EXHIBIT 10.7
OPTION AGREEMENT
----------------
FOR VALUE RECEIVED, PACIFICHEALTH LABORATORIES, INC. (the "Company"), a
Delaware corporation, hereby grants to BIG SKY, INC. ("Optionee"), a corporation
with a business address c/o International Management Group, Xxx Xxxxxxxx Xxxxx,
Xxxxx 0000, Xxxxxxxxx Xxxx 00000, an option to purchase shares of its Common
Stock, par value $.0025, upon and subject to the following terms and conditions:
1. Background. Optionee and the Company are entering into an endorsement
agreement (the "Endorsement Agreement") simultaneously herewith which provides
for the use by the Company of the name, likeness and endorsement of Xxx Xxxxxxx
in connection with the advertisement and promotion of certain of the products.
As part of the compensation to be paid to Optionee pursuant to the Endorsement
Agreement, the Company has agreed to grant to Optionee the option to purchase
twenty-five thousand (25,000) shares of its Common Stock (the "Option Shares").
This Option Agreement represents and sets forth in full the rights granted and
conveyed to Optionee by the Company to purchase the Option Shares, as
contemplated by the Endorsement Agreement.
2. Term of Option and Exercise Price.
(a) The price at which Optionee shall be entitled to purchase the Option
Shares upon exercise of the Option (the "Exercise Price") shall be the price at
which the Company's Common Stock is first sold by it to the public pursuant to
an effective registration statement under the Securities Act of 1933 (the "IPO
Registration Statement").
(b) The Option may be exercised by Optionee at any time during a five year
term (the "Option Term") commencing on the effective date of the IPO
Registration Statement (the "Effective Date") and ending on the fifth
anniversary of the Effective Date. If Optionee fails to exercise the Option
within the Option Term, the Option shall expire.
3. Method of Exercise or Conversion.
(a) During the Option Term, Optionee may exercise the Option, in whole or
from time to time in part, by giving the Company written notice to that effect,
accompanied by payment for the Option Shares (the "Notice of Exercise").
Optionee shall pay for the Option Shares (i) in cash, (ii) by Optionee's
personal check payable to Company's order (in which case the effectiveness of
the exercise shall be subject to collection of such funds), (iii) by assigning
or transferring to the Company shares of its Common Stock then held by Optionee
or Option Shares then subject to purchase upon exercise of the Option (a
"cashless exercise" of the
Option), the shares so assigned or transferred to be valued at the fair market
value of such shares as of the date as of the date the Notice of Exercise is
given (the "Exercise Date"), or (iv) in such other manner as the Company and the
Optionee may agree upon.
(b) For purposes of sub-section (a)(iii) above, the term "fair market
value" shall mean, if the Company's Common Stock is then listed on a national
securities exchange or traded on the NASDAQ/National Market System or
NASDAQ/Small Capitalization Market System immediately preceding the date of
exercise, the closing price of the Common Stock on the last trading day
preceding the Exercise Date on which the Common Stock traded. If the Common
Stock is not listed or traded on a national stock exchange or the NASDAQ Stock
Market, the term "fair market value" shall be the mean between the high "bid"
and low "asked" price for the Common Stock quoted on the NASD Bulletin Board,
and, if not quoted on the NASD Bulletin Board, as set forth in the "pink sheets"
published by the National Quotation Bureau, Inc. If the closing price or price
quote data is not available under any of the aforementioned alternatives, the
term "fair market value" shall mean an amount equal to the price at which shares
of Common Stock were last issued by the Company, unless, within ten (10) days
following the Exercise Date, the Board of Directors of the Company, acting in
good faith, adopts a resolution fixing a fair market value of the Common Stock
of the Company which is greater or lesser than such price, in which case the
fair market value of the Common Stock as of the Exercise Date shall be the value
as set forth in such resolution.
(c) Tender of payment of the Exercise Price shall not be required to the
extent that Optionee's interest in Option Shares is assigned to the Company
pursuant to the cashless exercise method of payment set forth in sub-section
(a)(iii) above. In lieu of tender of payment, Optionee shall state in its Notice
of Exercise that it is electing the cashless method of payment set forth in
sub-section (a)(iii) above with respect to its interest in Option Shares to the
extent necessary to pay the Exercise Price.
(d) If, prior to the Effective Date, the Company should merge with or into
another corporation (other than a merger or consolidation in which the Company
is the continuing or surviving corporation), or sell, lease or convey the
property of the Company as an entirety or substantially as an entirety, then, in
any such event, without the necessity of any payment or other action by or on
behalf of Optionee and in satisfaction of all obligations of the Company to
Optionee hereunder, Optionee's rights hereunder shall be converted into the
right to receive fifty (50%) percent of all shares of stock and/or other
securities, property, cash or any combination thereof which would have been
received by Optionee in exchange or payment for, or in respect of, the Option
Shares upon such consolidation, merger, sale, lease or conveyance had Optionee
owned the Option Shares at the record date for and the
2
effective date of any such consolidation or merger, sale, lease or conveyance.
4. Anti-Dilution Protection.
(a) In case the Company shall (i) issue additional shares of Common Stock
as a dividend on outstanding shares of its Common Stock, (ii) subdivide or
reclassify the outstanding shares of Common Stock into a greater number of
shares, or (iii) combine or reclassify the outstanding shares of Common Stock
into a lesser number of shares, then, upon any such event, the number of Option
Shares shall be proportionately adjusted so that the number of Option Shares
will continue to represent the same proportionate inchoate interest in the
Company as prior to such event.
(b) If the number of Option Shares is adjusted pursuant to the preceding
paragraph by reason of any dividend, distribution, subdivision, combination or
reclassification, the record date for which is later than the Effective Date,
the Exercise Price in effect at the time of the record date for such dividend,
distribution, subdivision, combination or reclassification shall be adjusted in
inverse proportion to the adjustment in the number of Option Shares.
(c) If, after the Effective Date, the Company should merge with or into
another corporation (other than a merger or consolidation in which the Company
is the continuing or surviving corporation), or sell, lease or convey the
property of the Company as an entirety or substantially as an entirety, Optionee
shall have the right thereafter to acquire upon exercise of the Option, in lieu
of the Option Shares, the kind and amount of shares of stock and other
securities, property, cash or any combination thereof which would have been
received by Optionee upon such consolidation, merger, sale, lease or conveyance
had Optionee owned the Option Shares immediately prior to such consolidation,
merger, sale, lease or conveyance.
(d) In case of any reclassification or change in the Option Shares (other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination, but including any change in the shares into two or
more classes or series of shares) or in case of any consolidation or merger of
another corporation into the Company in which the Company is the continuing
corporation and in which there is a reclassification or change (including a
change to the right to receive cash or other property) in the Option Shares
(other than a change in par value, or from par value to no par value, or as a
result of a subdivision or combination, but including any change in the shares
into two or more classes or series of shares), Optionee shall have the right
thereafter to acquire upon exercise of the Option the kind and amount of shares
of stock and other securities, property, cash or any combination thereof which
would have been received by
3
the Optionee had Optionee owned the Option Shares immediately prior to such
reclassification, change, consolidation or merger.
(e) The term "Option Shares" as used herein shall include any shares of
stock, other securities, property, cash or combination thereof which Optionee
would become entitled to receive upon exercise of the Option following an event
described in subparagraph (c) or (d) above.
5. Restriction on Transfer of Option Shares.
(a) Unless registered under the Securities Act of 1933 (the "Act"), neither
the Option nor the Option Shares shall be transferrable unless, in the opinion
of counsel reasonably satisfactory to the Company, an exemption from
registration under applicable securities laws is available. The Option Shares
shall be subject to a stop-transfer order and the certificate or certificates
evidencing any such Option Shares shall bear the following legend and any other
legend which counsel for the Company may deem necessary or advisable:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD,
TRANSFERRED, PLEDGED, OR HYPOTHECATED UNLESS SO REGISTERED OR UNLESS
IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
(b) Optionee shall have no rights or privileges of a shareholder of the
Company, including, but not limited to, voting rights, in respect of the Option
Shares unless and until the Option is exercised, after which time the Company
agrees that Optionee shall be the beneficial owner of the Option Shares
purchased upon such exercise.
6. Covenants/Representations of the Company.
(a) The execution, delivery and performance of this Option Agreement and
the consummation of the transactions contemplated hereby and thereby will not
(i) constitute a breach or violation of or default under the Certificate of
Incorporation or the Bylaws of the Company, or (ii) violate, conflict with, or
result in a breach of any provisions of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which the Company
is a party or to
4
which the Company of any of its properties or assets may be subject, other than,
in the case of clause (ii), such events that would not, either individually or
in the aggregate, prevent or delay the consummation of the transactions
contemplated hereby. The (i) execution, delivery and performance of this
Agreement by the Company will not require the consent or approval of any other
party, and (ii) the execution, delivery and performance by the Company of this
Option Agreement and the consummation of the transactions contemplated hereby
will not constitute a breach or violation of or default under any law, rule or
regulation or any judgment, decree, order, governmental permit or license to
which the Company is subject. To the knowledge of the Company, no challenges to
the validity or effectiveness of this Agreement, or any other agreement or
instrument necessary to consummate the transactions contemplated hereby, have
been made by any governmental authority or other person.
(b) Upon payment of the Exercise Price, Optionee will acquire, good and
valid title to the Option Shares, free and clear of any lien, charge,
encumbrance, security interest, claim or right of others of whatever nature
other than the requirements of federal and state securities laws respecting
limitations on the subsequent transfer thereof.
(c) The Company will at all times reserve and keep available, solely for
issuance and delivery upon exercise of the Option, the number of Option Shares
from time to time issuable upon full exercise of the Option. Option Shares, when
issued, shall be validly issued, fully paid, and nonassessable with no liability
on the part of Optionee by reason of its ownership thereof.
7. Registration of Option Shares.
(a) The Company shall register the Option Shares for sale in the IPO
Registration Statement, and shall use its reasonable best efforts to maintain
the effectiveness of such Registration Statement until the later of (i) six
months following the effective date of such Registration Statement, or (ii) the
second anniversary of the date of this Option Agreement. In connection with the
registration of the Option Shares, Optionee shall provide to the Company, on a
timely basis, such information Statement concerning Optionee and any proposed
disposition of Option Shares by Optionee as the Company may request for
inclusion in the IPO Registration. All expenses of such registration shall be
borne by the Company.
(b) Notwithstanding the foregoing, Optionee agrees that no Option Shares
will be sold pursuant to the IPO Registration Statement without the Company's
prior written consent for a period of nine (9) months following the effective
date of such Registration Statement.
5
8. Notices.
(a) Notices required or permitted hereunder shall be given in writing by
express mail or first class mail, return receipt requested, postage prepaid and
addressed as follows:
To the Company: At its principal executive office as set forth in its
most recent periodic report filed with the Securities and Exchange
Commission, marked to the attention of its President.
To Optionee: At the address set forth on the first page of this Option
Agreement.
(b) Addresses for notice purposes may be changed by notice given in
accordance with the terms hereof.
(c) Any notice contemplated by this Option Agreement shall be deemed given
on the date of mailing, as evidenced by certified mail or express mail receipt.
9. Governing Law. This Option Agreement and the exercise and enforcement of
rights hereunder shall be construed in accordance with the laws of the State of
New Jersey, without reference to New Jersey conflict of laws principles.
10. Successors and Assigns. The provisions of this Agreement shall be
binding upon, and shall inure to the benefit of, the Company and Optionee and
their respective legal representatives, heirs, successors and assigns. Neither
the Company nor Optionee shall assign any rights arising under this Option
Agreement without the other's prior written consent. Subject to the preceding
sentence, the terms Optionee and the Company, as used herein, shall include the
respective legal representatives, heirs, successors and assigns of Optionee and
the Company.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
have executed this Option Agreement this ____ day of _________________________,
1996.
BIG SKY, INC.
By:_____________________________________
PACIFICHEALTH LABORATORIES, INC.
By:_____________________________________
6
