Board, the Committee will have full power to
implement and carry out this Plan. Without limitation, the Committee will have
the authority to:
|
(a)
|
construe
and interpret this Plan, any Award Agreement and any other agreement
or
document executed pursuant to this Plan;
|
|
(b)
|
prescribe,
amend and rescind rules and regulations relating to this Plan;
|
NutraCea
2005
Equity Incentive Plan
|
(c)
|
select
persons to receive Awards;
|
|
(d)
|
determine
the form and terms of Awards (which need not be identical), including
but
not limited to, the time or times at which Options shall be exercisable
and the extension or acceleration of any such provisions or limitations,
based in each case on such factors as the Committee shall determine,
in
its sole discretion;
|
|
(e)
|
determine
the number of Shares or other consideration subject to
Awards;
|
|
(f)
|
determine
whether Awards will be granted singly, in combination with, in tandem
with, in replacement of, or as alternatives to, other Awards under
this
Plan or any other incentive or compensation plan of the Company or
any
Parent, Subsidiary or Affiliate of the
Company;
|
|
(g)
|
grant
waivers of Plan or Award
conditions;
|
|
(h)
|
determine
the vesting, exercisability and payment of
Awards;
|
|
(i)
|
correct
any defect, supply any omission or reconcile any inconsistency in
this
Plan, any Award or any Award
Agreement;
|
|
(j)
|
determine
whether an Award has been earned;
and
|
|
(k)
|
make
all other determinations necessary or advisable for the administration
of
this Plan.
|
4.2
Committee Discretion
.
Any
determination made by the Committee with respect to any Award will be made
in
its sole discretion at the time of grant of the Award or, unless in
contravention of any express term of this Plan or Award, at any later time,
and
such determination will be final and binding on the Company and on all persons
having an interest in any Award under this Plan. The Committee may delegate
to
one or more officers of the Company the authority to grant an Award under this
Plan to Participants who are not Insiders of the Company.
4.3
Compliance
with Code Section 162(m)
.
If two
or more members of the Board are “outside directors” within the meaning of
Section 162(m) of the Code (“
Outside
Directors
”),
the
Committee shall be comprised of at least two members of the Board, all of whom
are Outside Directors.
5.
OPTIONS
.
The
Committee may grant Options to eligible persons and will determine whether
such
Options will be Incentive Stock Options within the meaning of the Code
(
"ISOs"
)
or
Nonqualified Stock Options (
"NQSOs"
),
the
number of Shares subject to the Option, the Exercise Price of the Option, the
period during which the Option may be exercised, and all other terms and
conditions of the Option, subject to the following:
5.1
Form of Option Grant
.
Each
Option granted under this Plan will be evidenced by an Award Agreement which
will expressly identify the Option as an ISO or an NQSO (
"Stock
Option Agreement"
),
and
will be in such form and contain such provisions (which need not be the same
for
each Participant) as the Committee may from time to time approve, and which
will
comply with and be subject to the terms and conditions of this
Plan.
5.2
Date of Grant
.
The
date of grant of an Option will be the date on which the Committee makes the
determination to grant such Option, unless otherwise specified by the Committee.
The Stock Option Agreement and a copy of this Plan will be delivered to the
Participant within a reasonable time after the granting of the
Option.
5.3
Exercise Period
and Expiration Date
.
An
Option will vest and become exercisable within the times or upon the occurrence
of events determined by the Committee and set forth in the Award Agreement
governing such Options, subject to the provisions of Section 5.6, and subject
to
Company policies established by the Committee from time to time. The Committee
may provide for Options to vest and become exercisable at one time or from
time
to time, periodically or otherwise, in such number of Shares or percentage
of
Shares subject to the Option as the Committee determines. However, except in
the
case of Options granted to Officers, Directors, and Consultants, Options shall
become exercisable at a rate of no less than 20% per year over five (5) years
from the date the Options are granted.
NutraCea
2005
Equity Incentive Plan
No
Option
will be exercisable after the expiration of ten (10) years from the date the
Option is granted; and
provided
further
that no
ISO granted to a person who directly or by attribution owns more than ten
percent (10%) of the total combined voting power of all classes of stock of
the
Company or of any Parent or Subsidiary of the Company (
"Ten Percent Shareholder"
)
will be
exercisable after the expiration of five (5) years from the date the ISO is
granted.
5.4
Exercise Price
.
The
Exercise Price of an NQSO will be determined by the Committee when the Option
is
granted;
provided
,
however
,
that if
expressly required by one or more state securities authorities or laws as a
condition of issuing Awards and Shares in compliance with the securities laws
of
such state, the exercise price of an NQSO shall not be less than 85% of the
Fair
Market Value of the Shares on the date of grant and the Exercise Price of any
NQSO granted to a Ten Percent Shareholder shall not be less than 110% of the
Fair Market Value of the Shares on the date of grant. The Exercise Price of
an
ISO will be not less than 100% of the Fair Market Value of the Shares on the
date of grant and the Exercise Price of any ISO granted to a Ten Percent
Shareholder will not be less than 110% of the Fair Market Value of the Shares
on
the date of grant. Payment for the Shares purchased may be made in accordance
with Section 8 of this Plan.
5.5
Method of Exercise
.
Options
may be exercised only by delivery to the Company of a written stock option
exercise agreement (the
"Exercise Agreement"
)
in a
form approved by the Committee (which need not be the same for each
Participant), stating the number of Shares being purchased, the restrictions
imposed on the Shares purchased under such Exercise Agreement, if any, and
such
representations and agreements regarding Participant's investment intent and
access to information and other matters, if any, as may be required or desirable
by the Company to comply with applicable securities laws, together with payment
in full of the Exercise Price for the number of Shares being
purchased.
5.6
Termination
.
Notwithstanding the exercise periods set forth in the Stock Option Agreement,
exercise of an Option will always be subject to the following:
|
(a)
|
If
the Participant is Terminated for any reason except death or Disability,
then the Participant may exercise such Participant's Options only
to the
extent that such Options would have been exercisable upon the Termination
Date no later than thirty (30) days after the Termination Date (or
such
longer time period not exceeding five (5) years as may be determined
by
the Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than
the expiration date of the Options.
|
|
(b)
|
If
the Participant is Terminated because of Participant's death or Disability
(or the Participant dies within three (3) months after a Termination
other
than because of Participant's Disability), then Participant's Options
may
be exercised only to the extent that such Options would have been
exercisable by Participant on the Termination Date and must be exercised
by Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or
such shorter (but not less than six months) or longer time period
not
exceeding five (5) years as may be determined by the Committee, with
any
such exercise beyond (a) three (3) months after the Termination Date
when
the Termination is for any reason other than the Participant's death
or
“disability,” as defined in Section 22(e)(3) of the Code, or (b) twelve
(12) months after the Termination Date when the Termination is for
Participant's death or Disability, deemed to be an NQSO), but in
any event
no later than the expiration date of the
Options.
|
NutraCea
2005
Equity Incentive Plan
|
(c)
|
Notwithstanding
the provisions in paragraphs 5.6(a) and (b) above, Award Agreements
and
other agreements relating to Awards under this Plan may include a
provision that if a Participant is terminated for Cause, neither
the
Participant, the Participant’s estate nor such other person who may then
hold the Option shall be entitled to exercise any Option with respect
to
any Shares whatsoever, after termination of service, whether or not
after
termination of service the Participant may receive payment from the
Company or a Subsidiary for vacation pay, for services rendered prior
to
termination, for services rendered for the day on which termination
occurs, for salary in lieu of notice, or for any other benefits.
For the
purpose of this paragraph, termination of service shall be deemed
to occur
on the date when the Company dispatches notice or advice to the
Participant that Participant’s service is
terminated.
|
5.7
Limitations on Exercise
.
The
Committee may specify a reasonable minimum number of Shares that may be
purchased on any exercise of an Option, provided that such minimum number will
not prevent Participant from exercising the Option for the full number of Shares
for which it is then exercisable.
5.8
Limitations on ISOs
.
The
aggregate Fair Market Value (determined as of the date of grant) of Shares
with
respect to which ISOs are exercisable for the first time by a Participant during
any calendar year (under this Plan or under any other incentive stock option
plan of the Company or any Affiliate, Parent or Subsidiary of the Company)
will
not exceed $100,000. If the Fair Market Value of Shares on the date of grant
with respect to which ISOs are exercisable for the first time by a Participant
during any calendar year exceeds $100,000, then the Options for the first
$100,000 worth of Shares to become exercisable in such calendar year will be
ISOs and the Options for the amount in excess of $100,000 that become
exercisable in that calendar year will be NQSOs. In the event that the Code
or
the regulations promulgated thereunder are amended after the Effective Date
of
this Plan to provide for a different limit on the Fair Market Value of Shares
permitted to be subject to ISOs, such different limit will be automatically
incorporated herein and will apply to any Options granted after the effective
date of such amendment.
5.9
Modification, Extension or Renewal
.
The
Committee may modify, extend or renew outstanding Options and authorize the
grant of new Options in substitution therefor, provided that any such action
may
not, without the written consent of a Participant, impair any of such
Participant's rights under any Option previously granted. Any outstanding ISO
that is modified, extended, renewed or otherwise altered will be treated in
accordance with Section 424(h) of the Code. The Committee may reduce the
Exercise Price of outstanding Options without the consent of Participants
effected by a written notice to them;
provided
,
however
,
that
the Exercise Price may not be reduced below the minimum Exercise Price that
would be permitted under Section 5.4 of this Plan for Options granted on the
date the action is taken to reduce the Exercise Price.
5.10
No Disqualification
.
Notwithstanding any other provision in this Plan, no term of this Plan relating
to ISOs will be interpreted, amended or altered, nor will any discretion or
authority granted under this Plan be exercised, so as to disqualify this Plan
under Section 422 of the Code or, without the consent of the Participant
affected, to disqualify any ISO under Section 422 of the Code.
6.
RESTRICTED STOCK
.
A
Restricted Stock Award is an offer by the Company to sell to an eligible person
Shares that are subject to restrictions. The Committee will determine to whom
an
offer will be made, the number of Shares the person may purchase, the price
to
be paid (the
"Purchase Price"
),
the
restrictions to which the Shares will be subject, if any, and all other terms
and conditions of the Restricted Stock Award, subject to the
following:
6.1
Form of Restricted Stock Award
.
All
purchases under a Restricted Stock Award made pursuant to this Plan will be
evidenced by an Award Agreement (
"Restricted
Stock Purchase Agreement"
)
that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject
to
the terms and conditions of this Plan. The offer of Restricted Stock will be
accepted by the Participant's execution and delivery of the Restricted Stock
Purchase Agreement and full payment for the Shares to the Company within thirty
(30) days from the date the Restricted Stock Purchase Agreement is delivered
to
the person. If such person does not execute and deliver the Restricted Stock
Purchase Agreement along with full payment for the Shares to the Company within
thirty (30) days, then the offer will terminate, unless otherwise determined
by
the Committee.
NutraCea
2005
Equity Incentive Plan
6.2
Purchase Price
.
The
Purchase Price of Shares sold pursuant to a Restricted Stock Award will be
determined by the Committee;
provided
,
that if
expressly required by any state securities authorities as a condition of the
offer and sale of Shares subject to Restricted Stock Awards in compliance with
the securities laws of such state, the Purchase Price will be at least 85%
of
the Fair Market Value of the Shares on the date the Restricted Stock Award
is
granted, except in the case of a sale to a Ten Percent Shareholder, in which
case the Purchase Price will be 100% of the Fair Market Value. Payment of the
Purchase Price may be made in accordance with Section 8 of this
Plan.
6.3
Restrictions
.
Restricted Stock Awards will be subject to such restrictions (if any) as the
Committee may impose. The Committee may provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions,
in
whole or part, based on length of service, performance or such other factors
or
criteria as the Committee may determine.
7.
STOCK BONUSES
.
7.1
Awards of Stock Bonuses
.
A Stock
Bonus is an award of Shares (which may consist of Restricted Stock) for services
rendered to the Company or any Parent, Subsidiary or Affiliate of the Company.
A
Stock Bonus may be awarded for past services already rendered to the Company,
or
any Parent, Subsidiary or Affiliate of the Company (provided that the
Participant pays the Company the par value, if any, of the Shares awarded by
such Stock Bonus in cash) pursuant to an Award Agreement (the
"Stock Bonus Agreement"
)
that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject
to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the
"Performance Stock Bonus Agreement"
)
that
will be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject
to
the terms and conditions of this Plan. Stock Bonuses may vary from Participant
to Participant and between groups of Participants, and may be based upon the
achievement of the Company, Parent, Subsidiary or Affiliate and/or individual
performance factors or upon such other criteria as the Committee may determine.
7.2
Terms of Stock Bonuses
.
The
Committee will determine the number of Shares to be awarded to the Participant
and whether such Shares will be Restricted Stock. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will determine: (a) the nature, length
and starting date of any period during which performance is to be measured
(the
"Performance Period"
)
for
each Stock Bonus; (b) the performance goals and criteria to be used to measure
the performance, if any; (c) the number of Shares that may be awarded to the
Participant; and (d) the extent to which such Stock Bonuses have been earned.
Performance Periods may overlap and Participants may participate simultaneously
with respect to Stock Bonuses that are subject to different Performance Periods
and different performance goals and other criteria. The number of Shares may
be
fixed or may vary in accordance with such performance goals and criteria as
may
be determined by the Committee. The Committee may adjust the performance goals
applicable to the Stock Bonuses to take into account changes in law and
accounting or tax rules and to make such adjustments as the Committee deems
necessary or appropriate to reflect the impact of extraordinary or unusual
items, events or circumstances to avoid windfalls or hardships.
7.3
Form of Payment
.
The
earned portion of a Stock Bonus may be paid currently or on a deferred basis
with such interest or dividend equivalent, if any, as the Committee may
determine. Payment may be made in the form of cash, whole Shares, including
Restricted Stock, or a combination thereof, either in a lump sum payment or
in
installments, all as the Committee will determine.
7.4
Termination During Performance Period
.
If a
Participant is Terminated during a Performance Period for any reason, then
such
Participant will be entitled to payment (whether in Shares, cash or otherwise)
with respect to the Stock Bonus only to the extent earned as of the date of
Termination in accordance with the Performance Stock Bonus Agreement, unless
the
Committee determines otherwise.
NutraCea
2005
Equity Incentive Plan
8.
PAYMENT FOR SHARE PURCHASES
.
8.1
Payment
.
Payment
for Shares purchased pursuant to this Plan may be made in cash (by check) or,
where expressly approved for the Participant by the Committee and where
permitted by law:
|
(a)
|
by
cancellation of indebtedness of the Company to the
Participant;
|
|
(b)
|
by
surrender of shares that either: (1) have been owned by Participant
for
more than six (6) months and have been paid for within the meaning
of SEC
Rule 144 (and, if such shares were purchased from the Company by
use of a
promissory note, such note has been fully paid with respect to such
shares); or (2) were obtained by Participant in the public
market;
|
|
(c)
|
subject
to applicable law, by waiver of compensation due or accrued to the
Participant for services rendered;
provided
,
that the portion of the Purchase Price equal to the par value of
the
Shares, if any, must be paid in
cash;
|
|
(d)
|
with
respect only to purchases upon exercise of an Option, and provided
that a
public market for the Company’s stock exists:
|
|
(1)
|
through
a "same day sale" commitment from the Participant and a broker-dealer
that
is a member of the National Association of Securities Dealers (an
"NASD Dealer"
)
whereby the Participant irrevocably elects to exercise the Option
and to
sell a portion of the Shares so purchased to pay for the Exercise
Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company;
or
|
|
(2)
|
through
a "margin" commitment from the Participant and a NASD Dealer whereby
the
Participant irrevocably elects to exercise the Option and to pledge
the
Shares so purchased to the NASD Dealer in a margin account as security
for
a loan from the NASD Dealer in the amount of the Exercise Price,
and
whereby the NASD Dealer irrevocably commits upon receipt of such
Shares to
forward the Exercise Price directly to the Company;
or
|
|
(e)
|
by
any combination of the
foregoing.
|
9.
WITHHOLDING TAXES
.
9.1
Withholding Generally
.
Whenever Shares are to be issued in satisfaction of Awards granted under this
Plan, the Company may require the Participant to remit to the Company an amount
sufficient to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such Shares.
Whenever, under this Plan, payments in satisfaction of Awards are to be made
in
cash, such payment will be net of an amount sufficient to satisfy federal,
state, and local withholding tax requirements.
9.2
Stock Withholding
.
When,
under applicable tax laws, a Participant incurs tax liability in connection
with
the exercise or vesting of any Award that is subject to tax withholding and
the
Participant is obligated to pay the Company the amount required to be withheld,
the Committee may in its sole discretion allow the Participant to satisfy the
minimum withholding tax obligation by electing to have the Company withhold
from
the Shares to be issued that number of Shares having a Fair Market Value equal
to the minimum amount required to be withheld, determined on the date that
the
amount of tax to be withheld is to be determined. All elections by a Participant
to have Shares withheld for this purpose will be made in accordance with the
requirements established by the Committee and be in writing in a form acceptable
to the Committee.
NutraCea
2005
Equity Incentive Plan
10.
PRIVILEGES OF STOCK OWNERSHIP
.
10.1
Voting and Dividends
.
No
Participant will have any of the rights of a shareholder with respect to any
Shares until the Shares are issued to the Participant. After Shares are issued
to the Participant, the Participant will be a shareholder and have all the
rights of a shareholder with respect to such Shares, including the right to
vote
and receive all dividends or other distributions made or paid with respect
to
such Shares;
provided
,
that if
such Shares are Restricted Stock, then any new, additional or different
securities the Participant may become entitled to receive with respect to such
Shares by virtue of a stock dividend, stock split or any other change in the
corporate or capital structure of the Company will be subject to the same
restrictions as the Restricted Stock;
provided
,
further
,
that
the Participant will have no right to retain such stock dividends or stock
distributions with respect to Shares that are repurchased at the Participant's
original Purchase Price pursuant to Section 12.
10.2
Financial Statements
.
If
expressly required by any state securities authorities as a condition of the
offer and issuance of Awards in compliance with the securities laws of such
state, the Company shall provide to each Participant during the period such
Participant holds an outstanding Award a copy of the financial statements of
the
Company as prepared either by the Company or independent certified public
accountants of the Company. Such financial statements shall be delivered as
soon
as practicable following the end of the Company's fiscal year during the period
Awards are outstanding;
provided
,
however
,
the
Company will not be required to provide such financial statements to
Participants whose services in connection with the Company assure them access
to
equivalent information.
11.
TRANSFERABILITY
.
Unless
determined otherwise by the Committee, Awards granted under this Plan, and
any
interest therein, will not be transferable or assignable by Participant, and
may
not be made subject to execution, attachment or similar process, otherwise
than
by will or by the laws of descent and distribution. During the lifetime of
the
Participant, an Award will be exercisable only by the Participant, and any
elections with respect to an Award, may be made only by the Participant. If
the
Committee in its sole discretion makes an Award or any interest therein
transferable, such Award may only be transferred (i) by will, (ii) by the laws
of descent and distribution, or (iii) as permitted by Rule 701 of the Securities
Act.
12.
RESTRICTIONS ON SHARES
.
At the
discretion of the Committee, the Company may reserve to itself and/or its
assignee(s) in the Award Agreement a right to repurchase a portion of or all
Shares that are not "Vested" (as defined in the Stock Option Agreement) held
by
a Participant following such Participant's Termination at any time within ninety
(90) days after the later of Participant's Termination Date and the date
Participant purchases Shares under this Plan, for cash and/or cancellation
of
purchase money indebtedness, at the Participant's original Purchase Price,
provided, that the right to repurchase lapses at the rate of at least 20% per
year over five (5) years from the date the Shares were purchased (or from the
date of grant of options in the case of Shares obtained pursuant to a Stock
Option Agreement and Stock Option Exercise Agreement), and if the right to
repurchase is assignable, the assignee must pay the Company, upon assignment
of
the right to repurchase, cash equal to the excess of the Fair Market Value
of
the Shares over the original Purchase Price.
13.
CERTIFICATES
.
All
certificates for Shares or other securities delivered under this Plan will
be
subject to such stock transfer orders, legends and other restrictions as the
Committee may deem necessary or advisable, including restrictions under any
applicable federal, state or foreign securities law, or any rules, regulations
and other requirements of the SEC or any stock exchange or automated quotation
system upon which the Shares may be listed or quoted.
14.
ESCROW
.
To
enforce any restrictions on a Participant's Shares, the Committee may require
the Participant to deposit all certificates representing Shares, together with
stock powers or other instruments of transfer approved by the Committee,
appropriately endorsed in blank, with the Company or an agent designated by
the
Company, to hold in escrow until such restrictions have lapsed or terminated,
and the Committee may cause a legend or legends referencing such restrictions
to
be placed on the certificates.
15.
REPRICING,
EXCHANGE,
BUYOUT OF AWARDS
.
The
repricing of Options is permitted without prior stockholder approval, provided
that the terms of the repricing satisfy the requirements of Section 409A of
the Code and any regulations or rulings promulgated by the Internal Revenue
Service. The Committee may, at any time or from time to time authorize the
Company, in the case of an Option exchange without stockholder approval, and
with the consent of the respective Participants, to issue new Awards in exchange
for the surrender and cancellation of any or all outstanding Awards. The
Committee may at any time buy from a Participant an Option previously granted
with payment in cash, Shares or other consideration, based on such terms and
conditions as the Committee and the Participant may agree.
NutraCea
2005
Equity Incentive Plan
16.
SECURITIES LAW AND OTHER REGULATORY COMPLIANCE
.
An
Award will not be effective unless such Award is in compliance with all
applicable federal and state securities laws, rules and regulations of any
governmental body, and the requirements of any stock exchange or automated
quotation system upon which the Shares may then be listed or quoted, as they
are
in effect on the date of grant of the Award and also on the date of exercise
or
other issuance. Notwithstanding any other provision in this Plan, the Company
will have no obligation to issue or deliver certificates for Shares under this
Plan prior to: (a) obtaining any approvals from governmental agencies that
the
Company determines are necessary or advisable; and/or (b) completion of any
registration or other qualification of such Shares under any state or federal
law or ruling of any governmental body that the Company determines to be
necessary or advisable. The Company will be under no obligation to register
the
Shares with the SEC or to effect compliance with the registration, qualification
or listing requirements of any state securities laws, stock exchange or
automated quotation system, and the Company will have no liability for any
inability or failure to do so.
17.
NO OBLIGATION TO EMPLOY
.
Nothing
in this Plan or any Award granted under this Plan will confer or be deemed
to
confer on any Participant any right to continue in the employ of, or to continue
any other relationship with, the Company or any Parent, Subsidiary or Affiliate
of the Company or limit in any way the right of the Company or any Parent,
Subsidiary or Affiliate of the Company to terminate Participant's employment
or
other relationship at any time, with or without cause.
18.
CORPORATE TRANSACTIONS
.
18.1
Assumption or Replacement of Awards by Successor
.
In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation
(
other
than
a merger
or consolidation with a wholly-owned subsidiary, a reincorporation of the
Company in a different jurisdiction, or other transaction in which there is
no
substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on
all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the shareholders of the Company immediately prior to such merger
(other than any shareholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) any other transaction which qualifies
as a "corporate transaction" under Section 424(a) of the Code wherein the
shareholders of the Company give up all of their equity interest in the Company
(
except
for the
acquisition, sale or transfer of all or substantially all of the outstanding
shares of the Company from or by the shareholders of the Company), any or all
outstanding Awards may be assumed, converted or replaced by the successor
corporation (if any), which assumption, conversion or replacement will be
binding on all Participants. In the alternative, the successor corporation
may
substitute equivalent Awards or provide substantially similar consideration
to
Participants as was provided to shareholders (after taking into account the
existing provisions of the Awards). The successor corporation may also issue,
in
place of outstanding Shares of the Company held by the Participant,
substantially similar shares or other property subject to repurchase
restrictions no less favorable to the Participant. In the event such successor
corporation (if any) refuses to assume or substitute such Awards, as provided
above, pursuant to a transaction described in this Subsection 18.1, such Awards
shall expire on such transaction at such time and on such conditions as the
Board will determine. Notwithstanding anything in this Plan to the contrary,
the
Board may, in its sole discretion, provide that the vesting of any or all Awards
granted pursuant to this Plan will accelerate upon a transaction described
in
this Section 18. If the Board exercises such discretion with respect to
Options, such Options will become exercisable in full prior to the consummation
of such event at such time and on such conditions as the Board determines,
and
if such Options are not exercised prior to the consummation of the corporate
transaction, they shall terminate at such time as determined by the
Board.
18.2
Other Treatment of Awards
.
Subject
to any greater rights granted to Participants under the foregoing provisions
of
this Section 18, in the event of the occurrence of any transaction described
in
Section 18.1, any outstanding Awards will be treated as provided in the
applicable agreement or plan of merger, consolidation, dissolution, liquidation,
sale of assets or other "corporate transaction."
NutraCea
2005
Equity Incentive Plan
18.3
Assumption of Awards by the Company
.
The
Company, from time to time, also may substitute or assume outstanding awards
granted by another company, whether in connection with an acquisition of such
other company or otherwise, by either; (a) granting an Award under this Plan
in
substitution of such other company's award; or (b) assuming such award as if
it
had been granted under this Plan if the terms of such assumed award could be
applied to an Award granted under this Plan. Such substitution or assumption
will be permissible if the holder of the substituted or assumed award would
have
been eligible to be granted an Award under this Plan if the other company had
applied the rules of this Plan to such grant. In the event the Company assumes
an award granted by another company, the terms and conditions of such award
will
remain unchanged (
except
that the
exercise price and the number and nature of Shares issuable upon exercise of
any
such option will be adjusted appropriately pursuant to Section 424(a) of the
Code). In the event the Company elects to grant a new Option rather than
assuming an existing option, such new Option may be granted with a similarly
adjusted Exercise Price.
19.
ADOPTION AND SHAREHOLDER
APPROVAL
.
This
Plan was adopted by the Board on May 26, 2005 (“
Effective
Date
”).
This
Plan shall be approved by the shareholders of the Company (excluding Shares
issued pursuant to this Plan), consistent with applicable laws, within twelve
(12) months after the Effective Date. Upon the Effective Date, the Board may
grant Awards pursuant to this Plan;
provided
,
however
,
that:
(a) no Option may be exercised prior to initial shareholder approval of this
Plan; (b) no Option granted pursuant to an increase in the number of Shares
subject to this Plan approved by the Board will be exercised prior to the time
such increase has been approved by the shareholders of the Company; and (c)
in
the event that shareholder approval of such increase is not obtained within
the
time period provided herein, all Awards granted hereunder will be canceled,
any
Shares issued pursuant to any Award will be canceled, and any purchase of Shares
hereunder will be rescinded.
20.
TERM OF PLAN
.
Unless
earlier terminated as provided herein, this Plan will terminate ten (10) years
following the Effective Date.
21.
AMENDMENT OR TERMINATION OF PLAN
.
The
Board may at any time terminate or amend this Plan in any respect, including
without limitation amendment of any form of Award Agreement or instrument to
be
executed pursuant to this Plan. Notwithstanding the foregoing, neither the
Board
nor the Committee shall, without the approval of the shareholders of the
Company, amend this Plan in any manner that requires such shareholder approval
pursuant to the Code or the regulations promulgated thereunder as such
provisions apply to ISO plans or (if the Company is subject to the Exchange
Act)
pursuant to the Exchange Act or any rule promulgated thereunder. In addition,
no
amendment that is detrimental to a Participant may be made to any outstanding
Award without the consent of the Participant.
22.
NONEXCLUSIVITY OF THE PLAN
.
Neither
the adoption of this Plan by the Board, the submission of this Plan to the
shareholders of the Company for approval, nor any provision of this Plan will
be
construed as creating any limitations on the power of the Board to adopt such
additional compensation arrangements as it may deem desirable, including,
without limitation, the granting of stock options and bonuses otherwise than
under this Plan, and such arrangements may be either generally applicable or
applicable only in specific cases.
23.
LIMITATION
.
If
expressly required by one or more state securities authorities or laws as a
condition of issuing Awards and Shares in compliance with the securities laws
of
such state, the Company will not issue any Awards or Shares under this Plan
without first obtaining shareholder approval of this Plan in such manner as
required by the applicable state securities authorities or laws.
24.
DEFINITIONS
.
As used
in this Plan, the following terms will have the following meanings:
"Affiliate"
means
any corporation that directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, another
corporation, where "control" (including the terms "controlled by" and "under
common control with") means the possession, direct or indirect, of the power
to
cause the direction of the management and policies of the corporation, whether
through the ownership of voting securities, by contract or
otherwise.
NutraCea
2005
Equity Incentive Plan
"Award"
means
any award under this Plan, including any Option, Restricted Stock or Stock
Bonus.
"Award Agreement"
means,
with respect to each Award, the signed written agreement between the Company
and
the Participant setting forth the terms and conditions of the
Award.
"Board"
means
the Board of Directors of the Company.
“
Cause
”
means
termination of the Participant’s employment on the basis of the Participant’s
conviction (or a plea of
nolo
contendere
)
of
fraud, misappropriation, embezzlement or any other act or acts of dishonesty
constituting a felony and resulting or intended to result directly or indirectly
in a substantial gain or personal enrichment to the Participant at the expense
of the Company or any Subsidiary.
"Code"
means
the Internal Revenue Code of 1986, as amended.
"Committee"
means
the committee appointed by the Board to administer this Plan, or if no such
committee is appointed, the Board.
"Company"
means
NutraCea, a corporation organized under the laws of the State of California,
or
any successor corporation.
"Disability"
means a
disability, whether temporary or permanent, partial or total, as determined
by
the Committee.
"Exchange Act"
means
the Securities Exchange Act of 1934, as amended.
"Exercise Price"
means
the price at which a holder of an Option may purchase the Shares issuable upon
exercise of the Option.
“Fair
Market Value
"
means,
as of any date, the value of a share of the Company's Common Stock determined
as
follows:
(1)
if
such
Common Stock is then quoted on the NASDAQ National Market, its closing price
on
the NASDAQ National Market on such date;
(2)
if
such
Common Stock is publicly traded and is then listed on a national securities
exchange, the last reported sale price on such date or, if no such reported
sale
takes place on such date, the average of the closing bid and asked prices on
the
principal national securities exchange on which the Common Stock is listed
or
admitted to trading;
(3)
if
such
Common Stock is publicly traded but is not quoted on the NASDAQ National Market
nor listed or admitted to trading on a national securities exchange, the average
of the closing bid and asked prices on such date, as reported by The Wall Street
Journal, for the over-the-counter market; or
(4)
if
none
of the foregoing is applicable, by the Board of Directors in good
faith.
"Insider"
means an
officer or director of the Company or any other person whose transactions in
the
Company's Common Stock are subject to Section 16 of the Exchange
Act.
"Option"
means an
award of an option to purchase Shares pursuant to Section 5.
NutraCea
2005
Equity Incentive Plan
"Parent"
means
any corporation (other than the Company) in an unbroken chain of corporations
ending with the Company, if at the time of the granting of an Award under this
Plan, each of such corporations other than the Company owns stock possessing
50%
or more of the total combined voting power of all classes of stock in one of
the
other corporations in such chain.
"Participant"
means a
person who receives an Award under this Plan.
"Plan"
means
this NutraCea 2005 Equity Incentive Plan, as amended from time to
time.
"Restricted Stock Award"
means an
award of Shares pursuant to Section 6.
"SEC"
means
the Securities and Exchange Commission.
"Securities Act"
means
the Securities Act of 1933, as amended.
"Shares"
means
shares of the Company's Common Stock reserved for issuance under this Plan,
as
adjusted pursuant to Sections 2 and 18, and any successor security.
"Stock Bonus"
means an
award of Shares, or cash in lieu of Shares, pursuant to Section 7.
"Subsidiary"
means
any corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of granting of the Award, each of
the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"Termination"
or
"Terminated"
means,
for purposes of this Plan with respect to a Participant, that the Participant
has for any reason ceased to provide services as an employee, director,
consultant or advisor to the Company or a Parent, Subsidiary or Affiliate of
the
Company,
except
in the
case of sick leave, military leave, or any other leave of absence approved
by
the Committee, provided that such leave is for a period of not more than ninety
(90) days, or reinstatement upon the expiration of such leave is guaranteed
by
contract or statute. The Committee will have sole discretion to determine
whether a Participant has ceased to provide services and the effective date
on
which the Participant ceased to provide services (the
"Termination Date"
).
THIS
EMPLOYMENT AGREEMENT
(this
“
Agreement
”)
is
made and entered into as of the 10
th
day of
December, 2004, by and between NutraCea
,
a
California corporation (“
Employer
”),
and
Nana Patricia McPeak
(“
Employee
”).
W
I T N E S S E T H:
WHEREAS
,
the
officers, managers and/or directors of Employer are of the opinion that Employee
has education, experience and/or expertise which is of value to Employer and
its
owners, and
WHEREAS
,
Employer and Employee desire to enter into this Employment Agreement, pursuant
to which Employee shall continue to be employed by Employer, to set forth the
respective rights, duties and obligations of the parties hereto.
NOW
THEREFORE
,
in
consideration of the promises and covenants contained herein, and other good
and
valuable consideration, the receipt and sufficiency of which the parties hereto
acknowledge, Employer and Employee agree as follows:
1.
EMPLOYMENT
.
Employer
hereby agrees to continue to employ Employee and Employee hereby accepts such
continued employment, upon the terms and conditions hereinafter set
forth.
2.
TERM
.
For
purposes of this Agreement, “
Term
”
shall
mean the original term (as defined in
Section
2.1
below)
and the renewal term (as defined in
Section
2.2
below),
if applicable.
2.1
Original
Term
.
The Term of this Agreement shall commence on December 10, 2004 and expire on
December 31, 2007, unless sooner terminated pursuant to the terms and provisions
herein stated.
2.2
Renewal
Term
.
This Agreement shall automatically be extended for two additional one (1) year
renewal terms unless either party gives written notice to terminate this
Agreement at least one hundred eighty (180) days prior to the end of the
preceding term.
3.1
Salary
.
Employer
shall pay Employee a base annual salary of one hundred, fifty thousand dollars
($150,000) for the first and second year of employment, payable $12,500 per
month. Effective December 1, 2006, Employee’s salary shall be increased to two
hundred and fifty thousand dollars ($250,000), payable at a rate of $20,833
per
month for the third year of employment, and adjust upwards 10% annually
thereafter.
3.2
Stock
Option Plan/Stock Purchase Plan
.
Employee shall be eligible to participate in Company’s Stock Option Plan and
Stock Purchase Plan as well as Executive Incentive Bonus Plans during the term
of employment.
3.3.
Warrants
.
Employer shall issue to Employee Warrant Certificates to purchase 2,000,000
common shares of the Company at an exercise price of $0.30 per share. The
certificates shall be valid for ten years from the date of issue. The
Certificates shall vest to Employee upon this Agreement being executed by all
parties. A copy of the Warrant Agreement is attached as Addendum C.
3.4.
Additional
Bonus
.
Employer shall pay Employee an additional bonus payable pursuant to Addendum
A
attached and incorporated herein by this reference.
4.1
General
Benefits
.
Employee shall be entitled to receive or participate in all benefit plans and
programs of Employer currently existing or hereafter made available to
executives or senior management of Employer, including but not limited to,
eye
care, dental and medical insurance, including coverage for dependents of
Employee, pension and profit sharing plans, 401(k) plans, incentive savings
plans, stock option plans, group life insurance, salary continuation plans,
disability coverage and other fringe benefits.
4.2
Business
Expense
.
Employee shall be provided with American Express and/or Visa/Master Card credit
cards issued in the name of Employer, for purposes of paying business expenses,
including without limitation, full business class fare for domestic travel
of
less than 3 hours duration within the United States, and First Class travel
for
domestic travel 3 hours or longer or all travel outside the Continental United
States, entertainment, lodging and similar activities. Additionally, Employee
shall be entitled to receive proper reimbursement for all reasonable
out-of-pocket expenses incurred directly by Employee in performing Employee’s
duties and obligations under this Agreement. Employer shall reimburse Employee
for such expenses on a weekly basis, upon submission by Employee of appropriate
receipts, vouchers or other documents in accordance with Employer’s policy.
4.3
Automobile
Expenses
.
Employer
shall provide Employee with a monthly automobile allowance in the amount of
$800.00 per month or at Employee’s election, shall provide an automobile of a
type and model selected by Employee. Employer shall pay all gasoline,
maintenance, registration and insurance costs for the automobile. As a condition
of the use of the automobile, Employee is required to provide an enclosed,
covered and lockable garage at Employee’s premises for the safe protection of
this corporate asset.
4.4
General
Benefits
.
Employee shall be entitled to receive or participate in all benefit plans and
programs of Employer currently existing or hereafter made available to
executives or senior management of Employer, including but not limited to,
dental and medical insurance, including coverage for dependents of Employee,
pension and profit sharing plans, 401(k) plans, incentive savings plans, stock
option plans, group life insurance, salary continuation plans, disability
coverage and other fringe benefits.
4.5
Cellular
Telephone
.
Employer shall reimburse employee for the cost and use of Employee’s cellular
telephones or shall provide Employee with the use of cellular phones of
Employee’s choice.
4.6
Assistance
.
Employer
shall furnish Employee with an office, and personal assistant, together with
a
portable laptop computer and office equipment and such other facilities and
services as determined by Employee and as are deemed by the Board of Directors
of Employer to be suitable for Employee’s position and adequate for the
performance of her duties and obligations under this Agreement. Employee to
provide a home office similar to that provided at the Company’s headquarters.
4.7
Vacation
.
Employee shall be entitled during each twelve (12) month period during the
Term
of this Agreement to a vacation of four (4) weeks during which time Employee’s
compensation will be paid in full. Unused days of vacation will be compensated
in accordance with Employer’s policy as established by Employer from time to
time. Employee may take the vacation periods at any time during the year as
long
as Employee schedules time off as to not create hardship on Employer. In
addition, Employee shall have such other days off as shall be determined by
Employer and shall be entitled to paid sick leave and paid holidays in
accordance with Employer’s policy.
4.8
Laptop/Notebook
Computer and Software
.
Employer
shall provide Employee with a top-quality, name-brand laptop or notebook
computer (Sony, IBM, Toshiba, NEC, Compaq, etc.) and such other features,
hardware (including a high-quality laser printer) and software as Employee
may
from time to time request for performance of her duties. Employer shall pay
all
costs related to the operation and maintenance of the computer and
software.
4.9
Private
Office; Staff; Equipment; Location of Office and Headquarters;
Relocation
.
Employer
shall provide Employee with a suitable office for her position at the Company,
within the context of the space available from time to time. Employer shall
provide a minimum of two (2) personal assistants (“Assistants”) to assist
Employee in business and personal matters. Employer shall provide all office
equipment reasonable required by Employee and Assistants. Employee shall not
be
required to relocate outside of El Dorado Hills, California. If, however,
Employee agrees to a relocation outside of El Dorado Hills, California, then
Employer shall pay all reasonable relocation costs of Employee, her spouse
and
her dependents, including without limitation all professional packing and moving
costs, air travel, interim hotel arrangements (Hilton standard or better for
up
to three (3) months) and reasonable meal per diem, and vehicle shipment
costs.
4.10
Professional
Association and Social Organizations
.
Employer shall pay or reimburse Employee for all dues for continued membership
in the AACC, AOCS and IFT organizations and any other professional organizations
membership to which Employer and Employee agree would be beneficial to Employer.
In the interest of business development and marketing, Employer shall reimburse
Employee for the monthly fees of a social membership at a local country club
to
be mutually selected by Employer and Employee.
5.1
Position
.
Employee
is employed as Chief Executive Officer and shall perform such services and
duties as are defined in
Addendum
B
,
Job
Description, attached hereto, and as are normally associated with such position,
subject to the direction, supervision and rules and regulations of
Employer.
5.2
Place
of Employment
.
The
permanent place of Employee’s employment and the performance of Employee’s
duties will be at a location in the El Dorado Hills, California area. Employee
agrees to make herself available for travel from time to time to other
facilities of Employer’s outside of El Dorado Hills.
5.3
Extent
of Services
.
Employee shall at all times and to the best of her ability perform her duties
and obligations under this Agreement in a reasonable manner consistent with
the
interests of Employer. Employer shall not alter Employee’s title, duties,
obligations or responsibilities or transfer Employee outside of the El Dorado
Hills area without Employee’s prior written consent, said consent to be at
Employee’s sole discretion.
5.3.1
It
is
understood and agreed that Employee’s employment is substantially fulltime and
of a critical nature to the success of Employer. Employer acknowledges that
Employee presently, or may in the future, serve on the Board of Directors of
other companies and such action shall not be a breach of this section;
provided
,
however
,
that
such companies do not compete with employer.
5.3.2
Additionally,
Employer recognizes that Employee has, or may have in the future, non-passive
equity positions in other companies, which do not compete with Employer.
Employer recognizes that such equity positions may occasionally require some
attention from Employee during normal business hours. However, Employee agrees
that if such time is considered excessive by the Board of Directors, Employee
shall be so advised and noticed by Employer and Employee shall be required
to
make appropriate adjustments to ensure her duties and obligations under this
Agreement are fulfilled.
6.
TERMINATION
.
The
Term
of this Agreement shall end upon its expiration pursuant to
Section
2
hereof,
provided that this Agreement shall terminate prior to such date: (a) upon the
Employee’s resignation, death or permanent disability or incapacity; or (b) by
Employer at any time for “
Cause
”
(as
defined in
Section
6.4
below)
or without Cause.
6.1
BY
RESIGNATION
.
If Employee resigns with “
Good
Reason
”
(as
defined below), this Agreement shall terminate but: (a) Employee shall receive
the immediate payout of all salary through the end of the term of this
agreement, but in no event less than an amount equal to the last twelve months
of salary paid to Employee and (b) all
of
Employee’s “
Options
”
(as
such term is defined in this Agreement) shall be deemed vested. For purposes
of
this Agreement, “
Good
Reason
”
shall
mean: (i) the assignment to Employee of duties inconsistent with the position
and nature of Employee’s employment, the reduction of the duties of Employee
which is inconsistent with the position and nature of Employee’s employment, or
the change of Employee’s title indicating a change in the position and nature of
Employee’s employment; (ii) a reduction in compensation and benefits of Employee
without Employee’s written consent; (iii) the failure by Employer to obtain from
any successor, an agreement to assume and perform this Agreement;
(iv)
a
corporate “
Change
In Control
”
(as
defined below). For purposes of this Agreement, “
Change
In Control
”
shall
mean (1) a merger or consolidation (except those detailed in Addendum A, section
2,) in which securities possessing more than fifty percent (50%) of the total
combined voting power of Employer’s outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction in a transaction approved by the
stockholders, or the sale, transfer, or other disposition of more than fifty
percent (50%) of the total combined voting power of Employer’s outstanding
securities to a person or persons different from the persons holding those
securities immediately prior to such transaction; or (2) the sale, transfer
or
other disposition of all or substantially all of the Employer’s assets in
complete liquidation or dissolution of Employer other than in connection with
a
transaction described in
Section
6.1(1)
above.
If Employee resigns without Good Reason, Employee shall be entitled to receive
Employee’s Salary and Incentive Compensation only through the date of such
resignation and Employee’s Options shall be deemed vested only through the date
of such resignation.
6.2
BY
REASON OF INCAPACITY OR DISABILITY
.
If
Employee becomes so incapacitated by reason of accident, illness, or other
disability that Employee is unable to carry on substantially all of the normal
duties and obligations of Employee under this Agreement for a continuous period
of one-hundred-eighty (180) days (the “
Incapacity
Period
”),
this
Agreement shall terminate but: (a) Employee shall continue to receive, through
the end of the fiscal year, Incentive Compensation in accordance with the terms
and conditions of this agreement (b) Employee shall receive, during the
Incapacity Period and for the six (6) month period thereafter (the “
Extended
Period
”),
Employee’s Salary payable in periodic installments on Employer’s regular
paydays, at the rate then in effect, reduced only by the amount of any
payment(s) received by Employee pursuant to any disability insurance policy
proceeds; and (c) Employee’s Options shall be deemed vested through the Extended
Period.
For
purposes of the foregoing, Employee’s permanent disability or incapacity shall
be determined in accordance with Employer’s disability insurance policy, if such
a policy is then in effect, or if no such policy is then in effect, such
permanent disability or incapacity shall be determined by Employer’s Board of
Directors in its good faith judgment based upon Employee’s inability to perform
normal and reasonable duties and obligations.
6.3
BY
REASON OF DEATH
.
If Employee dies during the Term of this Agreement, Employer shall: (a) pay
to
the estate of Employee, through the end of the fiscal year, Employee’s Incentive
Compensation in accordance with the terms and conditions of this agreement,
(b)
pay to the estate of Employee, for a period of six (6) months beginning on
the
date of death (the “
Extended
Period
”),
Employee’s Salary payable in periodic installments on Employer’s regular
paydays, at the rate then in effect; and (c) Employee’s Options shall be deemed
vested through the date of the Extended Period.
Other
death benefits will be determined in accordance with the terms of Employer’s
benefit plans and programs.
6.4
FOR
CAUSE
.
If the Term of this Agreement is terminated by Employer for Cause: (a) Employee
shall be entitled to receive Employee’s Salary and Incentive Compensation only
through the date of termination; and (b) Any additionally issued Employee’s
Options shall be deemed vested only through the date of such termination for
Cause. However, if a dispute arises between Employer and Employee that is not
resolved within sixty (60) days and neither party initiates arbitration
proceedings pursuant to
Section
11.8
.
For
purposes of this Agreement, “
Cause
”
shall
mean: (i) the conviction by Employee of a felony, a crime involving moral
turpitude causing material harm to Employer’s standing and reputation; or for
fraud.
6.5
WITHOUT
CAUSE
.
If, during the Term of this Agreement, Employer terminates the Employee’s
employment without Cause: (a) Employee shall be entitled to receive, through
the
end of the Term of this Agreement, Incentive Compensation in accordance with
the
terms and conditions of this agreement, (b) An immediate acceleration of all
remaining base salary owed to Employee through the end of the contract; but
in
no case an amount less than the previous 12 month’s of salary paid to Employee,
and (c) all
of
Employee’s Options shall be deemed vested.
6.6
EFFECT
OF TERMINATION ON UNUSED VACATION TIME
.
Upon the termination of this Agreement for any reason whatsoever, Employee
shall
also have the right to receive any accrued but unused vacation time, and any
benefits vested under the terms of any applicable benefit plans.
6.7
AUTHORITY
TO TERMINATE
.
Termination of Employee by Employer, pursuant to the terms hereof, shall only
occur by unanimous decision of the Board of Directors at a duly noticed and
convened meeting of the Board of Directors of Employer.
6.8
Consulting
Agreement
.
Upon termination of this Agreement for any reason, Employer and Employee shall
negotiate in good faith the terms of an agreement pursuant to which Employee
shall act as a consultant to Employer.
7.
NON-DISCLOSURE
AND INVENTION AND COPYRIGHT ASSIGNMENT AGREEMENT
.
Employee’s
employment is subject to the requirement that Employee sign, observe and agree
to be bound, both during and after Employee’s employment, by the provisions of
Employer’s Non-Disclosure and Invention and Copyright Assignment Agreement.
Employee further agrees to execute, deliver and perform, during the Term of
Employee’s employment with Employer, any other reasonable confidentiality and
non-disclosure agreements concerning Employer and any of its affiliates and
its
business and products, which Employer promulgates for other key employees and
executives.
It
is
understood and agreed that Employee is writing a number of books on rice bran
and health issues, which Employer would like to see published. It is understood
and agreed that Employee has the right to write such books and retain any
proceeds therefrom and that the Copyright to any and all books written by
Employee shall remain the exclusive property of Employee.
8.
RETURN
OF EMPLOYER PROPERTY
.
Employee agrees that upon any termination of her employment, Employee shall
return to Employer within a reasonable time not to exceed two (2) weeks, any
of
Employer’s property in her possession or under her control.
9.
RELATIONSHIP
OF PARTIES
.
The parties intend that this Agreement create an employee-employer relationship
between the parties.
10.
NOTICES
.
All notices, required and demands and other communications hereunder must be
in
writing and shall be deemed to have been duly given when personally delivered
or
when placed in the United States Mail and forwarded by Registered or Certified
Mail, Return Receipt Requested, postage prepaid, or when forwarded via reputable
overnight carrier, addressed to the party to whom such notices is being given
at
the following address:
|
As
to Employer:
|
Chairman,
Board of Directors
|
NutraCea
1261
Hawks Flight Court,
El
Dorado
Hills, CA 95762
|
As
to Employee:
|
Nana
Patricia McPeak
|
100
Rock
Lane
El
Dorado
Hills, CA 95762
Address
Change:
Any
party
may change the address(es) at which notices to it or her, as the case may be,
are to be sent by giving the notice of such change to the other parties in
accordance with this
Section
10
.
11.
INDEMNIFICATION
.
The company shall maintain D&O liability coverage pursuant to which Employee
shall be a covered insured. Employee shall receive indemnification in accordance
with the Company’s By-laws in effect as of the date of this Agreement. Such
indemnification shall be contractual in nature and shall remain in effect
notwithstanding any future change to the Company’s Bylaws.
To
the extent not otherwise limited by the Company’s By-laws in effect as of the
date of this Agreement, in the event that Employee is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding (including those brought by or in the right of the Company) whether
civil, criminal, administrative or investigative (“proceeding”), by reason of
the fact that she is or was an officer, employee or agent of or is or was
serving the Company or any subsidiary or the Company, or is or was serving
at
the request of the Company or another corporation, or of a partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged action in an
official capacity as a director, officer, employee or agent or in any other
capacity while serving as a director, officer, employee or agent, Employee
shall
be indemnified and held harmless by the Company to the fullest extent authorized
by law against all expenses, liabilities and losses (including attorneys fee,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be
paid
in settlement) reasonably incurred or suffered by Employee in connection
therewith. Such right shall be a contract right and shall include the right
to
be paid by the Company expenses incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of such
expenses incurred by Employee in her capacity as a director or officer (and
not
in any other capacity in which service was or is rendered by Employee while
a
director or officer, including, without limitation, service to an employee
benefit plan) in advance of the final disposition of such proceeding will be
made only upon delivery to the Company of an undertaking, by or on behalf of
the
Employee, to repay all amounts to Company so advanced if it should be determined
ultimately that Employee is not entitled to be indemnified under this section
or
otherwise. However, under no circumstance shall Employee not be entitled to
indemnification for any action prior to Employee’s position with the Company.
Promptly
after receipt by Employee if notice of the commencement of any action, suit
or
proceeding for which Employee may be entitled to be indemnified, Employee shall
notify the Company in writing of the commencement thereof (but the failure
to
notify the Company shall not relieve it from any liability which it may have
under Section 11 unless and to the extent that it has been prejudiced in a
material respect by such failure or from the forfeiture of substantial rights
and defenses). If any such action, suit or proceeding is brought against
Employee and he notifies the Company of the commencement thereof, the Company
will be entitled to participate therein, and, to the extent it may elect by
written notice delivered to Employee promptly after receiving the aforesaid
notice from Employee, to assume the defense thereof with counsel reasonably
satisfactory to Employee, which may be the same counsel as counsel to the
Company. Notwithstanding the foregoing, Employee shall have the right to employ
her own counsel in any such case, but the fees and expenses of such counsel
shall be at the expense of Employee unless (i) the employment of such counsel
shall have been authorized in writing by the Company, (ii) the Company shall
not
have employed counsel reasonably satisfactory to Employee to take charge of
the
defense of such action within a reasonable time after notice of commencement
of
the action or (iii) Employee shall have reasonably concluded, after consultation
with counsel to Employee, that a conflict of interest exists which makes
representation by counsel chosen by the Company not advisable (in which case
the
Company shall not have the right to direct the defense of such action on behalf
of Employee), in any of which events such fees and expenses of one additional
counsel shall be borne by the Company. Anything in the Section 11 to the
contrary notwithstanding, the Company shall not be liable for any settlement
of
any claim or action effected
without its written consent.
12.
MISCELLANEOUS
.
12.1
Entire
Agreement
.
This Agreement and the Addendums hereto contain the entire agreement of the
parties. This Agreement may not be altered, amended or modified except in
writing duly executed by the parties. This Agreement supercedes and replaces
the
existing employment agreement between Employer and Employee.
12.2
Assignment
.
Neither party, without the written consent of the other party, can assign this
Agreement.
12.3
Binding
.
This Agreement shall be binding upon and inure to the benefit of the parties,
their personal representative, successors and assigns.
12.4
No
Waiver
.
The waiver of the breach of any covenant or condition herein shall in no way
operate as a continuing or permanent waiver of the same or similar covenant
or
condition.
12.5
Severability
.
If any provision of this Agreement is held to be invalid or unenforceable for
any reason, the remaining provisions will continue in full force without being
impaired or invalidated in any way. The parties hereto agree to replace any
invalid provision with at valid provision which most closely approximates the
intent of the invalid provision.
12.6
Interpretation
.
This Agreement shall not be construed more strongly against any party hereto
regardless of which party may have been more responsible for the preparation
of
Agreement.
12.7
Governing
Law
.
This Agreement shall be governed by and construed under the laws of the State
of
California, without reference to the choice of law principles
thereof.
12.8.1
Any
controversy, dispute or claim of whatever nature in any way arising out of
or
relating to Employee’s employment with Employer, including, without limitation
(except as expressly excluded below in
Section
11.8.2
)
any
claims or disputes by Employee against Employer, or by Employer against
Employee, concerning, arising out of or relating to the separation of that
employment; any other adverse personnel action by Employer; any federal, state
or local law, statute or regulation prohibiting employment discrimination or
harassment; any public policy; any Employer disciplinary action; any Employer
decision regarding a Employer policy or practice, including but not limited
to
Employee’s compensation or other benefits; and any other claim for personal,
emotional, physical or economic injury (individually or collectively,
“
Covered
Claims
”)
shall
be resolved, at the request of any party to this Agreement, by final and binding
arbitration in El Dorado County, California before Judicial Arbitration
Mediation Services (“
JAMS
”)
in
accordance with JAMS’ then-current policies and procedures for arbitration of
employment disputes.
12.8.2
The
only
claims or disputes excluded from binding arbitration under this Agreement are
the following: any claim by Employee for workers’ compensation benefits or for
benefits under a Employer plan that provides its own arbitration procedure;
and
any claim by either party for equitable relief, including but not limited to,
a
temporary restraining order, preliminary injunction or permanent injunction
against the other party.
12.8.3
This
agreement to submit all Covered Claims to binding arbitration in no way alters
the exclusivity of Employee’s remedy under
Section
6.5
in the
event of any termination without Cause or the exclusivity of Employee’s remedy
under
Section
6.4
in the
event of any termination with Cause, and does not require Employer to provide
Employee with any type of progressive discipline.
12.9
Legal
Fees
.
In
the event of a dispute between Employee and Employer which results in legal
action, the legal fees for both parties shall be assumed and paid by
Employer.
12.10
Titles
.
Titles
to the sections of this Agreement are solely for the convenience of the parties
and shall not be used to explain, modify, simplify, or aid in the interpretation
of the provisions of this Agreement.
12.11
Counterparts
.
This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but together which shall constitute one and the same
instrument.
[SIGNATURE
PAGE TO FOLLOW]
IN
WITNESS WHEREOF,
the
parties have executed this Agreement as of the day and year first written
above.
Employer:
|
|
NutraCea®,
|
|
|
a
California corporation
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Edward
Newton
|
|
|
|
(signature)
|
|
|
|
|
|
|
|
Edward
Newton
|
|
|
|
(Type/Print
name)
|
|
|
|
|
|
|
|
Secretary
and Vice President
|
|
|
|
(Office
held)
|
|
|
|
|
Employee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Nana Patricia
McPeak
|
|
|
|
(signature)
|
|
|
|
|
|
|
|
Nana
Patricia McPeak
|
|
|
|
(Type/Print
name)
|
[SIGNATURE
PAGE TO EMPLOYMENT AGREEMENT]
ADDENDUM
A
EMPLOYEE
INCENTIVE COMPENSATION PLAN
This
Employee Incentive Compensation Agreement (this “
Agreement
”)
is
entered into this 10
th
day of
December, 2004, by and between NutraCea®, a California corporation (the
“
Employer
”),
and
Nana Patricia McPeak (“
Employee
”),
as
follows:
WHEREAS,
it
is in
the best interest of Employer and Employee to enter into a continuing
arrangement to cover annual Employee Incentive bonuses, and
WHEREAS,
both
parties to this Agreement desire to memorialize various aspects of their
relationship:
NOW,
THEREFORE, the parties hereby agree as follows:
1.
|
Addendum
.
This
Agreement is in an addendum to that certain Employment Agreement
effective
of even date herewith.
|
2.
|
Transaction
Success Fee
.
If a combination occurs between the RiceX Corporation and NutraCea,
(including but not limited to a merger, acquisition, asset purchase)
concurrent with the closing of that transaction a cash fee to be
determined by the Compensation Committee of the Board of Directors
shall
be paid for the Company to Nana Patricia McPeak as a success bonus.
|
3.
|
Employee
Incentive Bonus
.
Employee
Incentive bonuses granted pursuant to this Agreement shall be paid
annually, within ten (10) days of the completion of the annual independent
audit of Employer. Such bonuses shall be one percent (1%) of Employer’s
“Gross Sales over
$25,000,000”
on an annualized basis, or $6, 375,000 per quarter, and the company
reports a positive EBITDA for the period. For the purposes of this
section, no non-cash charges will be included in the calculation
of
EBITDA. The bonus amount in section 3 will be limited to a maximum
of
$750,000 in any calendar year and shall continue so long as Employee
is an
employee or consultant for
Employer.
|
4.
|
Termination
.
Termination
of employment with Employer, whether voluntary or involuntary, shall
not
affect any bonus earned but not paid. If employment is terminated,
a
proportionate share of any bonus earned shall be paid to Employee
on the
next regular bonus payment date.
|
IN
WITNESS WHEREOF,
the
parties have executed this Agreement as of the day and year first written
above.
Employer:
|
|
NutraCea®,
|
|
|
a
California corporation
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Edward
Newton
|
|
|
|
(signature)
|
|
|
|
|
|
|
|
Edward
Newton
|
|
|
|
(Type/Print
name)
|
|
|
|
|
|
|
|
Secretary
and Vice President
|
|
|
|
(Office
held)
|
|
|
|
|
Employee:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Nana Patricia
McPeak
|
|
|
|
(signature)
|
|
|
|
|
|
|
|
Nana
Patricia McPeak
|
|
|
|
(Type/Print
name)
|
ADDENDUM
B
Job
Description for Nana Patricia McPeak
Job
Title:
|
Chief
Executive Officer
|
Department
:
|
Executive
|
Reports
To
:
|
Board
of Directors
|
SUMMARY
As
provided in the Corporation’s bylaws, the Chief Executive Officer provides the
primary oversight for the President in her effecting the planning, organizing,
staffing, and operating the Corporation (“NutraCea”) toward its primary
objectives, based on profit and return on capital, of increasing shareholder
value and the goodwill and reputation of the Corporation. The Chief Executive
Officer is accountable only to the Board of Directors. Employee is solely
responsible for the hiring and conduct of the personal assistant, as well as
the
staffing and personnel involved in the Research, Development, Product
Development, Patents and Intellectual Properties Departments.
The
Chief
Executive Officer’s written approval is required for all corporate legal and
fiduciary activities.
The
Chief
Executive Officer in conjunction with the President establishes and communicates
the management style, corporate culture, business philosophy and ethical values
by which the Corporation will operate.
ESSENTIAL
DUTIES AND RESPONSIBILITIES
include
the following:
Acts
as
the spokesman for the Corporation and is available for interviews during normal
business hours.
Plans,
manages and oversees the clinical research, patent and intellectual property
and
product development activities for the
Corporation
through its managers.
Oversees
the President in her implementation of current and long range goals, objectives,
plans and policies as provided in a Strategic Business Plan, a Strategic
Marketing Plan and a Budget, approved by the Board of Directors.
Oversees
the President in ensuring the adequacy and soundness of the
Corporation’s
financial structure.
Reviews
operating results of the Corporation, compares them to established objectives,
and takes steps to ensure that appropriate measures are taken to correct
unsatisfactory results.
Oversees
and reviews the planning of all investigations and negotiations pertaining
to
mergers, joint ventures, the acquisition of businesses, or the sale of major
assets.
Fulfills
responsibility to the Shareholders and to the Board of Directors to inform
or
seek approval for significant matters.
Ensures
that Corporation business transactions are conducted in accordance with
prevailing legal and regulatory requirements.
Reviews
and provides final approval for all recommendations for compensation of
officers, retaining the right to hire, compensate and manage Employee’s personal
assistant.
Responsible
for reviewing and evaluating with the President the performance of executives
for compliance with established policies and objectives of firm and
contributions in attaining objectives.
ADDENDUM
C
THE
WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE SHARES ISSUABLE UPON THE
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
ANY
STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED EXCEPT UPON DELIVERY TO THE
CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY IN FORM AND SUBSTANCE TO
IT
THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES ACT OF 1933, AS AMENDED,
OR
ANY APPLICABLE STATE SECURITIES LAWS.
THE
TRANSFER OF THIS WARRANT IS RESTRICTED AS DESCRIBED
HEREIN.
NutraCea,
a California corporation
Warrant
for the Purchase of Shares of Common Stock,
par
value
$0.001 per Share
No.
WC-[___]
|
2,000,000
Shares
|
Issuance
Date: December [14], 2004
THIS
CERTIFIES that, for value received, Nana Patricia McPeak (the “Holder”), is
entitled to subscribe for and purchase from NutraCea, a California corporation
(the “Company”), upon the terms and conditions set forth herein,
2,000,000
shares
of
the Company’s Common Stock, par value $0.001 per share (“Common Stock”), at a
price of $0.30 per share (the “Exercise Price”). As used herein the term “this
Warrant” shall mean and include this Warrant and any Common Stock or Warrants
hereafter issued as a consequence of the exercise or transfer of this Warrant
in
whole or in part. The number of Warrant Shares may be adjusted from time to
time
as hereinafter set forth.
1.
Exercise
Period
.
This Warrant may be exercised at any time or from time to time during the period
commencing on the Issuance Date and ending at 5:00 P.M. Central time on
December 13, 2014 (the “Exercise Period”).
2.
Procedure
for Exercise; Effect of Exercise
.
(a)
Cash
Exercise
.
This Warrant may be exercised, in whole or in part, by the Holder during normal
business hours on any business day during the Exercise Period by (i) the
presentation and surrender of this Warrant to the Company at its principal
office along with a duly executed Notice of Exercise (in the form attached
to
this Warrant) specifying the number of Warrant Shares to be purchased, and
(ii)
delivery of payment to the Company of the Exercise Price for the number of
Warrant Shares specified in the Notice of Exercise by cash, wire transfer of
immediately available funds to a bank account specified by the Company, or
by
certified or bank cashier’s check.
(b)
Cashless
Exercise
.
This Warrant may also be exercised by the Holder through a cashless exercise,
as
described in this Section 2(b)
.
This
Warrant may be exercised, in whole or in part, by the Holder during normal
business hours on any business day during the Exercise Period by the
presentation and surrender of this Warrant to the Company at its principal
office along with a duly executed Notice of Exercise specifying the number
of
Warrant Shares to be applied to such exercise. The number of Warrant Shares
to
be delivered upon exercise of this Warrant pursuant to this Section 2(b) shall
equal the value of this Warrant (or the portion thereof being canceled) computed
as of the date of delivery of this Warrant to the Company using the following
formula:
Where:
X
=
|
|
the
number of shares of Common Stock to be issued to Holder under this
Section
2(b);
|
Y
=
|
|
the
number of Warrant Shares identified in the Notice of Exercise as
being
applied to the subject exercise;
|
A
=
|
|
the
Current Market Price on such date; and
|
B
=
|
|
the
Exercise Price
|
For
purposes of this Section 2(b) and Section 6, the “
Current
Market Price
”
per
share of Common Stock on any date shall mean the average closing price of the
last three trading days with respect to securities listed on the principal
national securities exchange on which such security is listed or admitted to
trading or, if such security is not listed or admitted to trading on any
national securities exchange, the average closing price of such security on
the
three (3) consecutive trading days immediately preceding such date in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or such other system then in use
or,
if such security is not quoted by any such organization, the three day average
closing price of such security as of the three (3) consecutive trading days
immediately preceding such date furnished by a New York Stock Exchange member
firm selected by the Company, or if such security is not quoted by any such
organization and no such New York Stock Exchange member firm is able to provide
such prices, such price as is determined by the Board of Directors in good
faith.
The
Company acknowledges and agrees that this Warrant was issued on the Issuance
Date. Consequently, the Company acknowledges and agrees that, if the Holder
conducts a cashless exercise pursuant to this Section 2(b), the period during
which the Holder held this Warrant may, for purposes of Rule 144 promulgated
under the Securities Act of 1933, as amended (the “
Securities
Act
”),
be
“tacked” to the period during which the Holder holds the Warrant Shares received
upon such cashless exercise.
Notwithstanding
the foregoing, except in connection with a transaction described in the proviso
in the first sentence of this Section 2(b), the Holder may conduct a cashless
exercise pursuant to this Section 2(b) only after the first anniversary of
the
Issuance Date.
(c)
Effect
of Exercise
.
Upon receipt by the Company of this Warrant and a Notice of Exercise, together
with proper payment of the Exercise Price, as provided in this Section 2, the
Company agrees that such Warrant Shares shall be deemed to be issued to the
Holder as the record holder of such Warrant Shares as of the close of business
on the date on which this Warrant has been surrendered and payment has been
made
for such Warrant Shares in accordance with this Warrant and the Holder shall
be
deemed to be the holder of record of the Warrant Shares, notwithstanding that
the stock transfer books of the Company shall then be closed or that
certificates representing such Warrant Shares shall not then be actually
delivered to the Holder. A stock certificate or certificates for the Warrant
Shares specified in the Notice of Exercise shall be delivered to the Holder
as
promptly as practicable, and in any event within seven (7) business days,
thereafter. The stock certificate(s) so delivered shall be in any such
denominations as may be reasonably specified by the Holder in the Notice of
Exercise. If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant for cancellation, execute and deliver within
seven (7) business days a new Warrant evidencing the right of the Holder to
purchase the balance of the Warrant Shares subject to purchase
hereunder.
3.
Registration
of Warrants; Transfer of Warrants
.
Any Warrants issued upon the transfer or exercise in part of this Warrant shall
be numbered and shall be registered in a Warrant Register as they are issued.
The Company shall be entitled to treat the registered holder of any Warrant
on
the Warrant Register as the owner in fact thereof for all pur-poses and shall
not be bound to recognize any equitable or other claim to or inter-est in such
Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered
in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust
in
requesting such registration or transfer, or with the knowledge of such facts
that its participation therein amounts to bad faith. This Warrant shall be
transferable only on the books of the Company upon delivery thereof duly
endorsed by the Holder or by its duly authorized attorney or representative,
or
accompanied by proper evidence of succession, assignment, or authority to
transfer. In all cases of transfer by an attorney, executor, administrator,
guardian, or other legal representative, duly authenticated evidence of his
or
its author-ity shall be produced. Upon any registration of transfer, the Company
shall deliver a new Warrant or Warrants to the person entitled thereto. This
Warrant may be exchanged, at the option of the Holder thereof, for another
Warrant, or other Warrants of different denominations, of like tenor and
representing in the aggregate the right to purchase a like number of Warrant
Shares, upon surrender to the Company or its duly authorized agent.
4.
Restrictions
on Transfer
.
(a) The Holder, as of the date of issuance hereof, represents to the Company
that such Holder is acquiring the Warrants for its own account for investment
purposes and not with a view to the distribution thereof or of the Warrant
Shares. Notwithstanding any provisions contained in this Warrant to the
contrary, this Warrant and the related Warrant Shares shall not be transferable
except pursuant to the proviso contained in the following sentence or upon
the
conditions specified in this Section 4, which conditions are intended, among
other things, to insure compliance with the provisions of the Securities Act
and
applicable state law in respect of the transfer of this Warrant or such Warrant
Shares. The Holder by acceptance of this Warrant agrees that the Holder will
not
transfer this Warrant or the related Warrant Shares prior to delivery to the
Company of an opinion of the Holder’s counsel or until registration of such
Warrant Shares under the Securities Act has become effective or after a sale
of
such Warrant or Warrant Shares has been consummated pursuant to Rule 144 or
Rule
144A under the Securities Act;
provided,
however
,
that
the Holder may freely transfer this Warrant or such Warrant Shares (without
delivery to the Company of an opinion of Counsel) (i) to one of its nominees,
affiliates or a nominee thereof, (ii) to a pension or profit-sharing fund
established and maintained for its employees or for the employees of any
affiliate, (iii) from a nominee to any of the aforementioned persons as
beneficial owner of this Warrant or such Warrant Shares, or (iv) to a qualified
institutional buyer, or accredited investor, so long as such transfer is
effected in compliance with Rule 144A under the Securities Act; provided, in
each case, that such transferee agrees to be bound by the transfer restrictions
set forth herein.
Holder
shall be entitled to transfer this Warrant and/or such Warrant Shares in
accordance with the intended method of disposition specified in the notice
to
the Company.
(c)
Each
stock certificate representing Warrant Shares issued upon exercise or exchange
of this Warrant shall bear the following legend unless the opinion of counsel
referred to in Section 4(b) states such legend is not required:
“THE
SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
EXCEPT UPON DELIVERY TO THE CORPORATION OF AN OPINION OF COUNSEL SATISFACTORY
IN
FORM AND SUBSTANCE TO IT THAT SUCH TRANSFER WILL NOT VIOLATE THE SECURITIES
ACT
OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS.”
5.
Reservation
of Shares
.
The
Company shall at all times during the Exercise Period reserve and keep available
out of its authorized and unissued Common Stock, solely for the purpose of
providing for the exercise of the rights to purchase all Warrant Shares granted
pursuant to the Warrants, such number of shares of Common Stock as shall, from
time to time, be sufficient therefor. The Company covenants that all shares
of
Common Stock issuable upon exercise of this Warrant, upon receipt by the Company
of the full Exercise Price therefor, and all shares of Common Stock issuable
upon conversion of this Warrant, shall be validly issued, fully paid,
non-assessable, and free of preemptive rights.
6.
Adjustments
.
The
number of shares of Common Stock issuable upon exercise of the Warrants shall
be
adjusted from time to time as follows:
(a)
(i)
In
the
event that the Company shall (A) pay a dividend or make a distribution, in
shares of Common Stock, on any class of capital stock of the Company or any
subsidiary which is not directly or indirectly wholly owned by the Company,
(B)
split or subdivide its outstanding Common Stock into a greater number of shares,
(C) combine its outstanding Common Stock into a smaller number of shares, then
in each such case the number of shares issuable upon exercise of this Warrant
shall be adjusted so that the Holder of a Warrant thereafter surrendered for
exercise shall be entitled to receive the number of shares of Common Stock
that
such Holder would have owned or have been entitled to receive after the
occurrence of any of the events described above had such Warrant been exercised
immediately prior to the occurrence of such event. An adjustment made pursuant
to this Section 6(a)(i) shall become effective immediately after the close
of
business on the record date in the case of a dividend or distribution (except
as
provided in Section 6(e) below) and shall become effective immediately after
the
close of business on the effective date in the case of such subdivision, split
or combination, as the case may be.
(ii)
No
adjustment in the Exercise Price shall be required unless the adjustment would
require an increase or decrease of at least 1% in the Exercise Price then in
effect;
provided,
however,
that any
adjustments that by reason of this Section 6(a) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 6(a) shall be made to the nearest cent
or
nearest 1/100th of a share.
(iii)
In
the
event that, at any time as a result of an adjustment made pursuant to Sections
6(a)(i) and 6(a)(ii) above, the Holder of any Warrant thereafter surrendered
for
exercise shall become entitled to receive any shares of the Company other than
shares of the Common Stock, thereafter the number of such other shares so
receivable upon exercise of any such Warrant shall be subject to adjustment
from
time to time in a manner and on terms as nearly equivalent as practicable to
the
provisions with respect to the Common Stock contained in Sections 6(a)(i) and
6(a)(ii) above, and the other provisions of this Section 6(a) with respect
to
the Common Stock shall apply on like terms to any such other
shares.
(b)
In
case
of any reclassification of the Common Stock (other than in a transaction to
which Section 6(a)(i) applies), any consolidation of the Company with, or merger
of the Company into, any other entity, any merger of another entity into the
Company (other than a merger that does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock
of
the Company), any sale or transfer of all or substantially all of the assets
of
the Company or any compulsory share exchange which does not result in the
cashless exercise or cancellation of this Warrant pursuant to Section 2(b),
pursuant to which share exchange the Common Stock is converted into other
securities, cash or other property, then lawful provision shall be made as
part
of the terms of such transaction whereby the Holder of a Warrant then
outstanding shall have the right thereafter, during the period such Warrant
shall be exercisable, to exercise such Warrant only for the kind and amount
of
securities, cash and other property receivable upon the reclassification,
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock of the Company into which a Warrant might
have
been able to exercise for immediately prior to the reclassification,
consolidation, merger, sale, transfer or share exchange assuming that such
holder of Common Stock failed to exercise rights of election, if any, as to
the
kind or amount of securities, cash or other property receivable upon
consummation of such transaction subject to adjustment as provided in Section
6(a) above following the date of consummation of such transaction. The Company
shall not effect any such reclassification, consolidation, merger, sale,
transfer, share exchange or other disposition unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger, or the corporation
purchasing or otherwise acquiring such assets or other appropriate corporation
or entity shall assume, by written instrument executed and delivered to the
Holder, the obligation to deliver to the Holder upon its exercise of the Warrant
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase and the other obligations
under this Warrant. The provisions of this Section 6(b) shall similarly apply
to
successive reclassifications, consolidations, mergers, sales, transfers or
share
exchanges.
(c)
If:
|
(i)
|
the
Company shall take any action which would require an adjustment pursuant
to Section 6(a); or
|
|
(ii)
|
the
Company shall authorize the granting to the holders of its Common
Stock
generally of rights, warrants or options to subscribe for or purchase
any
shares of any class or any other rights, warrants or options; or
|
|
(iii)
|
there
shall be any reclassification or change of the Common Stock (other
than a
subdivision or combination of its outstanding Common Stock or a change
in
par value) or any consolidation, merger or statutory share exchange
to
which the Company is a party and for which approval of any stockholders
of
the Company is required, or the sale or transfer of all or substantially
all of the assets of the Company;
or
|
|
(iv)
|
there
shall be a voluntary or involuntary dissolution, liquidation or winding
up
of the Company;
|
then,
the
Company shall cause to be filed with the transfer agent for the Warrants and
shall cause to be mailed to each Holder at such Holder’s address as shown on the
books of the transfer agent for the Warrants, as promptly as possible, but
at
least 30 days prior to the applicable date hereinafter specified, a notice
stating (A) the date on which a record is to be taken for the purpose of such
dividend, distribution or granting of rights, warrants or options, or, if a
record is not to be taken, the date as of which the holders of Common Stock
of
record to be entitled to such dividend, distribution or rights, warrants or
options are to be determined, or (B) the date on which such reclassification,
change, consolidation, merger, statutory share exchange, sale, transfer,
dissolution, liquidation or winding-up is expected to become effective or occur,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, change, consolidation,
merger, statutory share exchange, sale, transfer, dissolution, liquidation
or
winding up. Failure to give such notice or any defect therein shall not affect
the legality or validity of the proceedings described in this Section
6(c).
(d)
Whenever
an adjustment is made as herein provided, the Company shall promptly file with
the transfer agent for the Warrants a certificate of an officer of the Company
setting forth the adjustment and setting forth a brief statement of the facts
requiring such adjustment and a computation thereof. The Company shall promptly
cause a notice of such adjustment to be mailed to each Holder.
(e)
In
any
case in which Section 6(a) provides that an adjustment shall become effective
immediately after a record date for an event and the date fixed for such
adjustment pursuant to Section 6(a) occurs after such record date but before
the
occurrence of such event, the Company may defer until the actual occurrence
of
such event (i) issuing to the Holder of any Warrants exercised after such record
date and before the occurrence of such event the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment required by
such
event over and above the Common Stock issuable upon such exercise before giving
effect to such adjustment, and (ii) paying to such holder any amount in cash
in
lieu of any fraction pursuant to Section 6(g).
(f)
Upon
each
adjustment of the Exercise Price, this Warrant shall thereafter evidence the
right to purchase, at the adjusted Exercise Price, that number of shares
(calculated to the nearest thousandth) obtained by dividing (i) the product
obtained by multiplying the number of shares purchasable upon exercise of this
Warrant prior to adjustment of the number of shares by the Exercise Price in
effect prior to adjustment of the Exercise Price, by (ii) the Exercise Price
in
effect after such adjustment of the Exercise Price.
(g)
The
Company shall not be required to issue fractions of shares of Common Stock
or
other capital stock of the Company upon the exercise of this Warrant. If any
fraction of a share would be issuable on the exercise of this Warrant (or
specified portions thereof), the Company shall purchase such fraction for an
amount in cash equal to the same fraction of the Current Market Price of such
share of Common Stock on the date of exercise of this Warrant.
(h)
In
case
the Company shall take any action affecting the Common Stock, other than actions
described in this Section 6, which in the opinion of the Board of Directors
would materially adversely affect the exercise right of the Holder, the Exercise
Price may be adjusted, to the extent permitted by law, in such manner, if any,
and at such time, as the Board of Directors may determine to be equitable in
the
circumstances;
provided,
however,
that in
no event shall the Board of Directors be required to take any such
action.
7.
Transfer
Taxes
.
The issuance of any shares or other securities upon the exercise of this
Warrant, and the delivery of certificates or other instruments representing
such
shares or other securities, shall be made without charge to the Holder for
any
tax or other charge in respect of such issuance. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of any certificate in a name other than
that
of the Holder and the Company shall not be required to issue or deliver any
such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid.
8.
Loss
or Mutilation of Warrant
.
Upon receipt of evidence satisfactory to the Company of the loss, theft,
destruction, or mutilation of any Warrant (and upon surrender of any Warrant
if
mutilated), and upon reimbursement of the Company’s reasonable incidental
expenses, the Company shall execute and deliver to the Holder thereof a new
Warrant of like date, tenor, and denomination.
9.
No
Rights as a Stockholder
.
The Holder of any Warrant shall not have, solely on account of such status,
any
rights of a stockholder of the Company, either at law or in equity, or to any
notice of meetings of stockholders or of any other proceedings of the Company,
except as provided in this Warrant.
10.
Governing
Law
.
This Warrant shall be con-strued in accordance with the laws of the State of
Arizona applicable to contracts made and performed within such State, without
regard to principles of conflicts of law.
11.
Beneficial
Ownership
.
The Company shall not effect the exercise of this Warrant by any Holder, and
no
person who is a holder of this Warrant shall have the right to exercise this
Warrant, to the extent that after giving effect to such exercise, such person
(together with such person’s affiliates) would beneficially own in excess of 10%
of the shares of the Common Stock outstanding immediately after giving effect
to
such exercise. For purposes of the foregoing sentence, the aggregate number
of
shares of Common Stock beneficially owned by such person and its affiliates
shall include, without limitation, the number of shares of Common Stock issuable
upon exercise of this Warrant with respect to which the determination of such
sentence is being made, but shall exclude shares of Common Stock which would
be
issuable upon (a) exercise of the remaining, unexercised portion of this Warrant
beneficially owned by such person and its affiliates, and (b) exercise or
conversion of the unexercised or unconverted portion of any other securities
of
the Company beneficially owned by such person and its affiliates (including,
without limitation, any debentures, convertible notes or convertible preferred
stock or warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein. Except as set forth in the preceding
sentence, for purposes of this Section 11, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Securities Exchange Act
of
1934, as amended. For purposes of this Warrant, in determining the number of
outstanding shares of Common Stock, a Holder may rely on the number of
outstanding shares of Common Stock as reflected in (i) the Company’s most recent
Form 10-Q, Form 10-K or other public filing with the Securities and Exchange
Commission, as the case may be, (ii) a more recent public announcement by the
Company, or (iii) any other notice by the Company or its transfer agent setting
forth the number of shares of Common Stock outstanding. For any reason at any
time, upon the written or oral request of the Holder of this Warrant, the
Company shall within two business days confirm orally and in writing to the
Holder of this Warrant the number of shares of Common Stock then outstanding.
In
any case, the number of outstanding shares of Common Stock shall be determined
after giving effect to the conversion or exercise of securities of the Company
by the Holder of this Warrant and its affiliates since the date as of which
such
number of outstanding shares of Common Stock was reported.
In
effecting the exercise of this Warrant, the Company shall be entitled to rely
on
a representation by the Holder of this Warrant as to the number of shares that
it beneficially owns for purposes of the above 10% limitation
calculation.
Dated:
December 14, 2004
|
NUTRACEA
|
|
|
a
California corporation
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Edward Newton
|
|
|
|
Signature
|
|
|
|
Title:
Secretary, Vice President
|
|
|
|
|
|
FORM
OF
ASSIGNMENT
(To
be
executed by the registered holder if such holder desires to transfer the
attached Warrant.)
FOR
VALUE
RECEIVED,_________________________________________ hereby sells, assigns, and
transfers unto __________________ a Warrant to purchase __________ shares of
Common Stock, par value $[0.001] per share, of NUTRACEA. (the “Company”),
together with all right, title, and interest therein, and does hereby
irrevocably constitute and appoint _____________________________ attorney to
transfer such Warrant on the books of the Company, with full power of
substitution.
The
signature on the foregoing Assignment must correspond to the name as written
upon the face of this Warrant in every particular, without alteration or
enlarge-ment or any change whatsoever.
To:
|
NutraCea.
|
|
1261
Hawks’ Flight Court
|
|
El
Dorado Hills, CA 95762
|
|
Attention:
Chief Executive Officer
|
NOTICE
OF
EXERCISE
The
undersigned hereby exercises his or its rights to purchase _______ Warrant
Shares covered by the within Warrant and tenders payment herewith in the amount
of $_________ by [tendering cash or delivering a certified check or bank
cashier’s check, payable to the order of the Company] [surrendering ______
shares of Common Stock received upon exercise of the attached Warrant, which
shares have a Current Market Price equal to such payment] in accordance with
the
terms thereof, and requests that certificates for such securities be issued
in
the name of, and delivered to:
_______________________________________
_______________________________________
_______________________________________
(Print
Name, Address and Social Security
or
Tax
Identification Number)
and,
if
such number of Warrant Shares shall not be all the Warrant Shares covered by
the
within Warrant, that a new Warrant for the balance of the Warrant Shares covered
by the within Warrant be registered in the name of, and delivered to, the
under-signed at the address stated below.
|
Dated:
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
Print
Name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Exhibit
10.06
NUTRACEA
RESTRICTED
STOCK AGREEMENT
This
Restricted Stock Agreement (the “
Agreement
”)
is
made effective as of March 19, 2004 (“
Effective
Date
”)
by and
between NutraCea, a California corporation with principal address at 1261 Hawk’s
Flight Court, El Dorado Hills, CA 95762 (the “
Company
”),
and
Nana Patricia McPeak, an individual with principal address at 100 Rock Lane,
El
Dorado Hills, CA 95762 (the “
McPeak
”).
In
consideration of the mutual covenants and representations set forth below,
the
Company and McPeak agree as follows:
1.
Issuance
of the Shares
.
Subject
to the terms and conditions of this Agreement, the Company agrees to issue
to
McPeak and McPeak agrees to acquire from the Company on the Closing (as defined
below) and subject to the restrictions set forth herein Five Million Five
Hundred Thousand (5,500,000) shares of the Company’s Restricted Common Stock
(the “
Shares
”)
in
exchange for services rendered and the satisfaction of certain indebtedness
of
Company to McPeak, the sufficiency of which is hereby acknowledged.
2.
Closing
.
The
issuance of the Shares shall occur at a closing (the “
Closing
”)
to be
held on the date first set forth above, or at any other time mutually agreed
upon by the Company and McPeak. The Closing will take place at the principal
office of the Company or at such other place as shall be designated by the
Company. At the Closing, the Company will issue, as promptly thereafter as
practicable, a stock certificate, registered in the name of McPeak, reflecting
the Shares, subject to the restrictions set forth herein.
3.
Repurchase
Option
.
A.
In
the
event McPeak ceases to be an employee of the Company for any or no reason,
other
than, by reason of McPeak’s death or disability (as defined in Section 22(e)(3)
of the Internal Revenue Code of 1986, as amended (the “
Code
”),
“
Disability
”),
the
Company shall upon the date of such termination (as reasonably fixed and
determined by the Company) have the right, but not the obligation (the
“
Repurchase
Option
”),
for a
period of ninety (90) days from such date, to repurchase any Shares which have
not yet been released from the Repurchase Option (the “
Unreleased
Shares)
at a
price equal to Five Thousand Dollars ($5,000)
(the
“Repurchase Price”).
The
Repurchase Option shall be exercised by the Company by delivering written notice
to McPeak AND, at the Company’s option, by delivering to McPeak a check in the
amount of the aggregate Repurchase Price. Upon delivery of such notice and
the
payment of the aggregate Repurchase Price, the Company shall become the legal
and beneficial owner of the Unreleased Shares being repurchased and all rights
and interests therein or relating thereto, and the Company shall have the right
to retain and transfer to its own name the number of Unreleased Shares being
repurchased by the Company.
B.
The
Company in its sole discretion may designate and assign one or more employees,
officers, directors or shareholders of the Company or other persons or
organizations to exercise all or a part of the Company’s Repurchase Option to
purchase all or a part of the Unreleased Shares.
4.
Release
of Shares From Repurchase Option; Vesting
.
A.
So
long
as McPeak’s continuous status as an employee of the Company has not yet
terminated in
each
such
instance, Fifty Percent (50%) of the total number of Shares shall be released
from the Repurchase Option on January 1, 2006, and the remaining Fifty Percent
(50%) of the Shares shall be released from the Repurchase Option on January
1,
2007.
Notwithstanding
the foregoing, in the event of either (i) a Change of Control (as defined
below); (ii) the death or Disability of McPeak; (iii) McPeak’s retirement as an
employee of Company so long as such retirement does not occur prior to the
Second (2
nd
)
Anniversary of the Effective Date of this Agreement; (iv) Company terminates
McPeak’s employment with Company other than for Cause (as defined below); or (v)
at the sole discretion of the Company’s Board of Directors, One Hundred Percent
(100%) of the total number of Shares that have not been released from the
Repurchase Option shall be released from the Repurchase Option immediately;
provided that McPeak’s continuous status as an employee of the Company has not
been terminated prior to such date.
B.
For
purposes of this Agreement, a “
Change
of Control
”
means
either:
(1)
the
acquisition of the Company by another entity by means of any single transaction
(including, without limitation, any reorganization, merger or consolidation
or
stock transfer, but excluding any such transaction effected primarily for the
purpose of changing the domicile of the Company), unless the Company’s
shareholders of record immediately prior to such transaction or series of
related transactions hold, immediately after such transaction or series of
related transactions, at least 50% of the voting power of the surviving or
acquiring entity (provided that the sale by the Company of its securities for
the purposes of raising additional funds shall not constitute a Change of
Control hereunder); or
(2)
a
sale of
all or substantially all of the assets of the Company.
C.
For
purposes of this Agreement, “
Cause
”
means
the
conviction by McPeak of a felony, a crime involving moral turpitude causing
material harm to Company’s standing and reputation; or for fraud.
D.
Subject
to the provisions of Section 7, the Shares which have been released from the
Company’s Repurchase Option shall be delivered to McPeak at McPeak’s
request.
5.
Restrictions
on Transfer.
A.
McPeak
hereby makes the investment representations listed on
Exhibit
A
to the
Company as of the date of this Agreement and as of the date of the Closing,
and
agrees that such representations are incorporated into this Agreement by this
reference, such that the Company may rely on them in issuing the Shares. McPeak
understands and agrees that the Company shall cause the legends set forth below,
or substantially equivalent legends, to be placed upon any certificate(s)
evidencing ownership of the Shares, together with any other legends that may
be
required by the Company or by applicable state or federal securities laws:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933 (THE “
ACT
”)
AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER,
PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT.
THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON
TRANSFER, AND A REPURCHASE OPTION HELD BY THE ISSUER OR ITS ASSIGNEE(S) AS
SET
FORTH IN THE RESTRICTED STOCK AGREEMENT BETWEEN THE ISSUER AND THE ORIGINAL
HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE
OF THE ISSUER. SUCH TRANSFER RESTRICTIONS AND REPURCHASE OPTION ARE BINDING
ON
TRANSFEREES OF THESE SHARES.
B.
Stop-Transfer
Notices
.
McPeak
agrees that to ensure compliance with the restrictions referred to herein,
the
Company may issue appropriate “stop transfer” instructions to its transfer
agent, if any, and that, if the Company transfers its own securities, it may
make appropriate notations to the same effect in its own
records.
C.
Refusal
to Transfer
.
The
Company shall not be required (i) to transfer on its books any Shares that
have been sold or otherwise transferred in violation of any of the provisions
of
this Agreement or (ii) to treat as owner of such Shares or to accord the
right to vote or pay dividends to any purchaser or other transferee to whom
such
Shares shall have been so transferred.
D.
Unreleased
Shares
.
No
Unreleased Shares subject to the Repurchase Option contained in Section 3
of this Agreement, nor any beneficial interest in such Shares, shall be sold,
gifted, transferred, encumbered or otherwise disposed of in any way (whether
by
operation of law or otherwise) by McPeak.
6.
Tax
Consequences
.
McPeak
has reviewed with McPeak’s own tax advisors the federal, state, local and
foreign tax consequences of this acquisition and the transactions contemplated
by this Agreement. McPeak is relying solely on such advisors and not on any
statements or representations of the Company or any of its agents. McPeak
understands that McPeak (and not the Company) shall be responsible for any
tax
liability that may arise as a result of the transactions contemplated by this
Agreement. McPeak understands that Section 83 of the Code, taxes as
ordinary income the difference between the acquisition price for the Shares
and
the Fair Market Value of the Shares as of the date any restrictions on the
Shares lapse. In this context, “restriction” includes the right of the Company
to buy back the Shares pursuant to the Repurchase Option. McPeak understands
that McPeak may elect to be taxed at the time the Shares are acquired rather
than when and as the Repurchase Option expires by filing an election under
Section 83(b) of the Code with the IRS within 30 days from the date of
acquisition.
THE
FORM FOR MAKING THIS SECTION 83(B) ELECTION IS ATTACHED TO THIS AGREEMENT AS
EXHIBIT B
AND MCPEAK (AND NOT THE COMPANY OR ANY OF ITS AGENTS) SHALL BE SOLELY
RESPONSIBLE FOR APPROPRIATELY FILING SUCH FORM, EVEN IF MCPEAK REQUESTS THE
COMPANY OR ITS AGENTS TO MAKE THIS FILING ON MCPEAK’S
BEHALF.
7.
General
Provisions.
A.
Choice
of Law
.
This
Agreement shall be
governed by the internal substantive laws, but not the choice of law rules,
of
California.
B.
Integration
.
This
Agreement represents
the entire agreement between the parties with respect to the acquisition of
the
Shares by McPeak and supercedes and replaces any and all prior written or oral
agreements regarding the subject matter of this Agreement including, but not
limited to, any representations made during any interviews, relocation
discussions or negotiations whether written or oral.
C.
Notices
.
Any
notice, demand,
offer, request or other communication required or permitted to be given by
either the Company or McPeak pursuant to the terms of this Agreement shall
be in
writing and shall be deemed effectively given the earlier of (i) when
received, (ii) when delivered personally, (iii) 1 business day after
being deposited with an overnight courier service or (iv) 4 days after
being deposited in the U.S. mail, First Class with postage prepaid, and
addressed to the parties at the addresses provided to the Company (which the
Company agrees to disclose to the other parties upon request) or such other
address as a party may request by notifying the other in writing.
D.
Successors
.
Any
successor to the
Company (whether direct or indirect and whether by purchase, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement
in
the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. For all purposes under
this Agreement, the term “Company” shall include any successor to the Company’s
business and/or assets which executes and delivers the assumption agreement
described in this Section or which becomes bound by the terms of this
Agreement by operation of law. Subject to the restrictions on transfer set
forth
in this Agreement, this Agreement shall be binding upon McPeak and his heirs,
executors, administrators, successors and assigns.
E.
Assignment
.
The rights granted to McPeak under this Agreement are not assignable by McPeak
under any circumstances.
F.
Waiver
.
Either party’s failure to enforce any provision of this Agreement shall
not in any way be construed as a waiver of any such provision, nor prevent
that
party from thereafter enforcing any other provision of this Agreement. The
rights granted both parties hereunder are cumulative and shall not constitute
a
waiver of either party’s right to assert any other legal remedy available to
it.
G.
McPeak
Investment Representations and Further Documents
.
McPeak agrees upon request to execute any further documents or instruments
necessary or reasonably desirable in the view of the Company to carry out the
purposes or intent of this Agreement, including (but not limited to)
Exhibits
A and B
of
this
Agreement
H.
Severability
.
Should any provision of this Agreement be found to be illegal or unenforceable,
the other provisions shall nevertheless remain effective and shall remain
enforceable to the greatest extent permitted by law.
I.
Rights
as Stockholder
.
Subject
to the terms and conditions of this Agreement, McPeak shall have all of the
rights of a shareholder of the Company with respect to the Shares from and
after
the date that McPeak delivers a fully executed copy of this Agreement (including
all exhibits and attachments thereto) and until such time as McPeak disposes
of
the Shares in accordance with this Agreement. Upon such transfer, McPeak shall
have no further rights as a holder of the Shares except (in the case of a
transfer to the Company) the right to receive payment for the Shares so
purchased in accordance with the provisions of this Agreement, and McPeak shall
forthwith cause the certificate(s) evidencing the Shares to be surrendered
to
the Company for transfer or cancellation.
J.
Adjustment
for Stock Split.
All
references to the number of Shares in this Agreement shall be adjusted to
reflect any stock split, stock dividend or other change in the Shares which
may
be made after the date of this Agreement.
K.
Counterparts.
This Agreement may be executed in one or more counterparts, each of which will
be deemed an original, but all of which together will constitute one and the
same agreement. Facsimile copies of signed signature pages shall be binding
originals.
L.
Prevailing
Party’s Fees.
If any party hereto commences an action or arbitration against another party
to
interpret or enforce any terms of this Agreement, or because of the other
party's breach of any provision in this Agreement, the losing party shall pay
to
the prevailing party reasonable attorneys' fees, costs and expenses, court
costs
and other costs of action incurred in connection with the prosecution or defense
of such action or arbitration, whether or not the action is prosecuted to a
final judgment.
[Remainder
of page intentionally left blank]
The
parties represent that they have read this Agreement in its entirety, have
had
an opportunity to obtain the advice of counsel prior to executing this Agreement
and fully understand this Agreement. McPeak agrees to notify the Company of
any
change in her address below.
MCPEAK
|
|
NUTRACEA
|
|
|
|
|
|
|
|
|
|
/s/
Nana Patricia McPeak
|
|
/s/
Patricia McPeak
|
|
Nana
Patricia McPeak
|
|
Signature
|
|
|
|
|
|
Address:
|
|
|
|
100
Rock Lane
|
|
|
|
El
Dorado Hills, CA 95762
|
|
|
|
[SIGNATURE
PAGE TO RESTRICTED STOCK AGREEMENT
]
EXHIBIT
A
INVESTMENT
REPRESENTATION STATEMENT
NAME
|
:
|
Nana
Patricia McPeak
|
|
|
|
COMPANY
|
:
|
NutraCea
|
|
|
|
SECURITY
|
:
|
Restricted
Common Stock
|
|
|
|
AMOUNT
|
:
|
5,500,000
shares
|
|
|
|
DATE
|
:
|
March
19, 2004
|
In
connection with the acquisition of the above-listed shares, I, the undersigned
represent to the Company as follows:
1.
The
Company May Rely on These Representations
.
I
understand that the Company’s issuance of the shares to me has not been
registered under the Securities Act of 1933, as amended, because the Company
believes, relying in part on my representations in this document, that an
exemption from such registration requirement is available for such sale. I
understand that the availability of this exemption depends upon the
representations I am making to the Company in this document being true and
correct.
2.
I
am
Acquiring for Investment
.
I am
acquiring the shares solely for investment purposes, and not for further
distribution. My entire legal and beneficial ownership interest in the shares
is
being acquired and shall be held solely for my account, except to the extent
I
intend to hold the shares jointly with my spouse. I am not a party to, and
do
not presently intend to enter into, any contract or other arrangement with
any
other person or entity involving the resale, transfer, grant of participation
with respect to or other distribution of any of the shares. My investment intent
is not limited to my present intention to hold the shares for the minimum
capital gains period specified under any applicable tax law, for a deferred
sale, for a specified increase or decrease in the market price of the shares,
or
for any other fixed period in the future.
3.
I
Can
Protect My Own Interests
.
I can
properly evaluate the merits and risks of an investment in the shares and can
protect my own interests in this regard, whether by reason of my own business
and financial expertise, the business and financial expertise of certain
professional advisors unaffiliated with the Company with whom I have consulted,
or my preexisting business or personal relationship with the Company or any
of
its officers, directors or controlling persons.
4.
I
am
Informed About the Company
.
I am
sufficiently aware of the Company’s business affairs and financial condition to
reach an informed and knowledgeable decision to acquire the shares. I have
had
opportunity to discuss the plans, operations and financial condition of the
Company with its officers, directors or controlling persons, and have received
all information I deem appropriate for assessing the risk of an investment
in
the shares.
5.
I
Recognize My Economic Risk
.
I
realize that the acquisition of the shares involves a high degree of risk,
and
that the Company’s future prospects are uncertain. I am able to hold the shares
indefinitely if required, and am able to bear the loss of my entire investment
in the shares.
6.
I
Know the Shares are Restricted Securities
.
I
understand that the shares are “restricted securities” in that the Company’s
issuance of the shares to me has not been registered under the Securities Act
in
reliance upon an exemption for non-public offerings. In this regard, I also
understand and agree that:
A.
I
must
hold the shares indefinitely, unless any subsequent proposed resale by me is
registered under the Securities Act, or unless an exemption from registration
is
otherwise available (such as Rule 144);
B.
the
Company is under no obligation to register any subsequent proposed resale of
the
shares by me;
and
C.
the
certificate evidencing the shares will be imprinted with a legend which
prohibits the transfer of the shares unless such transfer is registered or
such
registration is not required in the opinion of counsel for the
Company.
7.
I
am
Familiar With Rule 144
.
I am
familiar with Rule 144 adopted under the Securities Act, which in some
circumstances permits limited public resales of “restricted securities” like the
shares acquired from an issuer in a non-public offering. I understand that
my
ability to sell the shares under Rule 144 in the future is uncertain, and will
depend upon, among other things: (i) the availability of certain current
public information about the Company; (ii) the resale occurring more than
one year after my acquisition and full payment (within the meaning of Rule
144)
for the shares;
and
(iii) if
I am an affiliate of the Company, or a non-affiliate who has held the shares
less than two years after my acquisition and full payment: (A) the sale
being made through a broker in an unsolicited “broker’s transaction” or in
transactions directly with a market maker, as said term is defined under the
Securities Exchange Act of 1934, as amended, (B) the amount of shares being
sold
during any three month period not exceeding the specified limitations stated
in
Rule 144,
and
(C)
timely filing of a notice of proposed sale on Form 144, if applicable.
8.
I
Know I am Subject to Further Restrictions on Resale
.
I
understand that in the event Rule 144 is not available to me, any future
proposed sale of any of the shares by me will not be possible without prior
registration under the Securities Act, compliance with some other registration
exemption (which may or may not be available), or
each
of the
following: (i) my written notice to the Company containing detailed information
regarding the proposed sale, (ii) my providing an opinion of my counsel to
the effect that such sale will not require registration, and (iii) the Company
notifying me in writing that its counsel concurs in such opinion. I understand
that neither the Company nor its counsel is obligated to provide me with any
such opinion. I understand that although Rule 144 is not exclusive, the
Staff of the SEC has stated that persons proposing to sell private placement
securities other than in a registered offering or pursuant to Rule 144 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own
risk.
9.
I
Know I May Have Tax Liability Due to the Uncertain Value of the
Shares
.
I
understand that the Board of Directors believes its valuation of the shares
represents a fair appraisal of their worth, but that it remains possible that,
with the benefit of hindsight, the Internal Revenue Service may successfully
assert that the value of the shares on the date of my acquisition is
substantially greater than the Board’s appraisal. I understand that any
additional value ascribed to the shares by such an IRS determination will
constitute ordinary income to me as of the acquisition date, and that any
additional taxes and interest due as a result will be my sole responsibility
payable only by me, and that the Company need not and will not reimburse me
for
that tax liability. I understand that if such additional value represents more
than 25% of my gross income for the year in which the value of the shares is
taxable, the IRS will have 6 years from the due date for filing the return
(or
the actual filing date of the return if filed thereafter) within which to assess
me the additional tax and interest due.
10.
Residence
.
The
address of my principal residence is set forth on the signature page
below.
By
signing below, I acknowledge my agreement with each of the statements contained
in this Investment Representation Statement as of the date first set forth
above, and my intent for the Company to rely on such statements in issuing
the
shares to me.
|
/s/
Nana Patricia McPeak
|
|
|
Nana
Patricia McPeak
|
|
Address
of McPeak’s Principal Residence:
100
Rock
Lane, El Dorado Hills, CA 95762
EXHIBIT
B
IF
YOU WISH TO MAKE A SECTION 83(B) ELECTION, THE FILING OF SUCH ELECTION IS
YOUR
RESPONSIBILITY.
THE
FORM FOR MAKING THIS SECTION 83(B) ELECTION IS ATTACHED TO THIS AGREEMENT AS
EXHIBIT B.
YOU
MUST FILE THIS FORM WITHIN 30 DAYS OF PURCHASING THE
SHARES.
YOU
(AND
NOT
THE COMPANY OR ANY OF ITS AGENTS) SHALL BE SOLELY RESPONSIBLE FOR FILING SUCH
FORM WITH THE IRS, EVEN IF YOU REQUEST THE COMPANY OR ITS AGENTS TO MAKE THIS
FILING ON YOUR BEHALF AND EVEN IF THE COMPANY OR ITS AGENTS HAVE PREVIOUSLY
MADE
THIS FILING ON YOUR BEHALF.
The
election should be filed by mailing a signed election form by certified mail,
return receipt requested to the IRS Service Center where you file your tax
returns. See
www.irs.gov
.
EXHIBIT
B
ELECTION
UNDER SECTION 83(b) OF THE
INTERNAL
REVENUE CODE OF 1986, AS AMENDED
The
undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal
Revenue Code of 1986, as amended, to include in his or her gross income for
the
current taxable year, the amount of any compensation taxable to him or her
in
connection with his or her receipt of the property described below:
1.
The
name,
address, taxpayer identification number and taxable year of the undersigned
are
as follows:
NAME
OF TAXPAYER: [Name of Purchaser]
|
SPOUSE:
|
|
|
|
|
|
|
TAXPAYER’S
ADDRESS:
|
|
|
|
_____________________
|
|
|
|
_______________
|
|
|
_________________
|
|
TAXPAYER
ID #:
|
|
|
SPOUSE’S
ID #:
|
|
2.
The
property with respect to which the election is made is described as follows:
[#
of Shares] shares (the “
Shares
”)
of the
Common Stock of [Name of Company] (the “
Company
”).
3.
The
date
on which the property was transferred is: [DATE].
4.
The
property is subject to the following restrictions: The Shares may be repurchased
by the Company, or its assignee, upon the occurrence of certain events. This
right lapses with regard to a portion of the Shares over time.
5.
The
fair
market value at the time of transfer, determined without regard to any
restriction other than a restriction which by its terms will never lapse, of
such property is:
$[_____]
.
6.
The
amount, if any, paid for such property:
$[_____]
.
The
undersigned has submitted a copy of this statement to the person for whom the
services were performed in connection with the undersigned’s receipt of the
above-described property. The transferee of such property is the person
performing the services in connection with the transfer of said
property.
The
undersigned understand(s) that the foregoing election may not be revoked except
with the consent of the Commissioner.
Dated:
|
|
|
|
|
|
|
|
[Name
of Purchaser], Taxpayer
|
|
The
undersigned spouse of taxpayer joins in this election.
Dated:
|
|
|
|
|
|
|
|
Spouse
of Taxpayer
|
|
Exhibit
10.09
EMPLOYMENT
AGREEMENT
THE
RICEX
COMPANY, a Delaware corporation ("Employer"), and Todd
C.
Crow
("Employee"), agree as follows, effective as of the twentieth of October, 2003
(the “Effective Date”).
1.
Employment
.
Employer hereby employs Employee and Employee hereby accepts employment with
Employer on the terms and conditions set forth below.
2.
Position;
Scope of Employment
.
Employee shall have the position Chief Financial Officer. Employee's duties
shall include development, implementation and oversight of the Employer's
financial matters, including, without limitation, budget planning and
implementation, cost and revenue forecasting, tax planning and compliance,
cash
management and supervision, and management of accounting, finance and
bookkeeping staff, and shall include such other duties and authority as
specified by Employer and as may be modified from time to time.
2.1.
Entire
Time and Effort.
Employee
shall devote Employee's full working time, attention, abilities, skill, labor
and efforts to the performance of Employee's employment. Employee shall not
directly or indirectly (i) be substantially engaged in or concerned with any
other duties or pursuits, (ii) render services to any third party for
compensation or other benefit, or (iii) engage in any other business activity
that will in any way interfere with the performance of Employee's duties under
this Agreement, except with the prior written consent of Employer; provided,
however, that Employee may engage in charitable, philanthropic, educational,
religious, civic and similar such activities to the extent that such activities
do not unreasonably interfere with the performance of Employee's duties under
this Agreement.
2.2.
Rules
and Regulations.
Employee
agrees to observe and comply with Employer's rules and regulations as provided
by Employer and as may be amended from time to time by Employer, and will carry
out and faithfully perform such orders, directions and policies of
Employer.
3.
Term
of Employment
.
Employee's term of employment under the terms of this Agreement shall commence
on May 1, 2004 and shall terminate five years from that date, unless terminated
earlier as provided herein. At the end of the initial five-year term, this
Agreement shall automatically renew for an additional five-year term unless
either party notifies the other party in writing ninety (90) days prior to
the
expiration of the term of his or its intention not to renew this
Agreement.
4.
Compensation.
Employer
shall pay Employee the base pay (“Base Salary”) of One Hundred Fifty Thousand
Dollars ($150,000) per year which is in effect on the date of this agreement.
Salary payments will be payable in periodic installments in accordance with
Employer's pay schedule, but not less than twice per month. The Base Salary
shall be reviewed at least annually, and shall be adjusted to compensate for
cost of living adjustments in the Sacramento metropolitan area.
4.1.
Benefits
.
Employee shall be provided with medical insurance and such other benefits as
provided to Employer's other similarly situated employees and in accordance
with
Employer's policies, as modified from time to time in Employer's sole
discretion.
4.2.
Vacation
and Sick Leave
.
Employee shall be entitled to four weeks of vacation each calendar year.
Employee's vacation shall accrue at the rate of thirteen and one-thirds (13
1/3)
hours per month but in no event shall Employee's total accrued vacation exceed
eight (8) weeks. Employee shall be entitled to sick leave in accordance with
Employer's sick leave policy.
4.3.
Automobile
.
Employer shall make lease payments on behalf of the Employee, up to a maximum
amount of eight hundred dollars ($800.00) per month. Employer shall also
reimburse Employee for his actual expenses incurred in the operation of one
automobile for automobile insurance, annual registration, and maintenance.
4.4.
Bonus
.
Employee shall be eligible to participate in Employer’s bonus program when
implemented to the same extent as other executive employees of Employer.
Employer intends to adopt such a program prior to the expiration of this
Agreement, but makes no further representations as to the terms of such program
or the date such program will be enacted.
5.
Termination
of Employment
5.1.
Termination
Events
.
Employee's employment shall be terminated prior to the expiration of this
Agreement (“Early Termination”) upon the occurrence of any of the following
events: (i) the mutual written agreement of Employer and Employee;
(ii) Employee's disability, which shall for the purposes
of
this
Agreement mean Employee's inability due to physical or mental impairment to
perform Employee's duties and obligations under this Agreement, despite
reasonable accommodation by Employer, for a period exceeding three months;
(iii) Employee's death; (iv) notice by Employer of termination for
cause as defined in Section 5.2 below; (iv) written notice of
termination by Employer without cause upon fourteen (14) days’ notice, subject
to the Compensation Upon Early Termination provisions of Section 5.3
below.
5.2.
Termination
for Cause.
Employer
reserves the right to terminate this Agreement for cause upon
(i) Employee's willful and continued failure substantially to perform his
duties and obligations under this Agreement after written demand for substantial
performance has been delivered to Employee by Employer which sets forth with
reasonable specificity the deficiencies in Employee's performance and giving
Employee not less than thirty (30) days to correct such deficiencies;
(ii) fraud or intentional material misrepresentation by Employee,
(iii) unauthorized disclosure or use of Employer's trade secrets or
Confidential Information by Employee; (iv) Employee's conviction of a
felony; (v) theft or conversion of Employer's property by Employee; or
(vi) Employee's habitual misuse of alcohol, illegal narcotics, or other
intoxicant.
5.3.
Compensation
Upon Early Termination
.
Upon
early termination, Employer shall pay Employee compensation as
follows.
(A)
If
Employee is terminated by Employer for cause, voluntarily resigns, dies, or
becomes disabled as such term is used in Section 5.1 of this Agreement, Employer
shall pay Employee, or Employee’s representative, all accrued but unpaid salary
and vacation pay accrued through the effective date of the
termination.
(B)
If
Employee is terminated by Employer without cause, Employer shall pay to Employee
as liquidated damages and in lieu of any and all other claims which Employee
may
have against Employer the amount equal to Employee's monthly base salary
multiplied by the number of months remaining in the term of this Agreement,
or
payment amount equal to two years of Employee’s Base Salary, which ever is
greater. Employer's payment pursuant to this section shall fully and completely
discharge any and all obligations of Employer to Employee arising out of or
related to this Agreement and shall constitute liquidated damages in lieu of
any
and all claims which Employee may have against Employer, not including any
obligation under the Worker’s Compensation laws including its Employer's
Liability provisions.
(C)
If
Employee is terminated as the result of a Change in Control and Employee is
not
employed in the same capacity or being paid the same Base Salary by the new
entity, then Employee shall receive a severance payment equal to two years
of
Employee’s Base Salary or the balance remaining to be paid under the terms of
this Agreement, whichever is greater. In addition, if Employee is terminated
as
the result of a Change in Control and Employee is not employed in the same
capacity by the new entity, Employer agrees to continue Employee’s medical and
dental insurance benefits as provided during Employee’s employment with Employer
for a period of two years from the effective date of the Change in Control,
except as provided below in Section 5.3(C)(1) and Section 5.3(C)(2).
(1)
Employee
agrees that he shall accept any plan coverage changes that may occur during
the
two-year period which apply to all employees in the workforce.
(2)
Employee
agrees that he will notify Employer (or any successor of Employer) if he becomes
employed in any capacity with another employer and becomes eligible to receive
medical and dental insurance benefits through that employment prior to the
expiration date of the two-year period set forth in this section. At such time,
Employer shall no longer be obligated to provide Employee with medical and
dental insurance benefits.
6.
Unfair
Competition
.
During
Employee's employment under this Agreement, Employee shall not directly or
indirectly, whether as a partner, employee, creditor, shareholder or otherwise,
promote or engage in any activity or other business which is competitive in
any
way with Employer's business, and shall not take any action or make any
agreement to establish, or become employed by, a competing
business.
7.
Proprietary
Information; Confidentiality.
7.1.
Confidential
Information
.
Employee agrees not to disclose to any others, or take or use for Employee's
own
purposes or purposes of any others, during the term of this Agreement, any
of
Employer's Confidential Information (as defined below). Employee agrees that
these restrictions shall also apply to (1) Confidential Information belonging
to
third parties in Employer's possession and (2) Confidential Information
conceived, originated, discovered or developed by Employee during the term
of
this Agreement. "Confidential Information" means any Employer proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, products, services, customer lists and
customers, markets, software, developments, inventions, processes, formulas,
technology, designs, drawings, engineering, marketing, finances or other
business information disclosed to Employee by Employer, either directly or
indirectly, in writing, orally or by drawings, or by observation of products.
Confidential Information does not include any of the foregoing items which
has
become publicly known and made generally available through no wrongful act
of
Employee. Employee further agrees not to use improperly or disclose or bring
onto the premises of Employer any trade secrets of another person or entity
during the term of this Agreement.
7.2.
Return
of Property
.
Employee agrees that upon termination of employment with Employer, Employee
will
deliver to Employer all devices, records, data, disks, computer files, notes,
reports, proposals, lists, correspondence, specifications, drawings, blueprints,
sketches, materials, equipment, other documents or property, or reproductions
of
any aforementioned items developed by Employee pursuant to employment with
Employer or otherwise belonging to Employer, its successors or
assigns.
7.3.
Noncompetition.
Employee
shall not use any of the Confidential Information to compete with Employer
in
connection with a business or enterprise of any kind, foreign or domestic,
profit or non-profit, as an investor, partner, shareholder, LLC member,
employee, agent, consultant or independent contractor. Nothing in this
Section 7.3 shall be construed to limit the more general prohibitions
against unauthorized use or disclosure of the Confidential Information contained
in other sections of this Agreement.
7.4.
Notification
of New Employer
.
Employer shall have the right to notify any actual or potential future employer
of Employee of Employee's rights and obligations under this Section 7 of
the Agreement. Employee expressly authorizes such disclosure and waives any
claims Employee may have against Employer resulting from the disclosure of
Employee's obligations under this Section 7 to an actual or potential
future employer of Employee.
7.5.
Other
Agreements.
Employee
represents that the performance of all the terms of this Agreement will not
breach any agreement to keep in confidence proprietary information acquired
by
Employee in confidence or in trust prior to employment with Employer. Employee
has not and shall not enter into any oral or written agreement in conflict
with
this Agreement.
7.6.
Equitable
Remedies.
Employee
agrees that it would be impossible or inadequate to measure and calculate
Employer's damages from any breach of the covenants set forth in this
Section 7 of the Agreement. Accordingly, Employer shall have available, in
addition to any other right or remedy available under law or equity, the right
to obtain any injunction from a court of competent jurisdiction restraining
such
breach or threatened breach and to specific performance of any such provision
of
this Section 7. Employee further agrees that no bond or other security
shall be required in obtaining such equitable relief and consents to the
issuance of such injunction and to the ordering of specific
performance.
8.
Miscellaneous.
8.1.
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (i) on the date of personal
service on the parties, (ii) on the third business day after mailing, if the
document is mailed by registered or certified mail, (iii) one day after being
sent by professional or overnight courier or messenger service guaranteeing
one-day delivery, with receipt confirmed by the courier, or (iv) on the date
of
transmission if sent by telegram, telex, telecopy or other means of electronic
transmission resulting in written copies, with receipt confirmed. Any such
notice shall be delivered or addressed to the parties at the addresses set
forth
below or at the most recent address specified by the addressee through written
notice under this provision. Failure to give notice in accordance with any
of
the foregoing methods shall not defeat the effectiveness of notice actually
received by the addressee.
8.2.
Enforcement
.
This
Agreement shall be interpreted in accordance with the laws of the State of
California and will be adjudicated in the Superior Court of California in and
for the County of El Dorado. In the event of any dispute concerning any aspect
of the obligations of the Company under this Agreement, the Company or its
successor shall reimburse Employee all attorney fees and costs incurred by
Employee in connection with adjudication of such matters.
8.3.
Choice
of Law, Jurisdiction, Venue
.
This
Agreement is drawn to be effective in the State of California, and shall be
construed in accordance with California law. The exclusive jurisdiction and
venue of any legal action by either party under this Agreement shall be the
County of Sacramento, California.
8.4.
Amendment
.
The
provisions of this Agreement may be modified at any time by agreement of the
parties. Any such agreement hereafter made shall be ineffective to modify this
Agreement in any respect unless in writing and signed by the parties against
whom enforcement of the modification or discharge is sought.
8.5.
Waiver
.
Any of
the terms or conditions of this Agreement may be waived at any time by the
party
entitled to the benefit thereof, but no such waiver shall affect or impair
the
right of the waiving party to require observance, performance or satisfaction
either of that term or condition as it applies on a subsequent occasion or
of
any other term or condition.
8.6.
Assignment
.
The
parties agree that Employee's rights and obligations under this Agreement are
personal and not assignable. This Agreement contains the entire agreement
between the parties to it and shall be binding on and inure to the benefit
of
the heirs, personal representatives, successors and assigns of
Employer.
8.7.
Independent
Covenants.
All
provisions herein concerning unfair competition and confidentiality shall be
deemed independent covenants and shall be enforceable without regard to any
breach by Employer unless such breach by Employer is willful and
reckless.
8.8.
Entire
Agreement
.
This
document constitutes the entire agreement between the parties, all oral
agreements being merged herein, and supersedes all prior representations and
written agreements. There are no representations, agreements, arrangements,
or
understandings, oral or written, between or among the parties relating to the
subject matter of this Agreement that are not fully expressed
herein.
8.9.
Severability
.
If any
provision of this Agreement is held by a court of competent jurisdiction to
be
invalid or unenforceable, the remainder of the Agreement which can be given
effect without the invalid provision shall continue in full force and effect
and
shall in no way be impaired or invalidated.
8.10.
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Agreement.
DATED:
October
20, 2003
THE
RICEX COMPANY
|
|
EMPLOYEE
|
|
|
|
|
|
|
|
|
By:
|
/s/
Daniel L. McPeak, Sr.
|
|
/s/
Todd C. Crow
|
|
Daniel
L. McPeak, Sr.
|
|
Todd
C. Crow
|
Its:
|
Chief
Executive Officer
|
|
|
|
Exhibit
10.10
FIRST
AMENDMENT TO EMPLOYMENT AGREEMENT
This
First Amendment to Employment Agreement (this “
First
Amendment
”)
is
executed as of October 4, 2005 by and among NUTRACEA, a California corporation
(“
Employer
”),
THE
RICEX COMPANY, a Delaware corporation (“
Company
”),
and
TODD C. CROW, an individual (“
Employee
”).
A.
WHEREAS
,
Company
and Employee are parties to that certain Employment Agreement dated as of
October 20, 2003 (the “
Agreement
”).
B.
WHEREAS
,
Company
has entered into that certain Agreement and Plan of Merger and Reorganization,
dated April 4, 2005, with Employer and Red Acquisition Corporation (the
“
Merger
Agreement
”).
C.
WHEREAS
,
as a
condition to the consummation of the transactions contemplated by the Merger
Agreement (the “
Merger
”),
Company has agreed to amend the Agreement.
D.
WHEREAS
,
contemporaneous to the effective time of the Merger, which shall be such time
as
Company files a Certificate of Merger with the Secretary of State of the State
of Delaware (the “
Effective
Time
”),
Company desires to assign to Employer, and Employer desires to assume from
Company, the Agreement, as amended by this First Amendment.
E.
WHEREAS
,
as
consideration for (i) entering into this First Amendment and (ii) Employee’s
continued employment with Employer following the Merger, Company has agreed
to,
and Employer has consented to, the payment by Company of a bonus to Employee,
which bonus shall be earned and payable immediately following the approval
of
the Merger by the stockholders of Company.
F.
WHEREAS
,
Employer, Company and Employee desire to amend the Agreement as set forth in
this First Amendment.
G.
WHEREAS
,
Employer, Company and Employee desire that this First Amendment shall become
effective only as of the Effective Time.
NOW,
THEREFORE
,
in
consideration of the foregoing and 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 hereto agree as
follows:
AMENDMENT
1.
Amendment
.
The
following paragraphs are amended and restated or added, as applicable, as
follows:
a.
Section
2.,
Position;
Scope of Employment
,
is
amended by deleting the first sentence thereof and adding the following
sentence:
“2.
Position;
Scope of Employment
.
Employee shall have the position of Chief Financial Officer of Employer and
Company.
b.
Section
3.,
Term
of Employment
,
is
amended by deleting the entire paragraph thereof and adding the following
paragraph:
“3.
Term
of Employment
.
Employee’s term of employment pursuant to this Agreement shall commence on the
Effective Time and shall terminate three (3) years from that date, unless
terminated earlier as provided herein. At the end of the initial three (3)-year
term, this Agreement shall automatically renew for an additional one (1)-year
term unless either party notifies the other party in writing ninety (90) days
prior to the expiration of the term of his or its intention not to renew this
Agreement.”
c.
Section
4.3,
Automobile
,
is
amended by adding the following sentence to the end of the existing
paragraph:
“Notwithstanding
the foregoing, Employer shall not be obligated to make any down payments for
the
purchase of any automobile by or on behalf of Employee.”
d.
Section
4.5,
Accrued
Vacation Pay
,
is
hereby added to the Agreement by adding the following paragraph:
“4.5.
Accrued
Vacation Pay
.
Immediately prior to the Effective Time, Company shall pay to Employee all
vacation pay due to Employee that has been accrued but unpaid up to and through
the Effective Time.”
e.
Section
4.6,
Closing
Bonus
,
is
hereby added to the Agreement by adding the following paragraph:
“4.6.
Closing
Bonus
.
Immediately following the approval of the merger effected pursuant to that
certain Agreement and Plan of Merger and Reorganization, dated as of April
4,
2005, by and between Employer, Red Acquisition Corporation, the wholly-owned
subsidiary of Employer and Company by the stockholders of Company, Company
shall
pay to Employee a bonus of $50,000, net of any federal, state or local
withholding or other taxes or charges.”
f.
Section
5.3(B) is amended by deleting the entire paragraph thereof and adding the
following paragraph:
“(B)
If
Employee is terminated by Employer without cause, Employer shall pay to Employee
as liquidated damages, and in lieu of any and all other claims that Employee
may
have against Employer, an amount equal to the greater of (i) the monthly Base
Salary multiplied by the number of months remaining on the term of this
Agreement, and (ii) one (1) year of Base Salary, but in no event shall severance
pay exceed three (3) years of Base Salary, regardless of the
term.”
g.
Section
5.3(C) is amended by deleting the entire paragraph thereof and adding the
following paragraph:
“(C)
If
Employee is terminated as the result of a Change in Control (as defined below)
and Employee is not employed in the same capacity or being paid the same Base
Salary by the new entity as Employee was employed with, or paid by, Employer,
then Employee shall receive a severance payment equal to two (2) years of
Employee’s Base Salary, or the balance remaining to be paid under the terms of
the Agreement, whichever is greater. In addition, if Employee is terminated
as
the result of a Change in Control and Employee is not employed in the same
capacity by the new entity, Employer agrees to continue Employee’s medical and
dental insurance benefits as provided during Employee’s employment with Employer
for a period of two (2) years from the effective date of the Change in Control,
except as provided below in Section 5.3(C)(1) and Section 5.3(C)(2). For the
purposes of this Agreement, a “Change in Control” means:
(1)
a
merger
or acquisition in which Employer is not the surviving entity, except for (a)
a
transaction the principal purpose of which is to change the state of Employer’s
incorporation, or (b) a transaction in which Employer’s stockholders immediately
prior to such transaction hold, immediately after such transaction, at least
50%
of the voting power of the surviving entity;
(2)
a
stockholder approved sale, transfer or other disposition of all or substantially
all of the assets of Employer;
(3)
a
transfer of all or substantially all of Employer’s assets pursuant to a
partnership or joint venture agreement or similar arrangement where Employer’s
resulting interest is less than fifty percent (50%);
(4)
any
reverse merger in which Employer is the surviving entity but in which fifty
percent (50%) or more of Employer’s outstanding voting stock is transferred to
holders different from those who held the stock immediately prior to such
merger;
(5)
on
or
after the date hereof, a change in ownership of Employer through an action
or
series of transactions, such that any person is or becomes the beneficial owner,
directly or indirectly, of securities of Employer representing fifty percent
(50%) or more of the voting power of Employer’s outstanding securities;
or
(6)
a
majority of the members of the Board of Directors are replaced during any twelve
(12) month period by directors whose appointment or election is not endorsed
by
a majority of the members of the Board of the Directors prior to the date of
such appointment of election.
Notwithstanding
the foregoing, the transactions effected pursuant to, or required by, that
certain Agreement and Plan of Merger and Reorganization, dated as of April
4,
2005, by and between Employer, Red Acquisition Corporation, the wholly-owned
subsidiary of Employer and Company, shall not constitute a Change in
Control.”
h.
Section
7.1.,
Confidential
Information
,
is
amended by deleting the first sentence and replacing it with the following
sentence:
“Employee
agrees not to disclose to any others, or take or use for Employee’s own purposes
or purposes of any others, during the term of this Agreement or at any time
thereafter, any of Employer’s Confidential Information (as defined
below).”
i.
All
restrictions placed upon Employee in Section 7.,
Proprietary
Information; Confidentiality
,
of the
Agreement with respect to “Confidential Information” shall be deemed to apply to
Confidential Information of the Employer and Employer’s direct or indirect
subsidiaries.
2.
Affirmation
.
In order
to induce each other to enter into this First Amendment, the parties hereby
confirm that all terms and provisions of the Agreement have been and continue
to
be in all respects in full force and effect, and no violation of the terms
and
conditions of the Agreement has occurred.
3.
Effective
Date; Assignment and Assumption
.
This
First Amendment shall become effective only upon the Effective Time. Effective
immediately from and after the Effective Time, (i) all of Company’s right, title
and interest in and to the Agreement, as amended by this First Amendment, shall
be deemed to have been assigned, granted, bargained, transferred, conveyed,
set
over and delivered unto Employer, and (ii) Employer shall be deemed to have
assumed the Agreement, as amended by this First Amendment, and shall faithfully
and timely discharge and perform each and every obligation of Company arising
under the Agreement, as amended by this First Amendment.
4.
Modification;
Interpretation
.
Except
as expressly set forth in this First Amendment, this First Amendment shall
not
alter, amend, or otherwise modify the terms and provisions of the Agreement.
From and after the Effective Time, all references in the Agreement to “the
Agreement,” “this Agreement” or any similar reference shall refer to the
Agreement as amended by this First Amendment. From and after the Effective
Time,
all references in the Agreement to “Employer,” or any similar reference shall
refer to NutraCea, a California corporation. Capitalized terms not otherwise
defined herein shall have the respective meanings ascribed to them in the
Agreement or the Merger Agreement.
5.
Approval
by Company’s Board of Directors
.
Company
hereby represents that its Board of Directors has duly approved the terms of
this First Amendment.
[
The
Remainder of this Page is Intentionally Left Blank -- Signature Page
Follows
]
IN
WITNESS WHEREOF, the parties have executed this First Amendment as of the date
first set forth above.
NUTRACEA
|
|
|
|
|
|
|
|
|
By:
|
/s/
Brad Edson
|
|
|
|
Name:
|
Brad
Edson
|
|
|
|
Title:
|
President
|
|
/s/
Todd C. Crow
|
|
|
|
|
TODD
C. CROW
|
|
|
|
|
|
|
THE
RICEX COMPANY
|
|
|
|
|
|
|
|
|
By:
|
/s/
Ike Lynch
|
|
|
|
Name:
|
Ike
Lynch
|
|
|
|
Title:
|
CEO
|
|
|
|
6
Exhibit
10.11
EMPLOYMENT
AGREEMENT
THIS
EMPLOYMENT AGREEMENT (this “Agreement”) is effective as of the 1st of May, 2004
(the "Effective Date") by and between THE RICEX COMPANY, a Delaware corporation
("Employer") and Ike E. Lynch ("Employee").
In
consideration of the mutual covenants and obligations herein set forth, the
parties hereto agree as follows:
1.
Employment
.
Employer hereby employs Employee and Employee hereby accepts employment with
Employer on the terms and conditions set forth below, which supercede in their
entirety the terms and conditions of any previous employment agreement between
Employer and Employee.
2.
Position;
Scope of Employment
.
Employee shall have the position of Vice President of Operations for The RiceX
Company and Chief Operating Officer for the Company’s subsidiary, Food Extrusion
Montana. Employee shall manage the operations of Employer by directing and
coordinating activities consistent with established goals, objectives and
policies. In performing the services hereunder, Employee shall follow the
direction set by the Chief Executive Officer and Board of Directors, and shall
implement such programs as he deems necessary to ensure attainment of Employer’s
business plan for growth and profit. Employee also shall provide direction
and
structure for all operating units, shall participate in developing policy and
strategic plans, and shall manage all activities associated with Employer’s
production, engineering, construction, quality assurance, logistics and research
and development.
2.1.
Time
and Effort
.
At
Employer’s direction, Employee shall devote a minimum of thirty (30) hours per
month to a maximum of one hundred (100) hours per calendar month to the
performance of Employee's duties under this Agreement. Any work assignments
requiring more than one hundred (100) hours per calendar month shall be
accommodated by Employee, so long as any such assignment does not exceed six
(6)
months duration in any calendar year. Employee will have the right to work
from
his home office and Employer will have the right to make reasonable travel
requests from time to time of Employee.
2.2
Other
Employment
.
Employee may render services to third parties for compensation or other benefit,
so long as such other business activities in no way interfere with the
performance of Employee's duties under this Agreement.
2.3.
Rules
and Regulations.
Employee
agrees to observe and comply with Employer's rules and regulations as provided
by Employer and as may be amended from time to time by Employer, and will carry
out and faithfully perform such orders, directions and policies of
Employer.
3.
Term
of Employment
.
Employee's term of employment pursuant to this Agreement shall commence on
the
Effective Date and shall automatically terminate on the fifth anniversary of
the
Effective Date, unless (i) terminated earlier as provided herein, or (ii)
extended pursuant to written notice from Employer to Employee, which notice
shall be given not less than six (6) months prior to the expiration of the
initial term, and operate to extended the term hereof for an additional term
of
five (5) years.
4.
Compensation
.
During
the term of this Agreement, Employer shall compensate Employee for his services
to Employer at a rate of $3000/month for up to thirty (30) hours of work per
month. If more than thirty (30) hours of work per month is required by Employer,
Employee shall be compensated at a rate of $100/hour for all additional hours
worked. Employee’s compensation shall be subject to an annual adjustment of five
percent (5%) upon each anniversary date of the Effective Date.
4.1.
Benefits
.
Employee shall be provided with medical insurance and such other benefits as
provided to Employer's other similarly situated employees and in accordance
with
Employer's policies, as modified from time to time in Employer's sole and
absolute discretion.
4.2.
Reimbursement
of Expenses.
During
the term of this agreement, Employee shall be reimbursed for all standard travel
expenses as outlined in the Company Employee Manual. Office expenses including
rent and utilities will be paid by the Employer.
4.3.
Vacation
and Sick Leave
.
Employee shall be entitled to four weeks of vacation each calendar year.
Employee's vacation shall accrue at the rate of thirteen and one-thirds (13
1/3)
hours per month but in no event shall Employee's total accrued vacation exceed
eight (8) weeks. In lieu of vacation time off, the employee may elect to be
paid
accrued vacation time at the Employee’s existing prevailing hourly rate.
Employee shall be entitled to sick leave in accordance with Employer's sick
leave policy.
4.4.
Automobile
.
Employer shall make lease/purchase payments on behalf of Employee, up to a
maximum amount of eight hundred dollars ($800) per month. Employer shall also
reimburse Employee for his actual expenses incurred in the operation of one
automobile for automobile insurance, and annual registration and maintenance,
subject to receipt of documentation therefor reasonably satisfactory to
Employer.
4.5.
Bonus
.
Employee shall be eligible to participate in Employer’s bonus program if and
when implemented to the same extent as other similarly situated employees of
Employer. Employer intends to adopt such a program prior to the expiration
of
this Agreement, but makes no further representations as to the terms of such
program or the date on which such program may be enacted. An international
business development bonus will be paid to the employee for any international
deal structured by the employee. The bonus will be determined by the
Compensation Committee of the Board and will be consistent with similar bonuses
paid for similar activities in commercial deals.
4.6.
Stock
or Stock Option Plan
.
If
Employer grants stock or other equity incentives to its other similarly situated
employees during the term of this Agreement, Employer shall consider granting
stock or other equity incentives to Employee, in the amounts and upon such
terms
and conditions as Employer shall, in its sole and absolute discretion,
determine.
4.7.
Relocation
Expenses.
The
Employer will provide a one-time relocation allowance of $6,000 during the
term
of this agreement.
5.
Termination
of Employment
5.1.
Termination
Events
.
Employee's employment shall be terminated prior to the expiration of this
Agreement (“Early Termination”) upon the occurrence of any of the following
events: (i) the mutual written agreement of Employer and Employee;
(ii) Employee's disability which shall, for the purposes
of
this
Agreement, mean Employee's inability due to physical or mental impairment to
perform Employee's duties and obligations under this Agreement, despite
reasonable accommodation by Employer, for a period exceeding in the aggregate
three (3) months in any twelve (12) consecutive month period;
(iii) Employee's death; (iv) notice by Employer of termination for
cause as defined in Section 5.2 below; (iv) written notice of
termination by Employer without cause upon fourteen (14) days’ notice, subject
to the Compensation Upon Early Termination provisions of Section 5.3
below.
5.2.
Termination
for Cause
.
Employer reserves the right to terminate this Agreement for cause upon
(i) Employee's willful and continued failure substantially to perform his
duties and obligations under this Agreement after written demand for substantial
performance has been delivered to Employee by Employer, which demand sets forth
with reasonable specificity the deficiencies in Employee's performance and
gives
Employee not less than thirty (30) days to correct such deficiencies;
(ii) fraud or intentional material misrepresentation by Employee,
(iii) unauthorized disclosure or use of Employer's trade secrets or
Confidential Information by Employee; (iv) Employee's conviction of a
felony; (v) theft or conversion of Employer's property by Employee; or
(vi) Employee's habitual misuse of alcohol, illegal narcotics or other
intoxicant.
5.3.
Compensation
Upon Early Termination
.
Upon
early termination, Employer shall pay Employee compensation as
follows.
(A)
If
Employee is terminated by Employer for cause, voluntarily resigns, dies, or
becomes disabled as such term is used in Section 5.1 of this Agreement, Employer
shall pay Employee, or Employee’s representative, all accrued but unpaid salary
and vacation pay accrued through the effective date of the
termination.
(B)
If
Employee is terminated by Employer without cause, Employer shall pay to Employee
as liquidated damages, and in lieu of any and all other claims that Employee
may
have against Employer, the remaining term of the agreement times the average
annual Employee compensation of the previous twenty-four months (or actual
number of months worked if fewer than twenty-four), with a maximum payment
of
two hundred and fifty thousand dollars. Employer's payment pursuant to this
section shall fully and completely discharge any and all obligations of Employer
to Employee arising out of or related to this Agreement and shall constitute
liquidated damages in lieu of any and all claims that Employee may have against
Employer, not including any obligation under the Worker’s Compensation laws
including its Employer's Liability provisions.
(C)
If
Employee is terminated as the result of a Change in Control and Employee is
not
employed in the same capacity or being paid the same salary by the new entity,
then Employee shall receive a severance payment of one hundred and eighty
thousand dollars ($180,000). In addition, if Employee is terminated as the
result of a Change in Control and Employee is not employed in the same capacity
by the new entity, Employer agrees to continue Employee’s medical and dental
insurance benefits as provided during Employee’s employment with Employer for a
period of two (2) years from the effective date of the Change in Control, except
as provided below in Section 5.3(C)(1) and Section 5.3(C)(2).
(1)
Employee
agrees that he shall accept any plan coverage changes that may occur during
the
two (2)-year period, which apply to all employees in the workforce.
(2)
Employee
agrees that he will notify Employer (or any successor of Employer) if he becomes
employed in any capacity with another employer and becomes eligible to receive
medical and dental insurance benefits through that employment prior to the
expiration date of the two (2) year period set forth in this section. At such
time, Employer shall no longer be obligated to provide Employee with medical
and
dental insurance benefits.
6.
Proprietary
Information; Confidentiality
.
6.1.
Confidential
Information
.
Employee agrees not to disclose to any others, or take or use for Employee's
own
purposes or purposes of any others, during the term of this Agreement, any
of
Employer's Confidential Information (as defined below). Employee agrees that
these restrictions shall also apply to (1) Confidential Information belonging
to
third parties in Employer's possession and (2) Confidential Information
conceived, originated, discovered or developed by Employee during the term
of
this Agreement. "Confidential Information" means any Employer proprietary
information, technical data, trade secrets or know-how, including, but not
limited to, research, product plans, products, services, customer lists and
customers, markets, software, developments, inventions, processes, formulas,
technology, designs, drawings, engineering, marketing, finances or other
business information disclosed to Employee by Employer, either directly or
indirectly, in writing, orally or by drawings, or by observation of products.
Confidential Information does not include any of the foregoing items that has
become publicly known and made generally available through no wrongful act
of
Employee. Employee further agrees not to use improperly or disclose or bring
onto the premises of Employer any trade secrets of another person or entity
during the term of this Agreement.
6.2.
Return
of Property
.
Employee agrees that upon termination of employment with Employer, Employee
will
deliver to Employer all devices, records, data, disks, computer files, notes,
reports, proposals, lists, correspondence, specifications, drawings, blueprints,
sketches, materials, equipment, other documents or property, or reproductions
of
any aforementioned items developed by Employee pursuant to employment with
Employer or otherwise belonging to Employer, its successors or
assigns.
6.3.
Notification
of New Employer
.
Employer shall have the right to notify any actual or potential future employer
of Employee of Employee's rights and obligations under this Section 6 of
the Agreement. Employee expressly authorizes such disclosure and waives any
claims Employee may have against Employer resulting from the disclosure of
Employee's obligations under this Section 6 to an actual or potential
future employer of Employee.
6.4.
Other
Agreements
.
Employee represents that the performance of all the terms of this Agreement
will
not breach any agreement to keep in confidence proprietary information acquired
by Employee in confidence or in trust prior to employment with Employer.
Employee has not and shall not enter into any oral or written agreement in
conflict with this Agreement.
6.5.
Equitable
Remedies
.
Employee agrees that it would be impossible or inadequate to measure and
calculate Employer's damages from any breach of the covenants set forth in
this
Section 7 of the Agreement. Accordingly, Employer shall have available, in
addition to any other right or remedy available under law or equity, the right
to obtain any injunction from a court of competent jurisdiction restraining
such
breach or threatened breach and to specific performance of any such provision
of
this Section 7. Employee further agrees that no bond or other security
shall be required in obtaining such equitable relief and consents to the
issuance of such injunction and to the ordering of specific
performance.
7.
Miscellaneous
.
7.1.
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (i) on the date of personal
service on the parties, (ii) on the third business day after mailing, if the
document is mailed by registered or certified mail, (iii) one day after being
sent by professional or overnight courier or messenger service guaranteeing
one-day delivery, with receipt confirmed by the courier, or (iv) on the date
of
transmission if sent by telegram, telex, telecopy or other means of electronic
transmission resulting in written copies, with receipt confirmed. Any such
notice shall be delivered or addressed to the parties at the addresses set
forth
below or at the most recent address specified by the addressee through written
notice under this provision. Failure to give notice in accordance with any
of
the foregoing methods shall not defeat the effectiveness of notice actually
received by the addressee.
7.2.
Enforcement.
In
the
event of any dispute concerning any aspect of the obligations of the Company
under this Agreement, the Company or its successor shall reimburse Employee
all
attorney fees and costs incurred by Employee in connection with adjudication
of
such matters.
7.3.
Choice
of Law, Jurisdiction, Venue
.
This
Agreement shall be interpreted in accordance with the laws of the State of
California. The exclusive jurisdiction and venue of any legal action by either
party under this Agreement shall be the Superior Court of California in and
for
the County of El Dorado..
7.4.
Amendment
.
The
provisions of this Agreement may be modified at any time by agreement of the
parties. Any such agreement hereafter made shall be ineffective to modify this
Agreement in any respect unless in writing and signed by the parties against
whom enforcement of the modification or discharge is sought.
7.5.
Waiver
.
Any of
the terms or conditions of this Agreement may be waived at any time by the
party
entitled to the benefit thereof, but no such waiver shall affect or impair
the
right of the waiving party to require observance, performance or satisfaction
either of that term or condition as it applies on a subsequent occasion or
of
any other term or condition.
7.6.
Assignment
.
The
parties agree that Employee's rights and obligations under this Agreement are
personal and not assignable. This Agreement contains the entire agreement
between the parties to it and shall be binding on and inure to the benefit
of
the heirs, personal representatives, successors and assigns of
Employer.
7.7.
Independent
Covenants
.
All
provisions herein concerning unfair competition and confidentiality shall be
deemed independent covenants and shall be enforceable without regard to any
breach by Employer unless such breach by Employer is willful and
reckless.
7.8.
Entire
Agreement
.
This
document constitutes the entire agreement between the parties, all oral
agreements being merged herein, and supersedes all prior representations and
written agreements. There are no representations, agreements, arrangements,
or
understandings, oral or written, between or among the parties relating to the
subject matter of this Agreement that are not fully expressed
herein.
7.9.
Severability
.
If any
provision of this Agreement is held by a court of competent jurisdiction to
be
invalid or unenforceable, the remainder of the Agreement which can be given
effect without the invalid provision shall continue in full force and effect
and
shall in no way be impaired or invalidated.
7.10.
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Agreement.
DATED:
March
30,
2004
THE
RICEX COMPANY
|
|
EMPLOYEE
|
|
|
|
|
|
|
|
|
By:
|
/s/
Daniel L. McPeak, Sr.
|
|
/s/
Ike E. Lynch
|
|
Daniel
L. McPeak, Sr.
|
|
Ike
E. Lynch
|
Its:
|
Chief
Executive Officer
|
|
|
Exhibit
10.12
FIRST
AMENDMENT TO EMPLOYMENT AGREEMENT
This
First Amendment to Employment Agreement (this “
First
Amendment
”)
is
executed as of October 4, 2005 by and among NUTRACEA, a California corporation
(“
Employer
”),
THE
RICEX COMPANY, a Delaware corporation (“
Company
”),
and
IKE E. LYNCH, an individual (“
Employee
”).
A.
WHEREAS
,
Company
and Employee are parties to that certain Employment Agreement dated as of May
1,
2004 (the “
Agreement
”).
B.
WHEREAS
,
Company
has entered into that certain Agreement and Plan of Merger and Reorganization,
dated April 4, 2005, with Employer and Red Acquisition Corporation (the
“
Merger
Agreement
”).
C.
WHEREAS
,
as a
condition to the consummation of the transactions contemplated by the Merger
Agreement (the “
Merger
”),
Company has agreed to amend the Agreement.
D.
WHEREAS
,
contemporaneous to the effective time of the Merger, which shall be such time
as
Company files a Certificate of Merger with the Secretary of State of the State
of Delaware (the “
Effective
Time
”),
Company desires to assign to Employer, and Employer desires to assume from
Company, the Agreement, as amended by this First Amendment.
E.
WHEREAS
,
as
consideration for (i) entering into this First Amendment and (ii) Employee’s
continued employment with Employer following the Merger, Company has agreed
to,
and Employer has consented to, the payment by Company of a bonus to Employee,
which bonus shall be earned and payable immediately following the approval
of
the Merger by the stockholders of Company.
F.
WHEREAS
,
Employer, Company and Employee desire to amend the Agreement as set forth in
this First Amendment.
G.
WHEREAS
,
Employer, Company and Employee desire that this First Amendment shall become
effective only as of the Effective Time.
NOW,
THEREFORE
,
in
consideration of the foregoing and 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 hereto agree as
follows:
AMENDMENT
1.
Amendment
.
The
following paragraphs are amended and restated or added, as applicable, as
follows:
a.
Section
2.,
Position;
Scope of Employment
,
is
amended by deleting the entire paragraph thereof and adding the following
paragraph:
“2.
Position;
Scope of Employment
.
Employee shall have the position of Chief Operating Officer for Employer and
for
the Company and its subsidiary, Food Extrusion Montana. Employee shall manage
the operations of Employer by directing and coordinating activities consistent
with established goals, objectives and policies. In performing the services
hereunder, Employee shall follow the direction set by the Chief Executive
Officer and Board of Directors of Employer, and shall implement such programs
as
he deems necessary to ensure attainment of Employer’s business plan for growth
and profit. Employee also shall provide direction and structure for all
operating units, shall participate in developing policy and strategic plans,
and
shall manage all activities associated with Employer’s production, engineering,
construction, quality assurance, logistics and research and
development.
b.
Section
2.1.,
Time
and Effort
,
is
amended by deleting the entire paragraph thereof and adding the following
paragraph:
“2.1.
Entire
Time and Effort
.
Employee shall devote Employee’s full working time, attention, abilities, skill,
labor and efforts to the performance of Employee’s employment. Employee shall
not directly or indirectly (i) be substantially engaged in or concerned with
any
other duties or pursuits, (ii) render services to any third party for
compensation or other benefit, or (iii) engage in any other business activity
that will in any way interfere with the performance of Employee’s duties under
this Agreement, except with the prior written consent of Employer; provided,
however, that Employee may engage in charitable, philanthropic, educational,
religious, civic and similar such activities to the extent that such activities
do not unreasonably interfere with the performance of Employee’s duties under
this Agreement.”
c.
Section
2.2,
Other
Employment
,
is
amended by deleting the entire paragraph thereof and adding the following
paragraph:
“2.2.
[Intentionally Omitted.]”
d.
Section
3.,
Term
of Employment
,
is
amended by deleting the entire paragraph thereof and adding the following
paragraph:
“3.
Term
of Employment
.
Employee’s term of employment pursuant to this Agreement shall commence on the
Effective Time and shall terminate three (3) years from that date, unless
terminated earlier as provided herein. At the end of the initial three (3)-year
term, this Agreement shall automatically renew for an additional one (1)-year
term unless either party notifies the other party in writing ninety (90) days
prior to the expiration of the term of his or its intention not to renew this
Agreement.”
e.
Section
4.,
Compensation
,
is
amended by deleting the entire paragraph thereof and adding the following
paragraph:
“4.
Compensation
.
Employer shall pay employee the base pay (“
Base
Salary
”)
of One
Hundred Fifty Thousand Dollars ($150,000) per year, which shall take effect
as
of the Effective Time. Salary payments will be payable in periodic installments
in accordance with Employer’s pay schedule, but not less than twice per month.
The Base Salary shall be reviewed at least annually, and shall be adjusted
to
compensate for cost of living adjustments in the Sacramento metropolitan
area.”
f.
Section
4.4,
Automobile
,
is
amended by adding the following sentence to the end of the existing
paragraph:
“Notwithstanding
the foregoing, Employer shall not be obligated to make any down payments for
the
purchase of any automobile by or on behalf of Employee.”
g.
Section
4.8,
Accrued
Vacation Pay
,
is
hereby added to the Agreement by adding the following paragraph:
“4.8.
Accrued
Vacation Pay
.
Immediately prior to the Effective Time, Company shall pay to Employee all
vacation pay due to Employee that has been accrued but unpaid up to and through
the Effective Time.”
h.
Section
4.9,
Closing
Bonus
,
is
hereby added to the Agreement by adding the following paragraph:
“4.9.
Closing
Bonus
.
Immediately following the approval of the merger effected pursuant to that
certain Agreement and Plan of Merger and Reorganization, dated as of April
4,
2005, by and between Employer, Red Acquisition Corporation, the wholly-owned
subsidiary of Employer and Company by the stockholders of Company, Company
shall
pay to Employee a bonus of $50,000, net of any federal, state or local
withholding or other taxes or charges.”
i.
Section
5.3(B) is amended by deleting the entire paragraph thereof and adding the
following paragraph:
“(B)
If
Employee is terminated by Employer without cause, Employer shall pay to Employee
as liquidated damages, and in lieu of any and all other claims that Employee
may
have against Employer, an amount equal to the greater of (i) the monthly Base
Salary multiplied by the number of months remaining on the term of this
Agreement, and (ii) one (1) year of Base Salary, but in no event shall severance
pay exceed three (3) years of Base Salary, regardless of the
term.”
j.
Section
5.3(C) is amended by deleting the entire paragraph thereof and adding the
following paragraph:
“(C)
If
Employee is terminated as the result of a Change in Control (as defined below)
and Employee is not employed in the same capacity or being paid the same salary
by the new entity as Employee was employed with, or paid by, Employer, then
Employee shall receive a severance payment of one hundred eighty thousand
dollars ($180,000). In addition, if Employee is terminated as the result of
a
Change in Control and Employee is not employed in the same capacity by the
new
entity, Employer agrees to continue Employee’s medical and dental insurance
benefits as provided during Employee’s employment with Employer for a period of
two (2) years from the effective date of the Change in Control, except as
provided below in Section 5.3(C)(1) and Section 5.3(C)(2). For the purposes
of
this Agreement, a “Change in Control” means:
(1)
a
merger
or acquisition in which Employer is not the surviving entity, except for (a)
a
transaction the principal purpose of which is to change the state of Employer’s
incorporation, or (b) a transaction in which Employer’s stockholders immediately
prior to such transaction hold, immediately after such transaction, at least
50%
of the voting power of the surviving entity;
(2)
a
stockholder approved sale, transfer or other disposition of all or substantially
all of the assets of Employer;
(3)
a
transfer of all or substantially all of Employer’s assets pursuant to a
partnership or joint venture agreement or similar arrangement where Employer’s
resulting interest is less than fifty percent (50%);
(4)
any
reverse merger in which Employer is the surviving entity but in which fifty
percent (50%) or more of Employer’s outstanding voting stock is transferred to
holders different from those who held the stock immediately prior to such
merger;
(5)
on
or
after the date hereof, a change in ownership of Employer through an action
or
series of transactions, such that any person is or becomes the beneficial owner,
directly or indirectly, of securities of Employer representing fifty percent
(50%) or more of the voting power of Employer’s outstanding securities;
or
(6)
a
majority of the members of the Board of Directors are replaced during any twelve
(12) month period by directors whose appointment or election is not endorsed
by
a majority of the members of the Board of the Directors prior to the date of
such appointment of election.
Notwithstanding
the foregoing, the transactions effected pursuant to, or required by, that
certain Agreement and Plan of Merger and Reorganization, dated as of April
4,
2005, by and between Employer, Red Acquisition Corporation, the wholly-owned
subsidiary of Employer and Company, shall not constitute a Change in
Control.”
k.
Section
6.1.,
Confidential
Information
,
is
amended by deleting the first sentence and replacing it with the following
sentence:
“Employee
agrees not to disclose to any others, or take or use for Employee’s own purposes
or purposes of any others, during the term of this Agreement or at any time
thereafter, any of Employer’s Confidential Information (as defined
below).”
l.
All
restrictions placed upon Employee in Section 6.,
Proprietary
Information; Confidentiality
,
of the
Agreement with respect to “Confidential Information” shall be deemed to apply to
Confidential Information of the Employer and Employer’s direct or indirect
subsidiaries.
2.
Affirmation
.
In order
to induce each other to enter into this First Amendment, the parties hereby
confirm that all terms and provisions of the Agreement have been and continue
to
be in all respects in full force and effect, and no violation of the terms
and
conditions of the Agreement has occurred.
3.
Effective
Date; Assignment and Assumption
.
This
First Amendment shall become effective only upon the Effective Time. Effective
immediately from and after the Effective Time, (i) all of Company’s right, title
and interest in and to the Agreement, as amended by this First Amendment, shall
be deemed to have been assigned, granted, bargained, transferred, conveyed,
set
over and delivered unto Employer, and (ii) Employer shall be deemed to have
assumed the Agreement, as amended by this First Amendment, and shall faithfully
and timely discharge and perform each and every obligation of Company arising
under the Agreement, as amended by this First Amendment.
4.
Modification;
Interpretation
.
Except
as expressly set forth in this First Amendment, this First Amendment shall
not
alter, amend, or otherwise modify the terms and provisions of the Agreement.
From and after the Effective Time, all references in the Agreement to “the
Agreement,” “this Agreement” or any similar reference shall refer to the
Agreement as amended by this First Amendment. From and after the Effective
Time,
all references in the Agreement to “Employer,” or any similar reference shall
refer to NutraCea, a California corporation. Capitalized terms not otherwise
defined herein shall have the respective meanings ascribed to them in the
Agreement or the Merger Agreement.
5.
Approval
by Company’s Board of Directors
.
Company
hereby represents that its Board of Directors has duly approved the terms of
this First Amendment.
[
The
Remainder of this Page is Intentionally Left Blank -- Signature Page
Follows
]
IN
WITNESS WHEREOF, the parties have executed this First Amendment as of the date
first set forth above.
NUTRACEA
|
|
|
|
|
|
|
|
|
By:
|
/s/
Brad Edson
|
|
|
|
Name:
|
Brad
Edson
|
|
|
|
Title:
|
President
|
|
/s/Ike
E. Lynch
|
|
|
|
|
IKE
E. LYNCH
|
|
|
|
|
|
|
THE
RICEX COMPANY
|
|
|
|
|
|
|
|
|
By:
|
/s/
Todd Crow
|
|
|
|
Name:
|
Todd
Crow
|
|
|
|
Title:
|
CFO
|
|
|
|
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
Exhibit
10.18
PRODUCTION
FACILITY
DEVELOPMENT
AND RICE BRAN
SUPPLY
AND PURCHASE AGREEMENT
This
Production Facility Development and Rice Bran Supply Agreement ("
Agreement
")
is
entered into effective as of September 13, 2005 (“
Effective
Date
”)
by and
between NutraCea, a California corporation with a principal mailing address
at
1261 Hawk’s Flight Court, El Dorado Hills, California 95762 ("
NutraCea
"),
Food
Trading Company Dominicana, S.A., a Dominican corporation with principal mailing
address at Calle Manuel de Jesus Troncoso No. 18, Ensanche Paraiso, Santo
Domingo, Dominican Republic (“
FTCD
”).
The
parties, as of the Effective Date, agree as follows:
1.
|
Background
and Purpose
.
|
1.1.
NutraCea
.
NutraCea is a nutritional foods company that develops proprietary and patented
nutraceutical products for human and animal consumption. NutraCea recently
entered into an agreement to combine with The RiceX Corporation (“
RiceX
”).
The
combined companies posses proprietary technology to stabilize rice bran and
an
additional process that converts and enhances stabilized rice bran into
proprietary value-added products. This proprietary technology and other
proprietary processes owned by NutraCea and RiceX allow for Stabilized Rice
Bran
(as defined in Section 2.1) to be processed into fiber and predigested fiber
(“
Solubles
”).
1.2.
Food
Trading Company Dominicana
.
FTCD
owns and operates a substantial rice milling operation located in the Dominican
Republic currently producing approximately 20,000 metric tons of rice annually
(“
FTCD
Mill
”).
FTCD
is in the process of acquiring another substantial rice mill that operates
in
the Dominican Republic. Upon completion of the acquisition FTCD has represented
to NutraCea that FTCD will have combined milling facilities processing
approximately twenty percent (20%) of the country’s production, equating to
approximately 50,000-60,000 metric tons per year. FTCD currently purchases
20,000 metric tons of rice from the United States. FTCD has existing retail
distribution through various retail outlets in the marketplace and a history
of
successfully producing and distributing rice-based products in the Dominican
Republic.
1.3.
The
Company
.
In
order to conduct their joint business operations hereunder, the parties have
agreed to form one or more entities in accordance with requirements of Section
3. The type of entity or entities to be formed will be mutually determined
by
the parties in a manner reasonably anticipated to minimize the tax liabilities
of the parties and to allow for effective business operations in the Dominican
Republic and Haiti as contemplated hereunder. The entity or entities will be
owned fifty percent (50%) by NutraCea and fifty percent (50%) by FTCD, as
specified in Section 3, and are collectively referred to herein as the
“
Company
”).
1.4.
Production
Facility
.
Both
NutraCea and FTCD has agreed that NutraCea will either install stabilization
equipment at the FTCD Mill and construct one or more proprietary two stage
stabilization, conversion and enhancement facilities within the Dominican
Republic, or construct an additional production facility or improve an existing
production facility in the United States of America sufficient to fulfill its
Solubles supply obligations hereunder (“
Production
Facility
”).
If
the Production Facility is constructed in the Dominican Republic and
stabilization equipment is placed at the FTCD Mill, FTCD will supply all of
the
required raw rice bran requested by NutraCea for the purpose of stabilization
of
the rice bran, all on the terms and conditions set forth herein. The parties
intend that the Stabilized Rice Bran, Solubles and all value-added products
produced hereunder (“
Products
”)
will
be sold and commercialized by the Company, through retail outlets and
distributed through government sponsored feeding programs within the Dominican
Republic and Haiti (“
Business
”).
Initially, the Products will comprise individual servings of 15 grams of
NutraCea’s Solubles mixture, with such added vitamins as the parties may
mutually agree upon, mixed with water and packaged for individual consumption
(“Servings”). The parties may add additional products in the future by mutual
agreement and shall specify any such additional Products by executing a written
amendment to this Agreement.
2.
|
Stabilization
Equipment and Production Facility
.
|
2.1.
Installation
of Stabilization Equipment
.
Unless
either
party, at its option and as provided in Section 2.6 below, elects to proceed
with the Alternate Production Arrangement (as defined in Section 2.6) and for
NutraCea to create sufficient production facilities in the United States of
America to fulfill its supply obligations hereunder, NutraCea will, at its
own
expense, provide and install in the FTCD Mill all components and hardware
(“
Equipment
”)
necessary for and required in connection with stabilizing, cooling, handling,
grinding, sifting and packaging of full fat stabilized rice bran and/or enhanced
full fat stabilized rice bran (“
Stabilized
Rice Bran
”)
in a
capacity to produce at least 5,000 metric tons of Stabilized Rice Bran per
year.
NutraCea agrees that the proper design of the Equipment requires that certain
devices and systems, such as metal detectors, magnets and sifters are an
integral and necessary part of the process to ensure, among other things, the
purity and wholesomeness of the product, and NutraCea agrees to incorporate
such
components into the design of the Equipment. The parties acknowledge that
NutraCea will retain all rights title and interest in the Equipment installed
at
the FTCD Mill and that FTCD will have no right, title or interest in or to
the
Equipment.
The
parties acknowledge that FTCD will retain all rights, title and interest in
the
Land (as defined in Section 2.2 below) subject only to the lease that may be
granted under Section 2.2. Upon any termination of any lease granted under
Section 2.2, FTCD will own all rights, title and interest in the
Land.
2.1.1.
FTCD
Mill
.
Unless
either party elects to proceed with the Alternate Production Arrangement
pursuant to Section 2.6,
FTCD
will
provide physically segregated facilities for the Equipment at the FTCD Mill
of
at least 5,000 square feet, and NutraCea agrees that the space occupied by
the
Equipment and warehouse will not exceed 5,000 square feet. FTCD will take all
action necessary to make certain that the Equipment has reasonable access to
sufficient electricity (including a central distribution panel near the
Equipment), water, sewer and other utilities to operate and maintain the
Equipment, and the Equipment will be located conveniently near existing rice
bran storage and processing areas. FTCD agrees that and will ensure that
NutraCea and Company employees and agents will have unrestricted access to
the
Equipment during all business hours and the Equipment will not be accessible
by
any other persons without the express prior consent of NutraCea.
2.1.2.
FTCD
Assistance and Support
.
In
connection with the installation of the Equipment, if applicable, FTCD, at
no
cost to NutraCea, will provide NutraCea with such reasonable engineering, labor
and professional assistance in selecting and purchasing components for the
Equipment and contractors to install the Equipment, as well as planning and
supervising the installation and moving of the Equipment within the Dominican
Republic, as NutraCea reasonably requests. FTCD will provide to NutraCea, at
no
cost to NutraCea, training and technical support (including, without limitation,
reasonable on-site consultation) to enable NutraCea and Company to start and
tune, and thereafter to efficiently and safely clean, maintain and operate
the
Equipment. NutraCea or its agents or the Company will from time to time make
reasonable modifications and/or improvements to the Equipment in order to
improve the efficiency or cost-effectiveness of cleaning, sanitizing, operating,
maintaining or repairing the Equipment. The Company will pay all approved fees,
costs and expenses (including, without limitation all material, labor,
transportation and professional fees, costs and expenses) incurred in connection
with any such modifications and/or improvements unless otherwise agreed in
writing by the parties.
2.2.
Production
Facility
.
NutraCea
and
FTCD
agree to
construct or improve a Production Facility for processing the Stabilized Rice
Bran into bulk Stabilized Rice Bran Solubles dry mixture, which the Company
will
combine with water and package into the Solubles Servings, and into such other
Products as the parties may hereafter mutually agree upon, from time to time.
Unless the Production Facility is constructed or improved under the Alternate
Production Arrangement, the facility shall be constructed to comply with the
requirements and specifications agreed upon by the parties and which, once
agreed upon, shall be attached as Exhibit A hereto (“
Specifications
”).
If
NutraCea and FTCD decide to proceed with the construction of the Dominican
Republic Production Facility, FTCD shall grant to NutraCea a ground lease for
one United States dollar ($1.00 U.S.D.) per year for land of location and
quality reasonably acceptable to NutraCea and in conformity with the development
criteria established by NutraCea pursuant hereto (“
Land
”),
on
which the initial Production Facility shall be constructed. The ground lease
shall be a ten year lease with two ten year extensions, exercisable at the
election of NutraCea and FTCD, and shall be in the form and of content
reasonably acceptable to the parties. FTCD shall take all action and make all
arrangements necessary or useful such that the Land has all governmental
approvals, zoning, and entitlements necessary or appropriate for construction
of
the Production Facility and its operation as contemplated hereunder. In the
alternative, NutraCea and FTCD may mutually agree to assign the Lease to the
Company; with a contribution value of one United States dollar ($1.00 U.S.D.)
and FTCD will have the right to terminate the Lease on any dissolution of the
Company.
2.2.1.
Construction
.
NutraCea will engage an architect to prepare plans and design concepts for
the
Production Facility building in the Dominican Republic (unless the parties
do
not proceed with a facility in the Dominican Republic). At such time as the
parties decide to proceed with a Production Facility in the Dominican Republic,
NutraCea agrees to commence preparation of plans and specifications for the
Production Facility (“
Production
Facility Plans
”)
within
forty-five days after the date of entering into the Lease for the Land and
to
complete such plans and specifications and provide a copy thereof to FTCD for
submission to the appropriate governmental agencies for approval, within ninety
days after such commencement. FTCD shall diligently pursue issuance of all
necessary building permits and governmental approvals. Construction shall
commence following delivery to NutraCea by FTCD of possession of
the
leasehold rights in the Land accepted
by
NutraCea pursuant to the Lease with all necessary governmental approvals,
zoning, and entitlements for the Land and Production facility plans and pursuant
to such development criteria that NutraCea or the Company will provide to FTCD,
including without limitation, utilities, access and other requirements. NutraCea
agrees to accept the Land, subject to NutraCea’s verification, to its reasonable
satisfaction, that the Land complies with NutraCea’s development criteria,
satisfaction of the other requirements set forth in Section 2.1 and compliance
with all governmental requirements therefor and in accordance with all
requirements set forth in the Lease.
Within
thirty days after FTCD provides the Land, then in accordance with the Production
Facility Plans and applicable governmental permits and approvals, NutraCea
will
sublease the Lease to the Company, and agrees to commence construction of the
Production Facility (subject to the right to revise the plans) and to complete
the construction of the Production Facility within twenty-four months of
commencement of the construction. Any prevention, delay or stoppage due to
strikes, lockouts, labor disputes, acts of God, inability to obtain labor or
materials or reasonable substitutes therefore, governmental restrictions,
governmental regulations, governmental controls, enemy or hostile governmental
action, civil commotion, fire or reasonable casualty, and other causes beyond
the reasonable control of NutraCea and shall exclude the performance by NutraCea
for a period equal to any such prevention, delay or stoppage.
If
at any
time during the term of this Agreement FTCD is not able to timely provide the
Land for, or bring the utilities to, or obtain all necessary governmental
permits and approvals for the Production Facility, or timely complete any
necessary Off-Site Improvements (as defined below), then at the election of
either NutraCea or FTCD, the parties shall proceed with the Alternate Production
Arrangement or terminate this Agreement and the Lease and FTCD shall repay
NutraCea for all amounts expended by NutraCea to so complete such work, plus
interest (at a rate equal to the Bank of America’s reference rate, plus six
percent, but not to exceed the maximum legal rate and NutraCea may deduct such
amounts (as well as the amount of any other damages suffered by NutraCea) from
any payments due to FTCD under this Agreement, until such amounts, plus
interest, are fully reimbursed to NutraCea.
2.2.2.
Offsite
Improvements
.
Any
improvements to any adjacent property to the Leased property are required in
connection with the construction of the Production Facility are referred to
herein as "
Off-Site
Improvements
."
No
later than thirty days after entering into the Lease for the Land, FTCD shall
provide specifications for construction and installation of all Off-Site
Improvements, including, by way of example rather than limitation, widening
of
streets, sewer lines (including trunk sewers), gutters, curbs, storm drains,
wells, and installation of necessary utilities to the Production Facility,
and
all other Off-Site Improvements required for compliance with applicable
governmental requirements. All Off-Site Improvement plans shall be subject
to
the prior written approval of both FTCD and NutraCea, which approvals shall
not
be unreasonably withheld.
2.2.3.
Construction
Contracts
.
FTCD
shall engage, and supervise the performance of, one or more contractor for
the
purpose of constructing any Off-Site Improvements, so that all such improvements
shall be substantially completed as necessary for the operation of the
Production Facility. FTCD shall pay the development costs incurred in the
construction of the Off-Site Improvements, which shall include all charges
related to the Off-Site Improvements.
2.3.
Cost
Limitation
.
If the
costs of construction of the Production Facility, including HVAC, exceed fifty
United States dollars ($50 U.S.D.) per square foot (“
Upset
Cost
”),
then
NutraCea or FTCD may elect to proceed with the Alternate Production Arrangement
and to terminate the Lease. Any such election to terminate the Lease and proceed
with the Altermate Production Arrangement as a result of an Upset Cost shall
be
null and void; however, if FTCD or NUtraCea agrees to pay the Upset Cost.
NutraCea shall have the right to elect to initially construct a building of
smaller square footage in connection with redesigning the building in order
to
attempt to reduce the cost of construction below the Upset Cost, provided
however, that such building shall be reasonably sufficient for the intended
operations as set forth in this agreement the production requirements
hereunder.
2.4.
Operation,
Maintenance and Repair
.
The
Company will have responsibility for providing personnel to properly clean,
operate and maintain the Equipment (if NutraCea elects to proceed with the
construction of a Dominican Republic Production Facility) during the term of
this Agreement; provided, however, that NutraCea will be responsible for
promptly providing replacement parts normally used during normal operations
for
the Equipment. Any parts destroyed or rendered unusable by the Company’s
personnel will be replaced at the expense of the Company.
The
Company, with assistance from FTCD, will ensure that the maintenance, cleaning
and operation of the Equipment complies with all applicable health, safety,
labor, building and other codes and regulations and that the Equipment is kept
in a sanitary and food grade quality condition. If either party elects to
proceed with the Alternate Production Arrangement, the Company will be
responsible to operate, maintain and repair the facilities necessary to convert
the bulk Solubles mixture into Product Servings, including the addition of
water
and packaging of individual Servings.
2.5.
Approval
and Consents
.
Unless
otherwise specifically provided for herein, if any party is requested to give
its approval or consent to any matter, it shall not unreasonably withhold such
consent and it shall respond in writing within ten days after receipt of written
request therefor from the other party, provided such request includes all
information necessary to make a determination regarding such approval or
consent.
2.6.
Alternate
Production Arrangement
.
Notwithstanding any contrary provisions in the Section 2 or in any other
provisions of this Agreement, either party has the right to require the
production of the Solubles Mixture to occur in the United States and not to
construct or to delay the construction of a Production Facility in the Dominican
Republic. Both NutraCea and FTCD must agree to construct the Production Facility
in the Dominican Republic. In such event NutraCea will
create
sufficient production facilities in the United States of America to fulfill
its
supply requirements to provide
the
bulk
Product Solubles mixture to be added with water and packaged into the Product
Servings by the Company, as necessary
to
satisfy its obligations
under
this Agreement, and all other terms and conditions under this Agreement will
remain in effect for both parties (the “
Alternate
Production Arrangement
”).
Under
the Alternate Production Arrangement, NutraCea will ship bulk Solubles mixture
to the Company, and the Company will produce the individual Servings. FTCD
will
take all action necessary to comply with applicable law in the production of
the
Servings from the Solubles mixture. The Company will pay for all costs of
shipping the Solubles mixture to the Dominican Republic. If either party elects
this Alternate Production Arrangement, then the provisions of Sections 2.1
through 2.4 that are only applicable for the Dominican Republic Production
Facility shall not apply. NutraCea will complete the improvements and
construction necessary for the Alternate Production Arrangement Production
Facility within twenty-four months of the date of this Agreement. Any
prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts
of
God, inability to obtain labor or materials or reasonable substitutes therefore,
governmental restrictions, governmental regulations, governmental controls,
enemy or hostile governmental action, civil commotion, fire or reasonable
casualty, and other causes beyond the reasonable control of NutraCea and shall
exclude the performance by NutraCea for a period equal to any such prevention,
delay or stoppage.
3.
|
Company
Formation and Purpose
.
|
3.1.
Company
Formation and Purpose
.
By no
later than 14 days following the Effective Date, NutraCea and FTCD agree to
form
the Company as one or more entities, owned equally by each of the parties.
The
type of entity or entities will be mutually determined by the parties in a
manner reasonably anticipated to minimize the tax liabilities of the parties
and
to allow for effective business operations in the Dominican Republic and Haiti
as contemplated hereunder. The Company will be owned initially by NutraCea
and
FTCD. The Company will have (a) as its registered name “Food for Life, LLC”, (b)
as its purpose the distribution and marketing of the Products in the Dominican
Republic and Haiti; (c) charter documents and one or more shareholder or
operating agreements of form and content reasonably approved by the parties,
in
good faith, within 14 days after the Effective Date (“
Charter
Agreements
”);
and
(d) the authority, in addition to such other authority granted in the Charter
Agreements, to cause to be filed under the laws of any jurisdiction in which
the
Company intends to conduct its business any documents necessary for the Company
to form any subsidiaries necessary in order to transact its business in such
jurisdiction. The parties will share equally in the management and profits
of
the Company, except as to those items designated below. Any disbursement of
funds or expenditures from the Company will require written approval of at
least
one authorized representative from each of NutraCea and FTCD. The Company may
not operate or sell or distribute any Products outside of the Dominican Republic
or Haiti without the express pior written approval of NutraCea. NutraCea shall
appoint the chief financial officer of the Company, shall select the accountants
to be retained by the Company, and shall control its accounting and reporting
issues. The parties acknowledge that NutraCea is a public company under laws
of
the United States, and agree that the Company will take the appropriate actions
necessary to comply with any United States reporting obligations of NutraCea.
NutraCea shall have no obligation to contribute any NutraCea intellectual
property to the Company and neither the Company nor FTCD will obtain any rights
or interest in any intellectual property, trademarks, trade names, patents,
or
trade secrets of NutraCea as a result of the transactions contemplated in this
Agreement unless expressly agreed to in advance and in writing by NutraCea.
3.2.
Costs
and Expenses
.
All
costs and expenses (including without limitation legal, accounting fees and
expenses), and all sales, use, transfer, excise, conveyance, business,
occupation, franchise and other taxes, duties, assessments, charges and fees
(other than taxes on or measured by the individual net income of a party)
imposed on the Company or a party by a taxing authority related to the formation
of the Company shall be borne by the Company, provided however, that each party
shall bear all taxes on or measured by its net income and all legal fees and
expenses incurred by it in connection with the preparation of this Agreement
and
related agreements.
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
3.3.
Principal
Address
.
The
Company’s principal offices and place of business shall be at such location as
is designated by both parties, with the reasonable approval of FTCD. The
principal place of business may be changed from time to time with the written
consent of NutraCea and FTCD.
4.
|
Initial
Contributions to the Company
.
|
4.1.
NutraCea
Contributions
.
Unless
either party elects to proceed with the Alternate Production Arrangement,
NutraCea’s initial contribution to the Company shall be securing funding for the
construction of the Production Facility, subject to the contributions of FTCD
being met by the dates set forth herein and the construction and completion
of
the Production Facility as required herein. If either party elects to proceed
with the Alternate Production Arrangement, NutraCea will agree to provide to
the
Company the Solubles mixture, including solubles, and Stabilized Rice Bran
to be
packaged by the Company into the Products, as required pursuant to Section
6.
The first distribution of funds from the Company will be to repay any equity
contributions made by either party, para-parsu. Any advances made by either
party to or on behalf the Company must be approved by both parties and will
be
repaid before any distributions of funds from the Company.
4.2.
FTCD
Contributions
.
FTCD’s
initial contribution to the Company shall be:
(a)
The
Lease
for the Land to construct the Production Facility, if applicable.
(b)
One
or
more signed purchase agreements for sales to governmental and/or private
organizations within the Dominican Republic or Haiti for the purchase of the
Products packaged by the Company for a period of at least one year after the
Effective Date of this Agreement in the amounts specified in Section 4.2 (c).
FTCD will secure the purchase agreements no later than November 30, 2005 and
represents and warrants to NutraCea, as a material term to the Agreement, that
FTCD is able to obtain such purchase agreements.
(c)
during
the initial two year period(years one and two) from the Effective Date, FTCD
shall secure signed purchase agreements in the aggregate annual amount of at
least
[*]
for
Products Servings in the Dominican Republic, representing approximately 200,000
Servings per day, based on a price of approximately
[*]
per
serving, but in no case less than
[*]
per
serving. All such dollar amounts will be determined based upon the currency
exchange rate for Dominican Republic pesos into United States dollars in effect
as of the Effective Date and will be subject to currency exchange fluctuations
occurring thereafter. FTCD will secure the initial written purchase orders
no
later than 45 days from the Effective Date. Until and unless the Production
Facility in the Dominican Republic is completed and operational, the bulk
Solubles Product mixture requirements under this Agreement shall be met by
NutraCea’s United States facilities (this will occur during the entire term that
either party elects to proceed with the Alternate Production Arrangement) and
package the bulk Solubles in accordance with the terms of this Agreement.
[*]
designates
portions of this document that have been omitted pursuant to
a
request
for
confidential treatment filed seperately with the
Commission
|
(d)
during
the next two year period (years three and four), the purchase agreements in
the
aggregate will increase to at least
[*]
per
month for Product, representing at least 800,000 Servings per day for
approximately seventeen days per month (based on a price of approximately
[*]
per
Serving, but in no event less than
[*]
per
Serving).
4.4.
License
Grant to Company
.
Upon
the formation of the Company, NutraCea shall grant to the Company an exclusive
license, solely in and as to the Dominican Republic and Haiti, to manufacture,
if applicable, and/or package and distribute the Products. The Company shall
have the right to sublicense certain of the rights granted hereunder to FTCD,
as
necessary to allow FTCD solely to assist the Company in the performance of
its
duties hereunder. The parties intend to create one or more private label brand
names for the Products, which shall be owned by the Company. With the exception
of these private label trade names all rights not specifically granted hereunder
shall remain the property of NutraCea, and neither the Company nor FTCD shall
have a license therein except as specifically granted herein.
5.
|
Regulatory
Approvals
.
|
5.1.
Regulatory
Compliance
.
FTCD
shall obtain all appropriate governmental and legal permits and consents
required for: (i) the importation by NutraCea of Solubles, and Stabilized Rice
Bran and the processing of the Solubles and Stabilized Rice Bran into Products
by the Company during the period prior to the completion of the Production
Facility, or the entire term if NutraCea or FTCD elects to proceed with the
Alternate Production Arrangement; (ii) the construction of the Production
Facility, if applicable; (iii) the initiation and ongoing operation of the
Production Facility, if applicable and (iv) all other activities contemplated
by
the business of the Company. FTCD is required to obtain government wavers of
import duties, taxes and fees associated with any product or equipment imported
to the Dominican Republic.
5.2.
Assistance
with Compliance
.
NutraCea shall provide FTCD with samples of the Products and Product
descriptions required for the registration process. NutraCea shall provide
FTCD
with all reasonable assistance in obtaining the required permits and consents.
6.1.
Sale
and Delivery of Materials
.
Unless
NutraCea or FTCD elects to proceed with the Alternate Production Arrangement,
subject to the terms and conditions hereof, FTCD hereby agrees to
sell
to
the Company, and the Company shall have the option to purchase from FTCD,
quantities of raw rice bran that FTCD is reasonably able to deliver and required
to fill orders by the Company to FTCD for Product. FTCD shall establish a credit
limit for the Company’s purchases comparable to the limit established by FTCD
for customers of similar creditworthiness. The purchase price of all raw rice
bran so purchased by the Company, at the Company’s option, shall be established
by the parties, in advance, on an annualized basis, but in no event shall it
exceed the market price per quantity and term ordered for such material in
the
Dominican Republic. This pricing shall apply to all orders processed by FTCD
during each calendar year. The weight of raw bran sold to the Company will
be
computed based upon the actual weight of accepted finished bran. Prior to the
completion of a Production Facility in the Dominican Republic, and during the
entire term that either party elects to proceed with the Alternate Production
Arrangement, and subject to the terms and conditions hereof, NutraCea hereby
agrees to
sell
to
the Company, and the Company agrees to purchase from NutraCea the Company’s
requirements for
Stabilized
Rice Bran Isolates, including Solubles, and Stabilized Rice Bran to be processed
into Products by the Company for resale as permitted herein and as
required
to fill orders for Product sales, which will only be permitted in the Dominican
Republic and Haiti. The purchase price of all such materials purchased by the
Company shall be the total cost to manufacture, assemble, and prepare such
materials, including all direct and actual costs and overhead costs, with
overhead costs not to exceed
[*]
of the
raw ingredient costs.
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
(a)
Taxes
.
The
prices for the materials shall include any excise, sales, use, value added
or
other taxes, tariffs or duties that may be applicable to the sale of the
materials.
(b)
No
Withholding
.
Except
for the withholding of taxes required by the applicable laws of the Dominican
Republic, all payments by the Company shall be made free and clear of, and
without reduction for, any withholding taxes. Any such taxes which are otherwise
imposed on payments to FTCD and/or NutraCea shall be the responsibility of
FTCD
and NutraCea, as applicable. The Company shall provide FTCD and NutraCea with
official receipts issued by the appropriate taxing authority or such other
evidence as is reasonably requested by FTCD or NutraCea, as applicable, to
evidence all withheld taxes paid over to the government.
(c)
Transportation
.
Transportation costs are the responsibility of the Company. All shipments will
be freight collect unless other arrangements have been previously agreed upon.
Responsibility for specifying the method of shipment rests with the Company
at
the time an order is placed. If the Company does not specify a method, FTCD
or
NutraCea, as applicable, will select an appropriate carrier, subject to the
approval of NutraCea.
7.
Operation
of Business after Completion of Production Facility
.
Upon
completion of the Production Facility, the Company shall retain a sufficient
number of employees to operate the Production Facility, if applicable, pursuant
to the license granted to the Company by NutraCea, and to mix, package,
distribute and market the Products in the Dominican Republic and Haiti.
8.
Conditions
to Obligations of Parties
.
In
addition to the following requirements, this Agreement is expressly conditioned
on the prior approval of the Board of Directors of NutraCea, FTCD and The RiceX
Company, as required pursuant to the pending combination of NutraCea and The
RiceX Company. The following conditions must be satisfied or waived by NutraCea
(in its sole discretion) as conditions to the obligations of NutraCea under
this
Agreement:
|
8.1.
|
Conditions
to the Obligations of NutraCea
.
|
(a)
FTCD
shall have obtained executed, binding Product purchase agreements as required
pursuant to Section 4.2 (b) and (c) above; and
(b)
FTCD
shall have obtained all necessary or appropriate regulatory approval required
pursuant to Section 5.1 above.
9.
Competition
.
During
the term of this Agreement, the parties agree that neither party may engage
in
other enterprises that compete with the business of the Company and/or compete
with the current businesses conducted by each other, in the Dominican Republic
or Haiti.
10.1.
Term
.
The
term of this Agreement shall be ten years from the Effective Date (“
Term
”),
unless earlier terminated pursuant to the terms of this Agreement.
10.2.
Termination
.
This
Agreement may be terminated prior to expiration thereof without liability of
the
terminating party:
(i)
By
either
Party, at any time after the failure of the other party to make any payment
due
under this Agreement within ten days after notice that such payment is due,
subject, however, to the force majeure provisions of Section 19, if applicable;
and
(ii)
By
either
party, at any time after the ninetieth day after written notice to the other
party of the breach by the other party of any provision contained in this
Agreement, specifying the nature and extent of the breach, if within such thirty
day period the specified breach has not been cured to the reasonable
satisfaction of the aggrieved party.
|
11.3.
|
Effect
of Expiration or Termination
.
|
(a)
General
.
The
expiration
or termination of this Agreement shall discharge each party from the further
performance of its respective obligations hereunder, but shall not release
either party from liability arising before or as a result.
(b)
Confidential
Information
.
In
addition to the foregoing, upon expiration or termination of this Agreement
for
any reason, each party will return to the other, and/or will provide evidence
satisfactory to the other party of the destruction of' all information or
records provided to such party and all copies, extracts, summaries and abstracts
thereof, and thereafter will not use or disclose any such information or records
for its own benefit or to the detriment of the other party.
(c)
Removal
of Equipment
.
Upon
termination or expiration of this Agreement, NutraCea may, at its own expense,
promptly remove the Equipment from the FTCD Mill, if applicable, without causing
any damage to the FTCD Mill. All designs, blueprints, and components relating
to
the Equipment remain the sole property of NutraCea.
(d)
Survival
of Covenants
.
The
obligations of the parties under this Section 11 and Sections 12 and 13 shall
survive any expiration or termination of the Agreement.
12.
|
Allocation
of Liability; Indemnification; Insurance
.
|
12.1.
Allocation
of Liability
.
NutraCea shall bear sole responsibility for the payment, defense of and
resolution of all claims, demands or causes of action (“
Claims
”)
brought by any third party relating to or arising during or as a result of
the
design, installation or removal of the Equipment, if the parties proceed with
Dominican Republic Production Facility hereunder. FTCD shall bear sole
responsibility for the payment, defense of and resolution of all Claims brought
by any third party to the extent proximately resulting from the negligent
operation, maintenance or repair of the Equipment by FTCD employees or
contractors.
12.2.
Indemnification
.
Each
party hereby agrees to indemnify, defend and hold the other party and the
other's directors, officers, shareholders, members, employees and agents
harmless from and against (i) any and all Claims for which the indemnifying
party bears sole responsibility under Section 12.1, (ii) any breach by the
indemnifying party of its warranties or obligations hereunder, or (ii) any
and
all Claims made by any customer of the indemnifying party, whether for breach
of
any sales transaction or otherwise (but excluding any Claims resulting from
a
breach by the other party of any matter covered by Section 12.1
above).
12.3.
Insurance
.
The
parties will cause the Company to carry at all times during the term of this
Agreement (i) general liability insurance sufficient in scope of coverage to
cover its respective liabilities under this Section 13 in the amount of at
least
one million United States dollars ($1,000,000 U.S.D.) per claim and in the
aggregate and (ii) product liability insurance covering the Product in the
amount of at least one million United States dollars ($1,000,000 U.S.D.) per
claim and in the aggregate, in each case naming the both NutraCea and FTCD
as an
additional insured, and from time to time upon request of the other party to
furnish reasonable evidence of such coverage. If the Company fails to satisfy
its obligations under this Section 13.3, either party may purchase and maintain
such insurance on the Company’s behalf and may add any premiums so paid to the
amounts otherwise payable by the Company to that party pursuant to this
Agreement.
13.1.
General
.
Each
party agrees that during the course of performance of this Agreement, such
party
may receive or learn information relating to the other party, including without
limitation the customers, suppliers, capacities, processes, patents, products,
procedures, know-how, costs, business plans, assets or business of the other
party (and which also includes all information delivered by FTCD to NutraCea
under Section 4.3), and that much of such information comprises trade secrets.
Each party agrees to treat all such information as confidential, and (i) to
use
at least the same measures and procedures to protect such information from
non-permitted use or disclosure as it uses to protect its own confidential
information, and (ii) not to disclose such information to anyone other than
those employees involved in the administration of this Agreement that have
a
need to know such information. Each party further agrees not to use any such
information (or permit the use thereof by any of its employees) except as
expressly permitted by this Agreement, whether for its own benefit or to the
detriment of the other, and not to disclose or to permit the disclosure of
any
such information by any person or entity under its control or influence, except
to the extent that any such disclosure is required by law or by legal process,
and then only after giving the other party reasonable advance notice of and
an
opportunity to contest the proposed disclosure.
13.2.
FTCD
Mill
.
All
rules and regulations of FTCD regarding the FTCD Mill, including without
limitation access to the FTCD Mill by anyone not employed by FTCD, visitors
at
the FTCD Mill or photographs taken at the FTCD Mill, as such rules and
regulations may be amended from time to time during the term of this Agreement,
are hereby fully incorporated by reference into this Agreement and the Company
and NutraCea agree to comply with all such rules and regulations. FTCD, however,
shall not unreasonably deny the Company and NutraCea personnel and their guests’
reasonable access to the facility. Access to FTCD facilities for NutraCea
personnel and guests shall be limited solely to Bran Stabilization Facility
and
the nearest restrooms, unless previously approved and/or accompanied by FTCD
management.
13.3.
Specific
Enforcement
.
The
parties agree that any breach of the provisions of this Section 13 may result
in
damage to the aggrieved party which is irreparable, speculative or otherwise
difficult to prove, and that each party accordingly shall be entitled to
injunctive relief in the event of any breach or threatened breach hereof by
the
other.
14.1.
Governing
Law
.
The
validity, interpretation, performance and enforcement of this Agreement shall
be
governed by the laws of the Dominican Republic.
14.2.
Amendment
.
This
Agreement may be amended at any time and from time to time, but any amendment
must be in writing and signed by NutraCea and FTCD.
14.3.
Notices
.
Any
written notice to any party under this Agreement shall be deemed to have been
duly given on the date of service if served personally on the party to whom
notice is to be given, or on the seventh day after mailing if mailed to the
party to whom notice is to be given, first class postage prepaid, return receipt
requested, and addressed to the addressee at the address stated opposite his
or
its name below, or at the most recent address specified by written notice given
to the sender by the addressee under this provision so long as at the time
of
mailing, the correspondence is also faxed to the recipient at the fax number
also listed below:
|
NutraCea
|
Food
Trading Company Dominicana, S.A.
|
|
1261
Hawk’s Flight Court
|
Calle
Manuel de Jesus Troncoso No. 18
|
|
El
Dorado Hills, CA 95762
|
Ensanche
Paraiso
|
|
United
States
|
Santo
Domingo, Dominican Republic
|
|
Fax:
(916) 933-7001
|
Attention:
Juan Jose Agramonte
|
Attention:
Bradley Edson
14.4.
Entire
Agreement
.
This
Agreement, including referenced exhibits and attachments, contains the entire
agreement of the parties relating to the rights granted and obligations assumed
in this Agreement. Any oral representations or modifications concerning this
instrument shall be of no force or effect unless contained in a subsequent
written modification entered into in accordance with the terms of this
Agreement.
14.5.
Benefit;
Assignment
.
This
Agreement shall be binding upon the parties and their respective successors
and
assigns and shall inure to the benefit of the parties and their respective
successors and permitted assigns. No party may assign nay of its rights or
delegate any of its duties under this Agreement without the prior written
consent of the other party and any assignment or delegation of this Agreement
by
either party without the prior written consent of the other party shall be
void.
In no event shall either party assign any of its rights or delegate any of
its
duties under this Agreement to any person other than a transferee of its
interests pursuant to the Operating Agreement.
14.6.
No
Third Party Beneficiaries
.
This
provisions of this Agreement are intended to bind each party to the other party
and, except for the Company, are not intended to create and do not create any
rights in any other person, including without limitation , any employee of
the
Company. No person or entity, other than the Company, shall be deemed to be
a
third party beneficiary of this Agreement.
14.7.
Severability
.
If a
court of competent jurisdiction determines that any provision of this Agreement
is invalid, unenforceable or illegal for any reason, such determination shall
not affect or impair the validity, legality and enforceability of the other
provisions of this Agreement which shall remain in full force and effect in
the
same manner and to the same extent as if the invalid, unenforceable or illegal
provision had not been contained in this Agreement.
14.8.
Headings
.
The
headings set forth in this Agreement have been inserted for convenience of
reference only, shall not be considered a part of this Agreement and shall
not
limit, modify or affect in any way the meaning or interpretation of this
Agreement.
14.9.
Waiver
.
No
waiver of any provision of this Agreement shall be binding upon a party unless
such waiver is expressly set forth in a written instrument which is executed
and
delivered on behalf of such party by an authorized representative of such party.
Such waiver shall be effective only to the extent specifically set froth in
such
written instrument. Neither the exercise (from time to time and at any time)
by
a party of, noir the delay or failure (at any time or for any period of time)
to
exercise, any right, power or remedy shall constitute a waiver of the right
to
exercise, or impair, limit or restrict the exercise of, such right, power or
remedy or any other right, power or remedy at any time and from time to time
thereafter. No waiver of any right, power or remedy of a party shall be deemed
to be a waiver of any other right, power or remedy of such party or shall,
except to the extent so waived, impair, limit or restrict the exercise of such
right, power or remedy.
14.10.
Counterparts
.
This
Agreement may be signed in any number of counterparts, each of which (when
executed and delivered) shall constitute an original instrument, but all of
which together shall constitute one and the same instrument.
14.11.
Language
.
This
Agreement shall be written and construed in the English language.
15.
|
Disputes;
Arbitration; Waiver of Bond
.
|
15.1.
Arbitration
.
Any and
all claims, disputes or controversies arising under, out of, or in connection
with this Agreement or with operation of the Company, which have not been
resolved by good faith negotiations between NutraCea and FTCD, shall be resolved
by timely final and binding arbitration under the Rules of Arbitration of the
International Chamber of Commerce. Any arbitration proceedings initiated by
FTCD
shall be held and take place in Sacramento, California. Any arbitration
proceedings initiated by NutraCea shall be held and take place in Santo Domingo,
Dominican Republic.
15.2.
Arbitrators
.
The
arbitrators shall include one nominee to be selected by NutraCea and one
selected by FTCD, and a third nominee to be jointly selected by the two
nominees. In the event the respective nominees are unable to jointly select
such
third nominee within thirty days after they each make their own nomination,
then
the parties shall request the International Chamber of Commerce to designate
the
third arbitrator.
15.3
Judicatum
Solvi Bond
.
In the
event that there should arise any dispute between the parties regarding the
terms of the present Agreement and other Agreements related to the present
transaction,
FTCD
formally
and expressly waives requesting
NutraCea
or any
assignee of the latter, from the requirement of providing a bond as a transient
foreign plaintiff, as established by Article 16 of the Civil Code and articles
166 and 167 of the Code of Civil Procedure, both of the Dominican
Republic.
16.
No
Joint Venture or Partnership; No Reference to Agreement or
Relationship
.
Nothing
in this Agreement shall be construed to create a partnership or joint venture
of
any kind or for any purpose between the parties hereto, or to constitute either
party a special or general agent of the other, and neither party will act or
represent otherwise to any third party. Neither party shall refer to this
Agreement, to the other party or the relationship between the parties in any
communication with any third party without the prior written consent of the
other party.
17.
Disclaimer
of Warranties
.
NOTWITHSTANDING
ANYTHING CONTAINED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS
OR
WARRANTIES OF ANY KIND TO THE OTHER, WHETHER EXPRESS OR IMPLIED (INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS OF
PRODUCTS FOR A PARTICULAR PURPOSE), WITH RESPECT TO ANY RAW RICE BRAN OR
PRODUCTS SOLD UNDER THIS AGREEMENT,
except
as expressly provided herein and that all raw rice bran will be pre-cleaned
and
freshly milled and sold in accordance with applicable law. The terms of any
purchase order used or submitted in purchasing raw rice bran or the Products
shall, except for the amount thereof purchased, be inapplicable and the
provisions of this Agreement shall govern all such transactions.
18.
Limitation
of Liability
.
Not
withstanding anything contained in Section 12 or elsewhere in this Agreement,
neither party shall be liable to the other, whether in tort, in contract or
otherwise, and whether directly or by way of indemnification, contribution
or
otherwise, for any incidental, consequential, punitive or exemplary damages,
(including without limitation lost profits or revenues or injury to business
or
business reputation), whether of the other party or of any third party, relating
to or arising out of Products delivered under this Agreement or the sale of
any
Products.
19.
Force
Majeure
.
Neither
party shall be responsible for any delays in processing of any Product ordered
on account of strikes, blackouts, floods, droughts, riots, epidemics, fire,
governmental regulation, acts of God or other causes beyond its
control.
20.
Severability
.
In case
any provision of this Agreement shall be declared invalid, illegal or
unenforceable in any jurisdiction, such provision shall be deemed stricken
from
this Agreement as to that jurisdiction only, and the validity, legality and
enforceability of this Agreement or of any of its provisions in such
jurisdiction or in any other jurisdiction shall not otherwise be
affected
NUTRACEA
|
|
FOOD
TRADING COMPANY DOMINICANA, S.A.
|
|
|
|
|
|
|
|
|
|
/s/
Bradley D. Edson
|
|
/s/
Juan Jose Agramonte Rincon
|
|
By:
Bradley D. Edson
|
|
By:
Juan Jose Agramonte Rincon
|
|
Title:President
|
|
Title:
Chief Executive Officer
|
|
|
|
|
|
EXHIBIT
A
Specifications
[No
specifications attached.]
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
ASSIGNMENT
OF INTERESTS
This
Assignment of Interests (“
Assignment
”)
is
entered into by and between NutraCea, a California corporation with principal
offices at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 (“
NutraCea
”),
NutraGlo Incorporated, a Nevada corporation with principal address at
_________________ (“
NutraGlo
”),
NaturalGlo Specialty Products, LLC, a Delaware limited liability company with
principal address at 2711 Centerville Road, Suite 400, Wilmington, DE 19808
(“
LLC
”)
and
W.F. Young, Inc., a Massachusetts corporation with principal address at 302
Benton Drive, East Longmeadow, MA 01028-5990 (“
W.F.
Young
”).
The
parties agree as of April 12, 2005 (“
Effective
Date
”)
as
follows:
1.
Background
and Purpose
.
Pursuant to a “
Distribution
Agreement
”
entered
into on May 1, 2001 by and between NutraCea, W.F. Young and Wolcott Farms,
Inc.(“
Wolcott
”)
and
subsequently modified pursuant to the Technology Agreement, as defined below,
W.F. Young obtained exclusive worldwide marketing rights to Flex+ and Flx+
products for the equine markets on such terms as defined in the Distribution
Agreement (“
Equine
Flex+
”).
W.F.
Young formed the LLC with the intent that it later would be jointly owned by
W.F. Young and Wolcott. However, a limited liability company agreement between
W.F. Young and Wolcott was neither entered nor adopted for the LLC. W.F. Young’s
capital contribution to the LLC is in the amount of
[*]
.
W.F.
Young wishes to transfer to NutraGlo all rights obtained by W.F. Young pursuant
to Sections 3.1 and 3.2 of the Technology Agreement entered into by and between
NutraCea, W.F. Young and Wolcott dated September 18, 2003 (“
Technology
Agreement
”).
To
the fullest extent permissible by law, the LLC wishes to transfer to NutraGlo
its right, title and interest to certain patent/technology rights that (i)
are
currently held by the LLC, and/or (ii) may be obtained by the LLC pursuant
to
the Technology Agreement upon the occurrence of a specified merger transaction
and upon the patent issuance.
2.
Transfer
of Technology Agreement Rights
.
To the
fullest extent permitted by applicable law, W.F. Young hereby transfers to
NutraCea all rights, powers and authority granted to or obtained by W.F. Young
pursuant to Sections 3.1 and 3.2 of the Technology Agreement.
3.
|
Transfer
of Technology Rights Held by LLC; Indemnification
.
|
3.1
Transfer
of Technology
.
To the
fullest extent permissible, the LLC shall transfer to NutraGlo all of its right,
title and interest in any and all rights, including without limitation, future
or contingent rights to technology specified in the Technology Agreement
obtained or that may be obtained by the LLC pursuant to Sections 2.3, 3.1 and
3.2 and any other provision of the Technology Agreement (“
Technology
”).
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
3.2
Failure
to Transfer Technology; Indemnification
.
In the
event that the LLC is unable to complete the transfer of the Technology, W.F.
Young agrees to use its best efforts to resolve the matter as soon as reasonably
practical and will not take any actions inconsistent with the requests or wishes
of NutraGlo with respect to such Technology. In reliance on the representations
and warranties by W.F. Young contained herein, NutraGlo agrees to indemnify
and
hold W.F. Young and its respective officers, directors, employees, affiliates,
shareholders and agents, and each of their respective heirs, personal
representatives, successors and assigns ("
Indemnified
Parties
"),
harmless from, against and in respect of any and all losses, costs, expenses
(including without limitation, reasonable attorneys' fees and disbursements
of
counsel), liabilities, damages (excluding incidental, consequential or punitive
damages), fines, penalties, charges, assessments, judgments, settlements,
claims, causes of action and other obligations of any nature whatsoever
(individually, a "
Loss
"
and
collectively, "
Losses
")
that
any of them may at any time, directly or indirectly, suffer, sustain, incur
or
become subject to, to the extent arising out of, based upon or resulting from
or
on account of W.F. Young’s compliance with Section 3.1. Notwithstanding the
foregoing, any Loss or aggregate Losses to be indemnified shall not exceed
[*]
(“
Maximum
NutraGlo Indemnity
”).
In
the event that the Maximum NutraGlo Indemnity is exceeded, NutraGlo and W.F.
Young shall equally share all costs that exceed the Maximum NutraGlo Indemnity
and NutraGlo and W.F. Young shall each be entitled to exercise joint and equal
control over the defense, settlement and expenditure of costs for any such
matter for which indemnity under this section is required. In the event the
parties are unable to agree on how to proceed in any claim or proceeding, the
dispute shall be settled by arbitration conducted by one (1) arbitrator pursuant
to the rules of the American Arbitration Association.
3.3
Decline
to Exercise Option
.
Without
in any manner limiting any other provision herein, W.F. Young agrees not to
exercise the options set forth in Sections 3.1 and/or 3.2 of the Technology
Agreement with respect to the Technology and, to the fullest extent permissible
by law, waives any rights to exercise such options.
4.1
Payments
to W.F. Young
.
In
consideration for the transfer of rights set forth in Section 2, NutraCea shall
issue to W.F. Young and W.F. Young shall receive the number of shares of
NutraCea restricted common stock determined by
[*]
(“
W.F.
Young Consideration Shares
”).
NutraCea shall deliver the W.F. Young Consideration Shares to W.F. Young within
fourteen (14) days of the Effective Date.
4.2
Payment
to LLC
.
In
consideration for the transfer of rights set forth in Section 3, NutraGlo shall
cause NutraCea to issue to the LLC and the LLC shall receive the number of
shares of NutraCea restricted common stock determined by
[*]
(“
LLC
Consideration Shares
”).
NutraCea shall deliver the LLC Consideration Shares to the LLC within fourteen
(14) business days of the Effective Date.
5.
|
Representations
and Warranties
.
|
5.1
Representations
and Warranties of W.F. Young
.
W.F.
Young represents and warrants to NutraCea as follows:
(a)
Organization
and Standing
.
It is a
corporation duly organized, validly existing and in good standing under the
laws
of the Commonwealth of Massachusetts;
(b)
Power
and Authority
.
It has
the power and authority to execute, deliver and perform this Assignment and
any
agreement executed in connection herewith;
(c)
Binding
Agreement
.
This
Assignment has been duly executed and delivered by W.F. Young and is the legal,
valid and binding obligation of W.F. Young, enforceable against W.F. Young
in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium, reorganization, or other similar laws relating to or
affecting the enforcement of creditor’s rights generally, and except of the
availability of specific performance, injunctive relief or other equitable
remedies as subject to the discretion of the court before which any such
proceeding therefore may be brought; and
(d)
LLC
.
Win
Wolcott, Wolcott Farms and NaturalGlo Specialty Products, a Delaware limited
liability company have relinquished any and all right, title and interest,
including any ownership interest, which they might have, or have had, as a
member of the LLC, and any claims related thereto.
5.2
Representations
and Warranties of NutraCea
.
NutraCea represents and warrants to W.F. Young as follows:
(a)
Organization
and Standing
.
NutraCea is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. It has the power and authority to
own
and lease the properties now owned or leased by it and to conduct its
business;
(b)
Power
and Authority
.
It has
the power and authority to execute, deliver and perform this Assignment and
any
agreement executed in connection herewith; and
(c)
Binding
Agreement
.
This
Assignment has been duly executed and delivered by NutraCea and is the legal,
valid and binding obligation of it and enforceable against it in accordance
with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws relating to or affecting the
enforcement of creditor’s rights generally and except of the availability of
specific performance, injunctive relived or other equitable remedies as subject
to the discretion of the court before which any such proceeding therefore may
be
brought.
6.
|
Miscellaneous
Provisions
.
|
6.1
Governing
Law
.
This
Assignment shall be governed by the laws of the State of New York,
notwithstanding its conflict of law principles. The parties agree that any
dispute hereunder shall be settled by arbitration in New York, New York,
pursuant to the rules of the American Arbitration Association. Any arbitration
ruling issued pursuant to this section may be enforced in any court of competent
jurisdiction.
6.2
Entire
Agreement
.
This
Assignment, along with any and all documents expressly referred to and
incorporated herein constitutes the entire agreement between the parties
regarding the assignment of the rights from W.F. Young and the LLC to NutraCea
and NutraGlo as set forth herein, all oral agreements regarding such assignment
being merged herein, and supersedes all prior representations made by any of
the
parties hereto with regard to such assignment. There are no representations,
agreements, arrangements, or understandings, oral or written, between or among
the parties relating to the subject matter of this Assignment that are not
fully
expressed in this Assignment or the other agreements referenced herein.
6.3
Modification
.
The
provisions of this Assignment may not be modified at any time unless agreed
to
in writing by all parties.
6.4
Waiver
.
Any of
the terms or conditions of this Assignment may be waived at any time by the
party entitled to the benefit thereof, but no such waiver shall affect or impair
the right of the waiving party to require observance, performance or
satisfaction either of that term or condition as it applies on a subsequent
occasion or of any other term or condition.
6.5
Assignment
.
This
Assignment shall not be assigned by any party without the prior written consent
of the other parties. Any assignment contrary to the provisions of this
Assignment shall be deemed a default under this Assignment, allowing the
nondefaulting parties to exercise all remedies available under law.
6.6
Successors
.
Subject
to the provisions otherwise contained in this Assignment, this Assignment shall
inure to the benefit of and be binding on the successors and assigns of the
respective parties.
6.7
No
Third Party Beneficiaries
.
Nothing
in this Assignment, whether express or implied, is intended to confer any rights
or remedies under or by reason of this Assignment on any persons other than
the
parties to it and their respective successors and assigns, nor is anything
in
this Assignment intended to relieve or discharge the obligation or liability
of
any third persons to any party to this Assignment, nor shall any provision
give
any third persons any right of subrogation or action against any party to this
Assignment.
6.8
Notices
.
Any
notice under this Assignment shall be in writing, and any written notice or
other document shall be deemed to have been duly given (a) on the date of
personal service on the other party, (b) on the third business day after
mailing, if the document is mailed by registered or certified mail, or
(c) one day after being sent by professional or overnight courier or
messenger service guaranteeing one-day delivery, with receipt confirmed by
the
courier. Any such notice shall be delivered or addressed to the other party
at
the addresses set forth above or at the most recent address specified by the
addressee through written notice under this provision. Failure to give notice
in
accordance with any of the foregoing methods shall not defeat the effectiveness
of notice actually received by the addressee.
6.9
Attorneys’
Fees
.
If the
services of an attorney are required by any party to secure the performance
of
this Assignment or otherwise upon the breach or default of one or more parties
to this Assignment, or if any judicial remedy or arbitration is necessary to
enforce or interpret any provision of this Assignment or the rights and duties
of any person in relation thereto, the prevailing party shall be entitled to
reasonable attorneys' fees, costs and other expenses, in addition to any other
relief to which such party may be entitled.
6.10
Counterparts
.
This
Assignment may be executed in any number of counterparts with the same effect
as
if the parties had all signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
6.11
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Assignment.
6.12
Severability
.
If any
provision of this Assignment is held by a court of competent jurisdiction to
be
invalid or unenforceable, the remainder of the Assignment which can be given
effect without the invalid provision shall continue in full force and effect
and
shall in no way be impaired or invalidated.
[SIGNATURE
PAGE TO FOLLOW]
IN
WITNESS WHEREOF, the parties have executed this Assignment as of the Effective
Date.
NUTRACEA
|
|
W.F.
YOUNG, INC.
|
|
a
California corporation
|
|
a
Massachusetts corporation
|
|
|
|
|
|
|
|
|
|
/s/
Bradley D. Edson
|
|
/s/
Adam D. Raczkowski
|
|
By:
Bradley D. Edson
|
|
By:
Adam D. Raczkowski
|
|
Title:
President
|
|
Title:
Executive VP and COO
|
|
|
|
|
|
|
|
|
|
NUTRAGLO
INCORPORATED
|
|
NATURALGLO
SPECIALTY PRODUCTS
|
|
a
Nevada corporation
|
|
a
Delaware limited liability company
|
|
|
|
|
|
|
|
|
|
/s/
Bradley D. Edson
|
|
/s/
Adam D. Raczkowski
|
|
By:
Bradley D. Edson
|
|
By:
Adam D. Raczkowski
|
|
Title:
Authorized Agent
|
|
Title:
Authorized Agent/Treasurer
|
|
[SIGNATURE
PAGE TO ASSIGNMENT OF INTEREST]
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
DISTRIBUTION
AGREEMENT
[*]
This
Distribution Agreement (Right of First Offer and Right of First Refusal)
(“
Agreement
”)
is
entered into by and between NutraCea, a California corporation with principal
offices at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 and W.F. Young,
Inc., a Massachusetts corporation with principal address at 302 Benton Drive,
East Longmeadow, MA 01028-5990 (“
W.F.
Young
”).
The
parties agree as of April 12, 2005 (“
Effective
Date
”)
as
follows:
1.
Background
and Purpose
.
Pursuant to the letter of intent signed by the parties February 10, 2005, and
in
conjunction with the Assignment of Interests entered into by and between
NutraCea, Nutraglo Incorporated, a Nevada corporation, NaturalGlo Specialty
Products, LLC, a Delaware limited liability company, and W.F. Young, executed
on
the Effective Date of this Agreement (“
Assignment
”)
and
the Manufacturing Agreement entered into by and between NutraCea and W.F. Young
on the Effective Date of this Agreement (“
Manufacturing
Agreement
”,
the
parties wish to enter into an agreement to establish the rights and obligations
of the parties as such rights relate to the manufacturing rights and the
exclusive marketing and distribution rights for certain non-human supplement
products, as more specifically defined herein.
2.1
“
Cost-Plus
”
means
(i)
[*]
of
NutraCea’s total costs of raw materials and manufacturing, plus (ii)
[*]
of
NutraCea’s packaging, labeling and shipping and transportation costs to
manufacture the Products.
2.2
“
Equine
Flex+
”
means
the equine, anti-inflammatory, stabilized rice bran food
supplements/nutraceutical products known as Flex+ and Flx+, as specified on
the
attached Exhibit A.
2.3
“
Excluded
Products
”
means
the products listed on the attached Exhibit B.
2.4
“
New
Product”
or
“New
Products
”
means
(i) any equine stabilized rice bran food supplements/neutraceutical product,
other than Equine Flex+, and (ii) any Equine Flex+ product for the non-equine,
non-human market. “New Products” expressly excludes the Equine Flex + and
Excluded Products.
2.5
“
Technology
”
means:
(i) U.S. Patent Application No. 20030118672 entitled “Method for Treating Joint
Inflammation, Pain and Loss of Mobility,” published on June 26, 2003, and
assigned to NutraCea, any patents that may arise from the foregoing application,
all continuations, continuations-in-part, reexamination, divisionals, reissues,
and improvements thereto, and any foreign counterparts to any of the foregoing,
together with the associated (ii) trade secrets, know-how, documentation and
other technical information proprietary to NutraCea and related to the
development of nutraceutical products containing stabilized rice bran and
stabilized rice bran derivatives for use in non-human applications of such
patent.
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
5.
Retention
of Other Rights
.
NutraCea shall retain all rights to the human market and all other rights not
specifically granted or acknowledged herein. The parties agree that the 2001
agreement (as defined in Section 11.2) shall be deemed to permit W.F. Young
to
utilize a “human label” (as required under applicable provisions of the Dietary
Supplement Health and Education Act of 1994, as amended) in conjunction with
the
distribution of the Equine Flex+ product for classes of trade that service
the
equine industry (e.g., farm, feed, tack stores, chain pet stores and printed
or
online catalogs).
6.
|
Manufacturing
Rights
.
|
6.1.
Manufacturing
Rights
.
NutraCea shall retain and W.F. Young hereby grants to NutraCea the exclusive
rights to manufacture all New Products. The payment terms for all New Products
shall be as provided in Sections 6.2 through 6.4, unless otherwise agreed in
writing by the parties. In the event that NutraCea is unable to supply W.F.
Young’s purchase requirements for any of the Products except in the event of
Force Majeure (as defined below), NutraCea shall be responsible, within Sixty
(60) days written notice from W.F. Young for obtaining replacement supply of
the
applicable New Products of substantially similar quality and specifications.
For
purposes of this Agreement, Force Majeure shall mean circumstances beyond the
reasonable control of NutraCea, which prevents NutraCea from performing
hereunder and shall include, but not be limited to, fires, floods, strikes,
lockouts or other industrial disturbances, accidents, shipping difficulties,
embargoes, inadequate supply of labor or material, war, civil commotion, riots,
acts of God or of the public enemy, orders requests, regulations,
recommendations or instructions of any foreign or domestic government authority.
In the event that NutraCea is unable to obtain replacement New Products within
such Sixty (60) day period, NutraCea shall grant to W.F. Young the non-exclusive
limited license to manufacture or have manufactured the New Products that
NutraCea is not able to provide to satisfy W.F. Young’s requirements only until
such time as NutraCea is able to meet W.F. Young’s requirements.
6.2.
Product
Price for New Products
.
NutraCea shall manufacture the New Products and upon receipt of purchase orders
from W.F. Young for the Products, NutraCea shall supply the Products to W.F.
Young at a Cost-Plus price, as defined above.
6.2.
Royalty
for New Products
.
NutraCea shall be entitled to receive royalty payments from W.F. Young for
each
New Product equal to
[*]
.
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
6.3.1
Payment
for Products
.
Unless
otherwise agreed to by the parties in writing, payment by W.F. Young to NutraCea
shall be made as follows:
[*]
.
6.3.2
Royalty
Payments
.
On
a
quarterly basis, W.F. Young shall pay to NutraCea any royalties earned hereunder
within the relevant calendar quarter ending on March 31, June 30, September
30
or December 31. W.F. Young shall make such payments to NutraCea within thirty
(30) days of the end of each quarter. W.F. Young shall include a royalty report
with any such payment setting forth the calculation of such royalty.
6.4.
Books;
Records; Review
.
During
the term of this Agreement and for six (6) years after it terminates or expires,
W.F. Young shall keep books and records sufficient for NutraCea to verify the
accuracy of any royalties hereunder. No more frequent than three (3) times
per
year and upon at least thirty (30) days prior notice to W.F. Young,
NutraCea
(or an
independent certified public accountant designated by NutraCea (the “Auditors”),
may audit all books and records pertaining to this Agreement, at W.F. Young’s
facility during normal business hours, for the purpose of verifying the accuracy
of any royalty hereunder. In the event any such audit reveals a shortfall of
royalties owed to NutraCea, W.F. Young shall pay to NutraCea the amount of
such
shortfall within ten (10) days of the conclusion of such audit and in the event
such shortfall is in excess of 15 percent (15%), W.F. Young shall reimburse
NutraCea for the costs of the audit by the Auditors at the time W.F. Young
pays
to NutraCea the amount of any royalty shortfall. In the event the audit
determines there is a decrease in the royalties owed, then NutraCea shall pay
to
W.F. Young the amount of the decrease within ten (10) days of the conclusion
of
the audit. Prior to its engagement, the Auditors shall execute and deliver
a
confidentiality and non-disclosure agreement containing the usual and customary
provisions protecting W.F. Young.
7.
Representations
and Warranties of W.F. Young
.
W.F.
Young represents and warrants to NutraCea as follows:
(a)
Organization
and Standing
.
It is a
corporation duly organized, validly existing and in good standing under the
laws
of the Commonwealth of Massachusetts;
(b)
Power
and Authority
.
It has
the power and authority to execute, deliver and perform this Agreement and
any
Agreement executed in connection herewith; and
(c)
Binding
Agreement
.
This
Agreement has been duly executed and delivered by W.F. Young and is the legal,
valid and binding obligation of W.F. Young, enforceable against W.F. Young
in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium, reorganization, or other similar laws relating to or
affecting the enforcement of creditor’s rights generally, and except of the
availability of specific performance, injunctive relief or other equitable
remedies as subject to the discretion of the court before which any such
proceeding therefore may be brought.
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
8.
Representations
and Warranties of NutraCea
.
NutraCea represents and warrants to W.F. Young as follows:
(a)
Organization
and Standing
.
NutraCea is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. It has the power and authority to
own
and lease the properties now owned or leased by it and to conduct its
business;
(b)
Power
and Authority
.
It has
the power and authority to execute, deliver and perform this Agreement and
any
Agreement executed in connection herewith; and
(c)
Binding
Agreement
.
This
Agreement has been duly executed and delivered by NutraCea and is the legal,
valid and binding obligation of it and enforceable against it in accordance
with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws relating to or affecting the
enforcement of creditor’s rights generally and except of the availability of
specific performance, injunctive relived or other equitable remedies as subject
to the discretion of the court before which any such proceeding therefore may
be
brought.
(d)
Warranty
of Products
.
NutraCea
MAKES NO OTHER WARRANTIES OTHER THAN THOSE EXPRESSLY PROVIDED FOR HEREIN.
NUTRACEA MAKES NO EXPRESS OR IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS
FOR
A PARTICULAR PURPOSE AS TO ANY PRODUCT.
9.
Non-competition
.
To the
fullest extent permitted by law, NutraCea shall take reasonable actions
reasonably acceptable to W.F. Young to prevent its customers from modifying,
altering and offering for resale the Excluded Products in a manner that would
have a material adverse effect on the exclusive marketing rights of W.F. Young
granted hereunder or under the 2001 Agreement (as defined in Section 11.2).
In
addition, NutraCea shall, in a manner reasonably acceptable to W.F. Young,
use
its best efforts to cause its subsidiaries and affiliates to take reasonable
action to prevent its customers from modifying, altering and offering for resale
the Excluded Products in a manner that would have a material adverse effect
on
the exclusive marketing rights of W.F. Young granted hereunder or under the
2001
Agreement.
Each
party agrees to defend, indemnify and hold harmless the other and the agents
and
representatives of the other party under the same terms and conditions and
subject to
[*]
and
other limitations as is provided for under section (7) of the 2001 Agreement
(as
defined in Section 11.2) from all claims, demands, causes of action, losses,
costs, expenses (including, without limitation, reasonable attorney’s fees and
costs) that the other may incur or become subject to, to the extent arising
out
of or based upon: (i) the breach of falsity of any representation or warranty
made in this Agreement; or (ii) the breach of any covenant or agreement made
by
the Indemnifying Party in this Agreement.
11.
|
Term
and Termination
.
|
11.1
Term
.
The
initial term of this Agreement shall commence on the Effective Date and continue
until the later to occur of (i) three (3) years, (ii) the expiration of the
2001
Agreement as defined in Section 11.2 below and all of the New Product agreements
entered into pursuant hereto (“
Initial
Term
”).
After
the expiration of the Initial Term, this Agreement shall automatically renew
for
additional one (1) year terms unless earlier terminated pursuant to the terms
of
this Agreement.
11.2
Termination
for Breach; Termination of Other Agreements
.
In the
event of a material breach of this Agreement, the non-breaching party shall
have
the right to terminate this Agreement if breaching party fails to cure such
breach within thirty (30) days of receipt of written notice from the
non-breaching party specifying the nature of the alleged breach. This Agreement
shall terminate, except to the extent provided in Section 11.1, upon any
termination of the Agreement dated May 1, 2001 by and between W.F. Young,
NutraGlo, Inc., Wolcott Farms, Inc. and NutraCea, formerly known as NutraStar,
and as subsequently amended (“2001 Agreement”).
11.3
Mutual
Termination
.
The
parties may mutually terminate this Agreement at any time.
11.4
Effect
of Termination
.
Upon
any termination of this Agreement by either party, the Right of First Offer
and
Right of First Refusal shall terminate effective upon the date of termination
of
this Agreement. Any accrued but unpaid amounts owed to NutraCea under this
Agreement by W.F. Young shall be paid to NutraCea within Thirty (30) days of
the
termination date of this Agreement.
12.1
Confidential
Information
.
W.F.
Young and NutraCea each acknowledges that in the course of performing its duties
hereunder, it shall receive Confidential Information which is valuable and
proprietary to the other. Confidential Information includes without limitation
written or oral information, sales figures, business plans, marketing plans,
customer support materials, software or other customer support programs,
customer support training or procedures and other customer support information,
product plans, upgrade information, product sell-rate, illustrations,
prototypes, models, whether patentable or unpatentable, trade secrets, know-how,
concepts and other data, trademarks, copyrights, design features, or
configuration of any kind, procedures, demonstrations, methods, processes,
uses,
manufacturing information, techniques, formulas, improvements, research and
development data, pamphlets, books, reports or other documents, testing or
inspection procedures, apparatuses, compounds, compositions, combinations,
programs, software and works of authorship, whether discovered, conceived,
developed, made or produced, and whether obtained directly or through inspection
of any sample. The Confidential Information of each party is regarded as highly
valuable and is now known publicly. Its continued value depends, in part, on
retaining its confidential nature.
12.2
Limited
Use.
Each
party agrees that, continuing for a period of five (5) years after disclosure
of
the Confidential Information, each party shall not use or disclose any
Confidential Information of the other party except in the authorized performance
of this Agreement, without the prior written consent of the other party. At
all
times each party shall treat such information as it would its own confidential
or proprietary information. Each party shall limit dissemination of and access
to the Confidential Information of the other the personnel to whom disclosure
is
necessary for the performance of such parties duties hereunder. Each party
agrees that no disclosure shall be made to any of its personnel without first
obtaining such person’s agreement to the terms of this Agreement.
12.3
Return
of Tangible Information.
Each
party agrees that all tangible information and property concerning the
Confidential Information shall remain the exclusive property of the other party.
No documents or other data relating to such Confidential Information shall
be
copied or reproduced without the prior written consent of an authorized employee
of the other party unless required for the performance of the first party’s
duties under this Agreement. At the request of either party, and upon the
expiration of the terms of this Agreement, the other party shall immediately
return to the requesting party all documents and other materials containing
or
evidencing the Confidential Information of the requesting party, including
all
copies, whether electronic or hard copy and permanently erase all of such
records contained on electronic or other media not so delivered.
13.
|
Miscellaneous
Provisions
.
|
13.1
Governing
Law
.
This
Agreement shall be governed by the laws of the State of New York,
notwithstanding its conflict of law principles. The parties agree that any
dispute hereunder shall be settled by arbitration in New York, New York,
pursuant to the rules of the American Arbitration Association. Any arbitration
ruling issued pursuant to this section may be enforced in any court of competent
jurisdiction.
13.2
Entire
Agreement
.
This
Agreement, along with the Assignment, the Manufacturing Agreement any and all
documents expressly referred to and incorporated herein constitutes the entire
agreement between the parties regarding the matters contained herein, all oral
agreements regarding such Agreement being merged herein, and supersedes all
prior representations made by any of the parties hereto with regard to such
Agreement. There are no representations, agreements, arrangements, or
understandings, oral or written, between or among the parties relating to the
subject matter of this Agreement that are not fully expressed in this Agreement
or the other agreements referenced herein.
13.3
Modification
.
The
provisions of this Agreement may not be modified at any time unless agreed
to in
writing by all parties.
13.4
Waiver
.
Any of
the terms or conditions of this Agreement may be waived at any time by the
party
entitled to the benefit thereof, but no such waiver shall affect or impair
the
right of the waiving party to require observance, performance or satisfaction
either of that term or condition as it applies on a subsequent occasion or
of
any other term or condition.
13.5
Assignment
.
This
Agreement shall not be assigned by any party without the prior written consent
of the other parties. Any assignment contrary to the provisions of this
Agreement shall be deemed a default under this Agreement, allowing the
nondefaulting parties to exercise all remedies available under law.
13.6
Successors
.
Subject
to the provisions otherwise contained in this Agreement, this Agreement shall
inure to the benefit of and be binding on the successors and assigns of the
respective parties.
13.7
No
Third Party Beneficiaries
.
Nothing
in this Agreement, whether express or implied, is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other than
the
parties to it and their respective successors and assigns, nor is anything
in
this Agreement intended to relieve or discharge the obligation or liability
of
any third persons to any party to this Agreement, nor shall any provision give
any third persons any right of subrogation or action against any party to this
Agreement.
13.8
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (a) on the date of
personal service on the other party, (b) on the third business day after
mailing, if the document is mailed by registered or certified mail, or
(c) one day after being sent by professional or overnight courier or
messenger service guaranteeing one-day delivery, with receipt confirmed by
the
courier. Any such notice shall be delivered or addressed to the other party
at
the addresses set forth above or at the most recent address specified by the
addressee through written notice under this provision. Failure to give notice
in
accordance with any of the foregoing methods shall not defeat the effectiveness
of notice actually received by the addressee.
13.9
Attorneys’
Fees
.
If the
services of an attorney are required by any party to secure the performance
of
this Agreement or otherwise upon the breach or default of one or more parties
to
this Agreement, or if any judicial remedy or arbitration is necessary to enforce
or interpret any provision of this Agreement or the rights and duties of any
person in relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to
which such party may be entitled.
13.10
Counterparts
.
This
Agreement may be executed in any number of counterparts with the same effect
as
if the parties had all signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
13.11
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Agreement.
13.12
Severability
.
If any
provision of this Agreement is held by a court of competent jurisdiction to
be
invalid or unenforceable, the remainder of the Agreement which can be given
effect without the invalid provision shall continue in full force and effect
and
shall in no way be impaired or invalidated.
13.13
Publicity
.
Except
as otherwise provided herein or required by law, no party shall originate any
publication, news release or other public announcement, written or oral, whether
in the public press, stockholders' reports, or otherwise, relating to this
Agreement or to any related agreement hereunder, or to the performance hereunder
or any such agreements, without the prior written approval of the other party,
which approval shall not be unreasonably withheld.
[SIGNATURE
PAGE TO FOLLOW]
NUTRACEA
|
|
a
California Corporation
|
|
|
|
|
|
|
|
/s/
Bradley D. Edson
|
|
By:
Bradley D. Edson
|
|
Title:
President
|
|
|
|
|
|
W.F.
YOUNG, INC.
|
|
a
Massachusetts corporation
|
|
|
|
|
|
|
|
/s/
Adam D. Raczkowski
|
|
By:
Adam D. Raczkowski
|
|
Title:
Executive VP and COO
|
|
|
|
|
|
NUTRAGLO
INCORPORATED
|
|
a
Nevada corporation
|
|
|
|
|
|
|
|
/s/
Bradley D. Edson
|
|
By:
Bradley D. Edson
|
|
Title:
Authorized Agent
|
|
|
|
[SIGNATURE
PAGE TO DISTRIBUTION AGREEMENT]
Exhibit
A
Equine
Flex+
Equine
Flex+ products for the equine market consist of the following, and include
any
other equine Flex+ product in other forms or containers, under any brand owned
or licensed to W.F. Young now or in the future. Such term includes, but is
not
limited to, the contemplated liquid form of Equine Flex+.
Product
|
|
|
FLEX+
and FLX+ Powder - Equine
|
30
day container
|
60
day container
|
150
lbs. bulk container
|
|
FLEX+
and FLX+ Pellets - Equine
|
30
day container
|
60
day container
|
120
day container
|
150
lbs. bulk container
|
|
|
|
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
Excluded
Products
________________________________________________________________________
[*]
11
Exhibit
10.21
MANUFACTURING
AGREEMENT
This
Manufacturing Agreement (“
Agreement
”)
is
entered into by and between NutraCea, a California corporation with principal
offices at 1261 Hawk’s Flight Court, El Dorado Hills, CA 95762 and W.F. Young,
Inc., a Massachusetts corporation with principal address at 302 Benton Drive,
East Longmeadow, MA 01028-5990 (“
W.F.
Young
”).
The
parties agree as of April 13, 2005 (“
Effective
Date
”)
as
follows:
1.
Background
and Purpose
.
Pursuant to the letter of intent signed by the parties February 10, 2005, and
in
conjunction with the Assignment of Interests entered into by and between
NutraCea, Nutraglo Incorporated, a Nevada corporation, NaturalGlo Specialty
Products, LLC, a Delaware limited liability company, and W.F. Young, executed
on
the Effective Date of this Agreement and the Distribution Agreement entered
into
by and between NutraCea and W.F. Young on the Effective Date of this Agreement
(“
Distribution
Agreement
”),
the
parties wish to enter into an agreement to establish the rights and obligations
of the parties as such rights relate to the exclusive manufacturing rights
for
certain non-human supplement products, as more specifically defined
herein.
2.1.
“
Equine
Flex+
”
means
the equine, anti-inflammatory, stabilized rice bran food
supplements/nutraceutical products known as Flex+ and Flx+, as specified on
the
attached Exhibit A.
2.2.
”
2001
Agreement
”
means
the Agreement dated May 1, 2001 by and between W.F. Young, NutraGlo, Inc.,
Wolcott Farms, Inc. and NutraCea, formerly known as NutraStar.
3.
|
Manufacturing
Rights
.
|
3.1.
Manufacturing
Rights
.
W.F.
Young hereby grants to NutraCea the exclusive worldwide rights to manufacture
all
of
W.F.
Young’s requirements for
Equine
Flex+ products
for
which
NutraCea does not hold exclusive, worldwide manufacturing rights
under
the 2001 Agreement.
The
payment
,
term
s,
and
price
,
for all
such
products
shall
be
as provided in
the 2001
Agreement, unless otherwise agreed in writing by the parties. In the event
that
NutraCea is unable to supply W.F. Young’s purchase requirements for any of these
products except in the event of Force Majeure (as defined below), NutraCea
shall
be responsible, within Sixty (60) days written notice from W.F. Young for
obtaining replacement supply of the applicable products of substantially similar
quality and specifications. For purposes of this Agreement, Force Majeure shall
mean circumstances beyond the reasonable control of NutraCea, which prevents
NutraCea from performing hereunder and shall include, but not be limited to,
fires, floods, strikes, lockouts or other industrial disturbances, accidents,
shipping difficulties, embargoes, inadequate supply of labor or material, war,
civil commotion, riots, acts of God or of the public enemy, orders requests,
regulations, recommendations or instructions of any foreign or domestic
government authority. In the event that NutraCea is unable to obtain replacement
products within such Sixty (60) day period, NutraCea shall grant to W.F. Young
the non-exclusive limited license to manufacture or have manufactured such
Equine Flex+ products that NutraCea is not able to provide to satisfy W.F.
Young’s requirements only until such time as NutraCea is able to meet W.F.
Young’s requirements. The foregoing manufacturing rights are supplemental to and
in addition to NutraCea’s rights to manufacture Equine Flex+ products
under
the 2001
Agreement.
4.
Representations
and Warranties of W.F. Young
.
W.F.
Young represents and warrants to NutraCea as follows:
(a)
Organization
and Standing
.
It is a
corporation duly organized, validly existing and in good standing under the
laws
of the Commonwealth of Massachusetts;
(b)
Power
and Authority
.
It has
the power and authority to execute, deliver and perform this Agreement and
any
Agreement executed in connection herewith; and
(c)
Binding
Agreement
.
This
Agreement has been duly executed and delivered by W.F. Young and is the legal,
valid and binding obligation of W.F. Young, enforceable against W.F. Young
in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, moratorium, reorganization, or other similar laws relating to or
affecting the enforcement of creditor’s rights generally, and except of the
availability of specific performance, injunctive relief or other equitable
remedies as subject to the discretion of the court before which any such
proceeding therefore may be brought.
5.
Representations
and Warranties of NutraCea
.
NutraCea represents and warrants to W.F. Young as follows:
(a)
Organization
and Standing
.
NutraCea is a corporation duly organized, validly existing and in good standing
under the laws of the State of California. It has the power and authority to
own
and lease the properties now owned or leased by it and to conduct its
business;
(b)
Power
and Authority
.
It has
the power and authority to execute, deliver and perform this Agreement and
any
Agreement executed in connection herewith; and
(c)
Binding
Agreement
.
This
Agreement has been duly executed and delivered by NutraCea and is the legal,
valid and binding obligation of it and enforceable against it in accordance
with
its terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws relating to or affecting the
enforcement of creditor’s rights generally and except of the availability of
specific performance, injunctive relived or other equitable remedies as subject
to the discretion of the court before which any such proceeding therefore may
be
brought.
(d)
Warranty
of Products
.
Except
as provided in the 2001 Agreement, NutraCea MAKES NO OTHER WARRANTIES OTHER
THAN
THOSE EXPRESSLY PROVIDED FOR HEREIN. NUTRACEA MAKES NO EXPRESS OR IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AS TO ANY
PRODUCT.
6.
|
Term
and Termination
.
|
6.1.
Term
.
The
term of this Agreement shall commence on the Effective Date and shall expire
on
the
expiration
of the 2001 Agreement.
6.2.
Termination
for Breach
.
Termination of Other Agreements. In the event of a material breach
of
this
Agreement, the breaching party shall have the right to cure such breach within
thirty (30) days of receipt of written notice from the non-breaching party
specifying the nature of the alleged breach.
6.3.
Effect
of Termination
.
Upon
any termination of this Agreement, any accrued but unpaid amounts owed to
NutraCea under this Agreement by W.F. Young shall be paid to NutraCea within
Thirty (30) days of the termination date of this Agreement.
7.1.
Confidential
Information
.
W.F.
Young and NutraCea each acknowledges that in the course of performing its duties
hereunder, it shall receive Confidential Information which is valuable and
proprietary to the other. Confidential Information includes without limitation
written or oral information, sales figures, business plans, marketing plans,
customer support materials, software or other customer support programs,
customer support training or procedures and other customer support information,
product plans, upgrade information, product sell-rate, illustrations,
prototypes, models, whether patentable or unpatentable, trade secrets, know-how,
concepts and other data, trademarks, copyrights, design features, or
configuration of any kind, procedures, demonstrations, methods, processes,
uses,
manufacturing information, techniques, formulas, improvements, research and
development data, pamphlets, books, reports or other documents, testing or
inspection procedures, apparatuses, compounds, compositions, combinations,
programs, software and works of authorship, whether discovered, conceived,
developed, made or produced, and whether obtained directly or through inspection
of any sample. The Confidential Information of each party is regarded as highly
valuable and is now known publicly. Its continued value depends, in part, on
retaining its confidential nature.
7.2.
Limited
Use.
Each
party agrees that, continuing for a period of five (5) years after disclosure
of
the Confidential Information, each party shall not use or disclose any
Confidential Information of the other party except in the authorized performance
of this Agreement, without the prior written consent of the other party. At
all
times each party shall treat such information as it would its own confidential
or proprietary information. Each party shall limit dissemination of and access
to the Confidential Information of the other the personnel to whom disclosure
is
necessary for the performance of such parties duties hereunder. Each party
agrees that no disclosure shall be made to any of its personnel without first
obtaining such person’s agreement to the terms of this Agreement.
7.3.
Return
of Tangible Information.
Each
party agrees that all tangible information and property concerning the
Confidential Information shall remain the exclusive property of the other party.
No documents or other data relating to such Confidential Information shall
be
copied or reproduced without the prior written consent of an authorized employee
of the other party unless required for the performance of the first party’s
duties under this Agreement. At the request of either party, and upon the
expiration of the terms of this Agreement, the other party shall immediately
return to the requesting party all documents and other materials containing
or
evidencing the Confidential Information of the requesting party, including
all
copies, whether electronic or hard copy and permanently erase all of such
records contained on electronic or other media not so delivered.
|
8.
|
Miscellaneous
Provisions
.
|
8.1.
Governing
Law
.
This
Agreement shall be governed by the laws of the State of New York,
notwithstanding its conflict of law principles. The parties agree that any
dispute hereunder shall be settled by arbitration in New York, New York,
pursuant to the rules of the American Arbitration Association. Any arbitration
ruling issued pursuant to this section may be enforced in any court of competent
jurisdiction.
8.2.
Entire
Agreement
.
This
Agreement, along with the 2001 Agreement and any and all documents expressly
referred to and incorporated herein constitutes the entire agreement between
the
parties regarding the matters contained herein, all oral agreements regarding
such Agreement being merged herein, and supersedes all prior representations
made by any of the parties hereto with regard to such Agreement. There are
no
representations, agreements, arrangements, or understandings, oral or written,
between or among the parties relating to the subject matter of this Agreement
that are not fully expressed in this Agreement or the other agreements
referenced herein.
8.3.
Modification
.
The
provisions of this Agreement may not be modified at any time unless agreed
to in
writing by all parties.
8.4.
Waiver
.
Any of
the terms or conditions of this Agreement may be waived at any time by the
party
entitled to the benefit thereof, but no such waiver shall affect or impair
the
right of the waiving party to require observance, performance or satisfaction
either of that term or condition as it applies on a subsequent occasion or
of
any other term or condition.
8.5.
Assignment
.
This
Agreement shall not be assigned by any party without the prior written consent
of the other parties. Any assignment contrary to the provisions of this
Agreement shall be deemed a default under this Agreement, allowing the
nondefaulting parties to exercise all remedies available under law.
8.6.
Successors
.
Subject
to the provisions otherwise contained in this Agreement, this Agreement shall
inure to the benefit of and be binding on the successors and assigns of the
respective parties.
8.7.
No
Third Party Beneficiaries
.
Nothing
in this Agreement, whether express or implied, is intended to confer any rights
or remedies under or by reason of this Agreement on any persons other than
the
parties to it and their respective successors and assigns, nor is anything
in
this Agreement intended to relieve or discharge the obligation or liability
of
any third persons to any party to this Agreement, nor shall any provision give
any third persons any right of subrogation or action against any party to this
Agreement.
8.8.
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (a) on the date of personal
service on the other party, (b) on the third business day after mailing, if
the
document is mailed by registered or certified mail, or (c) one day after being
sent by professional or overnight courier or messenger service guaranteeing
one-day delivery, with receipt confirmed by the courier. Any such notice shall
be delivered or addressed to the other party at the addresses set forth above
or
at the most recent address specified by the addressee through written notice
under this provision. Failure to give notice in accordance with any of the
foregoing methods shall not defeat the effectiveness of notice actually received
by the addressee.
8.9.
Attorneys’
Fees
.
If the
services of an attorney are required by any party to secure the performance
of
this Agreement or otherwise upon the breach or default of one or more parties
to
this Agreement, or if any judicial remedy or arbitration is necessary to enforce
or interpret any provision of this Agreement or the rights and duties of any
person in relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to
which such party may be entitled.
8.10.
Counterparts
.
This
Agreement may be executed in any number of counterparts with the same effect
as
if the parties had all signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
8.11.
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Agreement.
8.12.
Severability
.
If any
provision of this Agreement is held by a court of competent jurisdiction to
be
invalid or unenforceable, the remainder of the Agreement which can be given
effect without the invalid provision shall continue in full force and effect
and
shall in no way be impaired or invalidated.
8.13.
Publicity
.
Except
as otherwise provided herein or required by law, no party shall originate any
publication, news release or other public announcement, written or oral, whether
in the public press, stockholders' reports, or otherwise, relating to this
Agreement or to any related agreement hereunder, or to the performance hereunder
or any such agreements, without the prior written approval of the other party,
which approval shall not be unreasonably withheld.
[SIGNATURE
PAGE TO FOLLOW]
NUTRACEA
|
|
|
a
California Corporation
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Bradley D. Edson
|
|
|
By:
Bradley D. Edson
|
|
|
Title:
President
|
|
|
|
|
|
|
|
|
W.F.
YOUNG, INC.
|
|
|
a
Massachusetts corporation
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Adam D. Raczkowski
|
|
By:
Adam D. Raczkowski
|
|
|
Title:
Executive VP and COO
|
|
|
[SIGNATURE
PAGE TO MANUFACTURING AGREEMENT]
Exhibit
A
Equine
Flex+
Equine
Flex+ products for the equine market consist of the following, and include
any
other equine Flex+ product in other forms or containers, under any brand owned
or licensed to W.F. Young now or in the future. Such term
includes
,
without limitation,
the contemplated
stabilized
rice bran
based
liquid
form of Equine Flex+
.
Product
|
|
|
FLEX+
and FLX+ Powder - Equine
|
30
day container
|
60
day container
|
150
lbs. bulk container
|
|
FLEX+
and FLX+ Pellets - Equine
|
30
day container
|
60
day container
|
120
day container
|
150
lbs. bulk container
|
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
Exhibit
10.22
SUPPLY
AND DISTRIBUTION
AGREEMENT
This
Supply and Distribution Agreement (“
Agreement
”)
is
made to be effective as of November 4, 2005, (“
Effective
Date
”)
by and
between NutraCea, a California corporation with principal address at 1261 Hawk’s
Flight Court, El Dorado Hills, CA 95762 (“
NutraCea
”)
and T.
Geddes Grant, a Jamaican corporation with principal address at 109 Marcus Garvey
Drive, Jamaica, W.I. The parties agree as of the Effective Date as
follows:
1.
|
Background
and Purpose
.
|
1.1
Distributor
.
Distributor currently provides packaging for the Government of Jamaica for
various food products. Distributor wishes to package and distribute NutraCea’s
stabilized rice bran solubles products, as more specifically defined below,
for
a school lunch program. Distributor has adequate facilities and personnel to
fully and adequately market and distribute the Product (as defined below) in
the
Territory.
1.2
NutraCea
.
NutraCea is a nutritional foods company that develops proprietary and patented
nutraceutical products for human and animal consumption. NutraCea possesses
proprietary technology to stabilize rice bran and an additional process to
convert and enhance stabilized rice bran into proprietary products, including
fiber and predigested fiber solubles. NutraCea actively promotes its products
and requires an effective distribution network. NutraCea wishes to enter into
the Jamaican market.
1.3
Supply
of Materials and Distribution of Products
.
NutraCea and Distributor wish to enter into an agreement under which NutraCea
will supply and Distributor will purchase raw product materials to Distributor
for hydration and packaging and distribution by Distributor.
1.4
Agreement
.
Distributor and NutraCea desire to enter into this Agreement to establish their
agreement regarding the supply and distribution of Servings of the Products
in
the Territory (as defined below). Distributor will purchase, distribute and
market the Product Servings only in the manner specified herein.
2.
Definitions
.
As used
herein, the following terms shall be defined in the manner set forth
below:
|
2.1.
|
“
Minimum
Purchase Requirement
”
is defined in Section 5.4.
|
2.2.
“
Product
”
means
stabilized rice bran solubles that comply with all quality and other
requirements customarily utilized for human consumption and as reasonably
established by NutraCea from time to time, as described on Exhibit A, including,
without limitation, the Product Specifications set forth therein.
2.3.
“
Product
Specifications
”
means
the specifications, quality and consistency standards, and other Product
requirements set forth on Exhibit A, attached hereto.
2.4.
“
Territory
”
means
the country of Jamaica.
2.5.
“
Servings
”
means
the packaged and hydrated individual Product servings produced by Distributor
pursuant to the terms of this Agreement and that are approved in advance and
in
writing by NutraCea after specific and complete disclosure by Distributor to
NutraCea of all relevant product details.
3.1.
Appointment
of Distributor
.
Subject
to the provisions of this Agreement, including but not limited to prior approval
by NutraCea of the Products and Product Servings as specified in Section 5.1
below, NutraCea hereby appoints Distributor, and Distributor hereby accepts
such
appointment, as an independent, exclusive distributor for the sale and marketing
of the Product Servings in the Territory. Distributor may market and distribute
Product Servings only as set forth in this Agreement. Distributor further agrees
not to distribute or market any items competitive with the Products and Servings
or to distribute Products or Product Servings for sale outside of the Territory,
except as expressly permitted by NutraCea pursuant to Section 3.2. This
Agreement shall be exclusive so long as Distributor meets the Minimum Purchase
Requirements.
3.2.
NutraCea’s
Rights
.
NutraCea reserves the right from time to time and in its sole discretion to
appoint authorized distributors of Product and hydrated individuals packaged
Product for areas outside of the Territory and to distribute Product and
individually packaged Product outside the Territory directly to customers,
using
its own personnel or independent sales representatives. Upon any termination
of
Distributors exclusivity, pursuant to Section 3.1 or 4.1.1, NutraCea may
directly or indirectly sell and market Products and Product Servings in the
Territory and may appoint distributors to do the same.
4.1.
Term
.
The
term of this Agreement shall commence upon the Effective Date and shall remain
in force and effect for two (2) years, unless earlier terminated as set forth
below (“
Initial
Term
”).
4.1.1.
Termination
of Exclusivity
.
The
appointment of Distributor as an exclusive distributor shall remain exclusive
for so long as Distributor meets the Minimum Purchase Requirement, as defined
below. In the event the Minimum Purchase Requirement is not met, Distributor
immediately and with or without notice shall become a non-exclusive distributor
in the Territory and NutraCea may appoint additional distributors in the
Territory at its sole discretion.
4.2.
Termination.
NutraCea
may terminate this Agreement with ninety (90) days notice if Distributor fails
to initiate good faith and commercially reasonable marketing of the Product
Servings throughout the Territory within one hundred eighty (180) days of the
beginning of the Effective Date.
4.3.
Immediate
Termination
.
NutraCea may terminate this Agreement immediately upon the occurrence of any
of
the following events (i) Distributor is unable to obtain timely approval of
the
Product and Servings pursuant to Section 5.1 below, (ii) Distributor fails
to
make any payment due to NutraCea hereunder, which failure is not cured in full
within ten (10) days after notice thereof from NutraCea, (iii) Distributor
fails
to cure any other breach of this Agreement (including failure to comply with
Minimum Purchase Requirements) by Distributor within (30) days after notice
thereof from NutraCea, (iv) Distributor becomes bankrupt, has a receiver
appointed for it or its property, or makes an assignment for the benefit of
creditors, (v) Distributor dissolves or is liquidated, or (vi) Distributor
fails
to satisfy the Minimum Purchase Requirement.
4.4.
Effect
of Termination
.
Termination or expiration of this Agreement shall in no way effect the rights
or
liabilities of either NutraCea or Distributor arising during the period prior
to
such termination or expiration or release Distributor from the obligation to
make any payment due and owing to NutraCea, all of which obligations,
Distributor hereby agrees to fulfill and perform. The provisions of this Section
4.4 and Sections 10, 11, 12, 13, 14 and 16 shall survive expiration or any
termination of this Agreement. Upon expiration or any termination of this
Agreement, Distributor shall return to NutraCea all tangible materials and
information of a proprietary or confidential nature disclosed to Distributor
under this Agreement, and all copies thereof (including, without limitation,
all
electronic copies). NutraCea shall not be liable to Distributor for damages
of
any kind, including incidental or consequential damages, on account of the
termination of this Agreement in accordance with this Section 4 even if advised
of the possibility of such damages.
5.
Obligations
of Distributor
.
In
furtherance of this Agreement, Distributor shall be responsible for the
following, each of which is a material obligation of Distributor hereunder:
5.1.
Regulatory
Approval of Products
.
Distributor shall submit all appropriate applications and materials necessary
to
obtain regulatory approval required for the importation and sale of the Product
and Product Servings in the Territory upon NutraCea’s delivery of any necessary
documents for product registration and import permit application to Distributor.
Distributor shall use its best efforts to obtain necessary approvals during
calendar year 2005, after which this Agreement will expire at NutraCea’s option,
if necessary or appropriate approvals are not obtained.
5.2.
Marketing
and Advertising Products
.
Distributor shall apply its best efforts to sell the Product Servings in the
Territory. Distributor shall advertise and otherwise promote the Product
Servings in a commercially reasonable manner and shall transmit appropriate
Product information and promotional materials to its customers. Distributor
shall develop sales, marketing, advertising and packaging for the Product
Servings for distribution in the Territory, all of which shall be subject to
the
reasonable approval of NutraCea.
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
5.3
Facilities;
Conduct of Business
.
Distributor represents and warrants to NutraCea that it has, and will continue
to maintain, the capacity, facilities and personnel necessary to perform its
functions and to carry out its obligations under this Agreement and that it
is
ready and willing to do so. Distributor shall (i) conduct its business in a
professional manner that reflects favorably on NutraCea and its Product and
Product Servings, (ii) take all action necessary to prevent and avoid deceptive,
misleading or unethical practices, (iii) make no false or misleading
representations with regard to NutraCea or the Product Servings, (iv) not
publish or participate in the publishing of any false, misleading or deceptive
advertising material, and (v) make no representations, warranties or guaranties
to anyone with respect to the specifications, features or capabilities of the
Product or Product Servings that are inconsistent with the literature
distributed by NutraCea.
5.4.
Minimum
Purchase
[*]
(“
Minimum
Purchase Requirement
”).
5.5
Purchase
Forecasts
.
[*]
.
5.6.
Reports
and Records
.
Distributor shall submit to NutraCea detailed monthly sales reports that shall
include sales of the Product Servings (units and dollars). Distributor shall
provide this report to NutraCea no later than the tenth (10th) day of the
following month.
5.7.
Resale
Prices
.
Distributor shall be free to unilaterally determine the resale prices for the
Product Servings. Distributor shall, however, treat all customers equitably
and
shall not discriminate unlawfully among them in prices, terms or in any other
manner. Distributor may not sell or market any Product or Product Servings
in
the United States or any area outside of the Territory, directly or indirectly,
without NutraCea’s express prior written consent.
5.8.
Product
Complaints
.
Distributor shall promptly submit to NutraCea, detailed reports of any
complaints received by Distributor relating to problems with Product or Product
Servings advertising
.
5.9.
Notification
.
Distributor shall notify NutraCea in writing of any legal action, claim or
proceeding involving the Product or Product Servings no later than ten (10)
days
after Distributor learns of such claim or proceeding.
5.11.
Legal
and
Regulatory
Compliance
.
Distributor
shall comply with all applicable laws and regulations in performing its duties
hereunder and in any of its dealings with respect to the Product and Product
Servings.
Distributor
shall obtain all appropriate governmental and legal permits and consents
required for the importation by NutraCea of Product and the packaging and
hydration necessary to create the Product Servings.
6.
|
Obligations
of NutraCea
.
|
6.1.
Shipping
of Products
.
NutraCea shall use its good faith efforts to ship the Products within a
reasonable amount of time after receipt of Distributor’s order for the Product.
Distributor shall provide NutraCea with a list of shipping instructions. All
costs of shipment shall be billed to Distributor in accordance with Section
8
below.
7.
Orders
.
All
purchase orders shall be submitted by Distributor to NutraCea along with
proposed shipment dates. Orders may initially be placed by telephone or
facsimile, provided that a signed confirming purchase order is received in
writing by NutraCea within five (5) days after a telephonic or facsimile order.
Orders for delivery of Product that are intended for shipment more than six
(6)
months from the date of the order, will be subject to the price modifications
as
detailed in Section 8.1 below. Distributor acknowledges that any shipment dates
indicated in NutraCea’s written acceptance of purchase orders are estimates
only. Cancellation of purchase orders shall be subject in each case to
NutraCeas’s prior written consent.
8.
|
Price;
Terms of Sale
.
|
8.1.
Price
.
For all
Product purchased hereunder, Distributor shall pay NutraCea the amounts set
forth on Exhibit B attached hereto. NutraCea may increase the price of any
or
all of the Product with a minimum of one hundred twenty (120) day written
notice. NutraCea shall provide written notification to Distributor of all price
increases. Price increases shall apply to all purchase orders received after
the
effective date of the price increase. Distributor shall provide NutraCea with
reasonable assistance to determine the validity of price protection claims.
8.2.
Terms
.
All
Product shall be purchased F.O.B. at NutraCea’s designated warehouse and payment
made by confirmed, irrevocable letter of credit denominated in United States
Dollars. NutraCea shall provide the Product to Distributor, at NutraCea’s point
of shipping and risk of loss shall pass to Distributor upon delivery of Product
and proper documentation to the carrier at NutraCea’s shipping point
.
Distributor
shall pay for all costs of shipment and transportation. Distributor shall
specify the method of shipment; provided, that if Distributor fails to specify
a
method, NutraCea shall select the appropriate carrier.
8.3.
Taxes;
Whitholding
.
The
price for each Product specified in Exhibit B does not include any excise,
sales, use, value added or other taxes, tariffs or duties that may be applicable
to the sale of the Product or Product Servings. All payments by Distributor
shall be made free and clear of, and without reduction for, any withholding
taxes. When NutraCea has the legal obligation to collect such taxes or duties,
the appropriate amount may be added to Distributor’s invoice and paid by
Distributor unless Distributor provides NutraCea with a valid tax exemption
certificate authorized by the appropriate taxing authority. Any such taxes
which
are otherwise imposed on payments to NutraCea shall be the sole responsibility
of Distributor. Distributor shall hold NutraCea harmless for any taxing
authority or such other responsibility relative to this issue.
8.5.
No
Modification by Purchase Order
.
All
Product purchases will be on the terms and conditions specified herein. Nothing
contained in any purchase order, shipping order or other document submitted
by
Distributor shall modify the terms of purchase.
9.
Product
Returns
.
Distributor shall coordinate all Product returns in accordance with NutraCea’s
standard policies then in effect. If the reason for the Product return relates
to a Product defect originated from Nutracea, NutraCea will credit Distributor
the actual price paid by Distributor for the defective Product. Return of
defective Product or destruction of the Product in Jamaica shall be
pre-authorized in writing by NutraCea.
10.
Disclaimer
of Warranties
.
Notwithstanding anything contained in this Agreement, neither party makes any
representations or warranties of any kind to the other, whether express or
implied (including without limitation any implied warranty of merchantability
or
fitness of products for a particular purpose).
11.
|
Trademarks
and Other Proprietary Information
.
|
11.1.
Labeling
.
Distributor shall repackage and sell the Product Servings under the trade names,
brands or trademarks approved by NutraCea.
11.2.
No
Rights in Products, Trademarks or Copyrights
.
Distributor acknowledges that NutraCea owns and retains all of its trade names,
trademarks and logos and all copyrights and other proprietary rights in all
the
Product and agrees that it will not at any time during or after the term of
this
Agreement assert or claim any interest in or do anything which may adversely
affect the validity or enforceability of any trademark, trade name, copyright
or
logo belonging to or licensed to NutraCea.
11.3.
Obligation
to Protect
.
Distributor shall use reasonable efforts to protect NutraCea’s proprietary
rights and, at its own expense, shall reasonably cooperate in NutraCea’s efforts
to protect its proprietary rights. Distributor shall notify NutraCea of any
known or suspected breach of NutraCea’s proprietary rights that comes to
Distributor’s attention.
11.4.
Confidentiality
.
Distributor acknowledges that in the course of performing its obligations
hereunder, it will receive information which is confidential and proprietary
to
NutraCea. Distributor agrees not to use such information except in performance
of this Agreement and not to disclose such information to third parties. All
information that is given to Distributor by NutraCea that is identified as
confidential, and is marked accordingly, will be treated as such, and will
not
be disclosed to any other party.
13.
Relationship
of the Parties
.
Nothing
contained herein shall be construed to make Distributor the agent of NutraCea
or
NutraCea the agent of Distributor for any purpose, except as specifically set
forth herein, and neither party shall have any right whatsoever to incur any
obligations on behalf of or binding upon the other party, except as specifically
set forth herein. Distributor agrees that at all times it shall act as an
independent contractor in accordance with the terms of this Agreement and that
it shall not at any time represent orally or in writing to any person or entity
that it has any right, power or authority not expressly granted by this
Agreement.
15.1.
Governing
Law
.
The
rights and obligations of the parties and the interpretation and performance
of
this Agreement shall be governed by the law of California, excluding its
conflict of laws rules.
15.2.
Counterparts
.
This
Agreement may be executed in any number of counterparts with the same effect
as
if the parties had all signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
15.3.
Waiver
.
Any of
the terms or conditions of this Agreement may be waived at any time by the
party
entitled to the benefit thereof, but no such waiver shall affect or impair
the
right of the waiving party to require observance, performance or satisfaction
either of that term or condition as it applies on a subsequent occasion or
of
any other term or condition.
15.4.
Entire
Agreement
.
This
document constitutes the entire agreement between the parties, all oral
agreements being merged herein, and supersedes all prior representations. There
are no representations, agreements, arrangements, or understandings, oral or
written, between or among the parties relating to the subject matter of this
Agreement that are not fully expressed herein.
15.5.
Nonassignability
.
This
Agreement shall not be assigned by any party without the prior written consent
of the other. Any assignment contrary to the provisions of this Agreement shall
be null and void and be deemed a default under the Agreement, allowing the
nondefaulting party to exercise all remedies available under law.
15.6.
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (i) on the date of
personal service on the parties, (ii) on the third business day after
mailing, if the document is mailed by registered or certified mail,
(iii) one day after being sent by professional or overnight courier or
messenger service guaranteeing one-day delivery, with receipt confirmed by
the
courier, or (iv) on the date of transmission if sent by telegram, telex,
telecopy or other means of electronic transmission resulting in written copies,
with receipt confirmed. Any such notice shall be delivered or addressed to
the
parties at the addresses set forth below or at the most recent address specified
by the addressee through written notice under this provision. Failure to conform
to the requirement that mailings be done by registered or certified mail shall
not defeat the effectiveness of notice actually received by the
addressee.
NutraCea
1261
Hawk’s Flight Court
El
Dorado
Hills, CA 95762
United
States
Fax:
(916) 933-7001
Attention:
Bradley Edson
15.7.
Severability
.
If any
provision of this Agreement is held by a court of competent jurisdiction to
be
invalid or unenforceable, the remainder of the Agreement which can be given
effect without the invalid provision shall continue in full force and effect
and
shall in no way be impaired or invalidated.
15.8.
Attorneys'
Fees; Prejudgment Interest
.
If the
services of an attorney are required by any party to secure the performance
of
this Agreement or otherwise upon the breach or default of another party to
this
Agreement, or if any judicial remedy or arbitration is necessary to enforce
or
interpret any provision of this Agreement or the rights and duties of any person
in relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to
which such party may be entitled. Any award of damages following judicial remedy
or arbitration as a result of the breach of this Agreement or any of its
provisions shall include an award of prejudgment interest from the date of
the
breach at the maximum amount of interest allowed by law.
15.9.
Amendment
.
The
provisions of this Agreement may be modified at any time by agreement of the
parties. Any such agreement hereafter made shall be ineffective to modify this
Agreement in any respect unless in writing and signed by the parties against
whom enforcement of the modification or discharge is sought.
15.10.
Force
Majeure
.
NutraCea shall not be responsible or liable to Distributor or its customers
for
any damages including without limitation, incidental and consequential damages,
arising out of nonperformance or delay in performance of the terms and
conditions herein due to acts of God, wars, riots, strikes, unavailability
of
suitable and sufficient components or materials, die or capacity or technical
or
weld failures and any unforeseen events beyond NutraCea’s control.
15.11.
Export
or Re-Export Requirements
.
Distributor and NutraCea shall comply with all export laws of the United States
and Jamaica. Export directly or indirectly of the Product, or goods containing
the Product to any other country shall be subject to applicable laws and written
consent of NutraCea. Distributor shall hold NutraCea harmless and indemnify
it
for any fines, penalties or other liability, (including attorney’s fees) that
result from Distributor’s failure to meet these obligations.
15.12.
Arbitration.
All
disputes arising out of or in connection with this Agreement shall be finally
settled under the Rules of Arbitration of the International Chamber of Commerce
by one arbitrator appointed in accordance with said rules. Arbitration shall
take place in Sacramento, California USA in the event NutraCea is the
non-defaulting party and in Jamaica in the event Distributor is the
non-defaulting party. Any proceeding under this Section shall be conducted
in
the English language. The award of the arbitrator shall be final and binding
on
both parties. The parties agree to bind themselves to carry out the award of
the
arbitrator.
15.13.
Benefit;
Assignment
.
This
Agreement shall be binding upon the parties and their respective successors
and
assigns and shall inure to the benefit of the parties and their respective
successors and permitted assigns. No party may assign nay of its rights or
delegate any of its duties under this Agreement without the prior written
consent of the other party and any assignment or delegation of this Agreement
by
either party without the prior written consent of the other party shall be
void.
In no event shall either party assign any of its rights or delegate any of
its
duties under this Agreement to any person other than a transferee of its
interests pursuant to the Operating Agreement.
15.14.
No
Third Party Beneficiaries
.
This
provisions of this Agreement are intended to bind each party to the other party
and, except for the Company, are not intended to create and do not create any
rights in any other person, including without limitation , any employee of
the
Company. No person or entity, other than the Company, shall be deemed to be
a
third party beneficiary of this Agreement.
15.15.
Headings
.
The
headings set forth in this Agreement have been inserted for convenience of
reference only, shall not be considered a part of this Agreement and shall
not
limit, modify or affect in any way the meaning or interpretation of this
Agreement.
15.16.
Language
.
This
Agreement shall be written and construed in the English language.
15.17
Binding Agreement. This Agreement is subject to the approval of the board of
NutraCea and the board of T. Geddes Grant (Distributors) Limited and the
execution of a Binding Agreement.
T. Geddes Grant
|
|
NUTRACEA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Michael Subratie
|
|
/s/
Margie Adelman
|
|
By
|
Michael
Subratie
|
|
By:
|
Margie
Adelman
|
|
Title:
|
Director
|
|
Title:
|
Senior
V.P.
|
|
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
EXHIBIT
A
Products
and Quantities
[
*]
[*]
designates
portions of this document that have been omitted pursuant to a
request
for
confidential treatment filed seperately with the
Commission
|
EXHIBIT
B
Pricing
[*]
EXHIBIT
C
Customer
Limited Warranty
[No
Customer Limited Warranty attached]
12
STOCK
OPTION ASSUMPTION AGREEMENT
(RiceX
1997 Stock Option Plan)
Dear
«Name»:
As
you
know, on October 4, 2005, (the “
Closing
Date
”),
a
wholly-owned subsidiary of NutraCea, a California corporation (“
NutraCea
”),
merged with and into The RiceX Company (“
RiceX
”)
(the
“
Merger
”).
In
the Merger, each outstanding option for RiceX common stock that was not
terminated pursuant to either an option termination agreement or the terms
of
The RiceX Company 1997 Stock Option Plan (the “
Plan
”)
was
converted into an option to purchase NutraCea common stock. The number of
NutraCea common shares subject to the converted option is equal to the product
of the number of RiceX common shares formerly subject to such option multiplied
by 0.76799 (rounded down to the nearest whole share). The exercise price per
NutraCea common share subject to such option is equal to the exercise price
provided for under the terms of such option.
On
the
Closing Date, you held one or more outstanding options to purchase shares of
RiceX common stock granted to you under the Plan and documented with a Stock
Option Agreement (collectively, as amended by the letter agreement entered
into
by you and RiceX, the “
Option
Agreements
”)
that
were not subject to termination pursuant to an option termination agreement
(the
“
RiceX
Plan Options
”).
In
accordance with the Merger, on the Closing Date NutraCea assumed all obligations
of RiceX under the RiceX Plan Options. This Agreement evidences the assumption
of the RiceX Plan Options, including the necessary adjustments to the RiceX
Plan
Options required by the Merger.
The
table
below summarizes your RiceX Plan Options immediately before and after the
Merger:
RICEX
PLAN OPTIONS
|
NUTRACEA
ASSUMED OPTION
|
Grant
Date
|
Option
Expiration
Date
|
No.
of Shares
of
RiceX Common
Stock
|
Exercise
Price
per
share
|
No.
of Shares
of
NutraCea Common
Stock
|
Exercise
Price
Per
Share
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<RiceX
No.>>
|
$<<
RiceXExPrice>>
|
<<NutraCea
No.>>
|
$<<
NutraCeaExPrice>>
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<
RiceX No.>>
|
$<<
RiceXExPrice>>
|
<<
NutraCea No.>>
|
$<<
NutraCeaExPrice>>
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<
RiceX No.>>
|
$<<
RiceXExPrice>>
|
<<
NutraCea No.>>
|
$<<
NutraCeaExPrice>>
|
Unless
the context otherwise requires, any references in the Plan and the Option
Agreement (i) to the “Company” or the “Corporation” means NutraCea, (ii) to
“Stock,” “Common Stock” or “Shares” means shares of the common stock, no par
value, of NutraCea, (iii) to the “Board of Directors” or the “Board” means the
Board of Directors of NutraCea and (iv) to the “Committee” or the
“Administrator” means the Compensation Committee of the NutraCea Board of
Directors. All other provision
s
that
govern either the exercise or the termination of the assumed RiceX Plan Options
remain the same as set forth in your Option Agreement, and the provisions of
the
Option Agreement (except as expressly modified by this Agreement and the Merger)
will govern and control your rights under this Agreement to purchase shares
of
NutraCea common stock.
You
understand that, without the prior written consent of NutraCea, you may not
sell, pledge, hypothecate or otherwise transfer any of the shares of NutraCea
Common Stock that are issuable upon exercise of your assumed RiceX Plan Options
until October 4, 2008.
Upon
your
termination of employment with NutraCea or any of its present or future
subsidiaries, you will have the limited time period specified in your Option
Agreement to exercise your assumed RiceX Plan Option to the extent outstanding
at the time, after which time your RiceX Plan Options will expire and NOT be
exercisable for NutraCea common stock. Nothing in this Agreement or your Option
Agreement interferes in any way with your rights and NutraCea’s rights, which
rights are expressly reserved, to terminate your employment at any time for
any
reason, except to the extent expressly provided otherwise in a written agreement
executed by both you and NutraCea. Any future options, if any, you may receive
from NutraCea will be governed by the terms of the applicable NutraCea stock
option plan, and such terms may be different from the terms of your assumed
RiceX Plan Options, including, but not limited to, the time period in which
you
have to exercise vested options after your termination of
employment.
Please
sign and date this Agreement on the following page and return it promptly to
NutraCea at the address below. If you have any questions regarding this
Agreement or your assumed RiceX Plan Options, please contact Todd C. Crow at
(916) 933-3000.
|
NutraCea
|
|
1261
Hawk's Flight Court
|
|
El
Dorado Hills, CA 95762
|
|
Attn:
Todd C. Crow
|
|
|
|
|
|
|
|
|
NUTRACEA
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
C. Crow
|
|
|
Chief
Financial Officer
|
[ACKNOWLEDGMENT
PAGE FOLLOWS]
ACKNOWLEDGMENT
The
undersigned acknowledges receipt of the foregoing Stock Option Assumption
Agreement and understands that all rights and liabilities with respect to each
of his or her RiceX Plan Options hereby assumed by NutraCea are as set forth
in
the Option Agreement, the Plan and such Stock Option Assumption
Agreement.
DATED:
|
|
,
2005
|
|
|
|
|
|
|
|
«Employee»,
OPTIONEE
|
|
4
STOCK
OPTION ASSUMPTION AGREEMENT
(Non-Plan
Options)
Dear
«Name»:
As
you
know, on October 4, 2005, (the “
Closing
Date
”),
a
wholly-owned subsidiary of NutraCea, a California corporation (“
NutraCea
”),
merged with and into The RiceX Company (“
RiceX
”)
(the
“
Merger
”).
In
the Merger, each outstanding option for RiceX common stock was assumed by
NutraCea and converted into an option to purchase NutraCea common stock.
The
number of NutraCea common shares subject to the converted option is equal
to the
product of the number of RiceX common shares formerly subject to such option
multiplied by 0.76799 (rounded down to the nearest whole share). The exercise
price per NutraCea common share subject to such option is equal to the exercise
price provided for under the terms of such option.
On
the
Closing Date, you held one or more outstanding options to purchase shares
of
RiceX common stock granted to you
other
than
pursuant
to The RiceX Company 1997 Stock Option Plan and documented with a Stock Option
Agreement (collectively, as amended by the letter agreement entered into
by you
and RiceX, the “
Option
Agreements
”)
that
were not subject to termination pursuant to an option termination agreement
(the
“
RiceX
Non-Plan Options
”).
In
accordance with the Merger, on the Closing Date NutraCea assumed all obligations
of RiceX under the RiceX Non-Plan Options. This Agreement evidences the
assumption of the RiceX Non-Plan Options, including the necessary adjustments
to
the RiceX Non-Plan Options required by the Merger.
The
table
below summarizes your RiceX Non-Plan Options immediately before and after
the
Merger:
RICEX
NON-PLAN OPTIONS
|
NUTRACEA
ASSUMED OPTIONS
|
Grant
Date
|
Option
Expiration
Date
|
No.
of Shares of
RiceX
Common
Stock
|
Exercise
Price
per
share
|
No.
of Shares of
NutraCea
Common
Stock
|
Exercise
Price
Per
Share
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<RiceX
No.>>
|
$<<
RiceXExPrice>>
|
<<NutraCea
No.>>
|
$<<
NutraCeaExPrice>>
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<
RiceX No.>>
|
$<<
RiceXExPrice>>
|
<<
NutraCea No.>>
|
$<<
NutraCeaExPrice>>
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<
RiceX No.>>
|
$<<
RiceXExPrice>>
|
<<
NutraCea No.>>
|
$<<
NutraCeaExPrice>>
|
Unless
the context otherwise requires, any references in the Option Agreement (i)
to
the “Company” or the “Corporation” means NutraCea, (ii) to “Stock,” “Common
Stock” or “Shares” means shares of the common stock, no par value, of NutraCea,
(iii) to the “Board of Directors” or the “Board” means the Board of Directors of
NutraCea and (iv) to the “Committee” or the “Administrator” means the
Compensation Committee of the NutraCea Board of Directors. All other
provision
s
that
govern either the exercise or the termination of the assumed RiceX Non-Plan
Options remain the same as set forth in your Option Agreement, and the
provisions of the Option Agreement (except as expressly modified by this
Agreement and the Merger) will govern and control your rights under this
Agreement to purchase shares of NutraCea common stock.
You
understand that, without the prior written consent of NutraCea, you may not
sell, pledge, hypothecate or otherwise transfer any of the shares of NutraCea
Common Stock that are issuable upon exercise of your assumed RiceX Non-Plan
Options until October 4, 2008.
Upon
your
termination of employment with NutraCea or any of its present or future
subsidiaries, you will have the limited time period specified in your Option
Agreement to exercise your assumed RiceX Non-Plan Option to the extent
outstanding at the time, after which time your RiceX Non-Plan Options will
expire and NOT be exercisable for NutraCea common stock. Nothing in this
Agreement or your Option Agreement interferes in any way with your rights
and
NutraCea’s rights, which rights are expressly reserved, to terminate your
employment at any time for any reason, except to the extent expressly provided
otherwise in a written agreement executed by both you and NutraCea. Any future
options, if any, you may receive from NutraCea will be governed by the terms
of
the applicable NutraCea stock option plan, and such terms may be different
from
the terms of your assumed RiceX Non-Plan Options, including, but not limited
to,
the time period in which you have to exercise vested options after your
termination of employment.
Please
sign and date this Agreement on the following page and return it promptly
to
NutraCea at the address below. If you have any questions regarding this
Agreement or your assumed RiceX Non-Plan Options, please contact Todd C.
Crow at
(916) 933-3000.
|
NutraCea
|
|
1261
Hawk's Flight Court
|
|
El
Dorado Hills, CA 95762
|
|
Attn:
Todd C. Crow
|
|
|
|
|
|
|
|
|
NUTRACEA
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
C. Crow
|
|
|
Chief
Financial Officer
|
[ACKNOWLEDGMENT
PAGE FOLLOWS]
ACKNOWLEDGMENT
The
undersigned acknowledges receipt of the foregoing Stock Option Assumption
Agreement and understands that all rights and liabilities with respect to
each
of his or her RiceX Non-Plan Options hereby assumed by NutraCea are as set
forth
in the Option Agreement and such Stock Option Assumption
Agreement.
DATED:
|
|
,
2005
|
|
|
|
|
|
|
|
«Employee»,
OPTIONEE
|
|
3
NOTICE
OF ASSUMPTION OF RICEX OPTIONS
(RiceX
1997 Stock Option Plan)
Dear
«Name»:
As
you
know, on October 4, 2005, (the “
Closing
Date
”),
a
wholly-owned subsidiary of NutraCea, a California corporation (“
NutraCea
”),
merged with and into The RiceX Company (“
RiceX
”)
(the
“
Merger
”).
In
the Merger, each outstanding option for RiceX common stock was converted
into an
option to purchase NutraCea common stock. The number of NutraCea common shares
subject to the converted option is equal to the product of the number of
RiceX
common shares formerly subject to such option multiplied by 0.76799 (rounded
down to the nearest whole share). The exercise price per NutraCea common
share
subject to such option is equal to the exercise price provided for under
the
terms of such option.
On
the
Closing Date, you held one or more outstanding options to purchase shares
of
RiceX common stock (the “
RiceX
Options
”)
granted to you under The RiceX Company 1997 Stock Option Plan (“
Plan
”)
and
documented with a Stock Option Agreement (collectively, and including any
written amendments thereto, the “
Option
Agreements
”).
This
letter confirms that as a result of the Merger, your RiceX Options are no
longer
exercisable for RiceX common stock. Instead, your RiceX Options are exercisable
for shares of NutraCea common stock. In addition, this letter sets forth
the
adjustments that have been made to your assumed RiceX Options pursuant to
the
terms of the Merger.
The
table
below summarizes your RiceX Options immediately before and after the
Merger:
RICEX
OPTIONS
|
NUTRACEA
ASSUMED OPTION
|
Grant
Date
|
Option
Expiration
Date
|
No.
of Shares
of
RiceX Common
Stock
|
Exercise
Price
per
share
|
No.
of Shares
of
NutraCea Common
Stock
|
Exercise
Price
Per
Share
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<RiceX
No.>>
|
$<<
RiceXExPrice>>
|
<<NutraCea
No.>>
|
$<<
NutraCeaExPrice>>
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<
RiceX No.>>
|
$<<
RiceXExPrice>>
|
<<
NutraCea No.>>
|
$<<
NutraCeaExPrice>>
|
<<Grant
Date>>
|
<<Expiration
Date>>
|
<<
RiceX No.>>
|
$<<
RiceXExPrice>>
|
<<
NutraCea No.>>
|
$<<
NutraCeaExPrice>>
|
You
have
the limited time period to exercise your assumed RiceX Plan Option, after
which
time your RiceX Options will expire and NOT be exercisable for NutraCea common
stock. The time period in which you have to exercise your assumed RiceX Plan
Option and the extent to which you may exercise such option is provided for
in
your Option Agreement and any other written agreements entered into between
you
and RiceX in connection with your termination from the Company. To exercise
your
assumed RiceX Plan Option(s) before they expire, you must send to NutraCea
at
the address listed on the attached Exercise Notice (i) an executed and completed
Exercise Notice in the form attached as
Exhibit
A
for each
RiceX Plan Option that you intend to exercise and (ii) the full purchase
price
of the NutraCea common stock that you wish to acquire upon exercise of the
RiceX
Plan Option in accordance with the Exercise Notice.
If
you
have any questions regarding your assumed RiceX Options, please contact Todd
C.
Crow at (916) 933-3000.
|
NutraCea
|
|
1261
Hawk's Flight Court
|
|
El
Dorado Hills, CA 95762
|
|
Attn:
Todd C. Crow
|
|
|
|
|
|
|
|
|
NUTRACEA
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
C. Crow
|
|
|
Chief
Financial Officer
|
EXHIBIT
A
NOTICE
OF EXERCISE
(For
Option Holders that are Not Employees of The RiceX
Company)
NUTRACEA
Address:
|
1261
Hawk's Flight Court
|
|
El
Dorado Hills, CA 95762
|
Attn:
Chief Financial Officer:
1.
Exercise
of Option
.
Effective as of today, _________200_, _____, the undersigned (“Optionee”) hereby
elects to exercise Optionee’s option (“Option”) to purchase _________ shares of
the Common Stock (the “Shares”) of NutraCea, a California corporation (the
“Company”), under and pursuant to the Stock Option Agreement dated ____________,
____ (the “Option Agreement”).
2.
Delivery
of Payment
.
Optionee herewith delivers to the Company the full purchase price of the Shares,
as set forth in the Option Agreement, and any and all withholding taxes due
in
connection with the exercise of the Option.
3.
Representations
of Optionee
.
Optionee acknowledges that Optionee has received, read and understood the Option
Agreement and the Notice of Assumption of RiceX Options that was previously
delivered to Optionee and agrees to abide by and be bound by their terms and
conditions.
4.
Rights
as Shareholder
.
Until
the issuance of the Shares (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the shares underlying the Option, notwithstanding the exercise
of the Option. The Shares shall be issued to the Optionee as soon as practicable
after the Option is exercised.
5.
Tax
Consultation
.
Optionee understands that Optionee may suffer adverse tax consequences as a
result of Optionee’s purchase or disposition of the Shares. Optionee represents
that Optionee has consulted with any tax consultants Optionee deems advisable
in
connection with the purchase or disposition of the Shares and that Optionee
is
not relying on the Company for any tax advice.
6.
Representations
of Optionee
.
In
connection with the purchase of the Shares, Optionee represents to the Company
the following:
6.1
Optionee
is aware of the Company’s business affairs and financial condition and has
acquired sufficient information about the Company to reach an informed and
knowledgeable decision to acquire the Shares. Optionee is acquiring these Shares
for investment for Optionee’s own account only and not with a view to, or for
resale in connection with, any “distribution” thereof within the meaning of the
Securities Act of 1933, as amended (the “Securities Act”).
6.2
Optionee
acknowledges and understands that the Shares constitute “restricted securities”
under the Securities Act and have not been registered under the Securities
Act
in reliance upon a specific exemption therefrom, which exemption depends upon,
among other things, the bona fide nature of Optionee’s investment intent as
expressed herein. In this connection, Optionee understands that, in the view
of
the Securities and Exchange Commission, the statutory basis for such exemption
may be unavailable if Optionee’s representation was predicated solely upon a
present intention to hold these Shares for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or
decrease in the market price of the Shares, or for a period of one year or
any
other fixed period in the future. Optionee further understands that the Shares
must be held indefinitely unless they are subsequently registered under the
Securities Act or an exemption from such registration is available. Optionee
further acknowledges and understands that the Company is under no obligation
to
register the Shares. Optionee understands that the certificate evidencing the
Shares will be imprinted with any legend required under applicable state
securities laws.
6.3
Optionee
is familiar with the provisions of 144 promulgated under the Securities Act,
which, in substance, permit limited public resale of “restricted securities”
acquired, directly or indirectly from the issuer thereof, in a non-public
offering subject to the satisfaction of certain conditions. The Shares may
be
resold in certain limited circumstances subject to the provisions of
Rule 144, which requires the resale to occur not less than one year
after the later of the date the Shares were sold by the Company or the date
the
Shares were sold by an affiliate of the Company, within the meaning of
Rule 144; and, in the case of acquisition of the Shares by an affiliate, or
by a non-affiliate who subsequently holds the Shares less than two years, the
satisfaction of the following conditions: (1) the resale is made through a
broker in an unsolicited “broker’s transaction” or in transactions directly
with a market maker (as said term is defined under the Securities Exchange
Act of 1934); (2) the availability of certain public information about the
Company; (3) the amount of Shares being sold during any three month period
not exceeding the limitations specified in Rule 144(e); and (4) the
timely filing of a Form 144, if applicable.
6.4
Optionee
further understands that in the event all of the applicable requirements of
Rule
144 are not satisfied, registration under the Securities Act, compliance with
Regulation A, or some other registration exemption will be required; and that,
notwithstanding the fact that Rules 144 is not exclusive, the Staff of the
Securities and Exchange Commission has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rules 144 will have a substantial
burden of proof in establishing that an exemption from registration is available
for such offers or sales, and that such persons and their respective brokers
who
participate in such transactions do so at their own risk. Optionee understands
that no assurances can be given that any such other registration exemption
will
be available in such event.
7.
Restrictive
Legends and Stop-Transfer Orders
.
7.1
Legends
.
Optionee understands and agrees that the Company shall cause the legend set
forth below or legends substantially equivalent thereto, to be placed upon
any
certificate(s) evidencing ownership of the Shares together with any other
legends that may be required by the Company or by state or federal securities
laws:
THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED,
PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE
OPINION OF COMPANY COUNSEL SATISFACTORY TO THE ISSUER OF THESE SECURITIES,
SUCH
OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
7.2
Stop-Transfer
Notices
.
Optionee agrees that, in order to ensure compliance with the restrictions
referred to herein, the Company may issue appropriate “stop transfer”
instructions to its transfer agent, if any, and that, if the Company transfers
its own securities, it may make appropriate notations to the same effect in
its own records.
7.3
Refusal
to Transfer
.
The
Company shall not be required (i) to transfer on its books any Shares that
have been sold or otherwise transferred in violation of any of the provisions
of
this Exercise Notice or (ii) to treat as owner of such Shares or to accord
the right to vote or pay dividends to any purchaser or other transferee to
whom
such Shares shall have been so transferred.
8.
Successors
and Assigns
.
The
Company may assign any of its rights under this Exercise Notice to single or
multiple assignees, and this Exercise Notice shall inure to the benefit of
the
successors and assigns of the Company. Subject to the restrictions on transfer
herein set forth, this Exercise Notice shall be binding upon Optionee and his
or
her heirs, executors, administrators, successors and assigns.
9.
Governing
Law; Severability
.
This
Exercise Notice is governed by the internal substantive laws but not the choice
of law rules, of the State of California
.
In the
event that any provision hereof becomes or is declared by a court of competent
jurisdiction to be illegal, unenforceable or void, the remaining provisions
shall nevertheless continue in full force and effect.
[remainder
of page intentionally left blank]
10.
Entire
Agreement
.
The
Option Agreement and the Notice of Assumption of RiceX Options that was
previously delivered to Option Holder in connection with the Company’s
acquisition of The RiceX Company (“Option Assumption Notice”) are incorporated
herein by reference. This Exercise Notice, the Option Assumption Notice, and
the
Option Agreement constitute the entire agreement of the parties with respect
to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee’s interest except by
means of a writing signed by the Company and Optionee.
Submitted
by:
|
|
Accepted
by:
|
OPTIONEE
|
|
NUTRACEA
|
|
|
|
|
|
|
Signature
|
|
By
|
|
|
|
|
|
|
Print
Name
|
|
Title
|
|
|
|
Address
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date
Received
|
Spousal
Consent
I
acknowledge that I have read the foregoing Notice of Exercise (the “
Notice
”)
and
that I know its contents. I hereby consent to and approve all of the provisions
of the Notice, and agree that the shares of the Common Stock of NutraCea
purchased thereunder (the “
Shares
”)
and
any interest I may have in such Shares are subject to all the provisions of
the
Notice. I will take no action at any time to hinder operation of the Agreement
on these Shares or any interest I may have in or to them.
|
|
|
|
Date
|
|
Signature
of Optionee’s Spouse
|
|
|
|
|
|
|
|
|
|
|
|
Spouse’s
Name typed or printed
|
|
|
|
|
|
|
|
|
|
|
|
Optionee’s
Name typed or printed
|
|
7
Exhibit
10.48
RESALE
RESTRICTION AGREEMENT
THIS
RESALE RESTRICTION AGREEMENT (the “
Agreement
”)
is
made and entered into as of October 4, 2005, by and among NutraCea, a California
corporation and <Name> (“
Shareholder
”).
Capitalized terms used but not otherwise defined herein shall have the meanings
ascribed to them in the Merger Agreement (as defined below). The obligations
of
the parties hereto shall be effective as of the Effective Time.
NutraCea
and Shareholder agree as follows:
1.
Background
and Purpose
.
NutraCea, Red Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of NutraCea (“
Merger
Sub
”),
and
The RiceX Company, a Delaware corporation (“
RiceX
”),
are
parties to that certain Agreement and Plan of Merger and Reorganization
(“
Merger
Agreement
”)
dated
as of April 4, 2005, which provides for the merger (“
Merger
”)
of
Merger Sub into RiceX and for RiceX to thereafter be a wholly-owned subsidiary
of NutraCea. Shareholder is the holder of shares of RiceX common stock and/or
options to purchase shares of RiceX common stock and accordingly will receive
significant consideration pursuant to the terms of the Merger Agreement. As
a
condition to the Merger, the Merger Agreement contemplates, among other things,
that Shareholder will enter into this Resale Restriction Agreement
(“
Agreement
”).
2.
Resale
Restriction
.
Shareholder agrees that, without the express prior written consent of NutraCea’s
Chief Executive Officer acting on behalf of NutraCea, Shareholder will not
offer, sell, make any short sale of, loan, encumber, grant any option for the
purchase of, or otherwise dispose of (the “
Resale
Restrictions
”),
any
securities of the NutraCea beneficially owned or otherwise held by Shareholder
as of the date of this Agreement or hereafter acquired by Shareholder
(collectively, the “
Shares
”)
for a
period of three (3) years after the Effective Time (the “
Lock-up
Period
”).
The
foregoing Resale Restrictions are expressly agreed to preclude the holder of
the
Shares from engaging in any hedging or other transaction which may lead to
or
result in a sale of Shares during the Lock-up Period even if such Shares would
be sold by someone other than Shareholder. Such prohibited hedging or other
transactions would include without limitation any short sale, any pledge or
any
purchase, sale or grant of any right (including without limitation any put
or
call option) with respect to any of the Shares. The Resale Restrictions shall
apply regardless of whether Shareholder is an employee of NutraCea.
3.
Permitted
Transfers to Family Members
.
Notwithstanding the provisions of Section 2 above, Shareholder may transfer
(subject to the terms of any option or warrant agreement) any or all of the
Shares either during Shareholder’s lifetime or on death by will or intestacy to
Shareholder’s immediate family or to a trust the beneficiaries of which are
exclusively Shareholder and/or a member or members of Shareholder’s immediate
family;
provided,
however
,
that in
any such case it shall be a condition to the transfer that the transferee
execute an agreement stating that the transferee is receiving and holding the
Shares subject to the provisions of this Agreement, and there shall be no
further transfer of such Shares except in accordance with this Agreement. For
purposes of this Agreement, “immediate family” shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor.
4.
Stock
Transfer Instructions
.
Shareholder agrees and consents to the entry of stop transfer instructions
with
the transfer agent for NutraCea’s common stock against any transfer of shares of
NutraCea’s common stock by Shareholder in contravention of the Resale
Restrictions.
5.
Restrictive
Legends
.
The
certificates representing the Shares shall be marked with restrictive legends
as
follows:
THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
UPON
TRANSFER AS SET FORTH IN AN AGREEMENT BETWEEN THE CORPORATION AND THE REGISTERED
HOLDER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE
CORPORATION
6.
Miscellaneous
.
6.1.
Entire
Agreement
.
This
Agreement, the Merger Agreement and the documents attached thereto or hereto
as
exhibits constitute the entire agreement between the parties, all oral
agreements being merged herein, and supersede all prior representations. There
are no representations, agreements, arrangements, or understandings, oral or
written, between or among the parties relating to the subject matter of this
Agreement that are not fully expressed herein and therein.
6.2.
Amendment
.
This
Agreement may be amended by the parties hereto at any time by execution of
an
instrument in writing signed on behalf of each of the parties
hereto.
6.3.
Waiver
.
Any
waiver of the terms or conditions of this Agreement may be waived at any time
by
the party entitled to the benefit thereof, but no such waiver shall affect
or
impair the right of the waiving party to require observance, performance or
satisfaction either of that term or condition as it applies on a subsequent
occasion or of any other term or condition.
6.4.
Nonassignability
.
This
Agreement shall not be assigned by Shareholder without the prior written consent
of NutraCea. Any assignment contrary to the provisions of this Agreement shall
be deemed a default under this Agreement, allowing NutraCea to exercise all
remedies available under law.
6.5.
Succession
.
Subject
to the provisions otherwise contained in this Agreement, this Agreement shall
inure to the benefit of and be binding on successors and assigns of the
respective parties.
6.6.
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (i) on the date of personal
service on the parties, (ii) on the third business day after mailing, if the
document is mailed by registered or certified mail, (iii) one day after being
sent by professional or overnight courier service or messenger service
guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv)
on
the date of transmission by telegram, telex, telecopy or other means of
electronic transmission resulting in written copies, with receipt confirmed.
Any
such notice shall be delivered or addressed to the parties at the addresses
set
forth below or at the most recent address specified by the addressee through
written notice under this provision. Failure to conform to the requirement
that
mailings be done by registered or certified mail shall not defeat the
effectiveness of notice actually received by the addressee.
6.7.
Attorneys’
Fees; Prejudgment Interest
.
If the
services of an attorney are required by any party to secure the performance
of
this Agreement or otherwise upon the breach or default of another party to
this
Agreement, or if any judicial remedy or arbitration is necessary to enforce
or
interpret any provision of this Agreement or the rights and duties of any person
in relation thereto, the prevailing party shall be entitled to reasonable
attorneys’ fees, costs and other expenses, in addition to any other relief to
which such party may be entitled. Any award of damages following judicial remedy
or arbitration as a result of the breach of this Agreement or any of its
provisions shall include an award of prejudgment interest from the date of
the
breach at the maximum amount of interest allowed by law.
6.8.
Counterparts
.
This
Agreement may be executed in any number of counterparts with the same effect
as
if the parties had all signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
6.9.
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Agreement.
6.10.
Severability
.
If any
provision of Agreement is held by a court of competent jurisdiction to be
invalid or enforceable, the remainder of the Agreement which can be given effect
without the invalid provision shall continue in full force and effect and shall
in no way be impaired or invalidated.
6.11.
Governing
Law
.
The
rights and obligations of the parties and the interpretation and performance
of
this Agreement shall be governed by the law of California, excluding its
conflict of laws rules.
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year
first above written.
NUTRACEA
|
|
SHAREHOLDER
|
|
|
|
|
|
|
Bradley
Edson, President
|
|
<Name>
|
|
|
|
|
|
Address:
|
NutraCea
|
|
Address:
|
c/o
The RiceX Company
|
|
1261
Hawks’ Flight Court
|
|
|
1241
Hawk’s Flight Court
|
|
El
Dorado Hills, CA 95762
|
|
|
El
Dorado Hills, California 95762
|
Facsimile:
|
(916)
933-7001
|
|
Facsimile:
|
(916)
933-3232
|
4
Exhibit
10.49
RESALE
RESTRICTION AGREEMENT
NUTRACEA,
a California corporation (“
NutraCea
”)
and
[_______] (“
Shareholder
”),
agree, as of September 30, 2005, as follows:
1.
Background
and Purpose
.
NutraCea, Red Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of NutraCea (“
Merger
Sub
”),
and
The RiceX Company, a Delaware corporation (“
RiceX
”),
are
parties to that certain Agreement and Plan of Merger and Reorganization
(“
Merger
Agreement
”)
dated
as of April 4, 2005, which provides for the merger (“
Merger
”)
of
Merger Sub into RiceX and for RiceX to thereafter be a wholly owned subsidiary
of NutraCea. Pursuant to the Merger, each share of RiceX common stock will
be
converted into NutraCea common stock and each option to purchase RiceX common
stock that is outstanding at the effective time of the Merger will be assumed
by
NutraCea and become an option to purchase NutraCea common stock. Shareholder
is
the holder of shares of RiceX common stock and/or options to purchase shares
of
RiceX common stock and accordingly will receive significant consideration
pursuant to the terms of the Merger Agreement. In connection with the Merger,
NutraCea and Shareholder desire to enter into this Resale Restriction Agreement
(“
Agreement
”)
on the
terms set forth below. NutraCea and Shareholder shall not be required to perform
their obligations under this Agreement until the effective time of the
Merger.
2.
Resale
Restriction
.
Except
as set forth in Section 3 below, Shareholder agrees that, without the express
prior written consent of NutraCea, Shareholder will not offer, sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of (the "
Resale
Restrictions
"),
any
securities of NutraCea beneficially owned or otherwise held by Shareholder
immediately following the Merger (collectively, the "
Shares
")
until
December 31, 2007 (the "
Lock-up
Period
").
The
Resale Restrictions shall apply regardless of whether Shareholder is an employee
or Director of NutraCea.
3.
Permitted
Transfers
.
Notwithstanding the provisions of Section 2 above, Shareholder may transfer
(subject to the terms of any option or warrant agreement) any or all of the
Shares either during Shareholder’s lifetime or on death by will or intestacy to
Shareholder’s immediate family or to a trust the beneficiaries of which are
exclusively Shareholder and/or a member or members of Shareholder’s immediate
family;
provided,
however
,
that in
any such case it shall be a condition to the transfer that the transferee
execute an agreement stating that the transferee is receiving and holding the
Shares subject to the provisions of this Agreement, and there shall be no
further transfer of such Shares except in accordance with this Agreement. For
purposes of this Agreement, "immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor. In addition,
notwithstanding the provision of Section 2 above, Shareholder may pledge or
hypothecate shares of NutraCea common stock held beneficially or of record
by
Shareholder and Shareholder may net exercise any options or warrants that are
held by Shareholder pursuant to a net exercise provision as long as 100% of
the
shares received pursuant to the transaction are subject to this
agreement.
4.
Stock
Transfer Instructions
.
Shareholder agrees and consents to the entry of stop transfer instructions
with
the transfer agent for NutraCea’s common stock against any transfer of shares of
NutraCea’s common stock by Shareholder in contravention of the Resale
Restrictions.
5.
Miscellaneous
.
5.1.
Entire
Agreement
.
This
Agreement constitutes the entire agreement between the parties regarding the
matters contained herein, all oral agreements being merged herein, and supersede
all prior representations. There are no representations, agreements,
arrangements, or understandings, oral or written, between or among the parties
relating to the subject matter of this Agreement that are not fully expressed
herein and therein. Notwithstanding the foregoing, this Agreement shall not
modify or limit any other agreement by which Shareholder is bound that restricts
the transfer by Shareholder of NutraCea securities.
5.2.
Amendment
.
This
Agreement may be amended by the parties hereto at any time by execution of
an
instrument in writing signed on behalf of each of the parties hereto.
5.3.
Waiver
.
Any
waiver of the terms or conditions of this Agreement may be waived at any time
by
the party entitled to the benefit thereof, but no such waiver shall affect
or
impair the right of the waiving party to require observance, performance or
satisfaction either of that term or condition as it applies on a subsequent
occasion or of any other term or condition.
5.4.
Nonassignability
.
This
Agreement shall not be assigned by Shareholder without the prior written consent
of NutraCea. Any assignment contrary to the provisions of this Agreement shall
be deemed a default under this Agreement, allowing NutraCea to exercise all
remedies available under law.
5.5.
Succession
.
Subject
to the provisions otherwise contained in this Agreement, this Agreement shall
inure to the benefit of and be binding on successors and assigns of the
respective parties.
5.6.
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (i) on the date of personal
service on the parties, (ii) on the third business day after mailing, if the
document is mailed by registered or certified mail, (iii) one day after being
sent by professional or overnight courier service or messenger service
guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv)
on
the date of transmission by telegram, telex, telecopy or other means of
electronic transmission resulting in written copies, with receipt confirmed.
Any
such notice shall be delivered or addressed to the parties at the addresses
set
forth below or at the most recent address specified by the addressee through
written notice under this provision. Failure to conform to the requirement
that
mailings be done by registered or certified mail shall not defeat the
effectiveness of notice actually received by the addressee.
5.7.
Attorneys'
Fees; Prejudgment Interest
.
If the
services of an attorney are required by any party to secure the performance
of
this Agreement or otherwise upon the breach or default of another party to
this
Agreement, or if any judicial remedy or arbitration is necessary to enforce
or
interpret any provision of this Agreement or the rights and duties of any person
in relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to
which such party may be entitled. Any award of damages following judicial remedy
or arbitration as a result of the breach of this Agreement or any of its
provisions shall include an award of prejudgment interest from the date of
the
breach at the maximum amount of interest allowed by law.
5.8.
Counterparts
.
This
Agreement may be executed in any number of counterparts with the same effect
as
if the parties had all signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
5.9.
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Agreement.
5.10.
Severability
.
If any
provision of Agreement is held by a court of competent jurisdiction to be
invalid or enforceable, the remainder of the Agreement which can be given effect
without the invalid provision shall continue in full force and effect and shall
in no way be impaired or invalidated.
5.11.
Governing
Law
.
The
rights and obligations of the parties and the interpretation and performance
of
this Agreement shall be governed by the law of California, excluding its
conflict of laws rules.
NUTRACEA
|
|
SHAREHOLDER
|
|
|
|
|
|
|
|
|
Bradley
Edson, President
|
|
[________________]
|
|
|
|
|
|
Address
|
1261
Hawks’ Flight Court
|
|
Address:
|
|
|
El
Dorado Hills, CA 95762
|
|
|
|
Facsimile:
|
(916)
933-7001
|
|
Facsimile:
|
(___)
___-____
|
Exhibit
10.50
RESALE
RESTRICTION AGREEMENT
NUTRACEA,
a California corporation (“
NutraCea
”)
and
__________ (“
Shareholder
”),
agree, as of September 30, 2005, as follows:
1.
Background
and Purpose
.
NutraCea, Red Acquisition Corporation, a Delaware corporation and wholly-owned
subsidiary of NutraCea (“
Merger
Sub
”),
and
The RiceX Company, a Delaware corporation (“
RiceX
”),
are
parties to that certain Agreement and Plan of Merger and Reorganization
(“
Merger
Agreement
”)
dated
as of April 4, 2005, which provides for the merger (“
Merger
”)
of
Merger Sub into RiceX and for RiceX to thereafter be a wholly owned subsidiary
of NutraCea. Shareholder is the holder of shares of NutraCea common stock and/or
warrants to purchase shares of NutraCea common stock and will receive
significant benefits from the combination of NutraCea and RiceX in the Merger.
In connection with the Merger, NutraCea and Shareholder desire to enter into
this Resale Restriction Agreement (“
Agreement
”)
on the
terms set forth below. NutraCea and Shareholder shall not be required to perform
their obligations under this Agreement until the effective time of the
Merger.
2.
Resale
Restriction
.
Except
as set forth in Section 3 below, Shareholder agrees that, without the express
prior written consent of NutraCea, Shareholder will not offer, sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of (the "
Resale
Restrictions
"),
any
securities of NutraCea beneficially owned or otherwise held by Shareholder
immediately following the Merger (collectively, the "
Shares
")
until
December 31, 2007 (the "
Lock-up
Period
").
The
Resale Restrictions shall apply regardless of whether Shareholder is an employee
or Director of NutraCea.
3.
Permitted
Transfers
.
Notwithstanding the provisions of Section 2 above, Shareholder may transfer
(subject to the terms of any option or warrant agreement) any or all of the
Shares either during Shareholder’s lifetime or on death by will or intestacy to
Shareholder’s immediate family or to a trust the beneficiaries of which are
exclusively Shareholder and/or a member or members of Shareholder’s immediate
family;
provided,
however
,
that in
any such case it shall be a condition to the transfer that the transferee
execute an agreement stating that the transferee is receiving and holding the
Shares subject to the provisions of this Agreement, and there shall be no
further transfer of such Shares except in accordance with this Agreement. For
purposes of this Agreement, "immediate family" shall mean spouse, lineal
descendant, father, mother, brother or sister of the transferor. In addition,
notwithstanding the provision of Section 2 above, Shareholder may pledge or
hypothecate shares of NutraCea common stock held beneficially or of record
by
Shareholder and Shareholder may net exercise any options or warrants that are
held by Shareholder pursuant to a net exercise provision as long as 100% of
the
shares received pursuant to the transaction are subject to this
agreement.
4.
Stock
Transfer Instructions
.
Shareholder agrees and consents to the entry of stop transfer instructions
with
the transfer agent for NutraCea’s common stock against any transfer of shares of
NutraCea’s common stock by Shareholder in contravention of the Resale
Restrictions.
5.
Miscellaneous
.
5.1.
Entire
Agreement
.
This
Agreement constitutes the entire agreement between the parties regarding the
matters contained herein, all oral agreements being merged herein, and supersede
all prior representations. There are no representations, agreements,
arrangements, or understandings, oral or written, between or among the parties
relating to the subject matter of this Agreement that are not fully expressed
herein and therein. Notwithstanding the foregoing, this Agreement shall not
modify or limit any other agreement by which Shareholder is bound that restricts
the transfer by Shareholder of NutraCea securities.
5.2.
Amendment
.
This
Agreement may be amended by the parties hereto at any time by execution of
an
instrument in writing signed on behalf of each of the parties hereto.
5.3.
Waiver
.
Any
waiver of the terms or conditions of this Agreement may be waived at any time
by
the party entitled to the benefit thereof, but no such waiver shall affect
or
impair the right of the waiving party to require observance, performance or
satisfaction either of that term or condition as it applies on a subsequent
occasion or of any other term or condition.
5.4.
Nonassignability
.
This
Agreement shall not be assigned by Shareholder without the prior written consent
of NutraCea. Any assignment contrary to the provisions of this Agreement shall
be deemed a default under this Agreement, allowing NutraCea to exercise all
remedies available under law.
5.5.
Succession
.
Subject
to the provisions otherwise contained in this Agreement, this Agreement shall
inure to the benefit of and be binding on successors and assigns of the
respective parties.
5.6.
Notices
.
Any
notice under this Agreement shall be in writing, and any written notice or
other
document shall be deemed to have been duly given (i) on the date of personal
service on the parties, (ii) on the third business day after mailing, if the
document is mailed by registered or certified mail, (iii) one day after being
sent by professional or overnight courier service or messenger service
guaranteeing one-day delivery, with receipt confirmed by the courier, or (iv)
on
the date of transmission by telegram, telex, telecopy or other means of
electronic transmission resulting in written copies, with receipt confirmed.
Any
such notice shall be delivered or addressed to the parties at the addresses
set
forth below or at the most recent address specified by the addressee through
written notice under this provision. Failure to conform to the requirement
that
mailings be done by registered or certified mail shall not defeat the
effectiveness of notice actually received by the addressee.
5.7.
Attorneys'
Fees; Prejudgment Interest
.
If the
services of an attorney are required by any party to secure the performance
of
this Agreement or otherwise upon the breach or default of another party to
this
Agreement, or if any judicial remedy or arbitration is necessary to enforce
or
interpret any provision of this Agreement or the rights and duties of any person
in relation thereto, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and other expenses, in addition to any other relief
to
which such party may be entitled. Any award of damages following judicial remedy
or arbitration as a result of the breach of this Agreement or any of its
provisions shall include an award of prejudgment interest from the date of
the
breach at the maximum amount of interest allowed by law.
5.8.
Counterparts
.
This
Agreement may be executed in any number of counterparts with the same effect
as
if the parties had all signed the same document. All counterparts shall be
construed together and shall constitute one agreement.
5.9.
Captions
.
All
paragraph captions are for reference only and shall not be considered in
construing this Agreement.
5.10.
Severability
.
If any
provision of Agreement is held by a court of competent jurisdiction to be
invalid or enforceable, the remainder of the Agreement which can be given effect
without the invalid provision shall continue in full force and effect and shall
in no way be impaired or invalidated.
5.11.
Governing
Law
.
The
rights and obligations of the parties and the interpretation and performance
of
this Agreement shall be governed by the law of California, excluding its
conflict of laws rules.
NUTRACEA
|
|
SHAREHOLDER
|
|
|
|
|
|
|
Patricia
McPeak, Chief Executive Officer
|
|
[____________]
|
|
|
|
|
|
Address:
|
1261
Hawks’ Flight Court
|
|
Address:
|
|
|
El
Dorado Hills, CA 95762
|
|
|
|
Facsimile:
|
(916)
933-7001
|
|
Facsimile:
|
(___)
___-____
|
Exhibit
21.01
NutraCea
Subsidiaries
NutraGlo
Incorporated, a Nevada corporation, 100% ownership by NutraStar Technologies
Incorporated.
NutraStar
Technologies Incorporated, a Nevada corporation, 100% ownership by NutraCea.
NutraStarSport,
Inc., a Nevada corporation, partial ownership by NutraStar Technologies
Incorporated with Chris Basio.
The
RiceX
Company, a Delaware corporation, 100% ownership by NutraCea.
RiceX
Nutrients, Inc., a Montana corporation, 100% ownership by The RiceX
Company.
Exhibit
23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors
Nutracea
and subsidiaries
El
Dorado
Hills, California
We
hereby
consent to the use in this Registration Statement on Form SB-2 our report dated
February 14, 2005 relating to the financial statements as of December 31,
2004 and the two years then ended, included herein. We also consent to the
reference to us under the heading "Experts" in this registration
statement.
Malone
& Bailey, PC
www.malone-bailey.com
Houston,
Texas
November
18, 2005
Exhibit
23.2
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the use in this Registration Statement of Nutracea, Inc. on Form
S8-2
of our report, dated March 4, 2005, with respect to the consolidated balance
sheet of The RiceX Company as of December 31, 2004, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year
then
ended appearing in the Prospectus, which is part of this Registration
Statement.
We
also
consent to the reference to our Firm under the caption "Experts" in the
Prospectus.
Sacramento,
California
November
17, 2005
Exhibit
23.3
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
hereby
consent to the use in the Prospectus constituting part of the Registration
Statement, on Form SB-2, filed November 18, 2005 of our report dated February
20, 2004 on the consolidated balance sheet of The RiceX Company and Subsidiary
as of December 31, 2003, and the related consolidated statements of operations,
shareholders’ equity and cash flows for the year then ended, which appear in the
Prospectus. We also consent to the reference to our Firm under the heading
"Experts" in the Prospectus.
Moss
Adams LLP
Stockton,
California
November
18, 2005