Commission File No. 000-49901
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
CEMENTITIOUS MATERIALS, INC.
------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock
(2) Aggregate number of securities to which transaction applies:
--------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): $
(4) Proposed maximum aggregate value of transaction: $_______
(5) Total fee paid: $_____
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date filed:
CEMENTITIOUS MATERIALS, INC.
19 East 200 South, Suite 1080
Salt Lake City, Utah 84111
NOTICE OF ACTION TAKEN BY WRITTEN CONSENT OF OUR MAJORITY STOCKHOLDERS
To the Stockholders of Cementitious Materials, Inc.:
We are writing to advise you that Cementitious Materials, Inc. has
entered into an Agreement and Plan of Merger (the "Merger Agreement") with
NaturalNano, Inc., a privately held Delaware corporation ("NaturalNano") based
in West Henrietta, New York, to facilitate our acquisition of NaturalNano. The
acquisition is to be accomplished through a merger of our newly created, wholly
owned subsidiary, Cementitious Acquisitions, Inc., with and into NaturalNano,
with NaturalNano being the survivor (the "Merger"). Under the terms of the
Merger Agreement, all of NaturalNano's outstanding capital stock will be
converted into shares of our common stock, resulting in the issuance at the
effective time of the Merger of 44,919,378 shares of our common stock. In
addition, at the effective time of the Merger, an aggregate of $4,156,000 face
value of outstanding convertible promissory notes issued by NaturalNano will be
converted into 10,469,600 shares of our common stock, and options and warrants
to purchase 7,200,000 shares of our common stock will be issued in exchange for
NaturalNano stock options and warrants which will be cancelled in the Merger.
In connection with the Merger, (i) our Articles of Incorporation will
be amended (a) to increase our authorized capitalization to 100,000,000 shares
of common stock and 10,000,000 shares of preferred stock and (b) to change our
corporate name to "NaturalNano, Inc." and (ii) a new incentive stock plan, the
2005 Incentive Stock Plan, will be established.
The Merger, the amendments to our Articles of Incorporation and the
incentive stock plan have been approved unanimously by our Board of Directors.
On September 23, 2005 our two largest stockholders, who control
approximately 87% of our outstanding shares of common stock, approved the
amendments to our Articles of Incorporation and the incentive stock plan by
written consent in lieu of a meeting.
PLEASE NOTE THAT THE NUMBER OF VOTES RECEIVED IS SUFFICIENT TO SATISFY
THE STOCKHOLDER VOTE REQUIREMENT FOR THESE ACTIONS AND NO ADDITIONAL VOTES WILL
CONSEQUENTLY BE NEEDED TO APPROVE THESE ACTIONS. STOCKHOLDER APPROVAL OF THE
MERGER IS NOT REQUIRED.
No action is required by you. The accompanying Information Statement is
furnished only to inform our stockholders of the action described above before
it takes effect in accordance with Rule 14c-2 promulgated under the Securities
Exchange Act of 1934, as amended.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
COMPLETION OF THE MERGER WILL RESULT IN A CHANGE IN CONTROL OF
CEMENTITIOUS MATERIALS AND THE ASSUMPTION BY CEMENTITIOUS MATERIALS OF
NATURALNANO'S ASSETS, LIABILITIES AND OPERATIONS.
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The Merger will not be effective until Articles of Merger are filed
with the Nevada Secretary of State and a Certificate of Merger is filed with the
Delaware Secretary of State. The amendments to our Articles of Incorporation
will not be effective until a Certificate of Amendment is filed with the Nevada
Secretary of State. We intend to file these documents approximately 20 calendar
days after this Information Statement is first mailed to our stockholders.
This Information Statement is being mailed to you on or about November
8, 2005.
November 8, 2005
Very truly yours,
/s/ Edward F. Cowle
-----------------------------
Edward F. Cowle, President
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CEMENTITIOUS MATERIALS, INC.
19 East 200 South, Suite 1080
Salt Lake City, Utah 84111
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934 AND
REGULATION 14C THEREUNDER
We are furnishing this Information Statement to you to provide a
description of actions taken by our Board of Directors and by the holders of a
majority of our outstanding shares of common stock on September 23, 2005, in
accordance with the relevant sections of the Nevada Revised Statutes.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Information Statement is being mailed on or about November 8, 2005
to stockholders of record on September 23, 2005. The Information Statement is
being delivered only to inform you of the corporate action described herein
before it takes effect, in accordance with Rule 14c-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
We have asked brokers and other custodians, nominees and fiduciaries to
forward this Information Statement to the beneficial owners of the common stock
held of record by such persons and will reimburse such persons for out-of-pocket
expenses incurred in forwarding such material.
THIS IS NOT A NOTICE OF A MEETING OF STOCKHOLDERS AND NO STOCKHOLDERS'
MEETING WILL BE HELD TO CONSIDER ANY MATTER DESCRIBED HEREIN.
On September 23, 2005, the record date for determining the identity of
stockholders who are entitled to receive this Information Statement, 4,991,042
shares of our common stock were issued and outstanding. The common stock
constitutes the sole outstanding class of voting securities of Cementitious
Materials. Each share of common stock entitles the holder thereof to one vote on
all matters submitted to stockholders.
NO VOTE OR OTHER CONSENT OF OUR STOCKHOLDERS IS SOLICITED IN CONNECTION
WITH THIS INFORMATION STATEMENT. WE ARE NOT ASKING YOU FOR A PROXY AND YOU
ARE REQUESTED NOT TO SEND US A PROXY.
On September 26, 2005, we entered into an Agreement and Plan of Merger
with NaturalNano, Inc., in order to facilitate our acquisition of NaturalNano.
On September 23, 2005, our two controlling stockholders, who beneficially own in
the aggregate 4,344,408 shares, or approximately 87%, of our issued and
outstanding common stock, consented in writing to the following:
1. Amendment of our Articles of Incorporation that will (a) increase
our authorized capitalization to 100,000,000 shares of common stock and
10,000,000 shares of preferred stock and (b) change our corporate name,
upon the effectiveness of the Merger, to "NaturalNano, Inc."
2. Adoption of the 2005 Incentive Stock Plan for our employees,
directors, and consultants.
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The controlling stockholders have not consented to or considered any
other corporate action. Because stockholders holding at least a majority of the
voting rights of our outstanding common stock at the record date have voted in
favor of the foregoing proposals, and have sufficient voting power to approve
such proposals through their ownership of common stock, no other stockholder
consents will be solicited in connection with the transactions described in this
Information Statement. Pursuant to Rule 14c-2 under the Exchange Act, the
proposals will not become effective until a date at least 20 calendar days after
the date on which this Information Statement is first mailed to the
stockholders. We anticipate that the actions contemplated herein will be
effected on or about the close of business on November 30, 2005.
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TABLE OF CONTENTS
Page
----
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION....................1
GENERAL.......................................................................1
SUMMARY.......................................................................3
Parties to the Merger......................................................3
Structure of the Merger....................................................4
Merger Consideration.......................................................4
Reasons for the Merger.....................................................4
Cost and Expenses of the Merger............................................5
Appraisal Rights...........................................................5
Amendment of Articles of Incorporation.....................................5
Purpose of the Increase in Authorized Shares...............................5
Change of Name.............................................................5
Directors and Executive Management Following the Merger....................5
Risk Factors...............................................................6
CONTROLLING STOCKHOLDERS......................................................6
SECURITY OWNERSHIP OF BENEFICIAL OWNERS, MANAGEMENT
AND AFFILIATES FOLLOWING THE MERGER..........................................7
RISK FACTORS..................................................................8
Risks Relating to the Merger and Capital Structure.........................8
Risks Relating to Our Business After the Completion of the Merger.........11
AGREEMENT AND PLAN OF MERGER.................................................15
Background of the Merger..................................................15
Cementitious's Reasons for the Merger.....................................16
NaturalNano's Reasons for the Merger......................................17
Material Terms of the Merger Agreement....................................17
Effective Time of the Merger..............................................18
Merger Consideration......................................................18
Treatment of NaturalNano Stock Options and Warrants.......................18
Representations and Warranties...........................................19
Certain Covenants of the Parties..........................................19
Conditions to the Merger..................................................21
Termination...............................................................22
Cost and Expenses of the Merger...........................................22
Amendment.................................................................22
Extension and Waiver......................................................23
CERTAIN TRANSACTIONS AND INFORMATION RELATED TO THE MERGER...................23
Change in Control.........................................................23
Certain Federal Income Tax Consequences...................................23
Accounting Treatment of the Merger........................................23
Appraisal Rights..........................................................23
Federal Securities Law Consequences.......................................23
Our Operations After the Merger...........................................24
AMENDMENT TO OUR ARTICLES OF INCORPORATION...................................25
Change in Authorized Shares...............................................25
Change of Name............................................................26
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NATURALNANO, INC. 2005 INCENTIVE STOCK PLAN.................................26
Types of Awards...........................................................26
Eligibility to Receive Awards.............................................27
Stock Available for Awards................................................28
New Plan Benefits.........................................................28
Administration............................................................28
Termination or Amendment..................................................29
Federal Income Tax Consequences...........................................30
ANTICIPATED BUSINESS FOLLOWING THE MERGER....................................31
Business of NaturalNano, Inc..............................................31
Background of Technology..................................................31
Potential Commercial Applications.........................................32
Other Applications........................................................33
Competition...............................................................33
Patent Strategy...........................................................34
Employees.................................................................34
Management................................................................34
Potential Conflict of Interest............................................37
Facilities................................................................37
PRINCIPAL ACCOUNTANT FEES AND SERVICES.......................................37
SELECTED HISTORICAL FINANCIAL DATA OF CEMENTITIOUS MATERIALS, INC............38
SELECTED HISTORICAL FINANCIAL DATA OF NATURALNANO............................40
UNAUDITED PRO FORMA FINANCIAL INFORMATION....................................42
PLAN OF OPERATIONS FOR NATURALNANO, INC......................................45
EXPERTS......................................................................47
WHERE YOU CAN FIND MORE INFORMATION..........................................48
Appendix A - Agreement and Plan of Merger
Appendix B - Certificate of Amendment to Articles of Incorporation
Appendix C - 2005 Incentive Stock Plan
Appendix D - NaturalNano, Inc. Financial Statements
- ii -
CAUTIONARY STATEMENT REGARDING
FORWARD LOOKING INFORMATION
This Information Statement and other reports that we file with the SEC
contain certain forward-looking statements that involve risks and uncertainties
relating to, among other things, the closing of the Merger transaction and our
future financial performance or future events. Forward-looking statements give
management's current expectations, plans, objectives, assumptions or forecasts
of future events. All statements other than statements of current or historical
fact contained in this Information Statement, including statements regarding our
future financial position, business strategy, budgets, projected costs and plans
and objectives of management for future operations, are forward-looking
statements. In some cases, you can identify forward-looking statements by
terminology such as "anticipate," "estimate," "plans," "potential," "projects,"
"ongoing," "expects," "management believes," "we believe," "we intend," and
similar expressions. These statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially from the
results set forth in the information statement. You should not place undue
reliance on these forward-looking statements. You should be aware that our
actual results could differ materially from those contained in the
forward-looking statements due to a number of factors such as:
o continued development of our technology;
o dependence on key personnel;
o competitive factors;
o the operation of our business; and
o general economic conditions.
These forward-looking statements speak only as of the date on which they are
made, and except to the extent required by federal securities laws, we undertake
no obligation to update any forward-looking statements to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events. In addition, we cannot assess the impact of
each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.
For a detailed discussion of these and other risk factors, please refer
to our filings with the SEC on Forms 10-KSB, 10-QSB and 8-K. You can obtain
copies of these reports and other filings for free at the SEC's Web site at
www.sec.gov or from commercial document retrieval services.
GENERAL
This Information Statement is being furnished to all of our
stockholders of record on September 23, 2005 in connection with the approval by
our Board of Directors and our controlling stockholders of:
(i) an amendment to our Articles of Incorporation which will (a)
increase our authorized capitalization and (b) change our
corporate name, upon the closing of the Merger transaction, to
"NaturalNano, Inc." The form of our Certificate of Amendment
is attached to this Information Statement as Appendix B; and
(ii) the adoption of a new incentive stock plan, the form of which
is attached to this Information Statement as Appendix C.
All of the foregoing have been approved in anticipation of effecting
the transactions contemplated by that certain Agreement and Plan of Merger dated
September 26, 2005 with NaturalNano. The filing of the Certificate of Amendment
to our Articles of Incorporation and adoption of the incentive stock plan are
required by the Merger Agreement.
Pursuant to the Merger Agreement, we will, among other things, issue
44,919,378 shares of our authorized but previously unissued common stock to the
stockholders of NaturalNano in exchange for all of the issued and outstanding
common stock of NaturalNano and an additional 10,469,600 shares of our
authorized but previously unissued common stock in consideration for the
conversion of certain outstanding NaturalNano convertible debt. We will also
issue options and warrants for the purchase of an aggregate of 7,200,000 shares
of our common stock to the holders of outstanding NaturalNano options and
warrants, in consideration of the cancellation of such options and warrants.
Upon the closing of the Merger, all of our officers and directors will
resign and new directors and new executive officers selected by naturalNano will
be appointed. The Merger is expected to close on or about November 30, 2005, and
will become effective upon the filing of Articles of Merger with the Secretary
of State of Nevada and the filing of a Certificate of Merger with the Secretary
of State of Delaware.
The elimination of the need for a special meeting of stockholders to
approve the proposals set forth above is authorized by Section 320 of the Nevada
Revised Statute, referred to herein as the "NRS," which provides that any action
required or permitted to be taken at a meeting of stockholder may be taken
without a meeting if a written consent is signed by stockholders holding at
least a majority of the voting power of the corporation, except that if a
different proportion of voting power is required for such action at a meeting,
then that proportion of written consents is required. Where an action is
authorized by written consent, no meeting of stockholders need be called nor
notice given.
Pursuant to the NRS, a majority of the outstanding shares of voting
stock entitled to vote thereon is required in order to approve the proposed
actions set forth herein. In order to eliminate the costs and management time
involved in holding a special meeting of stockholders and in order to approve
the amended Articles of Incorporation and incentive stock plan, the Board of
Directors decided to use the written consent of the holders of a majority of our
outstanding common stock in lieu of a stockholders' meeting.
Our controlling stockholders, who beneficially own approximately 87% of
our outstanding common stock entitled to vote on the amended Articles of
Incorporation and adoption of the incentive stock plan, gave their written
consent to the foregoing on September 23, 2005. Accordingly, the above actions
will not be submitted to our other stockholders for a vote and this Information
Statement is being furnished to our stockholders only to provide the prompt
notice of the taking of such actions.
We will pay all costs associated with the distribution of this
Information Statement, including the costs of printing and mailing. We will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending this Information Statement to
the beneficial owners of our common stock.
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SUMMARY
This summary highlights selected information set forth herein and may
not contain all of the information that is important to you. To understand fully
the acquisition of NaturalNano, the amended Articles of Incorporation and
adoption of the new incentive stock plan, you should read carefully this entire
Information Statement and the accompanying documents to which we refer. See
"Where You Can Find More Information." The Merger Agreement, amended Articles of
Incorporation and the incentive stock plan are attached as appendices to this
Information Statement. We encourage you to read these documents. We have
included page references in parentheses to direct you to a more complete
description of the topics presented in this summary.
Parties to the Merger (Page 15)
Cementitious Materials Inc.
19 East 200 South, Suite 1080
Salt Lake City, Utah 84111
We were originally organized in Idaho on May 6, 1971 as Hall Mountain
Silver Mines, Inc. For a period after inception, Hall Mountain was involved in
the ownership and operations of certain mining claims. Operations discontinued
in 1981 and we were inactive until approximately 1989. In June 1989 we changed
our name to Network Videotex Systems, Inc. and, in November 1989, we changed our
name to Wessex International, Inc. On May 22, 1991, we acquired Ocean Express
Lines, Inc., a Florida corporation engaged in the business of operating a
scheduled steamship between Miami, Florida and ports in the Western Caribbean
and Gulf of Mexico. In connection with the transaction, we changed our name to
Ocean Express Lines, Inc. We did not achieve profitability and ceased operating
activities in 1992. In recent years, we have been actively seeking potential
operating businesses and/or business opportunities with the intent to acquire or
merge with such businesses. We are deemed a development stage company.
Cementitious Acquisitions, Inc.
19 East 200 South, Suite 1080
Salt Lake City, Utah 84111
Cementitious Acquisitions, Inc. is a newly formed Nevada corporation, a
wholly owned subsidiary of Cementitious that was organized for the specific
purpose of effecting the Merger transaction with NaturalNano. Cementitious
Acquisitions has not conducted any business during any period of its existence
except in furtherance of the Merger.
NaturalNano, Inc.
150 Lucius Gordon Drive, Suite 115
West Henrietta, New York 14586
NaturalNano was incorporated in Delaware on December 22, 2004 and is a
development stage company whose primary business is processing, developing and
commercializing naturally occurring nanoscale materials. NaturalNano's efforts
are currently directed toward research, development, production and marketing
its proprietary technologies in the following fields:
1. Developing state-of-the art, proprietary processes for extracting
and separating halloysite nanotubes from halloysite clay.
2. Developing commercial applications for halloysite nanotubes,
specifically for the following application areas:
o Material additives for polymers, plastics, and composites
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o Cosmetics and other personal care products
o Absorbent materials
o Pharmaceuticals and medical device additives and coatings
3. Engaging in business alliances with other organizations to bring
nanoscale materials to market.
Structure of the Merger (Page 17)
Upon filing of Articles of Merger with the office of the Secretary of
State of Nevada and the filing of a Certificate of Merger with the office of the
Secretary of State of Delaware, referred to herein as the "effective time of the
Merger," the control of our company will change and we will carry on the
business of NaturalNano. This change of control will be effected through the
following actions:
(i) Cementitious Acquisitions, our wholly owned subsidiary, will merge
with and into NaturalNano, the separate corporate existence of
Cementitious Acquisitions will cease and Cementitious Materials
will be the parent corporation of NaturalNano. Cementitious
Materials will then change its name to "NaturalNano, Inc.";
(ii) Cementitious Materials will issue an aggregate of 44,919,378
shares of common stock to the NaturalNano stockholders in exchange
for 100% of the issued and outstanding shares of NaturalNano
capital stock;
(iii) an aggregate of $4,156,000 face value of outstanding convertible
promissory notes issued by NaturalNano will be converted
automatically into 10,469,600 shares of Cementitious Materials
common stock; and
(iv) the officers and directors of NaturalNano will replace the
officers and directors of Cementitious Materials, and will control
our business and operations.
As a result of the issuance of shares of our common stock in exchange
for the outstanding shares of NaturalNano capital stock and the conversion of
NaturalNano's convertible promissory notes, at the effective time of the Merger,
the stockholders of NaturalNano and the holders of NaturalNano's convertible
promissory notes will become stockholders of Cementitious Materials and will own
collectively approximately 91.7% of our issued and outstanding shares of common
stock and our current stockholders will own approximately 8.3% of our issued and
outstanding shares of common stock.
Merger Consideration (Page 18)
In the Merger, each issued and outstanding share of NaturalNano common
stock will be converted into the right to receive 4.4919378 shares of
Cementitious common stock. In the aggregate, holders of NaturalNano capital
stock will receive 44,919,378 shares of our common stock. Fractional shares will
not be issued. After the Merger, current NaturalNano stockholders will no longer
own a direct equity interest in NaturalNano.
Reasons for the Merger (Page 16)
Our Board of Directors considered various factors in approving the
Merger Agreement and believe the acquisition of NaturalNano will be in the best
interest of our stockholders. Our Board analyzed NaturalNano's operations,
prospects and managerial resources and believes that acquiring NaturalNano's
growth potential by means of a merger is the best opportunity to increase value
to our stockholders. Our Board of Directors did not request a fairness opinion
in connection with the Merger.
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Cost and Expenses of the Merger (Page 22)
The Merger Agreement provides that all costs and expenses in connection
with the Merger will be paid by the party incurring such costs and expenses,
except that NaturalNano will pay legal fees and expenses incurred by both
parties. We have agreed to pay all expenses related to the preparation, printing
and mailing of the Information Statement and all related filing and other fees.
Appraisal Rights (Page 23)
Under applicable Nevada law, our stockholders do not have the right to
demand appraisal of their shares in connection the Merger or the actions that
have been approved by the written consent of our controlling stockholders.
Amendment of Articles of Incorporation (Page 23)
Our Board of Directors and stockholders holding a majority of our
outstanding common stock have approved an amendment to our Articles of
Incorporation which will (a) increase our authorized capitalization to
100,000,000 shares of common stock and 10,000,000 shares of preferred stock, and
(b) change our corporate name, upon the closing of the Merger, to "NaturalNano,
Inc." The form of the Certificate of Amendment to our Articles of Incorporation
is attached hereto as Appendix B.
Purpose of the Increase in Authorized Shares (Page 25)
The availability of additional authorized but unissued shares of common
stock and of authorized but unissued shares of preferred stock (the rights and
preferences of which may be set from time to time by our Board of Directors
without further stockholder approval) will grant our Board of Directors
flexibility in raising additional capital to fund our business operations and
growth.
Change of Name (Page 26)
Our Board of Directors believes it is desirable to change our name to
"NaturalNano, Inc." to more accurately reflect our new business operations
following the Merger.
2005 Incentive Stock Plan (Page 26)
As required under the Merger Agreement, we have adopted an incentive
stock plan that will become effective at the effective time of the Merger. Each
holder of an option to purchase NaturalNano common stock granted prior to the
effective time of the Merger will receive, in exchange for cancellation of such
option, an option to purchase shares of our common stock, exercisable at any
time, on economic and contractual terms substantially and materially similar to
the terms and conditions of the NaturalNano option. The future grant of options
or awards under the incentive stock plan will also be used to attract and retain
officers, employees and directors of the highest quality and to promote the well
being of our company after the Merger.
Directors and Executive Management Following the Merger (Page 33)
Pursuant to the Merger Agreement, the executive officers of NaturalNano
immediately prior to the Merger will become our executive officers. Following
completion of the Merger, all of the existing members of our Board of Directors
will resign and new appointees designated by NaturalNano will comprise our
entire Board of Directors.
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Risk Factors (Page 8)
The Merger and the related transactions, as well as the ownership of
our common stock after the merger, involve a high degree of risk. You should
carefully consider the information set forth in the section entitled "Risk
factors" as well as the other information in this Information Statement.
Upon completion of the merger, we will assume NaturalNano's assets,
liabilities and plan of operation, which may require additional financing to
implement fully. There can be no assurance that any future financing can be
secured on reasonable terms, or at all.
Our current stockholders will be diluted substantially by the issuance
of shares of our common stock in the Merger, and may be diluted by future
issuances of securities issued and sold to satisfy our working capital needs.
CONTROLLING STOCKHOLDERS
On September 23, 2005, the following controlling stockholders, owning
approximately 87% of our common stock, consented in writing to amendment of the
Articles of Incorporation and adoption of the 2005 Incentive Stock Plan. The
information in the table with respect to percentage ownership of our common
stock does not reflect the Merger and transactions relating thereto.
Name and Address Number of Shares Percent(1)
- ---------------- ---------------- ----------
Edward F. Cowle* 2,000,342 40.1%
6 East 45th Street, 10th Floor
New York, NY 10017
H. Deworth Williams 2,344,066(2) 47.0%
19 East 200 South, Suite 1080
Salt Lake City, Utah 84111
- ------------------
Note: Unless otherwise indicated in the footnotes below, we have been
advised that each person above has sole voting and investment power over
the shares indicated above.
(1) Based upon 4,991,042 shares of common stock outstanding on
September 23, 2005.
(2) Includes 343,746 shares held by Williams Investment Company, of
which Mr. Williams is the principal owner.
* Director and executive officer
Under Section 14(c) of the Exchange Act, the actions taken by written
consent without a meeting of stockholders cannot become effective until 20 days
after the mailing date of this Information Statement. We are not seeking written
consent from any stockholders other than set forth above and our other
stockholders will not be given an opportunity to vote with respect to the
actions taken. All necessary corporate approvals have been obtained, and this
Information Statement is furnished solely for the purpose of advising
stockholders of the actions taken by written consent and giving stockholders
advance notice of the actions taken, as required by the Exchange Act.
Stockholders who were not afforded an opportunity to consent or
otherwise vote with respect to the actions taken will not have dissenters'
appraisal rights in conjunction with the proposed Merger or other corporate
actions to be taken in connection with the Merger transaction.
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SECURITY OWNERSHIP OF BENEFICIAL OWNERS, MANAGEMENT
AND AFFILIATES FOLLOWING THE MERGER
The following table sets forth certain information with respect to the
anticipated beneficial ownership of our common stock, after giving effect to the
Merger, by each stockholder expected by us to be the beneficial owner of more
than 5% of our common stock and by each of our anticipated directors and
executive officers and by all of the anticipated directors and executive
officers as a group. Unless otherwise indicated, the address of each of the
persons listed below is c/o NaturalNano, Inc., 150 Lucius Gordon Drive, Suite
115, West Henrietta, NY 14586. Unless otherwise indicated in the footnotes,
shares will be owned of record and beneficially by the named person. For
purposes of the following table, a person is deemed to be the beneficial owner
of any shares of common stock (a) over which the person has or shares, directly
or indirectly, voting or investment power, or (b) of which the person has a
right to acquire beneficial ownership at any time within 60 days after the
expected effective time of the Merger. "Voting power" is the power to vote or
direct the voting of shares and "investment power" includes the power to dispose
or direct the disposition of shares.
- -------------------------------------------- ---------------------- -----------
Name and Address Number of Shares Percent
of Beneficial Owner Beneficially Owned (1) of Class(2)
- -------------------------------------------- ---------------------- -----------
Directors and Executive Officers:
- -------------------------------------------- ---------------------- -----------
Steven Katz 100,000 *
- -------------------------------------------- ---------------------- -----------
Ross B. Kenzie 32,712,763 (3) 54.0%
- -------------------------------------------- ---------------------- -----------
John F. Lanzafame 116,667 *
- -------------------------------------------- ---------------------- -----------
Michael L. Weiner 33,228,624 (3) (4) 54.7%
- -------------------------------------------- ---------------------- -----------
Michael Riedlinger 500,000 *
- -------------------------------------------- ---------------------- -----------
Kathleen Browne 116,667 *
- -------------------------------------------- ---------------------- -----------
Sarah Cooper 100,000 *
- -------------------------------------------- ---------------------- -----------
All Directors and Executive Officers
as a group (7 persons) 34,161,958 (3) (4) 55.5%
- -------------------------------------------- ---------------------- -----------
Other 5% Beneficial Owners:
- -------------------------------------------- ---------------------- ------------
Technology Innovations, LLC 32,712,763 54.0%
150 Lucius Gordon Drive, Suite 215
West Henrietta, NY 14586
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* Less than 1%
1) Except as may be set forth below, the persons named in the table
have sole voting and investment power with respect to all shares
shown as beneficially owned by them.
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2) Applicable percentage of ownership is based on 60,380,020 shares
outstanding immediately following the Merger, together with
applicable options for such stockholder. Shares subject to options
currently exercisable or exercisable within 60 days after the
anticipated effective time of the Merger are included in the
number of shares beneficially owned and are deemed outstanding for
purposes of computing the percentage ownership of the person
holding such options, but are not deemed outstanding for computing
the percentage of any other stockholder.
3) Includes 32,712,763 shares held by, or issuable to, Technology
Innovations, LLC, of which Messrs. Kenzie and Weiner are members
and managers. Each of Mr. Kenzie and Mr. Weiner disclaims
beneficial ownership of the shares held by Technology Innovations,
LLC except to the extent of his beneficial ownership of a
membership interest in Technology Innovations, LLC.
4) Includes 449,194 shares held by Mauri Weiner, Mr. Weiner's adult
son who resides in Mr. Weiner's household. Mr. Weiner disclaims
beneficial ownership of these shares.
RISK FACTORS
The actual results of the combined company may differ materially from
those anticipated in these forward-looking statements. Cementitious Materials
and NaturalNano will operate as a combined company in a market environment that
is difficult to predict and that involves significant risks and uncertainties,
many of which will be beyond the combined company's control. Additional risks
and uncertainties not presently known to us, or that are not currently believed
to be important to you, if they materialize, also may adversely affect the
combined company.
Risks Relating to the Merger and Capital Structure
Our current stockholders have no opportunity to approve or disapprove the
Merger and will experience substantial dilution in connection with the
Merger.
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The Merger and the consequent acquisition of NaturalNano have been
approved by our Board of Directors and will not be presented to our stockholders
for approval. Also, under Nevada law, the other actions described herein, that
would routinely be taken at a meeting of stockholders, are being taken by
written consent of stockholders having more than the minimum number of votes
that would be necessary to authorize or take the action at a meeting of
stockholders. Accordingly, stockholders other than our two controlling
stockholders are not being asked to approve or disapprove these matters. In
addition, in the event the Merger is consummated as described herein, a total of
55,388,978 shares of our common stock will be issued to the current stockholders
of NaturalNano and holders of NaturalNano's convertible debt. In addition,
options and warrants to purchase an additional 7,200,000 shares of our common
stock will be issued to NaturalNano option and warrant holders in consideration
for the cancellation of such NaturalNano options and warrants. The shares to be
issued in the Merger to current NaturalNano stockholders and holders of
NaturalNano convertible debt will represent approximately 91.7% of the total
number of shares of our common stock issued and outstanding immediately
following the Merger; consequently, our current stockholders will experience
substantial dilution in their ownership interest in our company.
If the Merger does not occur, we will not benefit from the expenses we have
incurred in the pursuit of the Merger.
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The Merger may not be completed. If conditions for completion of the
Merger are not satisfied or the Merger is not otherwise completed, we will have
incurred expenses for which no ultimate benefit will have been received. We
currently expect to incur out of pocket expenses of approximately $35,000 for
services in connection with the Merger, consisting of professional fees,
financial printing and other related charges, much of which may be incurred even
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if the Merger is not completed. If the Merger is not completed, such expenses
will be paid for by advances from stockholders, which will be evidenced on our
financial statements as current liabilities.
The Merger will not significantly enhance our liquidity and we will require
future financing to proceed with our anticipated business activities
following the completion of the Merger. There can be no assurance that
financing will be available on terms beneficial to us, or at all.
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We anticipate that future funding will most likely be in the form of
debt and/or private equity financing. The number of shares of our common stock
to be issued in the Merger, and the aggregate number of shares to be outstanding
after completion of the Merger, as shown elsewhere in this Information
Statement, does not take into account any such future financing and,
accordingly, our stockholders may be subject to additional and substantial
dilution as a result of such financing.
We anticipate that we will need funds, following the Merger, in order
to further the efforts of NaturalNano to develop proprietary processes for
extracting and separating halloysite nanotubes from halloysite clay and
developing commercial applications for halloysite nanotubes. If we raise
additional capital by selling equity or equity-linked securities, these
securities would dilute the ownership percentage of our existing stockholders.
Also, these securities could have rights, preferences or privileges senior to
those of our common stock. Similarly, if we raise additional capital by
borrowing or issuing debt securities, the terms of such debt financing could
restrict us in terms of how we operate our business, which could also affect the
value of our common stock.
We may not be able to raise capital on reasonable terms or at all.
There is no assurance of an established public trading market, which would
adversely affect the ability of investors in Cementitious Materials to sell
their securities in the public market.
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Even though our shares of common stock are expected to continue to be
quoted on the OTC Bulletin Board, we cannot predict the extent to which a
trading market will develop or how liquid that market might become. In addition,
most common shares outstanding after the Merger, including the shares issued to
NaturalNano stockholders, will be "restricted securities" within the meaning of
Rule 144 promulgated by the SEC, and will therefore be subject to certain
limitations on the ability of holders to resell such shares. Accordingly,
holders of our common stock may be required to retain their shares for an
indefinite period of time. None of our outstanding common shares have been
registered under federal or state securities laws. NaturalNano is a party to
agreements with its principal stockholder, Technology Innovations, LLC, and with
the holders of its convertible promissory notes requiring it, under certain
circumstances, to use its best efforts to prepare and file with the Securities
and Exchange Commission a registration statement on an appropriate form covering
the offer and resale to the public of the shares of our common stock issuable in
the Merger or upon conversion of the promissory notes, and we will succeed to
NaturalNano's obligations under those agreements as a result of the Merger.
Consequently, we expect to prepare and file with the Securities and Exchange
Commission as soon as practical after the effective time of the Merger, and to
use our best efforts to cause to be declared effective, such a registration
statement.
The OTC Bulletin Board is an inter-dealer, over-the-counter market that
provides significantly less liquidity than the NASD's automated quotation system
(the "NASDAQ Stock Market"). Quotes for stocks included on the OTC Bulletin
Board are not listed in the financial sections of newspapers as are those for
the NASDAQ Stock Market. Therefore, prices for securities traded solely on the
OTC Bulletin Board may be difficult to obtain and holders of common stock may be
unable to resell their securities at or near their original offering price or at
any price. Market prices for our common stock will be influenced by a number of
factors, including:
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(i) the issuance of new equity securities pursuant to the Merger, or a
future offering;
(ii) changes in interest rates;
(iii) competitive developments, including announcements by competitors
of new products or services or significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments;
(iv) variations in quarterly operating results;
(v) change in financial estimates by securities analysts;
(vi) the depth and liquidity of the market for Cementitious Materials's
common stock;
(vii) investor perceptions of NaturalNano and of nanotechnology
generally; and
(viii) general economic and other national conditions.
Our common stock could be considered a "penny stock" and may be difficult
to sell.
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Our common stock could be considered to be a "penny stock" if it meets
one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under
Section 15(g) of the Exchange Act. These include but are not limited to the
following: (i) the stock trades at a price less than $5.00 per share; (ii) it is
not traded on a "recognized" national exchange; (iii) it is not quoted on the
NASDAQ Stock Market, or even if so quoted, has a price less than $5.00 per
share; or (iv) is issued by a company with net tangible assets less than
$2,000,000, if in business longer than three continuous years, or with average
revenues of less than $6,000,000 for the past three years. The principal result
or effect of being designated a "penny stock" is that securities broker-dealers
cannot recommend the stock but must trade in it on an unsolicited basis.
Additionally, Section 15(g) of the Exchange Act and Rule 15g-2
promulgated thereunder by the SEC require broker-dealers dealing in penny stocks
to provide potential investors with a document disclosing the risks of penny
stocks and to obtain a manually signed and dated written receipt of the document
before effecting any transaction in a penny stock for the investor's account.
Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve
the account of any investor for transactions in such stocks before selling any
penny stock to that investor. This procedure requires the broker-dealer to (i)
obtain from the investor information concerning his or her financial situation,
investment experience and investment objectives; (ii) reasonably determine,
based on that information, that transactions in penny stocks are suitable for
the investor and that the investor has sufficient knowledge and experience as to
be reasonably capable of evaluating the risks of penny stock transactions; (iii)
provide the investor with a written statement setting forth the basis on which
the broker-dealer made the determination in (ii) above; and (iv) receive a
signed and dated copy of such statement from the investor, confirming that it
accurately reflects the investor's financial situation, investment experience
and investment objectives. Compliance with these requirements may make it more
difficult for holders of our common stock to resell their shares to third
parties or to otherwise dispose of them in the market or otherwise.
Following the Merger, the current principal stockholder of NaturalNano will
have significant influence over Cementitious Materials.
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The controlling stockholder of NaturalNano, Technology Innovations,
LLC will beneficially own approximately 54% of our outstanding voting stock
following the Merger. As a result, Technology Innovations, LLC will possess
significant influence, giving it the ability, among other things, to elect all
members of our Board of Directors and to approve significant corporate
transactions. Such stock ownership and control may also have the effect of
delaying or preventing a future change in control, impeding a merger,
consolidation, takeover or other business combination or discourage a potential
acquirer from making a tender offer or otherwise attempting to obtain control of
our company.
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Standards for compliance with Section 404 of the Sarbanes-Oxley Act of 2002
are uncertain, and if we fail to comply in a timely manner, our business
could be harmed and our stock price could decline.
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Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley
Act of 2002 require annual assessment of our internal control over financial
reporting, and attestation of its assessment by our independent registered
public accountants. The SEC has extended the compliance dates for certain filers
and, accordingly, we believe that this requirement will first apply to our
annual report for fiscal 2007. The standards that must be met for management to
assess the internal control over financial reporting as effective are new and
complex, and require significant documentation, testing and possible remediation
to meet the detailed standards. We may encounter problems or delays in
completing activities necessary to make an assessment of our internal control
over financial reporting. In addition, the attestation process by our
independent registered public accountants is new and we may encounter problems
or delays in completing the implementation of any requested improvements and
receiving an attestation of its assessment by our independent registered public
accountants. If we cannot assess our internal control over financial reporting
as effective, or our independent registered public accountants are unable to
provide an unqualified attestation report on such assessment, investor
confidence and share value may be negatively impacted.
Risks Relating to Our Business After the Completion of the Merger
NaturalNano has not recorded revenues or an operating profit since its
inception and Cementitious has not had any revenues for several years.
Continuing losses may exhaust our capital resources and force us to
discontinue operations.
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From its inception in December 2004 through June 30, 2005, NaturalNano
has incurred cumulative losses of approximately $704,878. Cementitious Materials
has not realized any revenues for several years and has incurred cumulative
losses of approximately $454,173 since it's inception at July 31, 1987. We
cannot assure you that following the acquisition of NaturalNano we will achieve
profitability in the immediate future or at any time.
NaturalNano has had a significant working capital deficit, which makes it
more difficult to obtain capital necessary for its business and which may
have an adverse effect on our future business.
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As of June 30, 2005, NaturalNano had a working capital deficit of
approximately $594,294. If all of NaturalNano's current liabilities were to
become due at the same time, we would not be able to pay them in full which most
likely would have a material negative impact on our business and future
prospects.
If NaturalNano cannot achieve commercial application of its nanoscale
materials, we may not achieve profitability.
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NaturalNano must develop commercial applications for halloysite
nanotubes, which it intends to do primarily by collaborating with market leaders
in each potential field of use. If we fail to establish such collaborative
relationships or if we are unable to develop sufficiently attractive commercial
uses for our nanoscale materials or if we are unable to produce these materials
at a competitive cost, we may not achieve profitability.
The industry in which NaturalNano operates is highly competitive and has
relatively low barriers to entry. Increased competition could result in
margin erosion, which would make profitability even more difficult to
achieve and sustain.
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In addition to the wide range of material additives that are currently
being used in the industries being targeted by NaturalNano, the current
nanomaterials market includes at least 200 companies globally, offering a wide
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variety of metal oxides and inorganic compounds. Many existing and potential
competitors have greater financial resources and are likely to command a larger
market share, which may enable them to establish a stronger competitive position
than we have, in part through greater marketing opportunities. If we fail to
address competitive developments quickly and effectively, we may not be able to
remain a viable entity.
Our business could be adversely affected by any adverse economic
developments in the advanced materials industry and/or the economy in
general.
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NaturalNano depends on the demand for the application of its technology
and nanoscale materials and our business is susceptible to downturns in the
advanced materials industry and the economy in general. Any significant downturn
in the market or in general economic conditions would likely hurt our business.
If NaturalNano fails to keep up with changes affecting its technology and
the markets that it will ultimately service, it will become less
competitive, adversely affecting future financial performance.
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In order to remain competitive and serve its customers effectively,
NaturalNano must respond on a timely and cost-efficient basis to changes in
technology, industry standards and procedures and customer preferences.
NaturalNano needs to continuously develop new technology, products and services
to address new developments. In some cases these changes may be significant and
the cost to comply with these changes may be substantial. We cannot assure you
that we will be able to adapt to any changes in the future or that we will have
the financial resources to keep up with changes in the marketplace. Also, the
cost of adapting NaturalNano's technology, products and services may have a
material and adverse effect on our operating results.
Our future success depends on retaining NaturalNano's existing key
employees and hiring and assimilating new key employees. The loss of key
employees or the inability to attract new key employees could limit our
ability to execute our growth strategy, resulting in lost sales and a
slower rate of growth.
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Our success depends in part on our ability to retain NaturalNano's key
employees including its executive officers. Although following the Merger we
expect to have employment agreements with these executives, each executive can
terminate his or her agreement at any time. Also, we do not carry, nor do we
anticipate obtaining, "key man" insurance on our executives. It would be
difficult for us to replace any one of these individuals. In addition, as we
grow we may need to hire additional key personnel. We may not be able to
identify and attract high quality employees or successfully assimilate new
employees into our existing management structure.
Our growth strategy assumes that we may possibly make future targeted
strategic acquisitions. A future acquisition may disrupt our business,
dilute stockholder value or distract management's attention from
operations.
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Unless NaturalNano can develop its present technology or newly acquired
technology into marketable products, our ability to generate revenue may be
hindered and our ability to achieve profitability will be slow and difficult. A
possible strategy is to acquire new technology or products through targeted
strategic acquisitions. If we attempt and fail to execute on this strategy, our
revenues may not increase and our ability to achieve significant profitability
will be delayed. Prior to this time, NaturalNano's ability to make strategic
acquisitions has been hampered by its limited capital resources and the lack of
a public market for its stock.
We may not be able to identify any appropriate targets or acquire them
on reasonable terms. Even if we make strategic acquisitions, we may not be able
to integrate these technologies, products and/or businesses into our existing
operations in a cost-effective and efficient manner.
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We may be unable to protect our intellectual property adequately or cost
effectively, which may cause us to lose market share or reduce prices.
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Our future success depends significantly on NaturalNano's ability to
protect and preserve its proprietary rights related to its technology and
resulting products. We cannot assure you that we will be able to prevent third
parties from using our intellectual property rights and technology without our
authorization. Although NaturalNano has filed for several patents and intends to
pursue aggressively efforts to obtain patent protection for its technology, it
will also rely on trade secrets, common law trademark rights and trademark
registrations, as well as confidentiality and work for hire, development,
assignment and license agreements with employees, consultants, third party
developers, licensees and customers. However, these measures afford only limited
protection and may be flawed or inadequate. Also, enforcing intellectual
property rights could be costly and time-consuming and could distract
management's attention from operating business matters.
NaturalNano's intellectual property may infringe on the rights of others,
resulting in costly litigation.
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In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. In particular,
there has been an increase in the filing of suits alleging infringement of
intellectual property rights, which pressure defendants into entering settlement
arrangements quickly to dispose of such suits, regardless of their merits. Other
companies or individuals may allege that we infringe on their intellectual
property rights. Litigation, particularly in the area of intellectual property
rights, is costly and the outcome is inherently uncertain. In the event of an
adverse result, we could be liable for substantial damages and we may be forced
to discontinue our use of the subject matter in question or obtain a license to
use those rights or develop non-infringing alternatives. Any of these results
would increase our cash expenditures, adversely affecting our financial
condition.
We may not be able to manage our growth effectively, which could adversely
affect our operations and financial performance.
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The ability to manage and operate our business as we execute our
development and growth strategy will require effective planning. Significant
rapid growth could strain our internal resources, and other problems that could
adversely affect our financial performance. We expect that NaturalNano's efforts
to grow will place a significant strain on its personnel, management systems,
infrastructure and other resources. Our ability to manage future growth
effectively will also require us to successfully attract, train, motivate,
retain and manage new employees and continue to update and improve our
operational, financial and management controls and procedures. If we do not
manage our growth effectively, our operations could be adversely affected,
resulting in slower growth and a failure to achieve or sustain profitability.
Being a public company will increase administrative costs, which could
result in lower net income, and make it more difficult for us to attract
and retain key personnel.
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As a public company, we incur significant legal, accounting and other
expenses that NaturalNano did not incur as a private company. The Sarbanes-Oxley
Act of 2002, as well as new rules subsequently implemented by the SEC, have
required changes in corporate governance practices of public companies. We
expect that these new rules and regulations will increase our legal and
financial compliance costs and make some activities more time consuming. These
new rules and regulations could also make it more difficult for us to attract
and retain qualified executive officers and qualified members of our Board of
Directors, particularly to serve on our audit committee.
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We do not anticipate paying dividends in the foreseeable future. This could
make our stock less attractive to potential investors.
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We anticipate that we will retain all future earnings and other cash
resources for the future operation and development of our business and we do not
intend to declare or pay any cash dividends in the foreseeable future. Any
future payment of cash dividends will be at the discretion of our Board of
Directors after taking into account many factors, including our operating
results, financial condition and capital requirements. Corporations that pay
dividends may be viewed as a better investment than corporations that do not.
Future sales or the potential for sale of a substantial number of shares of
our common stock could cause our market value to decline and could impair
our ability to raise capital through subsequent equity offerings.
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Sales of a substantial number of shares of our common stock in the
public markets, or the perception that these sales may occur, could cause the
market price of our common stock to decline and could materially impair our
ability to raise capital through the sale of additional equity securities. Once
the Merger is completed, in addition to the 49,910,420 shares of our common
stock actually issued and outstanding, there will be another 19,719,600 shares
of common stock reserved for future issuance as follows:
(i) 4,950,000 shares issuable upon exercise of options to be issued
under our 2005 Incentive Stock Plan in exchange for NaturalNano
options being cancelled in the Merger;
(ii) 2,250,000 shares issuable upon exercise of stock purchase warrants
to be issued in exchange for NaturalNano warrants being cancelled
in the Merger;
(iii) 10,469,600 shares issuable upon conversion of an aggregate of
$4,156,000 face value of outstanding convertible promissory notes
issued by NaturalNano; and
(iv) 2,050,000 shares reserved for issuance in the future under our
2005 Incentive Stock Plan.
The authorization and issuance of preferred stock may prevent or discourage
a change in our management.
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Our amended Articles of Incorporation will authorize the Board of
Directors to issue up to 10,000,000 shares of preferred stock without
stockholder approval. Such shares will have terms, conditions, rights,
preferences and designations as the Board may determine. The rights of the
holders of our common stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. The issuance of preferred stock, while providing desirable flexibility
in connection with possible acquisitions and other corporate purposes, could
have the effect of discouraging a person from acquiring a majority of our
outstanding common stock.
It may be difficult for a third party to acquire us, and this could depress
our stock price.
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Nevada corporate law includes provisions that could delay, defer or
prevent a change in control of our company or our management. These provisions
could discourage information contests and make it more difficult for you and
other stockholders to elect directors and take other corporate actions. As a
result, these provisions could limit the price that investors are willing to pay
in the future for shares of our common stock. For example:
(i) without prior stockholder approval, the Board of Directors has the
authority to issue one or more classes of preferred stock with
rights senior to those of common stock and to determine the
rights, privileges and inference of that preferred stock;
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(ii) there is no cumulative voting in the election of directors, which
would otherwise allow less than a majority of stockholders to
elect director candidates; and
(iii) stockholders cannot call a special meeting of stockholders.
AGREEMENT AND PLAN OF MERGER
The following is only a summary of the material provisions of the
Agreement and Plan of Merger, dated as of September 26, 2005, by and among
Cementitious Materials and Cementitious Acquisitions and NaturalNano (the
"Merger Agreement"). The Merger Agreement is attached to this Information
Statement as Appendix A. Please read the Merger Agreement in its entirety.
On September 26, 2005 we entered into an Agreement and Plan of Merger
with NaturalNano, Inc., a Delaware corporation, in order to facilitate the
acquisition of NaturalNano. The acquisition is to be accomplished through a
Merger of our newly created, wholly owned subsidiary, Cementitious Acquisitions,
Inc., with and into NaturalNano with NaturalNano being the survivor of the
Merger. Pursuant to the Merger, each issued and outstanding share of NaturalNano
common stock will be converted into the right to receive shares of Cementitious
common stock. As part of the Merger, we will also amend our Articles of
Incorporation to (a) increase our authorized capitalization, and (b) change our
corporate name to "NaturalNano, Inc." We are also adopting a new incentive stock
plan for our employees, directors and consultants.
Upon the closing of the Merger, current stockholders of NaturalNano,
together with the holders of NaturalNano's currently outstanding convertible
debt, will own approximately 91.7% of our issued and outstanding common stock
and our current stockholders will own approximately 8.3%. The purpose of the
Merger is to allow us to acquire and carry on the business of NaturalNano. It is
anticipated that becoming a publicly held reporting company will enhance
NaturalNano's business visibility and ability to attract and use additional
sources of capital.
H. Deworth Williams and Edward F. Cowle, the controlling stockholders
of Cementitious, beneficially own 4,344,408 of the 4,991,042 shares of common
stock outstanding prior to the Merger, representing approximately 87% of the
shares outstanding prior to the Merger. The controlling stockholders have, in
connection with the transactions contemplated by the Merger Agreement, executed
a written consent to take the following actions:
(i) authorize an amendment to our Articles of Incorporation, which
will increase our authorized capitalization and change our
corporate name to "NaturalNano, Inc."; and
(ii) approve the adoption of the 2005 Incentive Stock Plan.
THE MERGER WILL RESULT IN A CHANGE IN CONTROL OF CEMENTITIOUS MATERIALS TO
CONTROL BY NATURALNANO'S CURRENT STOCKHOLDERS AND MANAGEMENT AND THE
ASSUMPTION BY CEMENTITIOUS MATERIALS OF NATURALNANO'S OPERATIONS, ASSETS
AND LIABILITIES.
The terms of the Merger and Merger Agreement are more fully described below.
Background of the Merger
In November 2004, Michael Weiner, who was then the President of
NaturalNano, had a meeting with one of our principal stockholders, Deworth
Williams. At that meeting, Mr. Weiner described the business of NaturalNano and
its interest in becoming a publicly held company. Mr. Williams then contacted
our President, Edward Cowle, who is also one of our principal stockholders, and
described NaturalNano's technology and its potential for developing the
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technology for commercial use. Over the next several weeks, Mr. Cowle had a
number of meetings and discussion with Mr. Weiner regarding the prospects of
NaturalNano and the possibility of Cementitious acquiring NaturalNano. These
discussions eventually lead to Cementitious and NaturalNano entering into a
letter of intent on February 17, 2005 that set forth the intent of Cementitious
to acquire NaturalNano. In approving the letter of intent, our Board of
Directors considered the merits of the proposed transaction and potential
benefits to our stockholders. The board then authorized Mr. Cowle to proceed
with taking whatever actions necessary to consummate the acquisition. Because
negotiations were ongoing and the letter of intent was not binding, it was
determined that in the best interest of all concerned, the proposed transaction
would be kept confidential until a definitive agreement could be drafted and
executed by the parties.
Legal counsel for the two companies then began to prepare the necessary
agreements and accompanying documents to formalize the understanding between the
parties. Also, financial statements through December 31, 2004 for both companies
had to be completed and audited. Cementitious proceeded to create in the State
of Nevada Cementitious Acquisitions, Inc. in order to facilitate the acquisition
of NaturalNano and on September 26, 2005, the parties completed and executed the
Agreement and Plan of Merger, which was also ratified by our Board on that date.
We then issued a press release announcing the acquisition and filed with the SEC
on September 30, 2005 a current notice on Form 8-K. We then proceeded to prepare
and file with the SEC a preliminary copy of this Information Statement and the
definitive Information Statement was then prepared and mailed to stockholders on
or about the date set forth herein.
Prior to the commencement of discussions between the parties in
November 2004, Cementitious Materials and NaturalNano did not have any
pre-existing relationship. During the period May 1, 2005 through September 30,
2005 Edward F. Cowle, the President and a significant shareholder of
Cementitious Materials, Inc., provided consulting and advisory services to
NaturalNano for which Mr. Cowle was paid $8,952 in fees and benefits. It is
expected that Mr. Cowle will continue to provide these services following the
Merger, for which he will be paid fees of approximately $1800 per month. To the
best of our knowledge, no stockholder of either company holds any shares of the
other company, nor are we aware of any conflicts of interest involving the
stockholders, directors or management of either company.
Cementitious's Reasons for the Merger
In considering and approving the Merger and the Merger Agreement, our
Board of Directors considered various factors including:
(i) our current lack of assets and of business operations;
(ii) our prospects for the future;
(iii) NaturalNano's promising technology, business plan and prospects
for growth and expansion; and
(iv) anticipated increase in our stockholder values as a result of the
Merger.
In agreeing to the Merger, our board believes that the relinquishment
of control to NaturalNano's management and adoption of NaturalNano's assets and
operations will eventually add value to Cementitious. Our Board of Directors
reached this conclusion after analyzing NaturalNano's operations, prospects and
managerial resources, which are described in more detail below, and believes
that acquiring NaturalNano's growth potential by means of a Merger is the best
opportunity to increase value to our stockholders.
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NaturalNano's Reasons for the Merger
In considering and voting upon the Merger and Merger Agreement, the
NaturalNano Board of Directors considered the following:
(i) information with respect to the financial condition, results of
operations, business and prospects of NaturalNano, and the
inherent uncertainties and contingencies associated with such
financial projections, and the economic and market conditions
affecting NaturalNano;
(ii) the increased market liquidity expected to result from exchanging
stock in a private company for publicly traded securities of
Cementitious;
(iii) the ability to use registered securities to make future
acquisitions of assets or businesses;
(iv) increased visibility in the financial community;
(v) enhanced access to the capital markets;
(vi) improved transparency of operations; and
(vii) perceived credibility and enhanced corporate image of being a
publicly traded company.
Neither Cementitious nor NaturalNano retained the services of an
investment banker or requested a fairness opinion in connection with the Merger
transaction.
The above discussion of the material factors considered by
Cementitious's and NaturalNano's boards of directors is not intended to be
exhaustive, but sets forth the principal factors considered. In view of the
variety of factors considered in connection with their evaluation of the Merger
Agreement and the Merger, the boards considered the factors as a whole and did
not find it practicable to and did not quantify or otherwise assign relative
weight to the specific factors considered in reaching their determinations. In
addition, individual members of the boards may have given different weight to
different factors.
Material Terms of the Merger Agreement
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger, our subsidiary, Cementitious Acquisitions, will
merge with and into NaturalNano, the separate corporate existence of
Cementitious Acquisitions will cease and we will become the parent corporation
of NaturalNano. We will issue an aggregate of 44,919,378 shares of common stock
to the NaturalNano stockholders in exchange for 100% of the issued and
outstanding shares of NaturalNano capital stock.
Immediately prior to the effective time of the Merger, we will file an
amended Articles of Incorporation that will change our corporate name to
"NaturalNano, Inc." as a result of the Merger.
At the effective time of the Merger, the members of the NaturalNano
Board of Directors holding office immediately prior to the effective time will
remain as the members of the Board of Directors of our newly acquired
subsidiary, NaturalNano, as the surviving corporation of the Merger, and all
persons holding offices of NaturalNano at the effective time, will continue to
hold the same offices of the surviving corporation.
Also at the effective time, the then existing directors of Cementitious
will nominate and elect to the Board of Directors those persons designated by
NaturalNano. Simultaneously, Cementitious will cause all of the persons then
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serving as directors and officers immediately prior to the closing of the Merger
to resign from all of their respective positions with Cementitious, effective
immediately upon the closing of the Merger.
Effective Time of the Merger
The Merger Agreement provides that, subject to the approval of the
NaturalNano stockholders and satisfaction or waiver of other conditions, the
Merger will be consummated by filing a certificate of Merger and any other
appropriate documents, in accordance with the relevant provisions of the NRS,
with the Secretary of State of Nevada and Delaware. We expect the Merger to be
consummated promptly after fulfilling the terms and conditions of the agreement.
We anticipate that the closing will take place at a mutually agreed
upon time, but no later than five (5) days after all conditions precedent have
been met satisfied or waived and all required documents have been delivered. The
parties have agreed to use their reasonable commercial efforts to cause the
closing to occur on or before November 30, 2005.
Merger Consideration
Common Stock of NaturalNano. Upon consummation of the Merger, each
share of outstanding NaturalNano common stock (except shares as to which
appraisal rights have been properly perfected) shall be converted into the right
to receive 4.4919378 shares of Cementitious common stock. There are 10,000,000
shares of NaturalNano issued and outstanding. Accordingly, following the
exchange, holders of NaturalNano capital stock will hold 44,919,378 shares of
our common stock.
As a result of the Merger, the shares of NaturalNano capital stock will
no longer be outstanding, will automatically be cancelled and retired and will
cease to exist, and each holder of a certificate representing such share
immediately prior to the Merger will cease to have any rights with respect to
such certificate, except the right to receive the shares of the Cementitious
common stock described above.
No fraction of any share of our common stock will be issued to any
former holder of NaturalNano capital stock; rather, the number of shares of our
common stock otherwise issuable, if other than a whole number, will be rounded
to the nearest higher whole number.
Treatment of NaturalNano Stock Options and Warrants
Upon consummation of the Merger, each holder of an option or warrant to
purchase NaturalNano common stock, granted or issued prior to the effective time
of the Merger, will receive from Cementitious Materials an option agreement or
warrant, as the case may be, granting to such holder the right to purchase one
share of Cementitious Materials common stock for every one share of NaturalNano
common stock for which the option or warrant is exercisable. Terms of the new
options and warrants will be substantially and materially similar to the terms
and conditions of the NaturalNano options and warrants prior to such conversion.
The closing under the Merger is conditioned upon submission to our stockholders
for approval of a new incentive stock plan and the adoption of such plan at the
effective time of the Merger.
Treatment of NaturalNano Convertible Debt
Upon consummation of the Merger, an aggregate of $4,156,000 face value
of outstanding convertible promissory notes issued by NaturalNano will be
converted into an aggregate of 10,469,600 shares of Cementitious Materials
common stock.
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Representations and Warranties
The Merger Agreement contains customary representations and warranties
of the parties. Cementitious Materials' and Cementitious Acquisitions'
representations and warranties to NaturalNano relate to, among other things:
(i) organization, standing, corporate power and similar corporate
matters;
(ii) authorization, execution, deliver and enforceability of the Merger
Agreement;
(iii) valid issuance of our common stock;
(iv) capital structure;
(v) accuracy of financial statements and other information;
(vi) absence of certain adverse changes;
(vii) absence of litigation;
(viii) absence of liabilities or claims not previously disclosed;
(ix) timely filing of all required tax returns;
(x) delivery of all requested information;
(xi) material contracts;
(xii) status of employees or independent contractors;
(xiii) compliance with the federal securities laws, including the
applicable provisions of the Sarbanes-Oxley Act of 2002, and the
accuracy of all information filed with the SEC;
(xiv) absence of employee benefit plans;
(xv) compliance with all applicable laws; and
(xvi) absence of any untrue statement of a material fact.
NaturalNano's representations and warranties to Cementitious Materials
and Cementitious Acquisitions relate to, among other things:
(i) organization, standing, corporate power and similar corporate
matters;
(ii) authorization, execution, deliver and enforceability of the Merger
Agreement;
(iii) valid issuance of NaturalNano capital stock;
(iv) capital structure;
(v) accuracy of financial statements and other information;
(vi) absence of certain adverse changes;
(vii) absence of litigation;
(viii) absence of liabilities or claims not previously disclosed;
(ix) timely filing of all required tax returns;
(x) delivery of all requested information;
(xi) material contracts;
(xii) compliance with all applicable laws;
(xiii) accuracy of information provided to Cementitious for inclusion
in any filing by us with the SEC; and
(xiv) absence of any untrue statement of a material fact.
None of the representations or warranties in the Merger Agreement will
survive the closing.
Certain Covenants of the Parties
The parties to the Merger Agreement have agreed to take certain actions
prior the closing, including the following:
1. The parties are entitled to make such investigations of the
assets, properties, business and operations of the other party,
and to examine the books, records, tax returns, financial
statements and other materials of the other party as the
investigating party deems necessary. All information is to be kept
confidential and is not to be used in any manner inconsistent with
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the transactions contemplated by the Merger Agreement. It is a
condition to NaturalNano's obligation to consummate the
transactions contemplated by the Merger Agreement that it shall
have completed its financial and legal due diligence investigation
of Cementitious with results thereof satisfactory to NaturalNano
in its sole discretion.
2. Prior to the closing, any written news releases or public
disclosure by either party pertaining to the Merger Agreement is
to be submitted to the other party for its review and approval
prior to such release or disclosure.
3. We have agreed that except as contemplated by the Merger
Agreement, there will be no stock dividend, stock split,
recapitalization, or exchange of shares with respect to or rights
issued in respect of our common stock, and that we and
Cementitious Acquisitions will conduct no business, prior to the
closing other than in the ordinary course of business or as may be
necessary in order to consummate the transactions contemplated by
the Merger Agreement.
4. We are required to give notice of and submit for action by written
consent of our stockholders:
(a) the amended Articles of Incorporation that will
(i) the increase of our authorized capitalization, and
(ii) change of our corporate name;
(b) a new stock option plan reserving 7,000,000 shares our
common stock for issuance thereunder.
Also, as promptly as practicable, we are to prepare and file with the
SEC a preliminary Information Statement relating to the matters stated above and
use our reasonable best efforts to
(a) obtain and furnish the information required to be included by
the SEC in the definitive Information Statement and, after
consultation with NaturalNano, to respond promptly to any
comments made by the SEC with respect to the preliminary
Information Statement and cause the Information Statement to
be mailed to its stockholders as promptly as practicable
following clearance from the SEC; and
(b) obtain the necessary approval of matters stated above by our
stockholders.
Except as required by law, we and Cementitious Acquisitions will not
voluntarily take any action that would, or that is reasonably likely to, result
in any of the conditions to the Merger not being satisfied.
Our common stock will continue to be approved for quotation on the OTC
Bulletin Board, and we will continue to satisfy throughout the period from the
date of the Merger Agreement through the closing date:
(a) our filing requirements under Section 13 of the Exchange Act;
and
(b) the requirements of Rule 15c2-11 as promulgated by the SEC
under the Exchange Act.
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Each party shall conduct its respective business only in the usual and
ordinary course and the character of such business will not be changed nor shall
any different business be undertaken;
Conditions to the Merger
The respective obligations of NaturalNano, Cementitious and
Cementitious Acquisitions to complete the Merger are subject to the satisfaction
or waiver of various conditions, including normal and customary closing
conditions such as:
(a) the accuracy of all representations and warranties;
(b) the performance and compliance with all covenants, agreements and
conditions;
(c) the delivery of certificates, documents and legal opinions; and
(d) the ability to complete the Merger under applicable state laws.
In addition to the foregoing, the obligation of NaturalNano to complete
the Merger is also subject to the satisfaction or waiver of the following
conditions:
(a) Each stockholder of NaturalNano shall have delivered to
Cementitious an investment letter agreeing, among other things, that
the shares of our Cementitious common stock to be issued in the Merger
are, among other things, being acquired for investment purposes and not
with a view to public resale, are being acquired for the investor's own
account, that the investor is an "accredited investor" as defined under
Regulation D of the Securities Act of 1933, as amended (the "Securities
Act"), and that the shares of our common stock are restricted and may
not be resold, except in reliance of an exemption under the Securities
Act.
(b) The amended Articles of Incorporation of Cementitious and the new
incentive stock plan shall have been approved by the requisite vote of
our stockholders, and the amended Articles of Incorporation shall have
been filed in accordance with the applicable requirements of Nevada
law.
(c) At the closing, all of the directors and officers of Cementitious
and Cementitious Acquisitions shall have resigned from their positions
as directors and officers of Cementitious and Cementitious
Acquisitions, respectively, effective upon the election and appointment
of the NaturalNano nominees.
(d) The shares of our common stock to be issued to the NaturalNano
stockholders in the Merger will be validly issued, nonassessable and
fully paid under the applicable provisions of Nevada law and will be
issued in a nonpublic offering in compliance with all federal, state
and applicable securities laws.
(e) NaturalNano shall have received all necessary and required
approvals and consents from required parties and from its stockholders.
(f) NaturalNano shall have completed its financial and legal due
diligence investigation of us.
The obligation of Cementitious to complete the Merger is also subject
to:
(a) the availability of an exemption from registration under the
Securities Act and the securities laws of the various states of
residence of NaturalNano's stockholders for issuance of the shares of
our common stock to be issued in the Merger; and
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(b) the receipt from NaturalNano's stockholders of the investment
letters.
Termination
Termination by either NaturalNano or Cementitious Materials. The Merger
Agreement may be terminated at any time prior to the Merger by either
NaturalNano or Cementitious:
(a) By mutual written consent;
(b) If the effective time of the Merger has not occurred on or before
November 30, 2005 (the "termination date"); provided, however, that the
right to terminate is not available to any party whose failure to
fulfill any obligation under the Merger Agreement has been the cause of
or resulted in, the failure of the effective time to occur on or before
the termination date;
(c) If any governmental entity (i) has issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by the Merger
Agreement, and such order, decree, ruling or other action has become
final and nonappealable; or (ii) has failed to issue an order, decree
or ruling or to take any other action, and such denial of a request to
issue such order, decree, ruling or take such other action has become
final and nonappealable; or
(d) If the approvals of the respective stockholders of either
Cementitious or NaturalNano have not been obtained by reason of the
failure to obtain the required vote of stockholders or consent to the
respective matters as to which such approval was sought.
In addition to the foregoing, either party may terminate the Merger
Agreement if the other party has breached or failed to perform any of its
representations, warranties, covenants or other agreements contained in the
Merger Agreement, such that the conditions to the completion of the Merger are
not capable of being satisfied on or before the termination date.
Effect of Termination. In the event of termination of the Merger
Agreement by either Cementitious or NaturalNano, the Merger Agreement will
become void and there will be no liability or obligation on the part of any of
the parties or their respective officers or directors, except for liability
arising out of a breach or failure to perform the representations, warranties,
covenants or other agreements contained in the Merger Agreement.
Cost and Expenses of the Merger
All costs and expenses in connection with the Merger will be paid by
the party incurring these costs and expenses. NaturalNano has agreed to pay all
legal expenses and costs associated with the preparation and execution of the
Merger documents and all transactions, agreements and documents contemplated
hereby, and this Information Statement. We have agreed to pay all other expenses
related to the preparation, printing and mailing of the Information Statement
and all related filing fees paid to the SEC in connection with the Merger. We
estimate that the total costs and expenses that we will pay in connection with
the Merger will be approximately $35,000, which consists of professional fees,
printing and mailing costs, filing fees and other miscellaneous expenses.
NaturalNano will pay all costs and expenses it incurs in connection with the
Merger.
Amendment
The Merger Agreement may be amended at any time in writing signed by
all parties before or after approval of the Merger by NaturalNano stockholders
at the special meeting but, after such approval, no amendment shall be made
which will require additional approval of NaturalNano stockholders under any
applicable law without such approval.
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Extension and Waiver
At any time before the Merger, each party to the Merger Agreement may
extend the time for performance of any obligation or act of another party, waive
any inaccuracies in the representations and warranties or waive compliance by
the other party with any of the agreements or conditions contained in the Merger
Agreement.
CERTAIN TRANSACTIONS AND INFORMATION RELATED TO THE MERGER
Change in Control
A change of control of Cementitious will occur as a result of the
Merger, pursuant to which the stockholders of NaturalNano, together with the
holders of NaturalNano's outstanding convertible debt, will become stockholders
of Cementitious and will own, collectively, approximately 91.7% of the issued
and outstanding shares of our common stock.
Certain Federal Income Tax Consequences
Because no action is being taken in connection with the current
outstanding shares of Cementitious common stock, no gain or loss is anticipated
to be recognized by our stockholders in connection with the Merger. It is
expected that the issuance of our shares of common stock to NaturalNano
stockholders pursuant to the Merger will be tax-free to those persons.
Accounting Treatment of the Merger
The Merger transaction is expected to be accounted for as a reverse
acquisition in which NaturalNano is the accounting acquirer and Cementitious is
the legal acquirer. Current management of NaturalNano is expected to continue as
the management of Cementitious following the Merger. Because the Merger is
expected to be accounted for as a reverse acquisition and not a business
combination, no goodwill is expected to be recorded in connection therewith and
the costs incurred in connection with the Merger are expected to be charged to
expenses. See the accompanying unaudited pro forma financial information
included elsewhere in this Information Statement.
Appraisal Rights
Under applicable Nevada law, our stockholders do not have the right to
demand appraisal of their shares in connection the approval by written consent
of the amended Articles of Incorporation and other actions that may be
contemplated in connection with the acquisition of NaturalNano pursuant to the
Merger.
Federal Securities Law Consequences
The shares of Cementitious Materials common stock to be issued to the
NaturalNano stockholders in connection with the Merger will not be registered
under the Securities Act at the effective time of the Merger. It is intended
that such shares will be issued pursuant to the private placement exemption
under Section 4(2) and/or Regulation D of the Securities Act. These shares are
deemed "restricted stock" and will bear an appropriate restrictive legend
indicating that the resale of such shares may be made only pursuant to
registration under the Securities Act or pursuant to an available exemption from
such registration. NaturalNano is a party to agreements with its principal
stockholder, Technology Innovations, LLC, and with the holders of its
convertible promissory notes requiring it, under certain circumstances, to use
its best efforts to prepare and file with the Securities and Exchange Commission
a registration statement on an appropriate form covering the offer and resale to
the public of the shares of our common stock issuable in the Merger or upon
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conversion of the promissory notes, and we will succeed to NaturalNano's
obligations under those agreements as a result of the Merger. Consequently, we
expect to prepare and file with the Securities and Exchange Commission as soon
as practical after the effective time of the Merger, and to use our best efforts
to cause to be declared effective, such a registration statement.
Certain outstanding shares of common stock, including those issued
pursuant to the Merger, will be "restricted securities" within the meaning of
Rule 144 promulgated under the Securities Act. Under the provisions of Rule 144,
restricted securities may be sold into the public market, subject to holding
period, volume and other limitations set forth under the Rule. In general, under
Rule 144 as currently in effect, a person (or persons whose shares are
aggregated) who has beneficially owned restricted shares for at least one year,
including any person who may be deemed to be an "affiliate," as defined under
the Securities Act, is entitled to sell, within any three-month period, an
amount of shares that does not exceed the greater of:
(i) the average weekly trading volume in the common stock, as reported
through the automated quotation system of a registered securities
association, during the four calendar weeks preceding such sale,
or
(ii) 1% of the shares then outstanding.
In order for a stockholder to rely on Rule 144, we must have available
adequate current public information with respect to our business and financial
status. A person who is not deemed to be an affiliate and has not been an
affiliate for the most recent three months, and who has held restricted shares
for at least two years would be entitled to sell such shares under Rule 144(k)
without regard to the various resale limitations of Rule 144.
Under Rule 144, the one-year holding period will commence as of the
effective time of the Merger for the stockholders of NaturalNano who receive
shares of our common stock in the Merger. Sales under Rule 144 are also subject
to manner of sale provisions and notice requirements and to the availability of
current public information about us.
As of the date of this Information Statement, options and warrants for
the purchase of a total of 7,200,000 shares of NaturalNano common stock were
outstanding, 4,658,331 of which are currently exercisable. The Merger Agreement
provides that such options and warrants will be converted into options and
warrants to purchase the same number of shares of Cementitious Materials common
stock, on economic and contractual terms substantially equivalent to the
NaturalNano options and warrants. As soon as practicable following the Merger,
we intend to file a Form S-8 registration statement under the Securities Act to
register all shares of common stock issuable under the 2005 Incentive Stock
Plan. Upon the effectiveness of such registration statement, shares of our
common stock underlying options granted under the Plan will be eligible for sale
in the public markets, subject to vesting restrictions.
Our Operations After the Merger
Following the Merger, our only business activities will be the business
in which NaturalNano is currently engaged. At the effective time of the Merger,
our directors and executive officers will be replaced by the directors and
executive officers of NaturalNano.
We will continue to be a reporting company under the Exchange Act and
will continue to file periodic reports and be subject to the proxy solicitation
requirements of the Exchange Act. It is anticipated that our common stock will
not be listed on any national securities exchange or on the Nasdaq Stock Market,
but will continue to be listed on the OTC Bulletin Board, under a new trading
symbol. The principal office of NaturalNano will become our principal office.
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AMENDMENT TO OUR ARTICLES OF INCORPORATION
On September 23, 2005, our Board of Directors voted unanimously to
authorize and recommend that in connection with the Merger, our stockholders
approve an amendment to our Articles of Incorporation to increase the number of
our authorized shares, to establish a class of preferred stock, and to change
our corporate name. On September 23, 2005, this amendment was also approved by
our two controlling stockholders, acting by written consent.
Change in Authorized Shares
Upon the filing of the Certificate of Amendment to our Articles of
Incorporation with the Nevada Secretary of State, the total number of shares
that we will be authorized to issue will be changed from 12,500,000 shares of
common stock to 100,000,000 shares of common stock, par value $0.001 per share,
and 10,000,000 shares of preferred stock, par value $0.001 per share.
All shares of common stock have equal rights and privileges with
respect to voting, liquidation and dividend rights. Each share of common stock
entitles the holder thereof to (a) one non-cumulative vote for each share held
of record on all matters submitted to a vote of the stockholders; (b) to
participate equally and to receive any and all such dividends as may be declared
by the Board of Directors; and (c) to participate pro rata in any distribution
of assets available for distribution upon liquidation. Holders of our common
stock have no preemptive rights to acquire additional shares of common stock or
any other securities. The common stock is not subject to redemption and carries
no subscription or conversion rights.
The amended Articles of Incorporation will provide that the Board of
Directors has the flexibility to set new classes, series, and other terms and
conditions of the preferred shares. Preferred shares may be issued from time to
time in one or more series in the discretion of the Board of Directors. The
board has the authority to establish the number of shares to be included in each
such series, and to fix the designation, powers, preferences and rights of the
shares of each such series and the qualifications, limitations and restrictions
thereof.
Preferred shares may be issued in the future by the board without
further stockholder approval, for such purposes as the board deems in the best
interest of our company, including future stock splits and split-ups, stock
dividends, equity financings and issuances for acquisitions and business
combinations. In addition, such authorized but unissued common and preferred
shares could be used by the Board of Directors for defensive purposes against a
hostile takeover attempt, including (by way of example) the private placement of
shares or the granting of options to purchase shares to persons or entities
sympathetic to, or contractually bound to support, management. We have no such
present arrangement or understanding with any person. Further, the common and
preferred shares may be reserved for issuance upon exercise of stock purchase
rights designed to deter hostile takeovers, commonly known as a "poison pill".
The flexibility granted to the board in specifying the rights and
preferences of various series of preferred stock could similarly be used in
designing classes of preferred stock which could act as an effective deterrent
or defensive tool in a takeover situation including the creation of voting and
other impediments which might frustrate persons attempting to gain control of
our company. Such uses of authorized and unissued stock might make any takeover
attempt more difficult and could deprive stockholders of the ability to realize
above present market premiums, which often accompany such takeover attempts.
There are currently no shares of preferred stock outstanding and we do not have
any present intention of issuing any such shares in the immediate futures.
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Change of Name
Upon the filing of the Certificate of Amendment to our Articles of
Incorporation with the Nevada Secretary of State, which will occur upon the
closing of the Merger, our corporate name will be changed to "NaturalNano, Inc."
Our Board believes that the new name will better reflect the nature of our
business following the Merger.
After the Merger, we anticipate that the our common stock will continue
to be listed on the OTC Bulletin Board, and that the trading symbol will be
changed from "CTTM" to a symbol that will reflect the change of our corporate
name to "NaturalNano, Inc." Our name change and the anticipated change of our
trading symbol will not have any effect on the transferability of outstanding
stock certificates. Outstanding stock certificates bearing the name
"Cementitious Materials, Inc." will continue to be valid and to represent shares
of our company. In the future, new stock certificates will be issued bearing our
new name, but this will in no way affect the validity of your current stock
certificates. The name change will be reflected by book entry. Stockholders
holding physical certificates should not destroy those certificates or surrender
them to us for reissue; certificates bearing the name "Cementitious Materials,
Inc." should be retained in a secure location, as they will continue to
represent shares of our company.
NATURALNANO, INC. 2005 INCENTIVE STOCK PLAN
As a condition of the Merger Agreement, we have adopted an incentive
stock plan, to be put into effect at the effective time of the Merger. Pursuant
to the Merger Agreement, each holder of an option to purchase NaturalNano common
stock granted prior to the effective time of the Merger, is to receive, in
exchange for a written instrument executed by the optionee canceling all of the
NaturalNano options, an option agreement evidencing the grant to such holder of
an option to purchase one share of our common stock for every one share of
NaturalNano common stock for which the option is exercisable at any time. The
new options will be on economic and contractual terms substantially and
materially similar to the terms and conditions of the NaturalNano option prior
to conversion. In order to implement the foregoing provisions of the Merger
Agreement, and in order to attract and retain officers, employees and directors
of the highest quality and promote the well being of our company after the
Merger, our Board of Directors has adopted, and our controlling stockholders
have approved, the NaturalNano, Inc. 2005 Incentive Stock Plan.
The following is a brief summary of the incentive stock plan, a copy of
which is attached hereto as Appendix C. The following summary is qualified in
its entirety by reference to the incentive stock plan.
Types of Awards
The incentive stock plan provides for the grant of nonqualified stock
options, restricted stock, restricted stock units, stock appreciation rights,
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code") and other stock-based awards. No
more than 50% of the total number of shares of common stock covered by the
incentive stock plan may be issued pursuant to awards that are not options or
stock appreciation rights.
Incentive Stock Options and Nonqualified Stock Options. Optionees
receive the right to purchase a specified number of shares of common stock at a
specified option price and subject to such other terms and conditions as are
specified in connection with the option grant. Options may not be granted at an
exercise price less than the fair market value of the common stock on the date
of grant. Options may not be granted for a term in excess of ten years.
Outstanding options may not be amended to provide an exercise price per share
which is lower than the then current exercise price per share of such
outstanding options. The Board of Directors may not cancel any outstanding
options and grant in substitution for such options new options under the
incentive stock plan covering the same or a different number of shares of common
stock and having an exercise price per share lower than the then current
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exercise price per share of the cancelled options. The Board of Directors will,
however, have the power to amend stock options to convert them into stock
appreciation rights and make other amendments to options, provided that the
optionee must consent to such action unless the board determines that the action
would not materially and adversely affect the optionee.
Restricted Stock and Restricted Stock Unit Awards. Restricted stock
awards entitle recipients to acquire shares of common stock, subject to our
right to repurchase all or part of such shares from the recipient in the event
that the conditions specified in the applicable award are not satisfied prior to
the end of the applicable restriction period established for such award.
Restricted stock unit awards entitle the recipient to receive shares of common
stock to be delivered in the future subject to such terms and conditions on the
delivery of the shares as the Board of Directors may determine.
Restricted stock and restricted stock unit awards granted under the
incentive stock plan may vest (a) solely on the basis of passage of time, (b)
solely based on achievement of specified performance criteria or (c) upon the
passage of time, subject to accelerated vesting if specified performance
criteria are met. The Board of Directors may determine, at the time of grant,
that restricted stock or restricted stock unit award being made to an officer
will vest solely upon achievement of specified performance criteria designed to
qualify for deduction under Section 162(m) of the Code. The performance criteria
for each restricted stock or restricted stock unit award intended to so qualify
for purposes of Section 162(m) of the Code will be based on one or more of the
following measures: sales, earnings per share, return on net assets, return on
equity, and customer service levels.
Except as noted below, (a) restricted stock and restricted stock units
that vest solely on the basis of passage of time may vest no faster than ratably
over three years; and (b) restricted stock and restricted stock units that vest
based on achievement of specified performance criteria, or provide for
accelerated vesting based upon achievement of specified performance criteria,
may not vest earlier than the first anniversary of the date of grant. These
vesting restrictions do not apply to restricted stock and restricted stock unit
awards collectively with respect to up to 5% of the total number of shares of
common stock covered by the incentive stock plan. In addition, the Board of
Directors may make exceptions to the vesting limitations described above in the
event of the recipient's death, a change in control or other extraordinary
circumstances specified in the incentive stock plan.
Stock Appreciation Rights. A stock appreciation right, or SAR, is an
award entitling the holder on exercise to receive, at the election of the Board
of Directors, an amount in cash or common stock or a combination thereof
determined in whole or in part by reference to appreciation, from and after the
date of grant, in the fair market value of a share of common stock. SARs may be
based solely on appreciation in the fair market value of common stock or on a
comparison of such appreciation with some other measure of market growth such as
(but not limited to) appreciation in a recognized market index.
Other Stock-Based Awards. Under the incentive stock plan, the Board of
Directors has the right to grant other awards of common stock or awards
otherwise based upon common stock or other property, including without
limitation rights to purchase shares of common stock, having such terms and
conditions as the board may determine.
Eligibility to Receive Awards
Employees, officers, directors, consultants, advisors and other service
providers are eligible to be granted awards under the incentive stock plan. The
maximum number of shares with respect to which awards may be granted to any
participant under the incentive stock plan may not exceed 1,500,000 shares per
calendar year.
Options Grants to Non-employee Directors
Under the incentive stock plan, each person elected to the Board of
Directors who, at the time of his or her election, is not an employee of our
Company or an immediate family member of an employee will receive an option to
purchase 50,000 shares of common stock at an option price equal to the fair
market value of our common stock on the date of his or her election. Each
director reelected at an annual meeting of stockholders will receive an
additional option to purchase 50,000 shares of common stock. Options granted to
non-employee directors will vest at the time of the next annual meeting
following the end of the fiscal year in which such options were granted.
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Stock Available for Awards
Awards may be made under the incentive stock plan for up to 7 million
shares of common stock, which will constitute approximately 12% of the total
number of shares of common stock outstanding after the Merger.
New Plan Benefits
At the effective time of the Merger, approximately 30 persons will be
eligible to receive awards under the incentive stock plan, including three
executive officers and four non-employee directors of NaturalNano, who will
become officers and directors of our company at the effective time of the
Merger. The following table provides certain information with respect to options
granted by NaturalNano, which will be converted to options under the incentive
stock plan at the effective time of the Merger.
NEW PLAN BENEFITS
- --------------------------------------------------------------------------------
Nonqualified Stock Options
- ------------------------------------------- ------------------------------------
Shares Subject to Options at an
Name and Position Exercise Price of $0.10 per Share
- ------------------------------------------- ------------------------------------
Executive Officers as a Group 2,200,000
- ------------------------------------------- ------------------------------------
Non-Employee Directors as a Group 500,000
- ------------------------------------------- ------------------------------------
Employees (other than Executive Officers) 2,250,000
and Non-Employee Consultants as a Group
- ------------------------------------------- ------------------------------------
The granting of future awards under the incentive stock plan is discretionary,
and we cannot now determine the number or type of awards to be granted in the
future to any particular person or group.
Administration
The incentive stock plan is administered by the Board of Directors. The
board has the authority to adopt, amend and repeal the administrative rules,
guidelines and practices relating to the incentive stock plan and to interpret
the plan's provisions. The board may also delegate authority under the incentive
stock plan to a committee of the Board of Directors. The board may also delegate
authority under the incentive stock plan to one or more officers, except that
the board will fix the terms of the awards to be granted by such officers and
the maximum number of shares subject to awards that the officers may grant. No
officer will be authorized to grant awards to himself or herself.
Subject to any applicable delegation by the Board of Directors and any
applicable limitations contained in the incentive stock plan, the Board of
Directors selects the recipients of awards and determines:
(i) the number of shares of common stock covered by options and the
dates upon which such options become exercisable;
(ii) the exercise price of options, which may not be less than 100% of
the fair market value of common stock;
(iii) the duration of options, which may not exceed 10 years;
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(iv) the terms of stock appreciation rights and the dates or conditions
upon which such stock appreciation rights become exercisable;
(v) the number of shares of common stock subject to any restricted
stock, restricted stock unit or other stock-based awards and the
terms and conditions of such awards, including, if applicable,
conditions for repurchase, issue price and repurchase price.
We are required to make appropriate adjustments or substitutions in
connection with the incentive stock plan and any outstanding awards to reflect
stock splits, stock dividends, recapitalizations, spin-offs and other similar
changes in capitalization to the extent the Board of Directors deems such
adjustment or substitution to be necessary and appropriate. The incentive stock
plan also contains provisions addressing the consequences of any "reorganization
event," which is defined as:
(i) any Merger or consolidation of with or into another entity as a
result of which all of the common stock is converted into or
exchanged for the right to receive cash, securities or other
property; or
(ii) any exchange of all of common stock for cash, securities or other
property pursuant to a share exchange transaction.
If any award expires or is terminated, surrendered or canceled without
having being fully exercised, is forfeited in whole or in part, or results in
any common stock not being issued because (a) the award is settled for cash, or
(b) shares are used to satisfy the exercise price or tax withholding obligation,
the unused shares of common stock covered by such award will again be available
for grant under the incentive stock plan, subject, however, in the case of
incentive stock options, to any limitations under the Code.
Termination or Amendment
No award may be made under the incentive stock plan after the
completion of ten years from the date on which the plan is approved by our
stockholders, but awards previously granted may extend beyond that date. The
Board of Directors may at any time amend, suspend or terminate the incentive
stock plan, except that no award designated as subject to Section 162(m) of the
Code by the Board of Directors after the date of such amendment shall become
exercisable, realizable or vested, to the extent such amendment was required to
grant such award, unless and until such amendment shall have been approved by
our stockholders. In addition, without the approval of our stockholders, no
amendment may:
(i) increase the number of shares authorized under the incentive stock
plan;
(ii) materially increase the benefits provided under the incentive
stock plan;
(iii) materially expand the class of participants eligible to
participate in the incentive stock plan;
(iv) expand the types of awards provided under the incentive stock
plan; or
(v) make any other changes which require stockholder approval under
the rules of the national securities market on which the shares of
common stock are quoted.
No award may be made that is conditioned on the approval of our stockholders of
any amendment to the incentive stock plan.
The incentive stock plan will become effective at the effective time of
the Merger.
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Federal Income Tax Consequences
The following generally summarizes the United States federal income tax
consequences that generally will arise with respect to awards granted under the
incentive stock plan. This summary is based on the tax laws in effect as of the
date of this Information Statement. Changes to these laws could alter the tax
consequences described below.
Incentive Stock Options. A participant will not have income upon the
grant of an incentive stock option. Also, except as described below, a
participant will not have income upon exercise of an incentive stock option if
the participant has been employed by our company, NaturalNano, or any other 50%
or more-owned corporate subsidiary at all times beginning with the option grant
date and ending three months before the date the participant exercises the
option. If the participant has not been so employed during that time, then the
participant will be taxed as described below under "Nonstatutory Stock Options."
The exercise of an incentive stock option may subject the participant to the
alternative minimum tax.
A participant will have income upon the sale of the stock acquired
under an incentive stock option at a profit if sales proceeds exceed the
exercise price. The type of income will depend on when the participant sells the
stock. If a participant sells the stock more than two years after the option was
granted and more than one year after the option was exercised, then all of the
profit will be long-term capital gain. If a participant sells the stock prior to
satisfying these waiting periods, then the participant will have engaged in a
disqualifying disposition and a portion of the profit will be ordinary income
and a portion may be capital gain. This capital gain will be long-term if the
participant has held the stock for more than one year and otherwise will be
short-term. If a participant sells the stock at a loss (sales proceeds are less
than the exercise price), then the loss will be a capital loss. This capital
loss will be long-term if the participant held the stock for more than one year
and otherwise will be short-term.
Nonqualified Stock Options. A participant will not have income upon the
grant of a nonqualified stock option. A participant will have compensation
income upon the exercise of a nonqualified stock option equal to the value of
the stock on the day the participant exercised the option less the exercise
price. Upon sale of the stock, the participant will have capital gain or loss
equal to the difference between the sales proceeds and the value of the stock on
the day the option was exercised. This capital gain or loss will be long-term if
the participant has held the stock for more than one year and otherwise will be
short-term.
Restricted Stock. A participant will not have income upon the grant of
restricted stock unless an election under Section 83(b) of the Code is made
within 30 days of the date of grant. If a timely 83(b) election is made, then a
participant will have compensation income equal to the value of the stock less
the purchase price. When the stock is sold, the participant will have capital
gain or loss equal to the difference between the sales proceeds and the value of
the stock on the date of grant. If the participant does not make an 83(b)
election, then when the stock vests the participant will have compensation
income equal to the value of the stock on the vesting date less the purchase
price. When the stock is sold, the participant will have capital gain or loss
equal to the sales proceeds less the value of the stock on the vesting date. Any
capital gain or loss will be long-term if the participant held the stock for
more than one year from the vesting date and otherwise will be short-term.
Restricted Stock Units. A participant will have income from a
restricted stock unit equal to the difference of the fair market value of the
stock on the date of delivery of the stock less the purchase price. A
participant is not permitted to make a Section 83(b) election for a restricted
stock unit.
Stock Appreciation Rights and Other Stock-Based Awards. The tax
consequences associated with stock appreciation rights and any other stock-based
awards granted under the incentive stock plan will vary depending on the
specific terms of such award. Among the relevant factors are whether or not the
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award has a readily ascertainable fair market value, whether or not the award is
subject to forfeiture provisions or restrictions on transfer, the nature of the
property to be received by the participant under the award and the participant's
holding period and tax basis for the award or underlying common stock.
Tax Consequences to Us. There will be no tax consequences to us except
that we will be entitled to a deduction when a participant has compensation
income. Any such deduction will be subject to the limitations of Section 162(m)
of the Code.
ANTICIPATED BUSINESS FOLLOWING THE MERGER
Business of NaturalNano, Inc.
Following the Merger, we will assume all of the business, assets,
operations and liabilities of NaturalNano, Inc., a development stage company
whose primary business is processing, developing and commercializing naturally
occurring nanoscale materials. Its business is currently directed toward
research, development, production and marketing of our proprietary technologies
in the following fields:
(1) Developing a state-of-the-art, proprietary process for extracting
and separating halloysite nanotubes from halloysite clay;
(2) Developing commercial applications for halloysite nanotubes,
specifically for the following application areas;
(i) material additives for polymers, plastics, and
composites;
(ii) cosmetics and other personal care products;
(iii) absorbent materials; and
(iv) pharmaceuticals and medical device additives;
(3) Engaging in business alliances with other organizations to bring
our nanoscale materials to market.
Background of Technology
Nanotechnology is commonly defined as technology with structures of 100
nanometers or less, a nanometer being one-billionth of a meter. Nanotechnology,
therefore, is technology approaching the molecular level. To provide a reference
for the size of a nanometer, the average human hair measures between 50,000 to
75,000 nanometers in diameter, and there are approximately 25.4 million
nanometers per inch.
Applications for nanotechnology are vast and include opportunities in
custom materials, electronics, life sciences and a long list of other
applications. Nanotechnology is a broad enabling technology, rather than a
technology to address one specific application. As such, NaturalNano's
management believes that nanotechnology will create numerous jobs and contribute
significantly to the U.S. economy over the next decade. The U.S. National
Science Foundation estimates the global market opportunity for products and
service in nanotechnology-related industries will be $25 billion annually by
2006 and $1 trillion annually by 2015.
Halloysite nanotubes are unique materials that have been formed in the
earth by surface weathering of aluminosilicate minerals. They are composed of
aluminum, silicon, hydrogen, and oxygen. Like carbon nanotubes (CNTs),
halloysite nanotubes are hollow tubes with diameters smaller than 100
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nanometers. Halloysite nanotube composition and geometry enables them to be used
for storing and delivering various chemicals for controlled release over an
extended time period, enabling a wide range of commercial applications. Unlike
carbon nanotubes, halloysite nanotubes are naturally formed, available in large
quantities, and far less expensive to produce than CNTs.
Our strategy will be based on thorough intellectual property protection
of the resulting technology developments, including both process and application
patents. We believe that the commercial applications that will result from our
development programs are novel, with significant impact over a wide range of
industries.
Potential future commercialization strategy includes the following
components:
(i) Segment the market to pursue development of a variety of
applications based upon our basic process technology and
application patents, and establish relationships with target
companies in each narrowly defined field of use;
(ii) Engage in collaborations with market leaders at an early stage of
development, targeting partners and licensees that have
substantial product manufacturing and marketing capability,
allowing NaturalNano to focus on basic product development;
(iii) Pursue collaborative research and development agreements with
government, university, and non-profit research institutions, and
explore related funding sources, to augment NaturalNano's
development resources.
As we continue to enhance our core technologies by identifying and
developing new and relevant technologies, we will also continue to evaluate
technology opportunities that can be licensed from or developed by third
parties. The intellectual property portfolio currently contains several
provisional patent applications as well as an exclusive field of use licensing
agreement with Technology Innovations which include multiple pending patents
with multiple claims. As research and development continues, NaturalNano will
aggressively protect new developments and technologies in the United States and
in strategic foreign markets, in addition to looking to in-license appropriate
patents to augment the intellectual property strength of NaturalNano.
Potential Commercial Applications Within the Nanotechnology Industry
Nanotechnology is in its commercial infancy; however management
believes that there is already a substantial market in place for nanotechnology
materials and products. The earliest application of nanoscale materials occurred
in systems where nanoscale powders and particles could be used in their free
form, without consolidation or blending. For example, nanoscale titanium dioxide
and zinc oxide powders are now commonly used by cosmetics manufacturers for
facial base creams and sun screen lotions. Nanoscale iron oxide powder is now
being used as a base material for rouge and lipstick. Paints with reflective
properties are also being manufactured using nanoscale titanium dioxide
particles.
Nanostructured carbide coatings are used on some U.S. Navy ships for
increased durability. Nanostructured materials are in wide use in information
technology, integrated into complex products such as hard disk drives that store
information and silicon integrated circuit chips that process information in
every Internet server and personal computer.
In biomedical areas, liposomes have been synthesized for improved
delivery of therapeutic agents. Liposomes are lipid spheres about 100 nanometers
in diameter. They have been used to encapsulate anti-cancer drugs for the
treatment of Kaposi's Sarcoma, one of the diseases that commonly occurs as a
result of the AIDS infection. Several companies are presently using magnetic
nanoparticles in their products for both diagnostic and therapeutic
applications. Other companies have developed fluorescent nanospheres and
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nanoparticles that form the basis for new detection technologies. These
nanoparticles are used in new devices and systems for disease diagnosis and for
drug discovery.
Many uses of nanoparticles have appeared in specialty markets, such as
defense applications, and scientific and technical equipment. The ability to
produce high-quality, nanoscale components becomes more significant as
electronic devices shrink and optical communications systems become a larger
part of the nation's communications network.
Other Applications
As nanotechnology continues to develop, many new materials and
applications will be discovered, enabling exciting new applications and
improvements to existing products. Nanomaterials have already made their way
into more mundane products, such as casual clothing and sporting goods. As
materials continue to improve, new applications will be enabled.
One important application for future nanomaterials will be more highly
selective and efficient catalysts. This will be important economically, not only
for energy and chemical production, but also for conservation and environmental
applications. Catalysts based on nanomaterials can play an important role in
fuel cell devices, bioconversion (energy) and bioprocessing (food and
agriculture) systems, as well as waste and pollution control systems.
Nanoscale science and technology will likely have a continuing impact
on the healthcare industry, including therapeutics, diagnostic devices, and
biocompatible materials for implants and prostheses. There will continue to be
opportunities for the use of nanomaterials in drug delivery systems. Combining
new nanomaterials into sensors and electronic components could lead to a further
reduction in size and improved performance for many diagnostic devices and
systems. Ultimately, it may be possible to make implantable in vivo diagnostic
and monitoring devices that approach the size of human cells. Biocompatible
nanomaterials and nanomechanical components could lead to the creation of new
materials and components for implants, artificial organs, and greatly improved
mechanical, visual, auditory, and other prosthetic devices.
These advances will not be realized without considerable research and
development. It will require an era of advances in the development of processes
to integrate nanoscale components into devices, both with other nanoscale
components and with microscale and larger components, accompanied by the ability
to do so reliably and cost-effectively.
Competition
In addition to a wide range of material additives that are currently
being used in the industries being targeted by NaturalNano, the current
nanomaterials market consists of approximately 200 companies globally, providing
a wide variety of metal oxides and inorganic compounds. NaturalNano expects that
its contemplated product offerings will provide new capabilities and anticipated
superior performance compared to existing materials. Benefits from the use of
novel nanomaterials may permit us to differentiate NaturalNano from potential
competitors. However, many of our current and prospective competitors are larger
and have greater financial resources, which could create significant competitive
advantages for those companies
Within each of the targeted markets and product applications,
NaturalNano faces current and potential competition from many advanced material,
encapsulation and chemical companies, suppliers of traditional materials and the
in-house capabilities of several of its potential customers. With respect to
larger producers of nanomaterials, while some of these producers do not
currently offer competitive products, these companies have greater financial and
technical resources, larger research and development staffs and greater
manufacturing and marketing capabilities and could soon begin to compete
directly against NaturalNano. Intellectual Property Strategy
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NaturalNano plans to actively pursue patent protection for its product
and process innovations. NaturalNano's patent strategy addresses the extraction
and classification of halloysite nanotubes; filling and functionalizing of the
halloysite nanotubes with materials for extended and controlled release; and the
production of products containing halloysite nanotubes.
The Company will aggressively protect its intellectual property through the
following strategies:
(i) Protection of current and future technological developments by
filing patents and/or continuations-in-part as appropriate;
(ii) Protect technological developments at various levels, in a
complementary manner, using invention disclosures, laboratory
notebooks, and provisional patent filings as new discoveries are
made; and
(iii) Establish comprehensive coverage in the U.S. and in the most
relevant foreign markets in anticipation of future
commercialization opportunities.
Employees
As of September 30, 2005, NaturalNano had seven full-time employees and
had engaged numerous part-time experts in the fields of product development,
material and chemical science, marketing and commercial scale product
manufacturing. NaturalNano has utilized certain employees from Technology
Innovations, LLC, in their start-up phase of operations enabling the Company to
tap into a variety of backgrounds and expertise without hiring a large number of
full time employees. This combination of staffing has enabled us to control
expenses during this stage of our business cycle.
Management
At the effective time of the Merger, our directors and executive
officers will resign and, in accordance with the provisions of the Merger
Agreement, the following persons will be appointed to serve as directors and
executive officers:
- ------------------------ --------------- ---------------------------------------
Name Age Position
- ------------------------ --------------- ---------------------------------------
Steven Katz 56 Director
- ------------------------ --------------- ---------------------------------------
Ross B. Kenzie 73 Director
- ------------------------ --------------- ---------------------------------------
John F. Lanzafame 37 Director
- ------------------------ --------------- ---------------------------------------
Michael L. Weiner 57 Director
- ------------------------ --------------- ---------------------------------------
Michael Riedlinger 47 President
- ------------------------ --------------- ---------------------------------------
Kathleen Browne 50 Chief Financial Officer
- ------------------------ --------------- ---------------------------------------
Sarah Cooper 28 Chief Technology Officer
- ------------------------ --------------- ---------------------------------------
- --------------
The business experience of each of the persons listed above during the
past five years is as follows:
Steven Katz is President of Steven Katz & Associates, Inc., a
technology-based management consulting firm specializing in strategic planning,
corporate development, new product planning, technology licensing, and
structuring and securing various forms of financing since 1982. From January
2000 until October 2001, Mr. Katz was President and Chief Operating Officer of
Senesco Technologies, Inc., a public company engaged in the development of
proprietary genes with application to agro-biotechnology. From 1983 to 1984 he
was the co-founder and Executive Vice President of S.K.Y. Polymers, Inc., a
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biomaterials company. Prior to S.K.Y. Polymers, Inc., Mr. Katz was Vice
President and General Manager of a non-banking division of Citicorp. From 1976
to 1980 he held various senior management positions at National Patent
Development Corporation, including President of three subsidiaries. Prior
positions were with Revlon, Inc. (1975) and Price Waterhouse & Co. (1969 to
1974). Mr. Katz received a Bachelor of Business Administration degree in
Accounting from the City College of New York in 1969. He is a member of the
Boards of Directors of two publicly held corporations, USA Technologies, Inc.
and Biophan Technologies, Inc. and of several private companies.
Ross B. Kenzie currently serves on the boards of several companies
including the publicly held Rand Capital Corporation and Biophan Technologies
Inc. as well as many entrepreneurial ventures that are privately held, including
Biomed Solutions LLC and Technology Innovations, LLC. Mr. Kenzie is a former
Chairman and Chief Executive Officer of Goldome Bank, from which he retired in
June 1989. He was previously Executive Vice President of Merrill Lynch & Co., in
the New York worldwide headquarters, and is a former member of the Merrill Lynch
& Co. Board of Directors. He is a former Director of the Federal Home Loan Bank
of New York (from 1984 to 1988) and served on the boards of the National
Council of Savings Institutions (from 1982 to 1986), the Federal Reserve Bank of
New York, Buffalo Branch (from 1985 to 1987), and the Savings Banks Association
of New York State (from 1984 to 1987). Mr. Kenzie was a Director of Millard
Fillmore Hospitals (from 1982 to 1995) and is currently Past Chairman Emeritus.
He served on the Board of the Kaleida Health, Education and Research Foundation
(from 1998 to 2000) and is currently on its Investment Committee. He was
Director of the Health Systems Agency of Western New York (from 1988 to 1991),
and was a member of the College Council of the State University College at
Buffalo (from 1981 to 1998) and served as Chairman. He was a Director of the
College's Foundation and a member of its Finance Committee (from 1984 to 1998)
and is currently on its Investment Committee. He served on the Council of the
Burchfield-Penney Art Center (from 1990 to 2001) and the Albright Knox Art
Gallery (from 1983 to 1985). He is also a member of the Board, and the Chairman
of the Investment Committee of the State University at Buffalo Foundation.
John Lanzafame is Vice President for Business Development of Biophan
Technologies, Inc. He has fifteen years experience in the medical device
industry, with a background that includes a bachelors degree in chemical
engineering and a masters degree in industrial engineering. Until early 2004,
Mr. Lanzafame was employed by STS Biopolymers, Inc., a privately held medical
device company that marketed high performance polymer-based coatings for the
medical device industry, including drug eluting surfaces for devices such as
coronary stents and indwelling catheters. Mr. Lanzafame held a variety of
positions with STS Biopolymers, including positions in research, product
development, and sales and marketing, ultimately leading to his assuming the
position of President of STS Biopolymers beginning in 2003. In 2004, Mr.
Lanzafame left STS Biopolymers following sale of the company to Angiotech
Pharmaceuticals, and is currently Vice President, Business Development for
Biophan, and President of Nanolution, Biophan's drug delivery division.
Nanolution was created to leverage new discoveries in the field of
nanotechnology for the purposes of targeted drug delivery and highly controlled
drug elution from medical devices.
Michael L. Weiner is President and Chief Executive Officer of Biophan
Technologies, Inc. He began his career at Xerox Corporation in 1975, where he
served in a variety of capacities in sales and marketing, including manager of
software market expansion and manager of sales compensation planning. In 1982,
he received the President's award, the top honor at Xerox for an invention
benefiting a major product line. In 1985, Mr. Weiner founded Microlytics, a
Xerox spin-off company which developed technology from the Xerox Palo Alto
Research Center into a suite of products, including the award winning Word
Finder Thesaurus, with licenses out to over 150 companies, including Apple,
Microsoft, and Sony. Microlytics was acquired by a merger with a public company
in 1990, which Mr. Weiner then headed up through 1993. In January 1993, Mr.
Weiner co-founded TextWise, a company developing natural language search
technologies for the intelligence community. In January 1995, Mr. Weiner
co-founded and served as CEO of Manning & Napier Information Services (MNIS), a
Rochester-based company providing patent analytics, prior art searches, and
other services for the U.S. Patent and Trademark Office and many large
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organizations, and which subsequently acquired TextWise. He held this position
until January of 1999. MNIS remains private, and has generated several spin-off
companies (Talavara and IP.COM). TextWise won the Department of Commerce
Tibbet's Award for SIBR research in 1998.In February 1999, Mr. Weiner founded
Technology Innovations, LLC, to develop intellectual property assets. In August
2000, Technology Innovations, LLC created a subsidiary, Biomed Solutions, LLC,
to pursue certain biomedical and nanotechnology opportunities, investing in
embryonic-to-seed stage innovations which generate new ventures and/or licenses.
Mr. Weiner is the CEO and a director of Biophan Technologies, Inc., a medical
research and development company located in West Henrietta, New York engaged in
providing technology to enable implantable medical devices and interventional
devices to be used safely and effectively in conjunction with Magnetic Resonance
Imaging (MRI), since December 2000. Mr. Weiner serves on the Boards of Biophan
Technologies, Inc., Biomed Solutions, LLC, Technology Innovations, LLC, Speech
Compression Technologies, LP (an R&D partnership commenced in 1989 to pursue
compression technologies), OncoVista, Inc., Myotech, LLC, TE Bio, LLC, and
Nanoset, LLC,. Mr. Weiner holds seventeen U.S. patents.
Michael Riedlinger became President of NaturalNano in December 2004.
Prior to joining NaturalNano, he was, from 2002 to 2005, President of Technology
Sales and Licensing Services, a firm specializing in business development for
organizations that seek new sources of revenue from licensing or selling their
technical innovations to others. From 2000 to 2002, Mr. Riedlinger was Chief
Executive Officer of Vitalwork, Inc., an organizational development company
focused on training and corporate culture change for the telecommunications
industry. From 1995 to 2000, Mr. Riedlinger was Director of Sales and Marketing
at Metamor Software Solutions, a computer programming services division of
Metamor Worldwide with offices in over 20 countries. From 1993 to 1995 he was
Vice President of QSoft Solutions, a provider of quality management software and
information to major corporations in North America. From 1986 to 1993, Mr.
Riedlinger held several positions, including OEM Products Director and Director
of Strategic Planning at Microlytics, Inc. Mr. Riedlinger has a MBA from the
University of Rochester and a BFA from the Rochester Institute of Technology.
Kathleen Browne became Chief Financial Officer of NaturalNano in July
2005. For the four years prior to joining NaturalNano, Ms. Browne was the
Corporate Controller and Chief Accountant of Paychex, Inc., a payroll service
provider in Rochester, New York. During the period 1996-2000, she served as the
Vice President and Corporate Controller of W.R. Grace, a worldwide specialty
chemicals manufacturer located in Boca Raton, Florida. From 1992-1996, Ms.
Browne served in various financial positions for Bausch & Lomb in Rochester, New
York. From 1977 to 1992, Ms. Browne was with the Rochester, New York office of
Price Waterhouse. Ms. Browne holds a Bachelor of Science degree from St. John
Fisher College. She is a member of the American Institute of Certified
Accountants and the New York State Society of CPAs.
Sarah Cooper has been Chief Technology Officer of NaturalNano since
December 2004. Ms. Cooper has an extensive background in nanotechnology and
material science. Trained as a chemical engineer, she was, prior to joining
NaturalNano, a research fellow at NASA Ames Center for Nanotechnology, studying
the fundamental properties of carbon nanotubes and other nanomaterials. Ms.
Cooper is also a consultant to Biophan Technologies, Inc. for that company's
bio-thermal battery project. While on sabbatical from NASA in 2003, Ms. Cooper
attended NJIT's BioMEMS Summer Institute to study the potential of BioMEMS as an
integration platform to scale nano-sized components into practical devices.
Before going to NASA, she conducted research at Los Alamos National Lab and
IDEXX Laboratories. Ms. Cooper received her BS in chemical engineering from
Brown University in 2000, and is currently finishing a PhD in Materials Physics
at the University of Sydney, expanding on her work at NASA on nanoengineered
thermoelectric materials. Ms. Cooper has authored a numerous scientific and
professional journal articles.
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Potential Conflict of Interests
Following the Merger, our Board of Directors will consist entirely
of the current members of the NaturalNano Board of Directors. Two members of the
NaturalNano Board of Directors, Michael L. Weiner and Ross B. Kenzie, are
managers and significant equity holders of Technology Innovations, LLC, which,
following the Merger, will own approximately 54% of our outstanding common
stock. Messrs. Weiner and Kenzie and Technology Innovations are also significant
equity holders of Biomed Systems LLC, a company engaged in the business of
identifying and acquiring for exploitation technologies in the biomedical field.
Further, Mr. Weiner is on the board of Nanoset, LLC, an entity owned in part by
Biomed Systems which is engaged in the development of nanomagnetic particle
coatings. Messrs. Weiner and Kenzie and a third member of the NaturalNano Board,
Steven Katz, are also on the Board of Biophan Technologies, Inc. Mr. Weiner and
the fourth member of the NaturalNano Board, John Lanzafame, are executive
officers of Biophan Technologies, Inc., a company that has a joint research and
development agreement with NaturalNano for the development of drug delivery and
medical applications utilizing nanotechnology discoveries.
Because of the nature of our business and the business of these
other entities, the relationships of all of the members of our Board of
Directors following the Merger with these other entities may give rise to
conflicts of interest with respect to certain matters affecting us. Potential
conflicts may not be resolved in a manner that is favorable to us. We believe it
is not possible to predict the precise circumstances under which future
potential conflicts may arise and therefore intend to address potential
conflicts on a case-by-case basis. Under Nevada law, directors have a fiduciary
duty to act in good faith and with a view to the best interests of the
corporation.
Facilities
NaturalNano currently conducts its primary business operations using
office space rented from Lennox Tech Enterprise Center in West Henrietta, New
York. It pays a monthly fee of $3,902 for the use of this office space. We are
planning to lease laboratory facilities as needed to expand the capabilities and
facilities of subcontractors and government laboratories, where we plan to
conduct the bulk of our research under contracts and cooperative research and
development agreements.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth fees billed to Cementitious Materials by
our auditors during the fiscal years ended December 31, 2004 and 2003 for:
(i) services rendered for the audit of our annual financial statements
and the review of our quarterly financial statements;
(ii) services by our auditor that are reasonably related to the
performance of the audit or review of our financial statements and
that are not reported as audit fees;
(iii) services rendered in connection with tax compliance, tax advice
and tax planning; and
(iv) all other fees for services rendered.
-37-
Year Ended Year Ended
December 31, 2004 December 31, 2003
----------------- -----------------
Audit Fees $ 4,500 $ 5,400
Audit Related Fees -0- -0-
Tax Fees -0- -0-
All Other Fees -0- -0-
--------- ---------
Total Fees $ 4,500 $ 5,400
========= =========
Audit fees consist of fees billed for professional services rendered
for the audit of our financial statements and review of the interim financial
statements included in quarterly reports and services that are normally provided
by HJ & Associates in connection with statutory and regulatory filings or
engagements. Audit-related fees consists of fees billed for assurance and
related services that are reasonably related to the performance of the audit or
review of our financial statements, which are not reported under "Audit Fees."
Tax fees consist of fees billed for professional services for tax compliance,
tax advice and tax planning. All other fees consist of fees for products and
services other than the services reported above. Prior to our engagement of our
independent auditor, such engagement was approved by our Board of Directors. The
services provided under this engagement may include audit services,
audit-related services, tax services and other services. Pre-approval is
generally provided for up to one year and any pre-approval is detailed as to the
particular service or category of services and is generally subject to a
specific budget. The independent auditors and management are required to report
to the Board of Directors at least quarterly regarding the extent of services
provided by the independent auditors in accordance with this pre-approval, and
the fees for the services performed to date. The Board of Directors may also
pre-approve particular services on a case-by-case basis. All audit-related fees,
tax fees and other fees incurred by us for the year ended December 31, 2004,
were approved by the Board of Directors.
SELECTED HISTORICAL FINANCIAL DATA OF
CEMENTITIOUS MATERIALS, INC.
The following selected financial data is derived from Cementitious
Materials' financial statements. This information is only a summary and does not
provide all of the information contained in such financial statements, including
the related notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which are part of our Quarterly Report on
Form 10-QSB for the six months ended June 30, 2005 and Annual Report on Form
10-KSB for the year ended December 31, 2004, which are incorporated herein by
reference. The statement of operations data for each of the years in the
two-year period ended December 31, 2004 and the balance sheet data at December
31, 2004 are derived from our audited financial statements. The data as of and
for the six months ended June 30, 2005 and 2004 are derived from our unaudited
financial statements which include all adjustments, consisting only of normal
recurring adjustments and accruals, that we consider necessary for a fair
presentation of its financial position and results of operations for these
periods. Interim operating results for the six months ended June 30, 2005 are
not necessarily indicative of the results that may be expected for the entire
fiscal year ending December 31, 2005 or any future period.
-38-
Statement of Operations Data:
Year Ended Six Months Ended
-------------------------- --------------------------
December 31, December 31, June 30, June 30,
2004 2003 2005 2004
----------- ----------- ----------- -----------
(unaudited)
Revenues $ -- $ -- $ -- $ --
Expenses:
----------- ----------- ----------- -----------
General and administrative 13,967 174,269 20,337 1,379
----------- ----------- ----------- -----------
Loss from operations (13,967) (174,269) (20,337) (1,379)
----------- ----------- ----------- -----------
Other Expenses
Interest expense (2,312) (1,757) (2,524) (927)
----------- ----------- ----------- -----------
Total other expenses (2,312) (1,757) (2,524) (927)
----------- ----------- ----------- -----------
Net loss (16,279) (176,026) (22,861) (2,306)
Basic loss per share $ (0.00) $ (0.02) $ 0.00 $ 0.00
----------- ----------- ----------- -----------
Weighted average number of shares
outstanding 4,991,042 4,991,042 4,991,042 4,991,042
=========== =========== =========== ===========
Balance Sheet Data:
June 30, December 31,
2005 2004
----------- -----------
(unaudited)
Total Assets $ -- --
Total Liabilities (90,858) (69,297)
Total Stockholders' Equity (Deficit) (90,858) (69.397)
As described in the above-referenced reports, we are considered a
development stage company with minimal assets or capital and with no material
operations or income. Expenses associated with the preparation and filing of our
reports have been paid for by advances from stockholders, which are evidenced on
our financial statements as current liabilities. It is anticipated that we will
require only nominal capital to maintain our corporate viability and necessary
funds will most likely be provided by officers and directors in the immediate
future. However, our deficit in working capital and stockholders equity, in
addition to no significant operating results to date, raise substantial doubt
about its ability to continue as a going concern.
-39-
SELECTED HISTORICAL FINANCIAL DATA OF
NATURALNANO, INC.
The selected financial data set forth below should be read together
with the financial statements of NaturalNano included with this Information
Statement. The statement of operations data for the year ended December 31, 2004
and the balance sheet data as of December 31, 2004 are derived from
NaturalNano's audited financial statements. The statement of operations data for
the six months ended June 30, 2005, and the balance sheet data as of June 30,
2005 are derived from unaudited financial statements of NaturalNano which
include all adjustments, consisting only of normal recurring adjustments and
accruals, that the Company considers necessary for a fair presentation of its
financial position and results of operations for these periods. NaturalNano
commenced business operations in December 2004 and there are no financial data
for any periods prior to December 22, 2004. Interim operating results for the
six months ended June 30, 2005 are not necessarily indicative of the results
that may be expected for the entire fiscal year ended December 31, 2005 or any
future period. The following selected financial data of NaturalNano should be
read in conjunction with its financial statements and the notes thereto included
herewith as Appendix D.
Statement of Operations Data:
Period from December 22, 2004 (inception) to December 31, 2004
Operating expenses
Research and development $ 5,000
Legal costs 2,336
--------------
Net loss $ (7,336)
==============
Loss per common share - basic and diluted $ (0.00)
==============
Weighted average shares outstanding 10,000,000
==============
-40-
From
inception
For the December 22,
six months 2004
ending through
June 30, 2005 June 30, 2005
------------ ------------
Operating expenses:
Research and development $ 125,462 $ 130,462
General and administrative 734,491 736,827
------------ ------------
859,953 867,289
Other (income) expense:
Interest expense 10,089 10,089
Investment (income) (172,500) (172,500)
------------ ------------
(162,411) (162,411)
Net loss ($ 697,542) ($ 704,878)
============ ============
Loss per common share - basic and diluted ($ 0.07)
============
Weighted average shares outstanding 10,000,000
============
Balance Sheet Data:
June 30, December 31,
2005 2004
----------- -------------
(unaudited)
Current assets $ 1,471,539 $ 125,000
Working capital $ (594,294) $ 92,664
Total assets $ 1,834,288 $ 125,000
Total liabilities $ 2,065,833 $ 32,336
Total stockholders' equity (deficiency) $ (231,545) $ 92,664
-41-
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma financial information of Cementitious
for the six months ended June 30, 2005 and the year ended December 31, 2004, has
been prepared to assist stockholders in their analyses of the financial effects
of the Merger. This information is based on our historical financial statements
and should also be read in conjunction with the historical financial statements
and related notes of NaturalNano, which are included in Appendix D hereto. The
pro forma statements of operation have been prepared to give effect to the
Merger as if the Merger had occurred on December 31, 2004. The unaudited pro
forma balance sheet information as of June 30, 2005 has been prepared to give
effect to the Merger as if the Merger had occurred on June 30, 2005.
As described elsewhere herein, the Merger is expected to be accounted
for as a reverse acquisition in which, for accounting purposes, NaturalNano is
being treated as the acquirer. These unaudited pro forma financial statements
have been prepared assuming that 44,919,378 shares of Cementitious Materials
common stock will be issued to NaturalNano stockholders in the Merger.
The unaudited pro forma financial information is not necessarily
indicative of the results that might have occurred had the transactions taken
place on December 31, 2004 or June 30, 2005 and are not intended to be a
projection of future results. Future results may vary significantly from the
results reflected in the following unaudited pro forma financial information
because of normal operations, future acquisitions, future development
activities, and other factors. The notes to these pro forma financial statements
should be read in conjunction with the statements themselves.
-42-
PRO FORMA BALANCE SHEET
June 30, 2005
(UNAUDITED)
Cementitious PRO FORMA
NaturalNono, Inc. Materials, Inc. Adjustments JUNE 30,2005
--------------- ----------- ----------- -----------
Assets
Current assets:
Cash and cash equivalents $ 1,213,315 -- -- $ 1,213,315
Prepaid assets 250,000 -- -- 250,000
Other current assets 8,224 -- -- 8,224
----------- ----------- ----------- -----------
Total current assets 1,471,539 -- -- 1,471,539
--
Property and equipment, net 10,249 -- -- 10,249
Investments 352,500 -- -- 352,500
----------- ----------- ----------- -----------
Total assets $ 1,834,288 $ 0 -- $ 1,834,288
=========== =========== =========== ===========
Liabilities and Stockholder's Equity (Deficiency)
Liabilities
Current liabilities:
Accounts Payable $ 42,114 $ 11,976 -- $ 54,090
Accrued Payroll 36,018 -- -- 36,018
Accrued Expenses 173,739 -- ($ 4,774)(4) 168,965
Due to Related Parties 370,962 78,882 -- 449,844
Convertible Bridge Notes 1,443,000 -- (1,443,000)(2) 0
----------- ----------- ----------- -----------
Total current liabilities 2,065,833 90,858 (1,447,774) 708,917
----------- ----------- ----------- -----------
Stockholder's Equity (Deficiency)
Common stock 100,000 4,991 (100,000)(1)
44,920 (1)
3,687 (2) 53,598
Additional paid in capital 373,333 358,824 100,000 (1)
-- -- (44,920)(1)
-- -- 1,439,313 (2)
-- -- (454,173)(3) 1,771,877
Deficit accumulated in the development stage (704,878) ( 454,173 454,173 (3)
-- -- 4,774 (4) (700,104)
----------- ----------- ----------- -----------
Total stockholder's equity (Deficiency) (231,545) (90,858) 1,447,774 1,125,371
----------- ----------- ----------- -----------
Total liabilities and stockholder's equity
(Deficiency) $ 1,834,288 $ 0 $ 0 $ 1,834,288
=========== =========== =========== ===========
See notes to financial statements
-43-
PRO FORMA STATEMENT OF OPERATIONS
For the six months ending June 30, 2005
(UNAUDITED)
NaturalNano, Inc. Cementitious PRO FORMA
(a) Materials, Inc. Adjustments June 30, 2005
------------ ------------ ------------ ------------
Operating expenses:
Research and development $ 125,462 -- -- $ 125,462
General and administrative 734,491 $ 20,337 -- 754,828
------------ ------------ ------------ ------------
859,953 20,337 -- 880,290
Other (income) expense:
Interest expense 10,089 2,524 ($ 4,774)(4) 7,839
Investment (income) (172,500) -- -- (172,500)
------------ ------------ ------------ ------------
(162,411) 2,524 ($ 4,774) (164,661)
Net loss ($ 697,542) ($ 22,861) $ 4,774 ($ 715,629)
============ ============ ============ ============
Loss per common share - basic and diluted ($ 0.07) ($ 0.00) -- ($ 0.01)
============ ============ ============ ============
Weighted average shares outstanding 10,000,000 4,991,042 -- 53,597,520 (1)(2)
============ ============ ============ ============
See notes to financial statements
-44-
PRO FORMA STATEMENT OF OPERATIONS
For the twelve months ending December 31, 2004
(UNAUDITED)
NaturalNano, Inc. Cementitious PRO FORMA
(a) Materials, Inc. Adjustments December,31,2004
---------------- --------------- ----------- ----------------
Operating expenses:
Research and development $ 5,000 -- -- $ 5,000
General and administrative 2,336 $ 13,967 -- 16,303
------------ ------------ ------------
7,336 13,967 21,303
Other (income) expense:
Interest expense -- 2,312 -- 2,312
------------ ------------ ------------
0 2,312 2,312
Net loss ($ 7,336) ($ 16,279) -- ($ 23,615)
============ ============ ============
Loss per common share - basic and diluted ($ 0.00) ($ 0.00) -- ($ 0.00)
============ ============ ============
Weighted average shares outstanding 10,000,000 4,991,042 -- 53,597,520 (1)(2)
============ ============ ============
(a) Includes the period from December 22, 2004 (inception) to December 31, 2004.
See notes to financial statements
-45-
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
Basis of presentation
As of September 26, 2005 NaturalNano, Cementitious Materials, Inc.
("Cementitious") and a wholly-owned subsidiary of Cementitious (the "Merger
sub") entered into a merger agreement whereby the Merger Sub will merge with and
into NaturalNano and NaturalNano will be the surviving entity as a wholly owned
subsidiary of Cementitious (the "Merger"). The former stockholders of
NaturalNano will own approximately 90% of the Cementitious common stock after
the consummation of the Merger. The transaction has been deemed a capital
transaction accompanied by a recapitalization. Therefore, no goodwill will be
recorded in the Merger.
The unaudited pro forma condensed balance sheet and statement of operations of
NaturalNano have been prepared to give effect to
o the merger of Cementitious with NaturalNano;
o the conversion of all indebtedness of NaturalNano outstanding at
June 30, 2005 in exchange for 3,687,100 shares of Cementitious
common stock.
The condensed pro forma financial statements have been prepared as if such
transactions had taken place on June 30, 2005 for purposes of the pro forma
condensed balance sheet and as if the transactions had taken place on January 1,
2004 for purposes of the pro forma condensed statements of operations.
The columns captioned NaturalNano represent the balance sheet of NaturalNano as
of June 30, 2005 and the related statements of operations for the periods from
December 22, 2004 (inception) through December 31, 2004 and for the six months
ended June 30, 2005. The columns captioned Cementitious represent the balance
sheet of Cementitious as of June 30, 2005 and the related statements of
operations for the year ended December 31, 2004 and for the six months ended
June 30, 2005.
We are providing this information to aid you in your analysis of the financial
aspects of the Merger. The unaudited pro forma condensed financial statements
described above should be read in conjunction with the historical financial
statements of NaturalNano and Cementitious and the related notes thereto. The
unaudited pro forma information is not necessarily indicative of the financial
position or results of operations that may have actually occurred had the Merger
taken place on the dates noted, or the future financial position or operating
results of the combined company.
PRO FORMA ENTRIES:
(1) To reflect the issuance of 44,919,378 shares of Cementitious common stock as
merger consideration with respect to all outstanding shares of common stock of
NaturalNano.
(2) To reflect the issuance of 3,687,100 shares of Cementitious
common stock relating to the June 30, 2005 outstanding convertible notes of
NaturalNano.
(3) To reflect the recapitalization adjustment for the Merger.
(4) To eliminate accrued interest in the period ending June 30, 2005 related to
the convertible notes of NaturalNano.
-46-
PLAN OF OPERATIONS FOR
NATURALNANO, INC.
General
The following information should be read in conjunction with the
financial statements and notes thereto appearing elsewhere in this Form 14(c).
NaturalNano, Inc. is a development stage company and is expected to
remain so for at least the next eighteen months. Our primary mission is to
develop and exploit technologies in the area of nanotechnology, specifically
focusing on naturally occurring nanoscale materials. The Company's near term
goal is to develop processes that produce commercial quantities of high- quality
naturally occurring nanotubes for a variety of applications including:
engineered plastics and polymers, cosmetics and other personal care products,
absorbent materials and electronic components. We have identified more than 200
applications within these industry categories as potential development
opportunities which are the subject of pending patents and issued patents under
licensing agreements
Research and Development
During the next twelve months the Company's research and development
focus will be in the following areas:
o Establishment of a Research Lab to produce sample products, for
customers in the industries identified above, at a competitive
cost.
o Establishment of a Pilot Production Facility to extract, separate
and categorize naturally occurring nanotubes found within
halloysite clay.
The Company signed a joint research agreement with Nanolution, LLC (a
wholly owned subsidiary of Biophan Technologies, Inc.) on May 25, 2005 to pursue
the development of a new drug delivery application utilizing naturally occurring
halloysite nanotechnologies. In connection with this agreement, the Company and
Nanolution have agreed that all medical uses and inventions arising from these
efforts will be owned by Nanolution and all purification processes and
non-medical applications will be owned by NaturalNano.
During the next nine months ending June 30, 2006, NaturalNano expects
to spend approximately $600,000 for capital investments relating to the setup of
the Pilot Production Facility and Research Lab. The Company is currently in the
process of evaluating leased space available in the Rochester New York area to
establish this combined research facility.
Operating costs for the next nine months in the area of research and
development which will include salaries for employees, fees for collaborative
research agreements and lab testing materials, will approximate $1,080,000.
Strategic Relationships
- -----------------------
Leveraging strategic relationships is vital to our mission. These
relationships help us to validate our technology, develop extraction and
separation processes, offer insight into additional application opportunities,
and develop future sales channels, among other things. NaturalNano has entered
into cooperative research and development agreements with two nationally
recognized universities and an independent laboratory to jointly test and
further develop commercial applications for naturally occurring nanoscale
materials. We will continue to seek partnering relationships with research
facilities around the world as we focus on developing new nanotechnology
solution applications.
-47-
We have also entered into various non-disclosure agreements with
several materials manufacturing companies, and have discussed with these
entities the potential for strategic relationships that could result in joint
development and licensing agreements. This partnering of ideas and the joint
development of applications has proven to be successful in accelerating our
development of new processes and product opportunities and will continue to be
pursued by the Company.
Investor Relations
- ------------------
NaturalNano expects to spend a great deal of effort to keep our
shareholders informed and to bring the Company to the attention of new
shareholders, institutional investors, and potential strategic partners. We
believe our efforts to achieve widespread press exposure will help raise the
public and investment community's awareness of the science of nanotechnology and
increase the recognition of NaturalNano as an innovative small public company.
In this regard, the Company has engaged various professional firms to assist and
advise in establishing public relations and investor relations strategies. The
over-the-counter market is generally not supported by the nation's broker-dealer
network, and it is essential for us to be visible so that prospective
shareholders can hear about us and review our public filings, website and
company investor materials.
Employees
- ---------
As of September 30, 2005 NaturalNano employed seven full-time
employees. The Company plans to hire two employees to focus on technical sales
and product development within the next twelve months.
Our research and development strategy also includes the addition of two
full-time research analysts within the next twelve months. The Company currently
has several research agreements with PhD and post doctoral level scientists and
engineers for assistance in the classification of extracted nanotubes and on
other related development projects.
Cash and Financing Activities
- -----------------------------
The Company's source of cash since inception has been from
inter-company advances from its parent Technology Innovations, LLC and from the
issuance of $4,156,000 in Convertible Bridge Notes. The Notes include a
conversion feature under which the debt will be converted into the Company's
common stock coincident with the planned Merger at a rate of $0.40 per share.
These Notes accrue interest at 8% per annum generally beginning six months after
the date of issue.
-48-
The estimated cash requirements of NaturalNano through June 30, 2006 are as
follows:
- ----------------------------------------------------------- --------------
Research and product development expenses $1,080,000
- ----------------------------------------------------------- --------------
Investment in Pilot Production Facility and Research Lab 600,000
- ----------------------------------------------------------- --------------
General and administrative expenses; including
administrative salaries and benefits, office
expenses, rent expense, legal and accounting,
publicity and investor relations 2,153,000
- ----------------------------------------------------------- --------------
Repayment of advances on Line of Credit 336,000
- ----------------------------------------------------------- --------------
Total estimated cash requirements for next nine months $4,169,000
- ----------------------------------------------------------- --------------
We believe that the cash currently on hand will provide the Company
with the necessary capital resources for planned operations through June 30,
2006.
Critical Accounting Policies
The financial statements for NaturalNano have been prepared in
accordance with accounting principles generally accepted in the United States.
In preparing its financial statements, NaturalNano makes estimates, assumptions
and judgments that can have a significant impact on reported revenues and
results of operations as well as on the value of certain assets and liabilities
on its balance sheet. These estimates, assumptions and judgments about future
events and their effects on results cannot be determined with certainty, and are
made based upon our historical experience and on other assumptions believed to
be reasonable under the circumstances. While there are a number of accounting
policies, methods and estimates affecting the financial statements, as described
in Note 1 thereto and included elsewhere herein, it is believed that the most
important critical accounting policies are those described below. A critical
accounting policy is one that is both material to the presentation of the
financial statements and requires the making of complex or subjective judgments.
EXPERTS
The financial statements and related financial statement schedule of
Cementitious incorporated in this Information Statement by reference from our
annual report on Form 10-KSB for the year ended December 31, 2004, have been
audited by H J & Associates, LLC, independent registered public accounting
firms, as stated in their report, which is incorporated herein by reference, and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements as of December 31, 2004 and for the period
since inception from December 22, 2004 through December 31, 2004 of NaturalNano
contained in Appendix D to this Information Statement have been audited by
Goldstein Golub Kessler LLP Certified Public Accountants, independent resistered
public accounting firms, as stated in their report thereon, have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
-49-
WHERE YOU CAN FIND MORE INFORMATION
As required by law, we file annual and periodic reports and other
information with the SEC. These reports and other information contain additional
information about our company. You can inspect and copy these materials at the
Securities and Exchange Commission public reference rooms at 100 F Street, N.E.,
Room 1580, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on public reference rooms. Some of this information may also
be accessed on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov."
Statements contained in this Information Statement or in any document
incorporated into this Information Statement by reference regarding the contents
of any contract or other document are not necessarily complete and each such
statement is qualified in its entirety by reference to such contract or other
document filed as an exhibit with the SEC.
The SEC allows us to incorporate by reference into this Information
Statement documents we file with the SEC, which means that we can disclose
important information by referring to those documents. The information
incorporated by reference into this Information Statement is considered to be a
part of this Information Statement, and later information that we file with the
SEC will update and supersede that information. We incorporate by reference the
documents listed:
(i) Our Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2004;
(ii) Our Quarterly Report on Form 10-QSB for the quarter ended March
31, 2005;
(iii) Our Quarterly Report on Form 10-QSB for the quarter ended June
30, 2005; and
(iv) Our Current Report on Form 8-K filed on September 30, 2005.
We will provide without charge, upon written or oral request by a
stockholder, a copy of any and all of the documents referred to above that have
been, or may be, incorporated by reference herein. Written requests should be
sent to our principal offices at 19 East 200 South, Suite 1080, Salt Lake City,
Utah 84111, attn: Geoff Williams. Oral requests may be made to our principal
offices, telephone number (801) 322-3401.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
INTO THIS INFORMATION STATEMENT. THE DATE OF THIS INFORMATION STATEMENT IS
NOVEMBER 8, 2005. WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION
DIFFERENT FROM THE INFORMATION CONTAINED IN THIS INFORMATION STATEMENT. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
INTO THIS INFORMATION STATEMENT IS ACCURATE AS OF ANY LATER DATE THAN THE DATE
OF THE INFORMATION STATEMENT, AND THE MAILING OF THIS INFORMATION STATEMENT TO
STOCKHOLDERS WILL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
Appendix A
----------
AGREEMENT AND PLAN OF MERGER
Among
CEMENTITIOUS MATERIALS, INC.,
CEMENTITIOUS ACQUISITIONS, INC.
And
NATURALNANO, INC.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of this 26th day of September 2005 by and among CEMENTITIOUS MATERIALS,
INC., a Nevada Corporation ("CMI"), CEMENTITIOUS ACQUISITIONS, INC., a Nevada
corporation ("Merger Sub"), and NaturalNano, Inc., a Delaware corporation (the
"Company").
WHEREAS, CMI desires to acquire the Company as a wholly owned subsidiary
and to issue shares of CMI common stock to the security holders of the Company
upon the terms and conditions set forth herein. Merger Sub is a newly-created,
wholly-owned subsidiary corporation of CMI that will be merged with and into the
Company, whereupon the Company will be the surviving corporation and will become
the wholly owned subsidiary of CMI. Merger Sub and the Company are sometimes
collectively hereinafter referred to herein as the "Constituent Corporations");
WHEREAS, the boards of directors of CMI, Merger Sub and the Company,
respectively, deem it advisable and in the best interests of such corporations
and their respective stockholders that Merger Sub merge with and into the
Company pursuant to this Agreement and the Certificate of Merger (in the form
attached hereto as Exhibit "A") and pursuant to applicable provisions of law
(such transaction is hereafter referred to as the "Merger"); and
WHEREAS, each of the parties to this Agreement desires to make certain
representations, warranties and agreements in connection with the transactions
contemplated herein and also to prescribe various conditions thereto.
NOW THEREFORE, in consideration of the premises, mutual covenants set out
herein and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties agree as follows:
SECTION 1 Acquisition of NaturalNano, Inc. The parties to this Agreement
do hereby agree that Merger Sub will be merged with and into the Company upon
the terms and conditions set forth herein and in accordance with the provisions
of the Nevada Revised Statutes ("NRS"). It is the intention of the parties
hereto that this transaction qualify as a tax-free reorganization under Section
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended, and related
sections thereunder.
SECTION 2 Terms of Merger. In accordance with the provisions of this
Agreement and the requirements of applicable law, Merger Sub will be merged with
and into the Company as of the Effective Time of the Merger (the terms "Closing"
and "Effective Time of the Merger" are defined in Section 6 hereof). The Company
will be the surviving corporation (hereinafter sometimes referred to as the
"Surviving Corporation") and the separate existence of Merger Sub will cease at
the Effective Time of the Merger. The Company, as the Surviving Corporation,
will succeed to and assume all the rights and obligations of Merger Sub in
accordance with the NRS, as described below. Consummation of the Merger will be
upon the following terms and subject to the conditions set forth herein:
(a) Corporate Existence. Commencing at the Effective Time of the Merger,
the separate corporate existence of Merger Sub will cease and the
Surviving Corporation will continue its corporate existence as a Delaware
corporation; and
(i) the Surviving Corporation will thereupon and thereafter
possess all rights, privileges, powers, franchises and
-2-
property (real, personal and mixed) of each of the
Constituent Corporations;
(ii) all debts due to either of the Constituent Corporations, on
whatever account, all causes in action and all other things
belonging to either of the Constituent Corporations will,
except as otherwise set forth herein, be taken and deemed to
be transferred to and will be vested in the Surviving
Corporation by virtue of the Merger without further act or
deed; and
(iii) all rights of creditors and all liens, if any, upon any
property of any of the Constituent Corporations will be
preserved unimpaired, limited in lien to the property affected
by such liens immediately prior to the Effective Time of the
Merger, and all debts, liabilities and duties of the
Constituent Corporations will thenceforth attach to the
Surviving Corporation.
(b) Effective Time of the Merger. At the Effective Time of the Merger,
(i) the Certificate of Incorporation and the Bylaws of the Company, as
existing and in effect immediately prior to the Effective Time of the
Merger, will be and remain the Certificate of Incorporation and Bylaws of
the Surviving Corporation; (ii) the members of the Board of Directors of
the Company holding office immediately prior to the Effective Time of the
Merger will remain as the members of the Board of Directors of the
Surviving Corporation until their respective successors are elected or
appointed and qualified (if on or after the Effective Time of the Merger
a vacancy exists on the Board of Directors of the Surviving Corporation,
such vacancy may thereafter be filled in a manner provided by applicable
law and the Bylaws of the Surviving Corporation); and (iii) until the
Board of Directors of the Surviving Corporation otherwise determines, all
persons who hold offices of the Company at the Effective Time of the
Merger will continue to hold the same offices of the Surviving
Corporation.
(c) Conversion of Securities. At the Effective Time of the Merger and
without any action on the part of CMI, Merger Sub, the Company or the
holders of any of the securities of any of these corporations, each of
the following will occur:
(i) The outstanding shares of capital stock of the Company will
be converted into the right to receive shares of common
stock, par value $0.001 per share, of CMI ("CMI Common
Stock"). Each one (1) share of Company Common Stock issued
and outstanding immediately prior to the Effective Time of
the Merger will be converted into the right to receive
4.4919378 shares of CMI Common Stock. No fraction of any
share of CMI Common Stock will be issued to any former holder
of capital stock of the Company; rather, the number of shares
of CMI Common Stock otherwise issuable, if other than a whole
number, will be rounded to the nearest whole number. The
holders of such certificates previously evidencing shares of
Company Common Stock outstanding immediately prior to the
Effective Time of the Merger will cease to have any rights
with respect to such shares of the Company's common stock
except as otherwise provided herein or by law.
(ii) Any shares of the Company capital stock held in the treasury
of the Company immediately prior to the Effective Time of the
Merger will automatically be canceled and extinguished
without any conversion thereof and no payment will be made
with respect thereto. At the Effective Time of the Merger,
the stock transfer books of the Company will be closed and
thereafter, there will be no further registration of
transfers on the stock transfer books of the Surviving
Corporation of any shares of capital stock of the Company
which were outstanding immediately prior to the Effective
Time.
-3-
(iii) Each holder of an option (a "Company Option") to purchase
Company Common Stock granted prior to the Effective Time of
the Merger pursuant to the Company's Stock Option Plan (the
"Company Option Plan") or otherwise will receive from CMI at
the Closing, in exchange for a written instrument executed by
him canceling by its terms all of the Company Options held by
him at the Closing, a duly executed Option Agreement (a "CMI
Option Agreement") evidencing the grant to said holder,
pursuant to the CMI Stock Incentive Plan (as defined herein),
of an option (each, a "CMI Option") to acquire one (1) share
of CMI Common Stock for every one (1) share of Company Common
Stock for which the Company Option is exercisable, on
economic and contractual terms substantially and materially
similar to the terms and conditions of said Company Option
prior to such conversion, and substantially in the form of
Exhibit "C" attached hereto.
(iv) Each share of capital stock of Merger Sub issued and
outstanding immediately prior to the Effective Time of the
Merger will remain in existence as one share of common stock
of the Surviving Corporation, which will be owned by CMI.
(v) The 4,991,042 shares of CMI Common Stock issued and
outstanding immediately prior to the Merger will remain
issued and outstanding after the Effective Time of the
Merger.
(d) Restricted Securities.
----------------------
(i) None of (i) the shares of CMI Common Stock into which the
shares of capital stock of the Company are to be converted,
or (ii) the CMI Options will, at the Effective Time of the
Merger, be registered under the Securities Act of 1933, as
amended (the "Securities Act") but, rather, will be deemed to
have been issued pursuant to an exemption therefrom (subject
to the satisfaction of certain other terms and conditions
hereof) and will be considered "restricted securities" within
the meaning of Rule 144 promulgated under the Securities Act.
All shares of CMI Common Stock will bear a legend worded
substantially as follows:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933 (the
"Act") and are "restricted securities" as that term is
defined in Rule 144 under the Act. The shares may not
be offered for sale, sold or otherwise transferred
except pursuant to an exemption from registration under
the Act, the availability of which is to be established
to the satisfaction of the Company."
(ii) At the Closing, CMI will direct its transfer agent to record,
as soon as practicable after the Closing, the issuance of CMI
Common Stock to the holders of the Company's capital stock
pursuant to the provisions set forth above. The transfer
agent will annotate its records to reflect the restrictions
on transfer embodied in the legend set forth above. There
will be no requirement of CMI to register under the
Securities Act the CMI Common Stock in connection with the
Merger.
(e) Other Matters.
--------------
(i) Immediately prior to the Effective Time of the Merger, the
Company will have no more than 10,000,000 shares of Company
Common Stock issued and outstanding. Immediately prior to the
Effective Time of the Merger, CMI will have no more than
4,991,042 shares of CMI Common Stock and no other series of
capital stock issued and outstanding.
-4-
(ii) From and after the Closing and with a view to making
available to holders of CMI Common Stock the benefits of Rule
144 of the Securities Act or any other similar rule or
regulation of the Securities and Exchange Commission ("SEC"),
CMI will take all action as may be required as a condition to
the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereafter in effect) with respect to
CMI Common Stock and furnish to any holder of CMI Common
Stock forthwith, upon request, a written statement by CMI as
to its compliance with the reporting requirements of Rule
144, a copy of the most recent annual or quarterly report of
CMI as filed with the SEC and such other reports and
documents as a holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a holder
to sell any such CMI Common Stock without registration, upon
satisfaction of all applicable provisions of Rule 144. CMI
agrees to facilitate and expedite transfers of the shares of
CMI Common Stock pursuant to Rule 144 under the Securities
Act, which efforts will include timely notice to its transfer
agent to expedite such transfers of such shares.
(iii) At the Closing, the then existing directors of CMI will
nominate and elect to the CMI Board of Directors those
persons designated by the Company, and CMI will cause all of
the persons then serving as directors and officers of CMI
immediately prior to the Closing to resign from all of their
respective positions with CMI, effective immediately upon the
Closing.
(iv) If, at any time after the Closing, any further action is
necessary or desirable to carry out the purposes of this
Agreement, the officers and directors of CMI are hereby fully
authorized to take, and will use their reasonable efforts to
take, all such lawful and necessary action.
(v) The Company has entered into that certain Registration Rights
Agreement with one or more of its shareholders that provides
certain limited "piggy back" registration rights relating to
10,000,000 shares of the Company's common stock, which number
does not take into consideration the conversion into CMI
Common Stock under the terms Section 2(c) of this Agreement.
Contemporaneous with the Closing of this Agreement, the
Company agrees to assign all of its rights, duties and
obligations under the Registration Rights Agreement to CMI
and CMI agrees to accept such assignment and to assume and
fulfill all of the terms, conditions and obligations of the
Company set forth in the Registration Rights Agreement as
they may apply to CMI Common Stock following the Closing of
this Agreement.
(vi) CMI acknowledges the existence of certain convertible debt of
the Company, which debt is to be convertible into 10,469,600
shares of CMI Common Stock following the Closing of this
Agreement. CMI agrees to facilitate the conversion of the
debt into the 10,469,600 shares of CMI Common Stock and to
provide to the holder of such shares certain limited "piggy
back" registration rights relating to no more than 20% of
those shares and which registration rights will be identical
to those set forth in the Registration Rights Agreement
between the Company and TI.
(vii) CMI acknowledges the existence of certain common stock
warrants held by SBI USA, LLC providing for the right to
purchase shares of the Company's common stock. CMI agrees to
assume the obligations of the warrants and will facilitate
the conversion of the warrants into a maximum of 2,250,000
-5-
shares of CMI Common Stock following the Closing of this
Agreement and pursuant to the terms and conditions of the
warrant agreement between SBI USA, LLC and the Company.
SECTION 3 Delivery of Shares. On or as soon as practicable after the
Effective Time of the Merger, the Company will use reasonable efforts to cause
all holders of the Company's capital stock (the "Company Stockholders") to
surrender to CMI's transfer agent for cancellation certificates representing
their shares of the Company's capital stock, against delivery of certificates
representing the shares of CMI Common Stock for which the Company's capital
stock is to be converted in the Merger pursuant to Section 2 hereof. Until
surrendered and exchanged as herein provided, each outstanding certificate
which, prior to the Effective Time of the Merger, represented Company capital
stock, will be deemed for all corporate purposes to evidence ownership of the
same number of shares of CMI Common Stock into which the shares of the Company
capital stock represented by such Company certificate will have been so
converted.
SECTION 4 Representations of the Company. The Company hereby represents
and warrants as follows, which warranties and representations will also be true
as of the Effective Time of the Merger:
(a) As of the date hereof, excluding the Company Options, the total
number of shares of Company Common Stock issued and outstanding is
10,000,000. As of the date hereof, the total number of Company Options
issued and outstanding is no more than 4,950,000.
(b) The Company Common Stock constitutes duly authorized and validly
issued shares of capital stock of the Company. All shares are fully paid
and nonassessable.
(c) The audited financial statements of the Company as of and for the
year ended December 31, 2004 and unaudited interim financial statements
of the Company for the period ended June 30, 2005, which have been
delivered to CMI, or will be delivered prior to the Closing (hereinafter
referred to as the "Company Financial Statements"), fairly present the
financial condition of the Company as of the dates thereof and the
results of its operations for the periods covered thereby. Other than as
set forth in any schedule or exhibit attached hereto, and except as may
otherwise be set forth or referenced herein, there are no material
liabilities or obligations, either fixed or contingent, not disclosed or
referenced in the Company Financial Statements or in any exhibit or notes
thereto other than contracts or obligations occurring in the ordinary
course of business since June 30, 2005; and no such contracts or
obligations occurring in the ordinary course of business constitute liens
or other liabilities which materially alter the financial condition of
the Company as reflected in the Company Financial Statements. The Company
has, or will have at the Closing, good title to all assets, properties or
contracts shown on the Company Financial Statements subject only to
dispositions and other transactions in the ordinary course of business,
the disclosures set forth therein and liens and encumbrances of record.
(d) Except as disclosed in writing to CMI, since June 30, 2005, there
have not been any material adverse changes in the financial position of
the Company except changes arising in the ordinary course of business,
which changes will not materially and adversely affect the financial
position of the Company.
(e) The Company is not a party to any material pending litigation or, to
the knowledge of its executive officers (herein, the "Company's
Knowledge"), any governmental investigation or proceeding, not reflected
-6-
in the Company Financial Statements, and, to the Company's Knowledge, no
material litigation, claims, assessments or any governmental proceedings
are threatened in writing against the Company.
(f) Neither the Company nor any of its officers, employees or agents, nor
any other person acting on behalf of the Company has, to the Company's
knowledge, directly or indirectly, within the past five years, given or
agreed to give any gift or similar benefit to any person who is or may be
in a position to help or hinder the Company's business, or assist it in
connection with any actual or proposed transaction, which (i) might
subject it to any material damage or penalty in any action or which might
have a material effect on the Company or its assets and properties, (ii)
if not given in the past, might have had a material effect on the
Company's business or its assets and properties, or (iii) if not
continued in the future, might have a material effect on the Company's
business or its assets and properties or subject it to suit or penalty in
any action.
(g) The Company is in good standing in its state of incorporation, and is
in good standing and duly qualified to do business in each state where
required to be so qualified, except where the failure to so qualify would
have no material adverse effect on the business, financial condition or
results of operations of the Company.
(h) The Company has, or by the Effective Time of the Merger will have,
filed all material tax, governmental and/or related forms and reports (or
extensions thereof) due or required to be filed in the ordinary course of
business and has (or will have) paid or made adequate provisions for all
taxes or assessments which have become due as of the Effective Time of
the Merger.
(i) The Company has not, to the Company's knowledge, materially breached
any material agreement to which it is a party. The Company has previously
given CMI copies of or access to all material contracts, commitments
and/or agreements to which the Company is a party.
(j) The Company has the requisite corporate power and authority to enter
into this Agreement together with such other agreements and documents
requisite to this Agreement (the "Transaction Documents") to which it is
a party and to perform its obligations hereunder and thereunder. The
execution and delivery of this Agreement and other Transaction Documents
to which it is a party and the consummation of the transactions
contemplated hereby and thereby have been, or will prior to the Closing
and the Effective Time of the Merger be, duly authorized by the Company's
Board of Directors and by the Company's stockholders (if necessary). The
execution of this Agreement and other Transaction Documents does not
materially violate or breach any material agreement or contract to which
the Company is a party, and the Company, to the extent required, has, or
will have by Closing, obtained all necessary approvals or consents
required by any agreement to which the Company is a party. The execution
and performance of this Agreement and other Transaction Documents will
not violate or conflict with any provision of the Company's Certificate
of Incorporation in effect as of the date hereof, or Bylaws of the
Company.
(k) Information regarding the Company, which has been delivered by the
Company to CMI for use in connection with the Merger is, to the Company's
Knowledge, true and accurate in all material respects.
(l) To the Company's Knowledge, the Company has and at the Closing will
have, disclosed in writing to CMI all events, conditions and facts
materially affecting the business, financial conditions (including any
liabilities, contingent or otherwise) or results of operations of the
Company.
-7-
(m) All information regarding the Company which has been provided to CMI
by the Company or set forth in any document or other communication,
disseminated to any former, existing or potential Company Stockholders,
or to the public or filed with any state or federal securities regulators
or authorities is, to the Company's Knowledge, true, complete, accurate
in all material respects.
(n) To the Company's Knowledge the Company is and has been in compliance
with, and the Company has conducted any business previously owned or
operated by it in compliance with, all applicable laws, orders, rules and
regulations of all governmental bodies and agencies, including applicable
securities laws and regulations and environmental laws and regulations,
except where such noncompliance has and will have, in the aggregate, no
material adverse effect. The Company has not received notice of any
noncompliance with the foregoing, nor is it aware of any claims or
threatened claims in connection therewith.
(o) To the Company's Knowledge without limiting the foregoing, (i) the
Company and any other person or entity for whose conduct the Company is
legally held responsible are and have been in material compliance with
all applicable federal, state, regional, local laws, statutes,
ordinances, judgments, rulings and regulations relating to any matters of
pollution, protection of the environment, health or safety, or
environmental regulation or control, and (ii) neither the Company nor any
other person for whose conduct the Company is legally held responsible
has manufactured, generated, treated, stored, handled, processed,
released, transported or disposed of any hazardous substance on, under,
from or at any of the Company's properties or in connection with the
Company's operations.
(p) Except as and to the extent specifically disclosed in this Agreement
and as may be specifically disclosed or reserved against it as to amount
in the latest balance sheet contained in the Company Financial
Statements, there is no basis for any assertion against the Company of
any material liabilities or obligations of any nature, whether absolute,
accrued, contingent or otherwise and whether due or to become due,
including, without limitation, any liability for taxes (including
e-commerce sales or other taxes), interest, penalties and other charges
payable with respect thereto. Neither the execution and delivery of this
Agreement or other Transaction Documents to which it is a party, nor the
consummation of the transactions contemplated hereby or thereby will
(i) result in any payment (whether severance pay, unemployment
compensation or otherwise) becoming due from the Company to
any person or entity, including without limitation any
employee, director, officer or affiliate or former employee,
director, officer or affiliate of the Company;
(ii) increase any benefits otherwise payable to any person or
entity, including without limitation any employee, director,
officer or affiliate or former employee, director, officer or
affiliate of the Company; or
(iii) result in the acceleration of the time of payment or vesting
of any such benefits.
(q) To the Company's Knowledge, no aspect of the Company's past or
present business, operations or assets is of such a character as would
restrict or otherwise hinder or impair the Company from carrying on the
business of the Company as it is presently being conducted by the
Company.
(r) Except as disclosed to CMI in writing, to the Company's Knowledge the
Company has no Material Contracts, commitments, arrangements, or
understandings relating to its business, operations, financial condition,
prospects, or otherwise. For purposes of this Section 4, "Material
Contract" means payment or performance of a contract, commitment,
-8-
arrangement or understanding in the ordinary course of business, which is
expected to involve payments from the Company to any third party in
excess of $100,000.
(s) To the Company's Knowledge, no representation or warranty by the
Company contained in this Agreement and no statement contained in any
certificate, schedule or other communication furnished pursuant to, or in
connection with, the provisions hereof contains or will contain any
untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements therein not misleading. To the
Company's Knowledge, there is no current or prior event or condition of
any kind or character pertaining to the Company that may reasonably be
expected to have a material adverse effect on the business, financial
condition or results of operations of the Company. Except as specifically
indicated elsewhere in this Agreement, all documents delivered by the
Company in connection herewith have been and will be complete originals,
or exact copies thereof.
(t) To the Company's Knowledge, all information to be supplied by it in
writing, specifically for inclusion or incorporation by reference in the
definitive Information Statement to be filed with the SEC by CMI and
disseminated by CMI to its stockholders (the "Information Statement"),
will not, at the time the Information Statement is so disseminated, or at
any time it is amended or supplemented thereafter, contain any untrue
statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
SECTION 5 Representations of CMI and Merger Sub. CMI and Merger Sub
hereby jointly and severally represent and warrant as follows, each of which
representations and warranties will also be true as of the Effective Time of the
Merger:
(a) As of the date hereof and the Effective Time of the Merger, the
shares of CMI Common Stock to be issued and delivered to the security
holders of the Company hereunder and in connection herewith will, when so
issued and delivered, constitute duly authorized, validly and legally
issued, fully-paid, nonassessable shares of CMI capital stock, free of
all liens and encumbrances.
(b) Each of CMI and Merger Sub has the requisite corporate power to enter
into this Agreement and to perform its respective obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been or prior to the Closing
and the Effective Time of the Merger will be duly authorized by the
respective Boards of Directors of CMI and Merger Sub and by CMI as the
sole stockholder of Merger Sub; and (ii) except as set forth in Section
7(e) hereof, do not have to be approved or authorized by the stockholders
of CMI. The execution and performance of this Agreement will not
constitute a material breach of any agreement, indenture, mortgage,
license or other instrument or document to which CMI or Merger Sub is a
party or to which it is otherwise subject and will not violate any
judgment, decree, order, writ, law, rule, statute, or regulation
applicable to CMI, Merger Sub or their properties. The execution and
performance of this Agreement will not violate or conflict with any
provision of the respective Certificates of Incorporation or Bylaws of
either CMI or Merger Sub.
(c) CMI has delivered to the Company a true and complete copy of its
audited financial statements for the fiscal years ended December 31,
2004, and 2003, and unaudited financial statements for the six-month
period ended June 30, 2005 (the "CMI Financial Statements"). The CMI
Financial Statements are complete, accurate and fairly present the
financial condition of CMI as of the dates thereof and the results of its
operations for the periods then ended. There are no material liabilities
or obligations either fixed or contingent not reflected therein. The CMI
-9-
Financial Statements have been prepared in accordance with United States
generally accepted accounting principles applied on a consistent basis
(except as may be indicated therein or in the notes thereto) and fairly
present the financial position of CMI as of the dates thereof and the
results of its operations and changes in financial position for the
periods then ended. CMI agrees to provide updated quarterly financial
statements as required by the SEC. Merger Sub has no financial statements
because it was recently formed solely for the purpose of effectuating the
Merger and it has been, is and will remain inactive except for purposes
of the Merger and it has no assets, liabilities, contracts or obligations
of any kind other than as incurred in the ordinary course in connection
with its incorporation in Nevada. CMI has no subsidiaries or affiliates
except for Merger Sub and Merger Sub has no subsidiaries or affiliates.
(d) Since June 30, 2005, there have not been any material adverse changes
in the business, financial condition or results of operation of CMI. At
the Closing, neither CMI nor Merger Sub will have any material assets and
neither such corporation now has, nor will it have, any liabilities of
any kind other than those reflected in the most recent balance sheet set
forth in the CMI Financial Statements and any costs or liabilities
incurred in connection with the Merger (which costs and liabilities,
including those liabilities reflected in the most recent balance sheet
set forth in the CMI Financial Statements, collectively will be paid in
full by CMI prior to or at the Closing so that at Closing, CMI has no
outstanding liabilities).
(e) Neither CMI nor Merger Sub is a party to, or the subject of, any
material pending litigation, claims, or governmental investigation or
proceeding not reflected in the CMI Financial Statements, and to the
knowledge of the executive officers of CMI (herein "CMI's Knowledge"),
there are no lawsuits, claims, assessments, investigations, or similar
matters, threatened in writing against Merger Sub, CMI, or the management
or properties of CMI or Merger Sub.
(f) CMI and Merger Sub are each duly organized, validly existing and in
good standing under the laws of the jurisdiction of their respective
incorporation; each has the corporate power to own its property and to
carry on its business as now being conducted and is duly qualified to do
business in any jurisdiction where so required except where the failure
to so qualify would have no material negative impact. Neither corporation
is required to be qualified to do business in any state other than the
State of Nevada.
(g) CMI and Merger Sub have filed all federal, state, county and local
income, excise, property and other tax, governmental and/or other
returns, forms, filings, or reports, which are due or required to be
filed by it prior to the date hereof and have paid or made adequate
provision in the CMI Financial Statements for the payment of all taxes,
fees, or assessments which have or may become due pursuant to such
returns, filings or reports or pursuant to any assessments received.
Neither CMI nor Merger Sub is delinquent or obligated for any tax,
penalty, interest, delinquency or charge and there are no tax liens or
encumbrances applicable to either corporation.
(h) As of the date of this Agreement, CMI's authorized capital stock
consists solely of 12,500,000 shares of CMI Common Stock, $0.001 par
value, of which 4,991,042 shares are presently issued and outstanding.
Prior to the Closing, CMI will have outstanding 4,991,042 shares of
common stock and no shares of preferred stock. Prior to the Closing, CMI
will amend its Certificate of Incorporation to increase its authorized
capitalization to 100 million shares of common stock, par value $0.001
per share, and 10 million shares of "blank check" preferred stock. Merger
Sub's capitalization consists solely of 1,000 authorized shares of $0.001
par value common stock ("Merger Sub's Common Stock"), of which 1,000
shares are outstanding, all of which are owned by CMI, free and clear of
all liens, claims and encumbrances. All outstanding shares of capital
stock of CMI and Merger Sub are, and will be at the Closing, duly
authorized, validly issued, fully paid and nonassessable. There are no
-10-
existing options, calls, claims, warrants, preemptive rights,
registration rights or commitments of any character relating to the
issued or unissued capital stock or other securities of either CMI or
Merger Sub.
(i) The financial records, minute books, and other documents and records
of CMI and Merger Sub have been made available to the Company prior to
the Closing. The records and documents of CMI and Merger Sub that have
been delivered to the Company constitute all of the material records and
documents of CMI and Merger Sub that they are aware of or that are in
their possession or in the possession of CMI or Merger Sub.
(j) Neither CMI nor Merger Sub has breached any material agreement to
which it is a party. Prior to the Closing, CMI will have given to the
Company copies or access to all material contracts, commitments and/or
agreements to which CMI is a party. There are no currently existing
agreements with any affiliates, related or controlling persons or
entities.
(k) CMI has complied with all provisions relating to the issuance of
shares and for the registration thereof under the Securities Act, or
appropriate exemption from registration therefrom. There are no
outstanding, pending or threatened stop orders or other actions or
investigations relating thereto involving federal and state securities
laws.
(l) CMI currently has no employees, consultants or independent
contractors other than its attorneys, accountants and transfer agent.
Edward F. Cowle, Geoff Williams and Jim Ruzicka are, and will be, the
sole directors and sole executive officers of CMI, and Geoff Williams and
Jim Ruzicka are the sole directors and sole executive officers of Merger
Sub.
(m) CMI and Merger Sub have, and at the Closing will have, disclosed in
writing to the Company all events, conditions and facts materially
affecting the business, financial conditions, including any liabilities,
contingent or otherwise, or results of operations of either CMI or Merger
Sub, since January 1, 2005.
(n) CMI was originally organized for the purposes of, and with a specific
plan for the ownership and operations of mining claims. Subsequently, CMI
revised its business to seeking potential operating businesses and
business opportunities with the intent to acquire or merge with such
businesses.
(o) All information regarding CMI which has been provided to the Company
by CMI, or set forth in any document or other communication, disseminated
to any former, existing or potential stockholders of CMI, to the public
or filed with the SEC or any state securities regulators or authorities,
is true, complete, accurate in all material respects, not misleading, and
was and is in full compliance with all securities laws and regulations.
Without limiting the generality of the foregoing, CMI has filed all
required reports, schedules, forms, statements and other documents with
the SEC since the filing of its registration statement on Form 10-SB on
July 3, 2003, including all filed reports, schedules, forms, statements
and other documents whether or not required (the "SEC Documents"). As of
their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as the case may
be, and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents. Except to the extent that information
contained in any SEC Document has been revised or superseded by a later
filed SEC Document, none of the SEC Documents contains any untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC
Documents are true and complete and comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto.
-11-
(p) CMI is and has been in compliance with, and CMI has conducted any
business owned or operated by it in compliance with, all applicable laws,
orders, rules and regulations of all governmental bodies and agencies,
including applicable securities laws and regulations, including, but not
limited to, the Sarbanes-Oxley Act of 2002, and environmental laws and
regulations, except where such noncompliance has and will have, in the
aggregate, no material adverse effect. CMI has not received notice of any
noncompliance with the foregoing, nor is it aware of any claims or
threatened claims in connection therewith. CMI has never conducted any
operations or engaged in any business transactions of a material nature
other than as set forth in the reports CMI has previously filed with the
SEC.
(q) The certificates of the Chief Executive Officer and Chief Financial
Officer of CMI required by Rules 13a-14 and 15d-14 of the Exchange Act or
Section 906 of the Sarbanes-Oxley Act of 2002 with respect to the SEC
Documents, as applicable, are true and correct as of the date of this
Agreement as they relate to a particular SEC Document, as though made as
of the date of this Agreement. The Company has established and maintains
disclosure controls and procedures, has conducted the procedures in
accordance with their terms and has otherwise operated in compliance with
the requirements under Rules 13a-15 and 15d-15 of the Exchange Act.
(r) Except as and to the extent specifically disclosed in this Agreement
and as may be specifically disclosed or reserved against as to amount in
the latest balance sheet contained in the CMI Financial Statements, there
is no basis for any assertion against CMI of any material liabilities or
obligations of any nature, whether absolute, accrued, contingent or
otherwise and whether due or to become due, including, without
limitation, any liability for taxes, including e-commerce sales or other
taxes, interest, penalties and other charges payable with respect
thereto. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
(i) result in any payment, whether severance pay, unemployment
compensation or otherwise, becoming due from CMI to any
person or entity, including without limitation any employee,
director, officer;
(ii) increase any benefits otherwise payable to any person or
entity, including without limitation any employee, director,
officer or affiliate; or
(iii) result in the acceleration of the time of payment or vesting
of any such benefits.
(s) No aspect of CMI's business, operations or assets is of such a
character as would restrict or otherwise hinder or impair CMI from
carrying on the business of CMI as it is presently being conducted by
CMI.
(t) Other than retention of accountants, attorney, and transfer agent,
CMI has no other contracts, commitments, arrangements, or understandings
relating to its business, operations, financial condition, prospects or
otherwise.
(u) None of CMI, Merger Sub or any other affiliate thereof has or
maintains any employee benefit, bonus, incentive compensation,
profit-sharing, equity, stock bonus, stock option, stock appreciation
rights, restricted stock, other stock-based incentive, executive
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compensation agreement, employment agreement, deferred compensation,
pension, stock purchase, employee stock ownership, savings, pension,
retirement, supplemental retirement, employment related
change-in-control, severance, salary continuation, layoff, welfare
(including, without limitation, health, medical, prescription, dental,
disability, salary continuation, life, accidental death, travel accident,
and other insurance), vacation, holiday, sick leave, fringe benefit, or
other benefit plan, program, or policy, whether qualified or nonqualified
and any trust, escrow, or other agreement related thereto, covering any
present or former employees, directors, or their respective dependents.
(v) No representation or warranty by CMI or Merger Sub contained in this
Agreement and no statement contained in any certificate, schedule or
other communication furnished pursuant to or in connection with the
provisions hereof, contains or will contain any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein not misleading. There is no event or
condition of any kind or character pertaining to CMI that may reasonably
be expected to have a material adverse effect on CMI or its subsidiaries.
Except as specifically indicated elsewhere in this Agreement, all
documents delivered by CMI in connection herewith have been and will be
complete originals, or exact copies thereof.
SECTION 6 Closing. The Closing of the transactions contemplated herein
will take place on such date (the "Closing") as mutually determined by the
parties hereto, but no later than five (5) days after all conditions precedent
have been satisfied or waived and all required documents have been delivered.
The parties will use their reasonable commercial efforts to cause the Closing to
occur on or before November 15, 2005. The "Effective Time of the Merger" will be
that date and time specified in the Certificate of Merger as the date on which
the Merger will become effective.
SECTION 7 Actions Prior to Closing.
(a) Prior to the Closing, the Company on the one hand, and CMI and Merger
Sub on the other hand, will be entitled to make such investigations
of the assets, properties, business and operations of the other party
and to examine the books, records, tax returns, financial statements
and other materials of the other party as such investigating party
deems necessary in connection with this Agreement and the
transactions contemplated hereby. Any such investigation and
examination will be conducted at reasonable times and under
reasonable circumstances, and the parties hereto will cooperate fully
therein. The representations and warranties contained in this
Agreement will not be affected or deemed waived by reason of the fact
that either party hereto discovered or should have discovered any
representation or warranty is or might be inaccurate in any respect.
Until the Closing, the parties hereto and their respective affiliates
will keep confidential and will not use in any manner inconsistent
with the transactions contemplated by this Agreement any information
or documents obtained from the other concerning its assets,
properties, business or operations (the "Confidential Information").
For the purpose of this Agreement, the party disclosing such
Confidential Information is referred to as the "Discloser," and the
party receiving such Confidential Information is referred to as the
"Recipient." If the Closing will not occur for any reason (including,
without limitation, pursuant to a termination of this Agreement), the
parties hereto and their respective affiliates will not disclose, nor
use for their own benefit, any such Confidential Information obtained
from the other, in either case.
(i) Confidential Information shall not include any information of that:
A. is already known to Recipient at time of its disclosure as proven
by documentary evidence;
B. is or becomes publicly known through no wrongful act of Recipient;
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C. is independently developed by or on behalf of Recipient; or
D. is received from a third party whose disclosure does not violate
a confidentiality obligation.
(ii) Required Disclosure. In the event Recipient is required by law,
regulation or legal or administrative process to disclose any
Discloser Confidential Information, Recipient shall promptly notify
Discloser in writing so that a protective order or other appropriate
remedy may be sought by Discloser. Recipient agrees to furnish only
that portion of Confidential Information that is legally required and
to cooperate with Discloser, at Discloser's expenses and request, in
seeking such a protective order;
(iii) Return of Confidential Information. If the Closing will not occur
for any reason (including, without limitation, pursuant to a
termination of this Agreement), Confidential Information is and shall
remain the Discloser's sole and exclusive property and no license or
right to Confidential Information is granted hereby except as
specifically provided herein. Any and all Confidential Information
disclosed in tangible form, including information incorporated into
computer software or held in electronic storage media, shall upon
termination of this Agreement be returned to Discloser or destroyed
promptly and shall not be thereafter retained in any form by
Recipient or its Representatives. Notwithstanding termination or
expiration of this Agreement or any return of Confidential
Information, all rights and obligations of the parties under this
Agreement as to any particular Confidential Information shall survive
until the fourth anniversary of the disclosure of that Confidential
Information.
(iv) Specific Performance. The parties acknowledge Confidential
Information is valuable and unique and that disclosure in breach of
this Agreement will result in irreparable harm to Discloser. The
parties agree that, in the event of a breach or threatened breach of
the terms of this Agreement, Discloser shall be entitled to specific
performance and/or an injunction prohibiting any such breach. Any
such relief shall be in addition to and not in lieu of any monetary
damages or other remedies that may be available.
(b) Prior to the Closing, any written news releases or public disclosure
by either party pertaining to this Agreement will be submitted to the
other party for its review and approval prior to such release or
disclosure, provided, however, that
(i) such approval will not be unreasonably withheld, and
(ii) such review and approval will not be required of disclosures
required to comply, in the judgment of counsel, with federal
or state securities or corporate laws or policies.
(c) Prior to the Effective Time of the Merger, CMI will amend its
Certificate of Incorporation (i) to increase its authorized
capitalization to 100 million shares of common stock, par value $0.001
per share, and 10 million shares of "blank check" preferred stock, and
(ii) to change CMI's corporate name to NaturalNano, Inc.
(d) Except as contemplated by this Agreement, there will be no stock
dividend, stock split, recapitalization, or exchange of shares with
respect to or rights issued in respect of CMI Common Stock after the date
hereof and there will be no dividends or other distributions paid on
CMI's Common Stock after the date hereof, in each case through and
including the Effective Time of the Merger. CMI and Merger Sub will
conduct no business activities prior to the Closing other than in the
ordinary course of business or as may be necessary in order to consummate
the transactions contemplated hereby.
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(e) CMI, acting through its Board of Directors, will, in accordance with
applicable law give notice of and submit for action by written consent of
its stockholders;
(i) an amendment to its Certificate of Incorporation to increase
the authorized capitalization of CMI to 100 million shares of
common stock and 10 million shares of "blank check" preferred
stock;
(ii) a proposal to adopt a stock option plan and allocate
7,000,000 shares of CMI common stock to the plan (the "CMI
Stock Incentive Plan"); and
(iii) an amendment to its Certificate of Incorporation to change
CMI's corporate name to NaturalNano, Inc.
(f) CMI will use its reasonable best efforts to obtain the written
consent discussed in Section 7(e) above as soon as practicable after the
execution of this Agreement and, as promptly as practicable thereafter;
(i) prepare and file with the SEC a preliminary Information
Statement relating to the matters stated above;
(ii) use its reasonable best efforts to obtain and furnish the
information required by the SEC to be included in the
definitive Information Statement; and,
(iii) after consultation with counsel to the Company, respond
promptly to any comments made by the SEC with respect to the
preliminary Information Statement and cause the Information
Statement to be mailed to its stockholders as promptly as
practicable following clearance from the SEC and at least 20
days prior to effecting the actions to be taken by written
consent set forth in Section (7)(e) above.
(g) The Company will provide to CMI any information for inclusion in the
Information Statement which may be required under applicable law and
which is reasonably requested by CMI. Each of the Company, CMI and Merger
Sub, respectively, agree promptly to correct any information provided by
any of them for use in the Information Statement if, and to the extent
that, such information will have become false or misleading in any
material respect and CMI further agrees to take all necessary steps to
cause the Information Statement as so corrected to be filed with the SEC
and to be disseminated to its stockholders to the extent required by
applicable federal securities laws.
(h) CMI hereby represents and warrants that the information supplied or
to be supplied by CMI for inclusion or incorporation by reference in (i)
the Information Statement and (ii) the Other Filings (as defined below)
will, at the respective times filed with the SEC and, in the case of the
Information Statement as of the date it or any amendment or supplement
thereto is mailed to stockholders, not contain any untrue statement of a
fact or omit to state any fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. The Information Statement will
comply as to form in all respects with the requirements of the Exchange
Act and the rules and regulations promulgated thereunder. The Company
hereby represents and warrants that the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in
the Information Statement or Other Filings will, at the respective times
filed with the SEC and, in addition, in the case of the Information
Statement, as of the date it or any amendment or supplement thereto is
mailed to stockholders, not contain any untrue statement of a fact or
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omit to state any fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
(i) As soon as practicable following the date hereof and following the
Effective Time of the Merger, each of CMI and the Company will properly
prepare and file any other filings required under the Exchange Act or any
other federal, state or foreign law relating to the Merger (collectively,
the "Other Filings").
(j) Except as required by law, CMI and Merger Sub will not voluntarily
take any action that would, or that is reasonably likely to, result in
any of the conditions to the Merger not being satisfied. Without limiting
the generality of the foregoing CMI and Merger Sub will not take any
action that would result in (i) any of its representations and warranties
set forth in this Agreement that are qualified as to materiality becoming
untrue or (ii) any of such representations and warranties that are not so
qualified becoming untrue in any material respect.
(k) The CMI Common Stock will continue to be approved for quotation on
the OTC Bulletin Board and CMI will have continued to satisfy throughout
the period from the date hereof through the Closing Date (i) its filing
requirements under Section 13 of the Exchange Act and (ii) the
requirements of Rule 15c2-11 as promulgated by the SEC under the Exchange
Act.
SECTION 8 Conditions Precedent to the Obligations of the Company. All
obligations of the Company under this Agreement to effect the Merger and the
other transactions contemplated hereby are subject to the fulfillment, prior to
or as of the Closing and/or the Effective Time of the Merger, as indicated
below, of each of the following conditions:
(a) The representations and warranties by or on behalf of CMI and Merger
Sub contained in this Agreement, or in any certificate or document
delivered pursuant to the provisions hereof or in connection herewith,
will be true at and as of the Closing and Effective Time of the Merger as
though such representations and warranties were made at and as of such
time.
(b) CMI and Merger Sub will have performed and complied with, in all
material respects, all covenants, agreements, and conditions required by
this Agreement to be performed or complied with by them prior to or at
the Closing. No preliminary or permanent injunction or other order,
decree or ruling issued by a court or other governmental authority of
competent jurisdiction nor any statute, rule, regulation or executive
order promulgated or enacted by any governmental authority of competent
jurisdiction will be in effect which would have the effect of (i) making
the consummation of the Merger illegal, or (ii) otherwise prohibiting the
consummation of the Merger.
(c) On or before the Closing, the directors of CMI and Merger Sub, and
CMI as sole stockholder of Merger Sub, will have approved in accordance
with applicable provisions of the NRS the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein,
and will have approved the Restated Certificate and the CMI Stock
Incentive Plan and submitted the same for approval by the stockholders of
CMI as required.
(d) On or before the Closing, CMI and Merger Sub will have delivered
certified copies of resolutions of the sole stockholder and directors of
Merger Sub and of the directors of CMI approving and authorizing: (i) the
execution, delivery and performance of this Agreement and all necessary
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and proper actions to enable CMI and Merger Sub to comply with the terms
of this Agreement; (ii) the election of the Company's nominees to the
Board of Directors of CMI and all matters outlined or contemplated
herein; (iii) the submission of the amendment to the Certificate of
Incorporation and the CMI Stock Incentive Plan to the stockholders of
CMI; and (iv) the filing of the amendment to the Certificate of
Incorporation upon approval thereof.
(e) Each of the Company Stockholders will have delivered to CMI a letter
commonly known as an "investment letter" agreeing that the shares of CMI
Common Stock to be issued in the Merger are, among other things, (i)
being acquired for investment purposes and not with a view to public
resale, (ii) are being acquired for the investor's own account, (iii)
that the investor is an "accredited investor" as defined under Regulation
D of the Securities Act, and (iv) that the shares of CMI Common Stock are
restricted and may not be resold, except in reliance of an exemption
under the Act.
(f) The Merger will be permitted by applicable state law and otherwise
and CMI will have sufficient shares of its capital stock authorized to
complete the Merger at the Effective Time and the transactions
contemplated hereby.
(g) The amendment to the Certificate of Incorporation and CMI Stock
Option Incentive Plan will have been approved by the requisite vote of
the stockholders of CMI, acting by written consent in lieu of a special
meeting thereof, and the amendment to the Certificate of Incorporation
will have been filed in accordance with the applicable requirements of
the NRS. (h) At Closing, all of the directors and officers of CMI and
Merger Sub will have resigned in writing from their positions as
directors and officers of CMI and Merger Sub, respectively, effective
upon the election and appointment of the Company nominees, and the
directors of CMI will have taken such action as may be deemed necessary
or desirable by the Company regarding such election and appointment of
the Company nominees.
(i) At the Closing, all instruments and documents delivered by CMI or
Merger Sub, including to the Company Stockholders pursuant to the
provisions hereof, will be reasonably satisfactory to legal counsel for
the Company.
(j) The capitalization of CMI and Merger Sub will be the same as
described in Section 5(h) above and will reflect the effectiveness of the
amendment to the Certificate of Incorporation increasing CMI's authorized
capitalization.
(k) The shares of CMI Common Stock to be issued to the Company
Stockholders at Closing will be validly issued, nonassessable and fully
paid under the applicable provisions of the NRS and will be issued in a
nonpublic offering in compliance with all federal, state and applicable
securities laws.
(l) The Company will have received all necessary and required approvals
and consents from required parties and from its stockholders.
(m) At the Closing, CMI and Merger Sub will have delivered to the Company
an opinion of CMI's legal counsel dated as of the Closing to the effect
that:
(i) Each of CMI and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation;
(ii) This Agreement has been duly authorized, executed and
delivered by CMI and Merger Sub and is a valid and binding
obligation of CMI and Merger Sub enforceable in accordance
with its terms, subject to applicable bankruptcy, insolvency,
moratorium or other similar laws relating to creditors'
rights and general principles of equity;
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(iii) CMI and Merger Sub each through its Board of Directors and/or
stockholders, as required, have taken all corporate action
necessary for performance under this Agreement;
(iv) The documents executed and delivered to the Company and the
Company Stockholders hereunder are valid and binding in
accordance with their terms and vest in the Company
Stockholders all right, title and interest in and to the
shares of CMI's Common Stock to be issued pursuant to Section
2 hereof, and the shares of CMI Common Stock when issued will
be duly and validly issued, fully paid and nonassessable; and
(i) CMI and Merger Sub each has the corporate power to execute,
deliver and perform its respective obligations under this
Agreement;
(n) The Company will have completed its financial and legal due diligence
investigation of CMI with results thereof satisfactory to the Company in
its sole discretion.
Section 9 Conditions Precedent to the Obligations of CMI and Merger Sub.
All obligations of CMI and Merger Sub under this Agreement are subject to the
fulfillment, prior to or at the Closing and/or the Effective Time of the Merger,
of each of the following conditions:
(a) The representations and warranties by the Company contained in this
Agreement or in any certificate or document delivered pursuant to the
provisions hereof or in connection herewith, will be true at and as of
the Closing and the Effective Time of the Merger as though such
representations and warranties were made at and as of such times.
(b) The Company will have performed and complied with, in all material
respects, all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by it prior to or at the
Closing.
(c) On or before the Closing, the directors of the Company will have
approved in accordance with applicable state corporation law the
execution and delivery of this Agreement and the consummation of the
transactions contemplated herein and will have submitted the same to the
stockholders of the Company.
(d) On or before the Closing Date, the Company will have delivered
certified copies of resolutions of the stockholders and directors of the
Company approving and authorizing the execution, delivery and performance
of this Agreement and the other Transaction Documents and authorizing all
of the necessary and proper action to enable the Company to comply with
the terms of this Agreement.
(e) The Merger will be permitted by applicable state law and otherwise.
(f) At the Closing, all instruments and documents delivered by the
Company pursuant to the provisions hereof will be reasonably satisfactory
to legal counsel for CMI.
(g) The capitalization of the Company will be the same as described in
Section 4(a) hereof.
(h) CMI will have received all necessary and requisite approvals and
consents from required parties and from its stockholders, and this
Agreement and the Merger will have been adopted and approved by the
requisite vote of the Company Stockholders.
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(i) At the Closing, the Company will have delivered to CMI an opinion of
the Company's legal counsel dated as of the Closing to the effect that:
(i) The Company is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of
its incorporation;
(ii) This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding
obligation of the Company enforceable in accordance with its
terms;
(iii) The Company, through its Board of Directors and stockholders
has taken all corporate action necessary for performance
under this Agreement; and
(iv) The Company has the corporate power to execute, deliver and
perform under this Agreement.
(j) CMI will have an exemption from registration under the Securities Act
and the securities laws of the state of Delaware and the various states
of residence of the Company Stockholders for issuance of the shares of
CMI Common Stock to be issued to the Company Stockholders in the Merger.
(k) CMI will have received from the Company Stockholders the investment
letters described in Section 8(e) hereof.
SECTION 10 Survival. The representations and warranties contained in this
Agreement and any other document or certificate relating hereto will survive and
continue in full force and effect for a period of six months after the Effective
Time of the Merger.
SECTION 11 Nature of Representations. All of the parties hereto are
executing and carrying out the provisions of this Agreement in reliance solely
on the representations, warranties, covenants and agreements contained in this
Agreement and the other documents delivered at the Closing and not upon any
representation, warranty, agreement, promise or information, written or oral,
made by the other party or any other person other than as specifically set forth
herein.
SECTION 12 Documents at Closing. At the Closing, the following documents
will be delivered:
(a) The Company will deliver, or will cause to be delivered, to CMI the
following:
(i) a certificate executed by the President of the Company to the
effect that all representations and warranties made by the
Company under this Agreement are true and correct as of the
Closing and as of the Effective Time of the Merger, the same
as though originally given to CMI or Merger Sub on said date
and that the Company has performed or complied in all
material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on
or prior to the Effective Time of the Merger;
(ii) a certificate from the state of the Company's incorporation
dated within five business days of the Closing to the effect
that the Company is in good standing under the laws of said
state;
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(iii) such other instruments, documents and certificates, if any,
as are required to be delivered pursuant to the provisions of
this Agreement and the other Transaction Documents;
(iv) executed copy of the Certificate of Merger for filing in
Delaware;
(v) certified copies of resolutions adopted by the Company
Stockholders and the directors of the Company approving the
Merger Agreement and other Transaction Documents and
authorizing the Merger;
(vi) the opinion of the Company's counsel as described in Section
9(i) above; and
(vii) all other items, the delivery of which is a condition
precedent to the obligations of CMI and Merger Sub, as set
forth herein.
(b) CMI and Merger Sub will deliver or cause to be delivered to the
Company:
(i) stock certificates representing those securities of CMI to be
issued as a part of the Merger as described in Section 2
hereof;
(ii) a certificate of the President of CMI and Merger Sub,
respectively, to the effect that all representations and
warranties of CMI and Merger Sub made under this Agreement
are true and correct as of the Closing, the same as though
originally given to the Company on said date; and that each
of CMI and Merger Sub has performed or complied in all
material respects with all agreements and covenants required
by this Agreement to be performed or complied with by it on
or prior to the Effective Time of the Merger;
(iii) certified copies of resolutions adopted by CMI's and Merger
Sub's Board of Directors and Merger Sub's sole stockholder
approving the Merger Agreement and authorizing the Merger and
all related matters; and certified copies of resolutions
adopted by the stockholders of CMI approving the matters
described in Section 7(e) above.
(iv) certificates from the jurisdiction of incorporation of CMI
and Merger Sub dated within five business days of the Closing
Date that each of said corporations is in good standing under
the laws of said state;
(v) executed copy of the Certificate of Merger for filing in
Nevada;
(vi) opinion of CMI's counsel as described in Section 8(m) above;
(vii) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement;
(viii) written resignation of all of the officers and directors of
CMI and Merger Sub; and
(ix) all other items, the delivery of which is a condition
precedent to the obligations of the Company, as set forth in
Section 8 hereof.
SECTION 13 Finder's Fees. CMI and Merger Sub, jointly and severally,
represent and warrant to the Company, and the Company represents and warrants to
CMI and Merger Sub, that none of them, or any party acting on their behalf, has
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incurred any liabilities, either express or implied, to any "broker" or "finder"
or similar person in connection with this Agreement or any of the transactions
contemplated hereby.
SECTION 14 Additional Covenants. Between the date hereof and the Closing,
except with prior written consent of the other party:
(a) CMI, Merger Sub and the Company will conduct their business only in
the usual and ordinary course and the character of such business will not
be changed nor will any different business be undertaken;
(b) No change will be made in the Certificate of Incorporation or Bylaws
of CMI, Merger Sub or the Company except as described herein;
(c) No change will be made in the authorized or issued shares of CMI
except as set forth herein;
(d) Neither CMI nor the Company will discharge or satisfy any lien or
encumbrance or obligation or liability, other than current liabilities
shown on the financial statements heretofore delivered and current
liabilities incurred since that date in the ordinary course of business;
and
(e) CMI will not make any payment or distribution to its stockholders or
purchase or redeem any shares or capital stock except as set forth
herein.
SECTION 15 Post-Closing Covenants. After the Closing, the Company will
cause CMI to timely file with the SEC a current report on Form 8-K to report the
Merger. In addition, for a period of 12 months following the Closing, the
Company will cause CMI to use its commercially reasonable efforts to timely file
all reports and other documents required to be filed by CMI under the Exchange
Act.
SECTION 16 Termination. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, by action taken or authorized by the
Board of Directors of the terminating party or parties and, except as provided
below, whether before or after approval of the matters presented in connection
with the Mergers by the stockholders of CMI or the Company:
(a) By mutual written consent of CMI and the Company;
(b) By either CMI or the Company, if the Effective Time of the Merger
will not have occurred on or before November 30, 2005 (the "Termination
Date"); provided, however, that the right to terminate this Agreement
under this Section 16(b) will not be available to any party whose failure
to fulfill any obligation under this Agreement has been the cause of or
resulted in, the failure of the Effective Time of the Merger to occur on
or before the Termination Date;
(c) By either CMI or the Company if any governmental entity (i) will have
issued an order, decree or ruling or taken any other action (which the
parties will use their reasonable best efforts to resist, resolve or
lift, as applicable), permanently restraining, enjoining or otherwise
prohibiting the transaction contemplated by this Agreement and such
order, decree, ruling or other action will have become final and
nonappealable, or (ii) will have failed to issue an order, decree or
ruling or to take any other action and such denial of a request to issue
such order, decree, ruling or take such other action will have become
final and nonappealable (which order, decree, ruling or other action the
parties will have used their reasonable best efforts to obtain), in the
case of each of (i) and (ii) which is necessary to fulfill the conditions
set forth in Sections 8 and 9, as applicable;
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(d) By either CMI or the Company, if the approvals of the respective
stockholders of either CMI or the Company contemplated by this Agreement
will not have been obtained by reason of the failure to obtain the
required vote of stockholders or consent to the respective matters as to
which such approval was sought;
(e) By CMI, if the Company will have breached or failed to perform any of
its representations, warranties, covenants or other agreements contained
in this Agreement, such that the conditions set forth in Section 9 are
not capable of being satisfied on or before the Termination Date; or
(f) By the Company, if CMI will have breached or failed to perform any of
its representations, warranties, covenants or other agreements contained
in this Agreement, such that the conditions set forth in Section 8 are
not capable of being satisfied on or before the Termination Date.
SECTION 17 Effect of Termination. In the event of termination of this
Agreement by either CMI or the Company as provided in Section 16 (other than
Sections 16(e) or (f)), this Agreement will forthwith become void and there will
be no liability or obligation on the part of any of the parties or their
respective officers or directors.
SECTION 18 Miscellaneous.
(a) Further Assurances. At any time and from time to time after the
Effective Time of the Merger, each party will execute such additional
instruments and take such action as may be reasonably requested by the
other party to confirm or perfect title to any property transferred
hereunder or otherwise to carry out the intent and purposes of this
Agreement.
(b) Waiver. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be waived
in writing by the party (in its sole discretion) to whom such compliance
is owed.
(c) Amendment. This Agreement may be amended only in writing as agreed to
by all parties hereto.
(d) Notices. All notices and other communications hereunder will be in
writing and will be deemed to have been given if delivered in person or
sent by prepaid first class registered or certified mail, return receipt
requested to the last known address of the noticed party.
(e) Headings. The section and subsection headings in this Agreement are
inserted for convenience only and will not affect in any way the meaning
or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
(g) Binding Effect. This Agreement will be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
(h) Entire Agreement. This Agreement and the attached Exhibits, including
the Certificate of Merger, is the entire agreement of the parties
covering everything agreed upon or understood in the transaction. There
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are no oral promises, conditions, representations, understandings,
interpretations or terms of any kind as conditions or inducements to the
execution hereof.
(i) Severability. If any part of this Agreement is deemed to be
unenforceable, the balance of the Agreement will remain in full force and
effect.
(j) Responsibility and Costs. Whether the Merger is consummated or not
and except as otherwise set forth below, all fees, expenses and
out-of-pocket costs including, without limitation, fees and disbursements
of counsel, financial advisors and accountants, incurred by the parties
hereto will be borne solely and entirely by the party that has incurred
such costs and expenses, unless the failure to consummate the Merger
constitutes a breach of the terms hereof, in which event the breaching
party will be responsible for all costs of all parties hereto.
Notwithstanding the above, the Company agrees that it will pay to Leonard
E. Neilson, Attorney at Law, all legal expenses and costs associated with
the preparation and execution of this Agreement and all transactions,
agreements and documents contemplated hereby.
(k) Governing Law. This Agreement will be governed and construed in
accordance with the laws of the State of Utah without regard to
principles of conflicts of law.
[Signatures on the Following Page]
IN WITNESS WHEREOF, the parties have executed this Agreement the
day and year first above written.
NATURALNANO, INC.
By: /s/ Michael D. Riedlinger
-------------------------------------
Michael D. Riedlinger
Its: President
CEMENTITIOUS MATERIALS, INC.
By: /s/ Edward F. Cowle
-------------------------------------
Edward F. Cowle
Its: President
CEMENTITIOUS ACQUISITIONS, INC.
By: /s/ Geoff Williams
-------------------------------------
Geoff Williams
Its: President
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Appendix B
----------
DEAN HELLER
Secretary of State
202 North Carson St.
Carson City, NV 89701-4299
(775) 684-5708 Website: secretaryofstate.biz
Certificate of Amendment
(PURSUANT TO NRS 78.385 and 78.390)
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
1. Name of Corporation: Cementitious Materials, Inc.
2. The articles have been amended as follows (provide article numbers, if
available):
Article #1 - is amended to read:
"The name of the corporation is NaturalNano, Inc."
Article #3 - is amended to read:
"SHARES: The number of shares the corporation is authorized to
issue is 100,000,000 shares of common stock, par value $0.001
per share, and 10,000,000 shares of preferred stock, par value
$0.001 per share. Preferred shares may be issued from time to
time in one or more series in the discretion of the board of
directors. The board has the authority to establish the number
of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of
each such series and the qualifications, limitations and
restrictions thereof."
3. The vote by which the stockholders holding shares in the corporation
entitling them to exercise at least a majority of the voting power, or such
greater proportion of the voting power as may be required in the case of a vote
by classes or series, or as may be required by the provisions of the
articles of incorporation have voted in favor of the amendment is: 4,344,480
shares (87.0%) voting for (by written consent) and zero shares voting against.
4. Officer Signature (Required):
/s/ Geoff Williams
- ------------------------------------
Geoff Williams, Secretary
* If any proposed amendment would alter or change any preference or any relative
or other right given to any class or series of outstanding shares, then the
amendment must be approved by the vote, in addition to the affirmative vote
otherwise required, of the holders of shares representing a majority of the
voting power of each class or series affected by the amendment regardless of
limitations or restrictions on the voting power thereof.
IMPORTANT: Failure to include any of the above information and remit the proper
fees may cause this filing to be rejected.
Appendix C
----------
NaturalNano, Inc.
2005 Incentive
Stock Plan
Effective __________, 2005
TABLE OF CONTENTS
Page
----
Article 1. Establishment, Objectives, and Duration.....................1
Article 2. Definitions.................................................1
Article 3. Administration..............................................5
Article 4. Shares Subject to the Plan and Maximum Awards...............5
Article 5. Eligibility and Participation...............................7
Article 6. Stock Options...............................................7
Article 7. Stock Appreciation Rights...................................9
Article 8. Restricted Stock...........................................10
Article 9. Performance Units and Performance Shares...................11
Article 10. Performance Measures.......................................12
Article 11. Rights of Participants.....................................13
Article 12. Termination of Employment/Directorship.....................13
Article 13. Change in Control..........................................14
Article 14. Amendment, Modification, and Termination...................14
Article 15. Withholding................................................15
Article 16. Successors.................................................15
Article 17. General Provisions.........................................15
Article 1. Establishment, Objectives, and Duration
1.1 Establishment of the Plan. Cemnetitious Materials, Inc., which name is
to be changed to NaturalNano, Inc. (the "Company"), a Nevada corporation, hereby
adopts the "NaturalNano, Inc. 2005 Incentive Stock Plan" (hereinafter referred
to as the "Plan"), as set forth in this document. The Plan permits the grant of
Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights,
Restricted Stock, Performance Shares and Performance Units.
Subject to approval by the Company's stockholders, this Plan shall become
effective as of the date on which the Effective Time (as such term is defined in
that certain Agreement and Plan of Merger dated September 26, 2005 (the "Merger
Agreement") among the Company, Cementitious Acquisitions, Inc., a Nevada
corporation and a wholly-owned subsidiary of the Company, and NaturalNano, Inc.,
a Delaware corporation) occurs (the "Effective Date"); provided, however, that
if the Merger (as such term is defined in the Merger Agreement) is not
consummated, the Plan shall be null and void.
1.2 Objectives of the Plan. The objectives of the Plan are to optimize the
profitability and growth of the Company through incentives that are consistent
with the Company's goals and that link the personal interests of Participants to
those of the Company's stockholders, to provide Participants with an incentive
for excellence in individual performance, and to promote teamwork among
Participants.
The Plan is further intended to provide flexibility to the Company and its
Subsidiaries in their ability to motivate, attract, and retain the services of
Participants who make significant contributions to the Company's success and to
allow Participants to share in that success.
1.3 Duration of the Plan. The Plan shall remain in effect, subject to the
right of the Committee to amend or terminate the Plan at any time pursuant to
Article 14 hereof, until all Shares subject to it shall have been purchased or
acquired according to the Plan's provisions. However, in no event may an Award
of an Incentive Stock Option be granted under the Plan on or after the tenth
(10th) anniversary of the Effective Date.
Article 2. Definitions
Whenever used in this Plan, the following terms shall have the meanings
set forth below, and when the meaning is intended, the initial letter of the
word shall be capitalized:
2.1 "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares or Performance Units.
2.2 "Award Agreement" means a written or electronic agreement entered into
by the Company and a Participant setting forth the terms and provisions
applicable to an Award granted under this Plan.
2.3 "Beneficial Owner" or "Beneficial Ownership" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.4 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.5 "Change in Control" shall be deemed to have occurred under any one or
more of the following conditions:
i. if, within one year of any merger, consolidation, sale of a
substantial part of the Company's assets, or contested
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election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were directors of the Company
immediately before the Transaction shall cease to constitute
a majority of the Board of Directors (x) of the Company or
(y) of any successor to the Company, or (z) if the Company
becomes a subsidiary of or is merged into or consolidated
with another corporation, of such corporation (the Company
shall be deemed a subsidiary of such other corporation if
such other corporation owns or controls, directly or
indirectly, a majority of the combined voting power of the
outstanding shares of the capital stock of the Company
entitled to vote generally in the election of directors
("Voting Stock"));
ii. if, as a result of a Transaction, the Company does not
survive as an entity, or its shares are changed into the
shares of another corporation unless the stockholders of the
Company immediately prior to the Transaction own a majority
of the outstanding shares of such other corporation
immediately following the Transaction;
iii. if any Person becomes, after the date this Plan is adopted, a
beneficial owner directly or indirectly of securities of the
Company representing 50% or more of the combined voting power
of the Company's Voting Stock;
iv. the dissolution or liquidation of the Company is approved by
its stockholders; or
v. if the members of the Board as of the date this Plan is
adopted (the "Incumbent Board") cease to represent at least
two-thirds of the Board; provided, that any person becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was
approved by at least two-thirds of the members comprising the
Incumbent Board (either by a specific vote or by approval of
the proxy statement in which such person is named as a
nominee for director without objection to such nomination)
shall be, for purposes of this paragraph (v), treated as
though such person were a member of the Incumbent Board.
2.6 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.7 "Committee" means the committee appointed from time to time by the
Company's Board of Directors to administer the Plan. The full Board of
Directors, in its discretion, may act as the Committee under the Plan, whether
or not a Committee has been appointed, and shall do so with respect to grants of
Awards to non-employee Directors. The Committee may delegate to one or more
members of the Committee or officers of the Company, individually or acting as a
committee, any portion of its authority, except as otherwise expressly provided
in the Plan. In the event of a delegation to a member of the Committee, officer
or a committee thereof, the term "Committee" as used herein shall include the
member of the Committee, officer or committee with respect to the delegated
authority. Notwithstanding any such delegation of authority, the Committee
comprised of members of the Board of Directors and appointed by the Board of
Directors shall retain overall responsibility for the operation of the Plan.
-2-
2.8 "Company" means Cementitious Materials, Inc., which name is to be
changed to NaturalNano, Inc., a Nevada corporation, together with all
subsidiaries thereof, and any successor thereto as provided in Article 16
hereof.
2.9 "Covered Employee" means a Participant who, as of the date of vesting
and/or payout of an Award, or the date the Company or any of its Subsidiaries is
entitled to a tax deduction as a result of the Award, as applicable, is one of
the group of "covered employees," as defined in the regulations promulgated
under Code Section 162(m), or any successor statute.
2.10 "Director" means any individual who is a member of the Board of
Directors of the Company; provided, however, that any Director who is employed
by the Company shall be treated as an Employee under the Plan.
2.11 "Disability" shall mean a condition whereby the Participant is unable
to engage in any substantial gainful activity by reason of any medically
determinable physical impairment which can be expected to result in death or
which is or can be expected to last for a continuous period of not less than
twelve months, all as verified by a physician acceptable to, or selected by, the
Company.
2.12 "Effective Date" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2.13 "Employee" means any employee of the Company or its Subsidiaries.
2.14 "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.15 "Fair Market Value" as of any date and in respect of any Share means
the then most recent closing price of a Share reported by the exchange or other
trading system on which Shares are primarily traded or, if deemed appropriate by
the Committee for any reason, the fair market value of Shares shall be as
determined by the Committee in such other manner as it may deem appropriate. In
no event shall the fair market value of any Share be less than its par value.
2.16 "Incentive Stock Option" or "ISO" means an option to purchase Shares
granted under Article 6 hereof and that is designated as an Incentive Stock
Option and that is intended to meet the requirements of Code Section 422.
2.17 "Insider" shall mean an individual who is, on the relevant date, an
executive officer, director or ten percent (10%) beneficial owner of any class
of the Company's equity securities that is registered pursuant to Section 12 of
the Exchange Act, all as defined under Section 16 of the Exchange Act.
2.18 "Key Employee" shall mean an individual as defined in Code Section
416(i) without regard to paragraph (5) thereof) of the Company.
2.19 "Non-Employee Director" shall mean any member of the Board who is not
an employee of the Company or a member of the immediate family of an employee of
the Company.
2.20 "Nonqualified Stock Option" or "NQSO" means an option to purchase
Shares granted under Article 6 hereof that is not intended to meet the
requirements of Code Section 422, or that otherwise does not meet such
requirements.
2.21 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option.
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2.22 "Option Price" means the price at which a Share may be purchased by a
Participant pursuant to an Option.
2.23 "Participant" means an Employee, Director or consultant who has been
selected to receive an Award or who has an outstanding Award granted under the
Plan.
2.24 "Performance-Based Exception" means the performance-based exception
from the tax deductibility limitations of Code Section 162(m).
2.25 "Performance Share" means an Award granted to a Participant, as
described in Article 9 hereof.
2.26 "Performance Unit" means an Award granted to a Participant, as
described in Article 9 hereof.
2.27 "Period of Restriction" means the period during which the transfer of
Shares of Restricted Stock is limited in some way (based on the passage of time,
the achievement of performance goals, or upon the occurrence of other events as
determined by the Committee, at its discretion), and the Shares are subject to a
substantial risk of forfeiture, pursuant to the Restricted Stock Award
Agreement, as provided in Article 8 hereof.
2.28 "Person" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof and the
rules promulgated thereunder, including a "group" as defined in Section 13(d)
thereof and the rules promulgated.
2.29 "Restricted Stock" means an Award granted to a Participant pursuant
to Article 8 hereof.
2.30 "Shares" means shares of the Company's common stock, par value
$.0001 per share.
2.31 "Stock Appreciation Right" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant to the terms
of Article 7 hereof.
2.32 "Subsidiary" means any corporation, partnership, joint venture, or
other entity in which the Company, directly or indirectly, has a majority voting
interest. With respect to Incentive Stock Options, "Subsidiary" means any
entity, domestic or foreign, whether or not such entity now exists or is
hereafter organized or acquired by the Company or by a Subsidiary that is a
"subsidiary corporation" within the meaning of Code Section 424(d) and the rules
thereunder.
2.33 "Ten Percent Shareholder" means an employee who at the time an ISO is
granted owns Shares possessing more than ten percent of the total combined
voting power of all classes of Shares of the Company or any Subsidiary, within
the meaning of Code Section 422.
Article 3. Administration
3.1 General. Subject to the terms and conditions of the Plan, the Plan
shall be administered by the Committee. The members of the Committee shall be
appointed from time to time by, and shall serve at the discretion of, the Board
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of Directors. The Committee shall have the authority to delegate administrative
duties to officers of the Company. For purposes of making Awards intended to
qualify for the Performance Based Exception under Code Section 162(m), to the
extent required under such Code Section, the Committee shall be comprised solely
of two or more individuals who are "outside directors", as that term is defined
in Code Section 162(m) and the regulations thereunder.
3.2 Authority of the Committee. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions hereof, the Committee shall have full power to select Employees,
Directors and consultants who shall be offered the opportunity to participate in
the Plan; determine the sizes and types of Awards; determine the terms and
conditions of Awards in a manner consistent with the Plan; construe and
interpret the Plan and any agreement or instrument entered into under the Plan;
establish, amend, or waive rules and regulations for the Plan's administration;
and amend the terms and conditions of any outstanding Award as provided in the
Plan. Further, the Committee shall make all other determinations that it deems
necessary or advisable for the administration of the Plan. As permitted by law
and the terms of the Plan, the Committee may delegate its authority herein. No
member of the Committee shall be liable for any action taken or decision made in
good faith relating to the Plan or any Award granted hereunder.
3.3 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Committee shall be final, conclusive, and binding on all
persons, including the Company, its stockholders, Directors, Employees,
Participants, and their estates and beneficiaries, unless changed by the Board.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1 Number of Shares Available for Grants. Subject to adjustment as
provided in Section 4.2 hereof, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be seven million (7,000,000). Any
Shares covered by an Award (or portion of an Award) granted under the Plan which
is forfeited or canceled or expires shall be deemed not to have been delivered
for purposes of determining the maximum number of Shares available for delivery
under the Plan. Shares may be authorized, unissued shares or Treasury shares.
The Committee shall determine the appropriate methodology for calculating the
number of Shares issued pursuant to the Plan.
The following limitations shall apply to the grant of any Award to a
Participant in a fiscal year:
(a) Stock Options: The maximum aggregate number of Shares that
may be granted in the form of Stock Options pursuant to
Awards granted in any one fiscal year to any one
Participant shall be 1,500,000.
(b) SARs: The maximum aggregate number of Shares that may be
granted in the form of Stock Appreciation Rights pursuant
to Awards granted in any one fiscal year to any one
Participant shall be 1,500,000.
(c) Restricted Stock: The maximum aggregate of Shares that may
be granted with respect to Awards of Restricted Stock
granted in any one fiscal year to any one Participant shall
be 1,500,000.
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(d) Performance Shares/Performance Units Awards: The maximum
aggregate grant with respect to Awards of Performance
Shares made in any one fiscal year to any one Participant
shall be equal to the Fair Market Value of 500,000 Shares
(measured on the date of grant); the maximum aggregate
amount awarded with respect to Performance Units to any one
Participant in any one fiscal year may not exceed
$1,000,000.
4.2 Adjustments in Authorized Shares. Upon a change in corporate
capitalization, such as a stock split, stock dividend or a corporate
transaction, such as any merger, consolidation, combination, exchange of shares
or the like, separation, including a spin-off, or other distribution of stock or
property of the Company, any reorganization (whether or not such reorganization
comes within the definition of such term in Code Section 368) or any partial or
complete liquidation of the Company, such adjustment shall be made in the number
and class of Shares that may be delivered under Section 4.1, in the number and
class of and/or price of Shares subject to outstanding Awards granted under the
Plan, and in the Award limits set forth in Section 4.1, as may be determined to
be appropriate and equitable by the Committee, in its sole discretion, to
prevent dilution or enlargement of rights.
4.3 Adjustment of Awards Upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.2 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan; provided that, unless the
Committee determines otherwise at the time such adjustment is considered, no
such adjustment shall be authorized to the extent that such authority would be
inconsistent with the Plan's or any Award's meeting the requirements of Section
162(m) of the Code, as from time to time amended.
Article 5. Eligibility and Participation
5.1 Eligibility. Persons eligible to participate in this Plan include all
Employees, Directors and consultants of the Company and its Subsidiaries.
5.2 Actual Participation. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees, Directors
and consultants, those to whom Awards shall be granted and shall determine the
nature and amount of each Award, provided that Incentive Stock Options shall
only be awarded to Employees of the Company or its Subsidiaries.
5.3 Stock Options for Non-Employee Directors
(a) Each person who, subsequent to the Effective Date, is for the
first time elected or appointed to the Board and who
qualifies, at such time, as a Non-Employee Director, shall
automatically be granted a Nonqualified Stock Option to
purchase 50,000 shares of Common Stock, effective as of the
date of his or her election or appointment to the Board on
the terms and conditions set forth in the Plan, at an option
price per share equal to the Fair Market Value of a share of
Common Stock on the date of grant or, if the date of the
grant is not a business day on which the Fair Market Value
can be determined, on the last business day preceding the
date of grant on which the Fair Market Value can be
determined.
(b) Each Non-Employee Director who is re-elected as a director at
an annual meeting of stockholders shall be granted an
additional Nonqualified Stock Option to purchase 50,000
shares of Common Stock, on the terms and conditions set forth
in the Plan, at an option price per share equal to the Fair
Market Value of a share of Common Stock on the date of such
annual meeting.
(c) All Options granted to Non-Employee Directors pursuant to
this Section 5.3 shall vest and become fully exercisable on
the date of the first annual meeting of stockholders
occurring after the end of the fiscal year of the Company
during which such Option was granted. All Options granted to
Non-Employee Directors pursuant to this Section 5.3 shall
expire on the tenth (10th) anniversary of the date of grant,
subject to earlier termination as provided in Article 12.
Article 6. Stock Options
6.1 Grant of Options. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6.2 Award Agreement. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine which are not inconsistent with the terms of the Plan.
-6-
6.3 Option Price. The Option Price for each grant of an Option under this
Plan shall be as determined by the Committee; provided, however, the per-share
exercise price shall not be less than the Fair Market Value of the Shares on the
date of grant.
The Option Price for each Option shall equal the Fair Market Value of the
Shares at the time such option is granted. If an ISO is granted to a Ten Percent
Shareholder the Option Price shall be at least 110 percent of the Fair Market
Value of the stock subject to the ISO.
6.4 Duration of Options. Except as otherwise provided in this Plan each
Option granted to a Participant shall expire at such time as the Committee shall
determine at the time of grant, provided that an ISO must expire no later than
the tenth (10th) anniversary of the date the ISO was granted. However, in the
case of an ISO granted to a Ten Percent Shareholder, the ISO by its terms shall
not be exercisable after the expiration of five years from the date such ISO is
granted.
6.5 Exercise of Options. Options shall be exercisable at such times and be
subject to such restrictions and conditions as the Committee shall in each
instance approve, which need not be the same for each grant or for each
Participant.
6.6 Payment. Options shall be exercised by the delivery of a written,
electronic or telephonic notice of exercise to the Company or its designated
agent, setting forth the number of Shares with respect to which the Option is to
be exercised, accompanied by full payment of the Option Price for the Shares.
Upon the exercise of any Option, the Option Price for the Shares being
purchased pursuant to the Option shall be payable to the Company in full either:
(a) in cash or its equivalent; or (b) subject to the Committee's approval, by
delivery of previously acquired Shares having an aggregate Fair Market Value at
the time of exercise equal to the total Option Price (provided that the Shares
that are delivered must have been held by the Participant for at least six (6)
months prior to their delivery to satisfy the Option Price); or (c) by a
combination of (a) and (b); or (d) by any other method approved by the Committee
in its sole discretion. Unless otherwise determined by the Committee, the
delivery of previously acquired Shares may be done through attestation. No
fractional shares may be tendered or accepted in payment of the Option Price.
Unless otherwise determined by the Committee, cashless exercises are
permitted pursuant to Federal Reserve Board's Regulation T, subject to
applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Plan's purpose and applicable
law.
Subject to any governing rules or regulations, as soon as practicable
after receipt of notification of exercise and full payment, the Company shall
deliver to the Participant, in the Participant's name, Share certificates in an
appropriate amount based upon the number of Shares purchased pursuant to the
Option(s).
Unless otherwise determined by the Committee, all payments under all of
the methods indicated above shall be paid in United States dollars.
6.7 Restrictions on Share Transferability. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
granted under this Article 6 as it may deem advisable, including, without
-7-
limitation, restrictions under applicable federal securities laws, under the
requirements of any stock exchange or market upon which such Shares are then
listed and/or traded, or under any blue sky or state securities laws applicable
to such Shares.
6.8 Nontransferability of Options.
(a) Incentive Stock Options. No ISO granted under the Plan may
be sold, transferred, pledged, assigned, encumbered or
otherwise alienated or hypothecated, other than by will or
by the laws of descent and distribution. Further, all ISOs
granted to a Participant under the Plan shall be
exercisable during such Participant's lifetime only by such
Participant.
(b) Nonqualified Stock Options. Except as otherwise provided in
the applicable Award Agreement, no NQSO may be sold,
transferred, pledged, assigned, encumbered or otherwise
alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as
otherwise provided in the applicable Award Agreement, all
NQSOs granted to a Participant shall be exercisable during
such Participant's lifetime only by such Participant.
6.9 Special Limitation on Grants of Incentive Stock Options. No ISO
shall be granted to an Employee under the Plan or any other ISO plan of the
Company or its Subsidiaries to purchase Shares as to which the aggregate Fair
Market Value (determined as of the date of grant) of the Shares which first
become exercisable by the Employee in any calendar year exceeds $100,000. To the
extent an Option initially designated as an ISO exceeds the value limit of this
Section 6.9 or otherwise fails to satisfy the requirements applicable to ISOs,
it shall be deemed a NQSO and shall otherwise remain in full force and effect.
Article 7. Stock Appreciation Rights
7.1 Grant of SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee.
Subject to the terms and conditions of the Plan, the Committee shall have
complete discretion in determining the number of SARs granted to each
Participant and, consistent with the provisions of the Plan, in determining the
terms and conditions pertaining to such SARs.
The grant price of a SAR shall equal the Fair Market Value of a Share on
the date of grant.
7.2 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the grant price, the term of the SAR, and such other
provisions as the Committee shall determine.
7.3 Term of SARs. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion.
7.4 Exercise of SARs. SARs may be exercised upon whatever terms and
conditions the Committee, in its sole discretion, imposes upon them.
7.6 Payment of SAR Amount. Upon exercise of an SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying:
-8-
(a) The amount by which the Fair Market Value of a Share on the
date of exercise exceeds the grant price of the SAR; by
(b) The number of Shares with respect to which the SAR is
exercised.
The payment upon SAR exercise shall be in Shares. Any Shares delivered in
payment shall be deemed to have a value equal to the Fair Market Value on the
date of exercise of the SAR.
7.7 Nontransferability of SARs. Except as otherwise provided in a
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, encumbered, or otherwise alienated or
hypothecated, other than by will or by the laws of descent and distribution.
Further, except as otherwise provided in a Participant's Award Agreement, all
SARs granted to a Participant under the Plan shall be exercisable during such
Participant's lifetime only by such Participant.
Article 8. Restricted Stock
8.1 Grant of Restricted Stock. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
8.2 Restricted Stock Agreement. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine which are not inconsistent with the
terms of this Plan.
8.3 Transferability. Except as provided in the Award Agreement, the Shares
of Restricted Stock granted herein may not be sold, transferred, pledged,
assigned, encumbered, or otherwise alienated or hypothecated until the end of
the applicable Period of Restriction established by the Committee and specified
in the Restricted Stock Award Agreement, or upon earlier satisfaction of any
other conditions, as specified by the Committee in its sole discretion and set
forth in the Restricted Stock Award Agreement. All rights with respect to the
Restricted Stock granted to a Participant under the Plan shall be available
during such Participant's lifetime and prior to the end of the Period of
Restriction only to such Participant.
8.4 Other Restrictions. The Committee may impose such other conditions
and/or restrictions on any Shares of Restricted Stock granted pursuant to the
Plan as it may deem advisable including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals,
time-based restrictions on vesting following the attainment of the performance
goals, time-based restrictions, and/or restrictions under applicable federal or
state securities laws.
To the extent deemed appropriate by the Committee, the Company may retain
the certificates representing Shares of Restricted Stock in the Company's
possession until such time as all conditions and/or restrictions applicable to
such Shares have been satisfied.
Except as otherwise provided in the Award Agreement, Shares of Restricted
Stock covered by each Restricted Stock grant made under the Plan shall become
freely transferable by the Participant after the last day of the applicable
Period of Restriction.
-9-
8.5 Voting Rights. If the Committee so determines, Participants holding
Shares of Restricted Stock granted hereunder may be granted the right to
exercise full voting rights with respect to those Shares during the Period of
Restriction.
8.6 Dividends and Other Distributions. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder (whether or
not the Company holds the certificate(s) representing such Shares) may, if the
Committee so determines, be credited with dividends paid with respect to the
underlying Shares while they are so held. The Committee may apply any
restrictions to the dividends that the Committee deems appropriate. Without
limiting the generality of the preceding sentence, if the grant or vesting of
Restricted Shares granted to a Covered Employee is designed to comply with the
requirements of the Performance-Based Exception, the Committee may apply any
restrictions it deems appropriate to the payment of dividends declared with
respect to such Restricted Shares, such that the dividends and/or the Restricted
Shares maintain eligibility for the Performance-Based Exception.
Article 9. Performance Units and Performance Shares
9.1 Grant of Performance Units/Shares Awards. Subject to the terms of the
Plan, Performance Units and/or Performance Shares Awards may be granted to
Participants in such amounts and upon such terms, and at any time and from time
to time, as shall be determined by the Committee.
9.2 Award Agreement. At the Committee's discretion, each grant of
Performance Units/Shares Awards may be evidenced by an Award Agreement that
shall specify the initial value, the duration of the Award, the performance
measures, if any, applicable to the Award, and such other provisions as the
Committee shall determine which are not inconsistent with the terms of the Plan.
9.3 Value of Performance Units/Shares Awards. Each Performance Unit shall
have an initial value that is established by the Committee at the time of grant.
Each Performance Share shall have an initial value equal to the Fair Market
Value of a Share on the date of grant. The Committee shall set performance goals
in its discretion which, depending on the extent to which they are met, will
determine the number and/or value of Performance Units/Shares Awards that will
be paid out to the Participant. For purposes of this Article 9, the time period
during which the performance goals must be met shall be called a "Performance
Period."
9.4 Earning of Performance Units/Shares Awards. Subject to the terms of
this Plan, after the applicable Performance Period has ended, the holder of
Performance Units/Shares Awards shall be entitled to receive a payout based on
the number and value of Performance Units/Shares Awards earned by the
Participant over the Performance Period, to be determined as a function of the
extent to which the corresponding performance goals have been achieved.
9.5 Form and Timing of Payment of Performance Units/Shares Awards. Payment
of earned Performance Units/Shares Awards shall be as determined by the
Committee and, if applicable, as evidenced in the related Award Agreement.
Subject to the terms of the Plan, the Committee, in its sole discretion, may pay
earned Performance Units/Shares Awards in the form of cash or in Shares (or in a
combination thereof) that have an aggregate Fair Market Value equal to the value
of the earned Performance Units/Shares Awards at the close of the applicable
Performance Period. Such Shares may be delivered subject to any restrictions
deemed appropriate by the Committee. No fractional shares will be issued. The
-10-
determination of the Committee with respect to the form of payout of such Awards
shall be set forth in the Award Agreement pertaining to the grant of the Award
or the resolutions establishing the Award.
Unless otherwise provided by the Committee, Participants holding
Performance Units/Shares shall be entitled to receive dividend units with
respect to dividends declared with respect to the Shares represented by such
Performance Units/Shares. Such dividends may be subject to the same accrual,
forfeiture, and payout restrictions as apply to dividends earned with respect to
Shares of Restricted Stock, as set forth in Section 8.6 hereof, as determined by
the Committee.
9.6 Nontransferability. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares Awards may not be sold, transferred,
pledged, assigned, encumbered, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution.
Article 10. Performance Measures
Unless and until the Committee proposes for shareholder vote and the
Company's shareholders approve a change in the general performance measures set
forth in this Article 10, the attainment of which may determine the degree of
payout and/or vesting with respect to Awards to Covered Employees that are
designed to qualify for the Performance-Based Exception, the performance
measure(s) to be used for purposes of such grants shall be chosen from among:
(a) Earnings per share;
(b) Net income (before or after taxes);
(c) Cash flow (including, but not limited to, operating cash flow
and free cash flow);
(d) Gross revenues;
(e) Gross margins;
(f) EBITDA; and
(g) Any of the above measures compared to peer or other
companies.
Performance measures may be set either at the corporate level, subsidiary
level, division level, or business unit level.
Awards that are designed to qualify for the Performance-Based Exception,
and that are held by Covered Employees, may not be adjusted upward (the
Committee shall retain the discretion to adjust such Awards downward).
If applicable tax and/or securities laws change to permit Committee
discretion to alter the governing performance measures without obtaining
shareholder approval of such changes, the Committee shall have sole discretion
to make such changes without obtaining shareholder approval.
-11-
Article 11. Rights of Participants
11.1 Employment. Nothing in the Plan shall confer upon any Participant any
right to continue in the Company's or its Subsidiaries' employ, or as a
Director, or interfere with or limit in any way the right of the Company or its
Subsidiaries to terminate any Participant's employment or directorship at any
time.
11.2 Participation. No Employee, Director or consultant shall have the
right to be selected to receive an Award under this Plan, or, having been so
selected, to be selected to receive a future Award.
11.3 Rights as a Stockholder. Except as provided in Sections 8.5, 8.6 and
9.5 or in applicable Award Agreement consistent with such Sections, a
Participant shall have none of the rights of a shareholder with respect to
shares of Common Stock covered by any Award until the Participant becomes the
record holder of such Shares, or the Period of Restriction has expired, as
applicable.
Article 12. Termination of Employment/Directorship
Upon termination of the Participant's employment or directorship for
any reason other than Disability or death, an Award granted to the Participant
may be exercised by the Participant or permitted transferee at any time on or
prior to the earlier of the expiration date of the Award or the expiration of
three (3) months after the date of termination but only if, and to the extent
that, the Participant was entitled to exercise the Award at the date of
termination. All Awards or any portion thereof not yet vested or exercisable or
whose Period of Restriction has not expired as of the date of termination (other
than a termination by reason of Disability or death) shall terminate and be
forfeited immediately on the date of termination. If the employment or
directorship of a Participant terminates by reason of the Participant's
Disability or death, all Awards or any portion thereof not yet vested or
exercisable or whose Period of Restriction has not expired as of the date of a
Participant's Disability or death shall become immediately vested and/or
exercisable on the date of termination due to Disability or death. If the
employment or directorship of a Participant terminates by reason of the
Participant's Disability or death, the Participant (or, if appropriate, the
Participant's legal representative or permitted transferee) may exercise such
Participant's rights under any outstanding Award at any time on or prior to the
earlier of the expiration date of the Award or the expiration of six months
after the date of Disability or death.
Unless otherwise determined by the Committee, an authorized leave of
absence pursuant to a written agreement or other leave entitling an Employee to
reemployment in a comparable position by law or rule shall not constitute a
termination of employment for purposes of the Plan unless the Employee does not
return at or before the end of the authorized leave or within the period for
which re-employment is guaranteed by law or rule. For purposes of this Article,
a "termination" includes an event which causes a Participant to lose his
eligibility to participate in the Plan (e.g., an individual is employed by a
company that ceases to be a Subsidiary). In the case of a consultant, the
meaning of "termination" or "termination of employment" includes the date that
the individual ceases to provide services to the Company or its Subsidiaries. In
the case of a nonemployee director, the meaning of "termination" includes the
date that the individual ceases to be a director of the Company or its
-12-
Notwithstanding the foregoing, the Committee has the authority to
prescribe different rules that apply upon the termination of employment of a
particular Participant, which shall be memorialized in the Participant's
original or amended Award Agreement or similar document.
An Award that remains unexercised after the latest date it could have
been exercised under any of the foregoing provisions or under the terms of the
Award shall be forfeited.
Article 13. Change in Control
In the event of a Change in Control, unless otherwise specifically
prohibited under applicable laws, or by the rules and regulations of any
governing governmental agencies or national securities exchange or trading
system, or unless the Committee shall otherwise specify in the Award Agreement,
the Board, in its sole discretion, may:
(a) elect to terminate Options or SARs in exchange for a cash
payment equal to the amount by which the Fair Market Value of
the Shares subject to such Option or SAR to the extent the
Option or SAR has vested exceeds the exercise price with
respect to such Shares;
(b) elect to terminate Options or SARs provided that each
Participant is first notified of and given the opportunity to
exercise his/her vested Options or SARs for a specified
period of time (of not less than 15 days) from the date of
notification and before the Option or SAR is terminated;
(c) permit Awards to be assumed by a new parent corporation or a
successor corporation (or its parent) and replaced with a
comparable Award of the parent corporation or successor
corporation (or its parent);
(d) amend an Award Agreement or take such other action with
respect to an Award that it deems appropriate; or
(e) implement any combination of the foregoing.
Article 14. Amendment, Modification, and Termination
14.1 Amendment, Modification, and Termination. Subject to the terms of
the Plan, the Board may at any time and from time to time, alter, amend,
suspend, or terminate the Plan in whole or in part.
14.2 Awards Previously Granted. Notwithstanding any other provision of the
Plan to the contrary, no termination, amendment, or modification of the Plan
shall adversely affect in any material way any Award previously granted under
the Plan, without the written consent of the Participant holding such Award.
14.3 Shareholder Approval Required for Certain Amendments. Shareholder
approval will be required for any amendment of the Plan that does any of the
following: (a) increases the maximum number of Shares subject to the Plan; (b)
changes the designation of the class of persons eligible to receive ISOs under
the Plan; or (c) modifies the Plan in a manner that requires shareholder
approval under applicable law or the rules of a stock exchange or trading system
on which Shares are traded.
-13-
Article 15. Withholding
The Company shall have the power and the right to deduct or withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable taxes (including social security or social charges), domestic or
foreign, required by law or regulation to be withheld with respect to any
taxable event arising as a result of this Plan. The Participant may satisfy,
totally or in part, such Participant's obligations pursuant to this Section 15
by electing to have Shares withheld, to redeliver Shares acquired under an
Award, or to deliver previously owned Shares that have been held for at least
six (6) months, provided that the election is made in writing on or prior to (i)
the date of exercise, in the case of Options and SARs, (ii) the date of payment,
in the case of Performance Units/Shares, and (iii) the expiration of the Period
of Restriction in the case of Restricted Stock. Any election made under this
Section 15 may be disapproved by the Committee at any time in its sole
discretion. If an election is disapproved by the Committee, the Participant must
satisfy his obligations pursuant to this paragraph in cash.
Article 16. Successors
All obligations of the Company under the Plan with respect to Awards
granted hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
through merger, consolidation, or otherwise, of all or substantially all of the
business, stock and/or assets of the Company.
Article 17. General Provisions
17.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
17.2 Severability. If any provision of the Plan shall be held illegal or
invalid for any reason, the illegality or invalidity shall not affect the
remaining parts of the Plan, and the Plan shall be construed and enforced as if
the illegal or invalid provision had not been included.
17.3 Requirements of Law. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
17.4 Securities Law Compliance. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the Exchange Act, unless determined otherwise by
the Board. To the extent any provision of the Plan or action by the Committee
fails to so comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Board.
17.5 Listing. The Company may use reasonable endeavors to register Shares
issued pursuant to Awards with the United States Securities and Exchange
Commission or to effect compliance with the registration, qualification, and
listing requirements of any state or foreign securities laws, stock exchange, or
trading system.
17.6 Inability to Obtain Authority. The inability of the Company to obtain
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
-14-
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
17.7 No Additional Rights. Neither the Award nor any benefits arising
under this Plan shall constitute part of an employment contract between the
Participant and the Company or any Subsidiary, and accordingly, subject to
Section 14.2, this Plan and the benefits hereunder may be terminated at any time
in the sole and exclusive discretion of the Committee without giving rise to
liability on the part of the Company for severance payments.
17.8 Noncertificated Shares. To the extent that the Plan provides for
issuance of certificates to reflect the transfer of Shares, the transfer of such
Shares may be effected on a noncertificated basis, to the extent not prohibited
by applicable law or the rules of any stock exchange or trading system.
17.9 Governing Law. The Plan and each Award Agreement shall be governed by
the laws of Delaware, excluding any conflicts or choice of law rule or principle
that might otherwise refer construction or interpretation of the Plan to the
substantive law of another jurisdiction. Unless otherwise provided in the Award
Agreement, recipients of an Award under the Plan are deemed to submit to the
exclusive jurisdiction and venue of the federal or state courts whose
jurisdiction covers Delaware, to resolve any and all issues that may arise out
of or relate to the Plan or any related Award Agreement.
17.10 Compliance with Code Section 409A. No Award that is subject to
Section 409A of the Code shall provide for deferral of compensation that does
not comply with Section 409A of the Code, unless the Board, at the time of
grant, specifically provides that the Award is not intended to comply with
Section 409A of the Code. Notwithstanding any provision in the Plan to the
contrary, with respect to any Award subject to Section 409A, distributions on
account of a separation from service may not be made to Key Employees before the
date which is six (6) months after the date of separation from service (or, if
earlier, the date of death of the employee).
Dated as of September 23, 2005 Cementitious Materials, Inc.
By: /s/ Edward F. Cowle
----------------------------------
President
Date of Shareholder Approval: September 23, 2005
------------------
-15-
Appendix D
----------
NaturalNano, Inc.
(A Development Stage Company)
FINANCIAL STATEMENTS
December 31, 2004
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
NaturalNano Inc.
We have audited the accompanying balance sheet of NaturalNano Inc. (a
development stage company) as of December 31, 2004, and the related statements
of operations, stockholder's equity and cash flows for the period from December
22, 2004 (inception) to December 31, 2004. 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 provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NaturalNano Inc. as of December
31, 2004 and the results of its operations and its cash flows for the period
from December 22, 2004 to December 31, 2004 in conformity with United States
generally accepted accounting principles.
/s/ GOLDSTEIN GOLUB KESSLER LLP
- ---------------------------------------------
New York, New York
August 15, 2005, except for Note 6,
as to which the date is September 26, 2005
F-1
NaturalNano, Inc.
(A Development Stage Company)
BALANCE SHEET
December 31, 2004
Assets
Current assets:
Prepaid assets $ 125,000
-----------
Total assets $ 125,000
===========
Liabilities and Stockholder's Equity
Liabilities
Current Liabilties:
Due to Parent Company $ 32,336
-----------
Total current liabilities 32,336
-----------
Stockholder's Equity
Common stock - $.01 par value:
Authorized 30,000,000 shares
Issued and outstanding 10,000,000 shares 100,000
Deficit accumulated in the development stage (7,336)
-----------
Total stockholder's equity 92,664
-----------
Total liabilities and stockholder's equity $ 125,000
===========
See notes to financial statements
F-2
NaturalNano, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS SINCE INCEPTION
Period from December 22, 2004 (inception) to December 31, 2004
Operating expenses
Research and development $ 5,000
Legal costs 2,336
------------
Net loss $ (7,336)
============
Loss per common share - basic and diluted ($ 0.00)
============
Weighted average shares outstanding 10,000,000
============
See notes to financial statements
F-3
>
NaturalNano, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY
Period from December 22, 2004 (inception) to December 31, 2004
Common Stock Deficit
--------------------------- Accumulated
Number of in Development Stockholder's
Shares Amount Stage Equity
------------ ------------ ------------ ------------
Shares issued
December 22, 2004
for $.01 per share 10,000,000 $ 100,000 -- $ 100,000
Net loss from inception
through December 31, 2004 -- -- ($ 7,336) ($ 7,336)
------------ ------------ ------------ ------------
December 31, 2004
Total Stockholder's Equity 10,000,000 $ 100,000 ($ 7,336) $ 92,664
============ ============ ============ ============
See notes to financial statements
F-4
NaturalNano, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS SINCE INCEPTION
Period from December 22, 2004 (inception) to December 31, 2004
Cash flows from operating activities:
Net loss $(7,336)
Adjustment to reconcile net loss to net cash
used in operating activites:
(Increase) in prepaid expenses (125,000)
-------------
Net cash used in operating activities (132,336)
-------------
Cash flows from financing activities:
Advances from Parent Company 32,336
Issuance of common stock 100,000
-------------
Net cash provided by financing activities 132,336
-------------
Change in cash and cash balance at end of period $ 0
=============
See notes to financial statements
F-5
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:
Description of the Business
NaturalNano, Inc. ("the Company") is a wholly owned subsidiary of
Technology Innovations, LLC, a limited liability partnership located in
Rochester, New York. The Company, also based in Rochester, New York, was
founded in December 2004 to discover, refine and commercialize naturally
occurring nanoscale materials. The Company's activities are currently
directed toward research, development, production and marketing of its
proprietary technologies for extracting and separating nanotubes from
halloysite clay and developing related commercial applications for:
o material additives for polymers, plastics and composites
o cosmetics and other personal care products
o absorbent materials and
o pharmaceutical and medical device additives.
The Company is in the development stage and is expected to remain so for at
least the next eighteen months. NaturalNano has not generated any revenues
since its inception nor is it expected to do so in the near future. The
Company's ability to continue in business is dependent upon obtaining
sufficient financing or attaining profitable operations.
The Company was incorporated under the laws of the State of Delaware on
December 22, 2004.
Research & Development
Research and development costs are expensed in the period the expenditures
are incurred. Capital assets acquired in support of research and
development are capitalized and depreciated over their estimated useful
life and related depreciation expense is included in research and
development expense.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates by management.
Actual results could differ from these estimates.
Related Party Transactions
During the initial stage of operation, the Company incurred administrative
and legal costs in the amount of $7,336 which were paid by Technology
Innovations, LLC on behalf of NaturalNano. This inter-company borrowing
will accrue interest at 8% per annum and is scheduled be repaid within the
next twelve months. At December 31, 2004 the Company owed Technology
Innovations, LLC $32,336 (see Note 5).
F-6
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004),"Share-Based
Payment" ("SFAS No. 123R"), which replaces SFAS No. 123 and supersedes APB
No. 25. SFAS No. 123R requires that compensation cost relating to
share-based payment transactions be recognized in financial statements
based on alternative fair value models. The pronouncement requires that the
cost of share-based compensation be measured based on the fair value of the
equity or liability instruments issued. Per APB No. 25, compensation
expense was recognized only to the extent the fair value of common stock
exceeded the stock option exercise price at the measurement date. The pro
forma disclosures previously permitted under SFAS No. 123 will no longer be
an alternative to financial statement recognition. SFAS No.123R requires
the benefits of tax deductions in excess of recognized compensation cost be
reported as a financing cash flow item. The SEC delayed the effective date
for implementation of SFAS No. 123R to the first fiscal year beginning
after June 15, 2005. The Company will adopt SFAS No. 123R effective January
1, 2006.
Management does not believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.
2. PREPAID ASSETS
On December 29, 2004 the Company contracted with Atlas Mining Company (OTC
BB: ALMI) in Utah for the purchase of 500 tons of processed halloysite
nanotubes. In connection with this agreement, the Company agreed to the
following scheduled payments to Atlas Mining payable through their
designated distributor:
$125,000 paid on December 29, 2004,
$125,000 paid on June 29, 2005, and
$100,000 payable upon commercial shipments made in excess
of $250,000.
As additional consideration, the Company will pay 10% of the resale cash
proceeds received from unaffiliated third parties, in instances where the
purchase price is in excess of $700 per ton up to a maximum of $2,000 per
ton.
Payments made by the Company in accordance with this agreement are presented
as prepaid expenses and will be recognized as expense in the period the
nanotubules are used in the development of proprietary applications and
processes or as customer shipments are made.
F-7
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
On January 28, 2005 the Company was issued a warrant for the right to
acquire 750,000 shares of Atlas Mining common stock at $.40 per share. The
fair value of this warrant as of January 28, 2005 was determined to be
$180,000 and, in 2005, has been recorded as an asset of the Company with the
offsetting amount shown as an accrued liability to recognize the Company's
commitment to future research and development efforts which are expected to
benefit both the Company and Atlas Mining. This warrant expires two years
from the original issue date which will be January 28, 2007.
3. STOCK-BASED COMPENSATION PLAN
The Company has established The NaturalNano, Inc. 2004 Stock Option Plan,
(the Plan) deemed effective and as approved by the Board of Directors (the
"Board") on December 22, 2004. The Plan provides for the granting of
nonqualified or incentive stock options ("ISO") to officers, key employees,
non-employee directors and consultants. The Plan authorizes the granting of
options to acquire up to 7,000,000 common shares. ISO grants under the Plan
are exercisable at the market value of the Company's stock on the date of
the grant. Nonqualified options under the Plan are exercisable at amounts
determined by the Board. All options under the Plan are exercisable at
times as determined by the Board, not to exceed 10 years from the date of
grant.
The Company has elected to apply Accounting Principles Board ("APB")
Opinion No.25, Accounting for Stock Issued to Employees, and related
interpretations in accounting for its stock options issued to employees
(intrinsic value) and has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation.
No options had been granted under this Plan as of December 31, 2004.
4. INCOME TAXES
As of December 31, 2004, the Company had a net operating loss carryforward
of approximately $7,336 for federal income tax purposes, which expires in
2024. In connection with this net operating loss carryforward, the Company
has recorded a deferred tax asset of $2,494. A valuation allowance of
$2,494 was recorded in the current period to reflect the uncertainty of the
future realization of this tax deduction. The Company's effective tax rate
is less than the statutory rate due to this valuation allowance.
F-8
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
5. LINE OF CREDIT AND PROMISSORY NOTE WITH TECHNOLOGY INNOVATIONS
On December 29, 2004 the Company entered into a Line of Credit Agreement
with its parent company, Technology Innovations LLC. This Line of Credit
allows for borrowings of up to $500,000 for working capital purposes and
bears an interest rate of 8% per annum. This agreement extends through
December 31, 2005 at which time the outstanding balance, including all
interest accrued, shall be repaid in full. As of December 31, 2004
outstanding borrowings under this agreement totaled $32,336.
Subsequent to year end, the Company initiated additional advances against
the line for working capital purposes. As of July 31, 2005 outstanding
borrowings under the line of credit agreement totaled $330,595. Due to the
short term nature of these borrowings, the fair market value of the amounts
due to Technology Innovations, LLC approximates the carrying amount.
6. SUBSEQUENT EVENTS
Merger with Cementitious Materials, Inc.
----------------------------------------
On September 26, 2005, the Company entered into an Agreement and Plan of
Merger with Cementitious Materials, Inc. ("Cementitious"). Under this
agreement, the Company will merge into a newly formed subsidiary of
Cementitious with the Company being the surviving entity. Technology
Innovations, LLC, the Company's parent and sole stockholder will exchange
each of its outstanding shares for 4.4919378 shares of Cementitious stock
for an aggregate of 44,919,378 shares of Cementitious. Upon this exchange
Technology Innovations, LLC will own 90% of the combined company.
Cooperative Research Agreements
-------------------------------
Subsequent to December 31, 2004, the Company entered into cooperative
research and development agreements with two universities and an
independent laboratory to jointly test and further develop commercial
applications for naturally occurring nanomaterials. These agreements
generally cover shared research personnel and facilities for a period of
twelve to twenty four months with termination provisions requiring 30 days
advance written notice. These agreements are subject to confidentiality
clauses and include provisions relating to the ownership and the right to
use any jointly developed intellectual property. Minimum future payments
required under these agreements for the years ending December 31 are as
follows:
2005 $ 154,500
2006 $ 25,000
F-9
Related Party Research Agreement
--------------------------------
On May 25, 2005, the Company entered into a joint research agreement with
Nanolution, LLC, a wholly owned subsidiary of Biophan Technologies, Inc.
Biophan Technologies, Inc. is related to the Company's parent company,
Technology Innovations, LLC, through common ownership.
This agreement covers the exchange of ideas in support of a new drug
delivery capability. NaturalNano has secured the mineral rights and is
developing the separation capabilities needed to support this drug delivery
application. The term of this agreement shall continue until the desired
technology becomes commercially viable or until mutually terminated by both
parties.
All medical uses and inventions that arise as a result of this agreement
will be owned by Nanolution, LLC and all purification processes for raw
halloysite and non-medical applications will be owned by NaturalNano.
License Agreement
-----------------
On April 27, 2005 the Company entered into an exclusive, field of use
limited license agreement ("License Agreement") with its parent company,
Technology Innovations, LLC. This agreement grants NaturalNano an
exclusive, world-wide license, to make, use and sell the products developed
under these patents. The License Agreement covers several patent
applications and provisional patents owned by Technology Innovations that
will expire at various future dates. NaturalNano also has the right to
grant sublicenses to third parties under the agreement.
Future minimum royalty payments of $6,250 per quarter are required under
the terms of this agreement, commencing in the calendar quarter that the
first patent is issued.
Convertible Bridge Notes
------------------------
As of September 26, 2005, the Company had issued $4,156,000 in secured
Convertible Bridge Notes (the "notes") to be used for general working
capital purposes. Beginning January 1, 2006 these notes accrue interest at
8% per annum. The notes include a mandatory conversion feature as described
below.
In connection with the Cementitious merger, the Convertible Bridge Notes
will be automatically converted into shares of Cementitious' common stock
at a rate of $.40 per share. Events of default for the notes include: the
abandonment of the merger, bankruptcy and insolvency thereby resulting in
the note holders' right to receive common shares of the Company at a
conversion price of $1.80 per share.
F-10
Lease Obligation
----------------
On May 13, 2005, the Company entered into an operating lease agreement for
office space expiring May 31, 2008. At any time after May 31, 2006, the
Company may terminate the lease upon ninety days prior written notice to
the landlord. Following are the minimum future payments under this lease
for the years ending December 31:
2005 $ 24,628
2006 49,702
2007 56,582
2008 24,991
--------
$ 155,903
No rent expense was incurred or charged to operations during the period
ending December 31, 2004.
F-11
NATURALNANO, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
June 30, 2005
F-12
NaturalNano, Inc.
(A Development Stage Company)
BALANCE SHEET
June 30, December 31,
2005 2004
(UNAUDITED)
---------------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 1,213,315 --
Prepaid assets 250,000 $ 125,000
Other current assets 8,224 --
---------------- ----------------
Total current assets 1,471,539 125,000
Property and equipment, net 10,249 --
Investments 352,500 --
---------------- ----------------
Total assets $ 1,834,288 $ 125,000
================ ================
Liabilities and Stockholder's Equity (Deficiency)
Liabilities
Current liabilities:
Accounts Payable $ 42,114 --
Accrued Payroll 36,018 --
Accrued Expenses 173,739 --
Due to Related Parties 370,962 $ 32,336
Convertible Bridge Notes 1,443,000 --
---------------- ----------------
Total current liabilities 2,065,833 32,336
---------------- ----------------
Stockholder's Equity (Deficiency)
Common stock - $.01 par value:
Authorized 30,000,000 shares
Issued and outstanding 10,000,000 shares 100,000 100,000
Additional Paid In Capital 373,333 --
Deficit accumulated in the development stage (704,878) (7,336)
---------------- ----------------
Total stockholder's equity (Deficiency) (231,545) 92,664
---------------- ----------------
Total liabilities and stockholder's equity (Deficiency) $ 1,834,288 $ 125,000
================ ================
See notes to financial statements
F-13
NaturalNano, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
(UNAUDITED)
For the six months From inception
ending December 22, 2004
June 30, 2005 through
June 30, 2005
-------------------- --------------------
Operating expenses:
Research and development $ 125,462 $ 130,462
General and administrative 734,491 736,827
-------------------- --------------------
859,953 867,289
Other (income) expense:
Interest expense 10,089 10,089
Investment (income) (172,500) (172,500)
-------------------- --------------------
(162,411) (162,411)
Net loss ($ 697,542) ($ 704,878)
==================== ====================
Loss per common share - basic and diluted ($ 0.07) --
==================== ====================
Weighted average shares outstanding 10,000,000 --
==================== ====================
See notes to financial statements
F-14
NaturalNano, Inc.
(A Development Stage Company)
STATEMENT OF STOCKHOLDER'S EQUITY (ACCUMULATED DEFICIT)
Period from December 22, 2004 (inception) to June 30, 2005
Deficit
Accumulated
Common Stock Additional during the Stockholder's
------------------------- Paid-in Development Equity
Shares Amount Capital Stage (Deficiency)
----------- ----------- ----------- ----------- -----------
December 22, 2004
10,000,000 shares issued
for cash $.01 per share 10,000,000 $ 100,000 -- -- $ 100,000
Net loss from inception
through December 31, 2004 -- -- -- ($ 7,336) (7,336)
----------- ----------- ----------- ----------- -----------
Balance at
December 31, 2004 10,000,000 100,000 -- (7,336) 92,664
Unaudited:
Warrant issued for 2,250,000 shares
of common stock for services received -- -- $ 225,000 -- 225,000
Grant of 1,483,333 stock options for
services received -- -- 148,333 -- 148,333
Net loss for six months
ending June 30, 2005 -- -- -- (697,542) (697,542)
----------- ----------- ----------- ----------- -----------
Balance at
June 30, 2005 10,000,000 $ 100,000 $ 373,333 ($ 704,878) ($ 231,545)
=========== =========== =========== =========== ===========
See notes to financial statements
F-15
NaturalNano, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
UNAUDITED
For the six months From inception
ending December 22, 2004
June 30, 2005 through
June 30, 2005
----------------- -----------------
Cash flows from operating activities:
Net loss ($ 697,542) ($ 704,878)
Non-cash adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 278 278
Issuance of warrant for services 225,000 225,000
Grant of stock options for services 148,333 148,333
Change in market value of Atlas warrant (172,500) (172,500)
Changes in operating assets and liabilities:
(Increase) in Prepaid assets (125,000) (250,000)
(Increase) in Other current assets (8,224) (8,224)
Increase in Accounts Payable & Accruals 71,871 71,871
----------------- -----------------
Net cash used in operating activities (557,784) (690,120)
----------------- -----------------
Net cash used in investing activity -
Purchase of property and equipment (10,527) (10,527)
----------------- -----------------
Cash flows from financing activities:
Advances from Related Parties 338,626 370,962
Issuance of Convertible Notes 1,443,000 1,443,000
Issuance of Common Stock -- 100,000
----------------- -----------------
Net cash provided by financing activities 1,781,626 1,913,962
----------------- -----------------
Change in cash and cash equivalents $ 1,213,315 $ 1,213,315
Cash and cash equivalents at beginning of period 0 0
----------------- -----------------
Cash and cash equivalents at end of period $ 1,213,315 $ 1,213,315
================= =================
Non-cash investing activities:
Receipt of Atlas Mining warrant $ 180,000 $ 180,000
================= =================
See notes to financial statements
F-16
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
1
1. PRINCIPAL BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES:
Financial Statements
The balance sheet as of June 30, 2005 and the statement of operations,
stockholders' deficiency and cash flows for the six month period ended June 30,
2005 and the period from December 22, 2004 (inception) to June 30, 2005 have
been prepared by the Company and are unaudited. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) necessary to
present fairly the financial position at June 30, 2005 and the results of
operations and cash flows for the periods ended June 30, 2005 have been
included. The results of operations for the interim periods presented herein are
not necessarily indicative of the results to be expected for the entire fiscal
year.
Description of the Business
NaturalNano, Inc. ("the Company") is a wholly owned subsidiary of Technology
Innovations, LLC, a limited liability partnership located in Rochester, New
York. The Company, also based in Rochester, New York was founded in December
2004 to discover, refine and commercialize naturally occurring nanoscale
materials. The Company's activities are currently directed toward research,
development, production and marketing of its proprietary technologies for
extracting and separating nanotubes from halloysite clay and developing related
commercial applications for:
o material additives for polymers, plastics and composites
o cosmetics and other personal care products
o absorbent materials and
o pharmaceutical and medical device additives.
The Company is in the development stage and is expected to remain so for at
least the next eighteen months. NaturalNano has not generated any revenues since
its inception nor is it expected to do so in the near future. The Company's
ability to continue in business is dependent upon obtaining sufficient financing
or attaining profitable operations. The Company was incorporated under the laws
of the State of Delaware on December 22, 2004.
Cash Equivalents
Cash equivalents consist of available cash and money market securities with a
maturity of three months or less when purchased. Cash equivalents are stated at
cost plus accrued interest, which approximates market value.
F-17
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
Concentration of Credit Risk
The Company maintains cash in bank deposit accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses on these
accounts.
Research & Development
Research and development costs are expensed in the period the expenditures are
incurred. Capital assets acquired in support of research and development are
capitalized and depreciated over their estimated useful life and related
depreciation expense is included in research and development expense.
Property and Equipment
Property and equipment, at cost, consists of the following:
Useful Life
-----------
Furniture & Office Equipment $2,443 5-7 years
Computers and software 8,084 3-5 years
Depreciation of property and equipment is provided on a straight-line basis over
the estimated useful lives of the related assets. Costs of internally developed
intellectual property rights with indeterminate lives are expensed as incurred.
Loss Per Share
Basic loss per common share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period. Diluted
loss per common share gives effect to dilutive options and warrants outstanding
during the period. Shares to be issued upon the exercise of the outstanding
options and warrants are not included in the computation of diluted loss per
share as their effect is anti-dilutive. There were 6,000,000 shares underlying
outstanding options and warrants which have been excluded from the calculation
at June 30, 2005.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates by management. Actual
results could differ from these estimates.
F-18
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
Stock Options
The Company has elected to apply Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock options issued to employees (intrinsic value) and has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. Had the
Company elected to recognize compensation cost based on the fair value of the
options granted at the grant date as prescribed by SFAS No. 123, the Company's
net loss and loss per common share would have been as follows:
Net loss- as reported ($697,542)
Deduct: Total stock-based employee compensation
expense determined under fair-value-based method
for all awards, net of related tax effects ( 91,668)
------------
Pro Forma net loss ($789,210)
----------
Basic and diluted loss per share -as reported ($0.07)
Basic and diluted loss per share - pro forma ($0.08)
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (revised 2004),"Share-Based
Payment" "SFAS No. 123R"), which replaces SFAS No. 123 and supersedes APB No.
25. SFAS No. 123R requires that compensation cost relating to share-based
payment transactions be recognized in financial statements based on alternative
fair value models. The pronouncement requires that the cost of share-based
compensation be measured based on the fair value of the equity or liability
instruments issued. Per APB No. 25, compensation expense was recognized only to
the extent the fair value of common stock exceeded the stock option exercise
price at the measurement date. The pro forma disclosures previously permitted
under SFAS No. 123 will no longer be an alternative to financial statement
recognition. SFAS No.123R requires the benefits of tax deductions in excess of
recognized compensation cost be reported as a financing cash flow item.
The SEC delayed the effective date for implementation of SFAS No. 123R to the
first fiscal year beginning after June 15, 2005. The Company will adopt SFAS No.
123R effective January 1, 2006. Management does not believe that any other
recently issued, but not yet effective, accounting standards if currently
adopted would have a material effect on the accompanying financial statements.
F-19
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
2. TRANSACTIONS WITH ATLAS MINING COMPANY
On December 29, 2004 the Company contracted with Atlas Mining Company (OTC BB:
ALMI) in Utah for the purchase of 500 tons of processed halloysite nanotubes. In
connection with this agreement, the Company agreed to the following scheduled
payments to Atlas Mining payable through their designated distributor:
$125,000 paid on December 29, 2004,
$125,000 paid on June 29, 2005, and
$100,000 payable upon commercial shipments made in excess
of $250,000.
As additional consideration, the Company will pay 10% of the resale cash
proceeds received from unaffiliated third parties, in instances where the
purchase price is in excess of $700 per ton up to a maximum of $2,000 per ton.
Payments made by the Company in accordance with this agreement are presented as
prepaid expenses and will be recognized as expense in the period the nanotubules
are used in the development of proprietary applications and processes or as
customer shipments are made.
On January 28, 2005 the Company was issued a two year warrant for the right to
acquire 750,000 shares of Atlas Mining common stock at $.40 per share. This
warrant expires two years from the original issue date which will be January 28,
2007. Neither the warrant nor the shares of common stock issuable upon exercise
have been registered under the Securities Act of 1933 and as such, are not
readily available for sale or transfer in the public markets.
The fair value of this asset on January 28, 2005 and at June 30, 2005 was
estimated at $180,000 and $352,500, respectively. The warrant has been recorded
as a non-current asset at January 28, 2005 with an offsetting liability included
in accrued expenses. The liability is being amortized over the two year period
commencing January 28, 2005 and reflects the Company's commitment to future
research and development efforts which are expected to benefit both the Company
and Atlas Mining. At June 30, 2005, the remaining liability, included in accrued
expenses, is $135,000. The difference of $45,000 has been offset against
research and development expenses in the accompanying statements of operations.
At June 30, 2005, the warrant was marked-to-market with changes in fair market
value recorded as other investment income.
3. INCOME TAXES
As of June 30, 2005, the Company had a net operating loss carryforward of
approximately $704,878 for federal income tax purposes, which expires in 2025. A
valuation allowance of $239,700 has been recorded in the current period to
reflect the uncertainty of the future realization of this tax deduction.
F-20
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
4. LINE OF CREDIT AND PROMISSORY NOTE WITH TECHNOLOGY INNOVATIONS
On December 29, 2004 the Company entered into a Line of Credit Agreement and a
Promissory Note with its parent company, Technology Innovations, LLC. This Line
of Credit allows for borrowings of up to $500,000 for working capital purposes
and bears an interest rate of 8% per annum. This agreement extends through
December 31, 2005 at which time the outstanding balance, including all interest
accrued, shall be repaid in full. As of June 30, 2005 outstanding borrowings
under this agreement totaled $320,918 and are included in Due to Related Parties
at June 30, 2005. All borrowings under this agreement were repaid on September
13, 2005.
The remaining balance included in Due to Related Parties at June 30, 2005,
approximately $50,000, is due to Biomed Solutions, LLC, a company related
through common ownership. This short-term borrowing was unsecured with an
interest rate of 8% and was repaid on August 5, 2005.
5. STOCKHOLDER'S EQUITY
On March 31, 2005, the Company issued warrants to SBI USA, LLC for the right to
purchase 2,250,000 shares of common stock at $0.23 per share in return for
financial consulting services provided, in the amount of $225,000, for the
period ending June 30, 2005. These warrants vest and become exercisable as of
the issuance date and have an expiration date of March 31, 2006. The consulting
expenses relating to this warrant are included in general and administrative
expenses in the accompanying statements of operations.
None of these warrants had been exercised as June 30, 2005. Neither these
warrants nor the common stock issuable upon exercise of the warrants, have been
registered under the Securities Act of 1933 and therefore these warrants are
considered "restricted assets" within the meaning of Rule 144 of the Securities
Act of 1933.
6. STOCK-BASED COMPENSATION PLAN
The Company has a stock option plan (the "Plan") which provides for the granting
of nonqualified or incentive stock options ("ISO") to officers, key employees,
non-employee directors and consultants. The Plan authorizes the granting of
options to acquire up to 7,000,000 common shares. ISO grants under the Plan are
exercisable at the market value of the Company's stock on the date of the grant.
Nonqualified options under the Plan are exercisable at amounts determined by the
Board. All options under the Plan are exercisable at times as determined by the
Board, not to exceed 10 years from the date of grant. Additionally, the Plan
provides for the granting of restricted stock to officers and key employees.
F-21
NaturalNano, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
June 30, 2005
During the period ending June 30, 2005 the Company's Board of Directors granted
options, at their estimated fair market value on the date of the grant, to
purchase 3,750,000 shares of the Company's common stock at $0.10 per share.
Included in these grants were option grants to purchase 1,483,333 shares of the
Company's common stock issued to non-employees. The fair value of the stock
options granted to non-employees has been recorded, as expense of $148,333, in
the accompanying statements of operations. As of June 30, 2005 1,874,998 of
these outstanding option grants were exercisable.
7. CONVERTIBLE BRIDGE NOTES
As of June 30, 2005, the Company had issued $1,443,000 in secured Convertible
Bridge Notes (the "Notes") to be used for general working capital purposes.
These notes accrue interest at 8% per annum and include a mandatory conversion
feature as described below. As of September 26, 2005, the Company had issued
$4,156,000 of Notes. In connection with the Cementitious Materials, Inc. merger
(described in note 8); the Convertible Bridge Notes will be automatically
converted into shares of Cementitious' common stock at a rate of $.40 per share.
Events of default for the Notes include: the abandonment of the merger,
bankruptcy and insolvency thereby resulting in the note holders' right to
receive common shares of the Company at a conversion price of $1.80 per share.
8. SUBSEQUENT EVENTS
Merger with Cementitious Materials, Inc.
- ----------------------------------------
On September 26, 2005, the Company entered into an Agreement and Plan of Merger
with Cementitious Materials, Inc. ("Cementitious"). Under this agreement, the
Company will merge into a newly formed subsidiary of Cementitious with the
Company being the surviving entity. Technology Innovations, LLC, the Company's
parent and sole stockholder will exchange each of its outstanding shares for
4.4919378 shares of Cementitious stock for an aggregate of 44,919,378 shares of
Cementitious. Upon this exchange Technology Innovations, LLC will own 90% of the
combined company. In connection with the Merger, the Company's outstanding
options and warrants will be replaced with options and warrants to purchase
shares of Cementitious common stock at similar economic and contractual terms.
F-22