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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
SELECT THERAPEUTICS INC.
(Name of Small Business Issuer in its charter)
Delaware 98-0169105
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 Mt. Auburn Street, Suite 200 North
Cambridge, Massachusetts 02138
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 617-520-6693
Securities to be registered under Section 12(b) of the Act: N/A
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock
(Title of Class)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
THIS REGISTRATION STATEMENT ON FORM 10-SB, INCLUDING WITHOUT LIMITATION
ITEM 1, BUSINESS, AND ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION, CONTAINS STATEMENTS WHICH ARE NOT HISTORICAL FACTS AND ARE
FORWARD-LOOKING STATEMENTS WHICH REFLECT MANAGEMENT'S EXPECTATIONS, ESTIMATES
AND ASSUMPTIONS. SUCH STATEMENTS ARE BASED ON INFORMATION AVAILABLE AT THE TIME
THIS FORM 10-SB WAS PREPARED AND INVOLVE RISKS AND UNCERTAINTIES THAT COULD
CAUSE FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER
SIGNIFICANTLY FROM PROJECTED RESULTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY INCLUDE, WITHOUT LIMITATION, THE HIGH COST AND UNCERTAINTY OF
THE RESEARCH AND DEVELOPMENT OF PHARMACEUTICAL PRODUCTS, THE UNPREDICTABILITY OF
THE DURATION AND RESULTS OF THE U.S. FOOD AND DRUG ADMINISTRATION'S REVIEW OF
NEW DRUG APPLICATIONS, THE COMPANY'S INABILITY TO OBTAIN ADDITIONAL CAPITAL, THE
POSSIBLE IMPAIRMENT OF, OR INABILITY TO OBTAIN, INTELLECTUAL PROPERTY RIGHTS AND
THE COST OF OBTAINING SUCH RIGHTS FROM THIRD PARTIES AND THE COMPANY'S
DEPENDENCE ON THIRD PARTIES TO RESEARCH, DEVELOP, MANUFACTURE AND SELL ITS
PRODUCTS, IF ANY.
PART I
Item 1. Business.
A. Business Development.
Select Therapeutics Inc. (the "Company") was incorporated in the State of
Delaware in January 1997 under the name VT Development, Inc. In July 1997, it
changed its name to Select Therapeutics Inc. The Company, which is in the
development stage, conducts business directly and through Select Therapeutics
(Canada) Inc., its wholly-owned Canadian subsidiary organized in December 1996,
and Sierra Diagnostics, Inc. ("Sierra"), a California corporation it acquired in
November 1998. Unless the context otherwise requires, Select Therapeutics Inc.,
Select Therapeutics (Canada) Inc. and Sierra are referred to collectively herein
as the "Company". The Company's principal place of business is 124 Mt. Auburn
Street, Suite 200 North, Cambridge, Massachusetts 02138, and its telephone
number is 617-520-6693.
The Company's Common Stock is currently listed on the NASDAQ Bulletin Board
under the symbol "SLPU".
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B. Business of the Company.
Summary Description of the Company's Business.
The Company was formed to acquire the rights to selected early-stage
compounds which have potential use as therapeutic or diagnostic pharmaceuticals.
The Company's business model is to obtain by license the right to develop,
manufacture and market potentially useful early-stage products, i.e., those
compounds which have undergone little, if any, preclinical testing which are the
subject of pending United States "composition of matter" or "use" patent
applications which have been filed or the Company intends to file. The Company
typically bears the expense of patent prosecution and may sponsor and direct
some preclinical and clinical testing. However, to avoid the substantial costs
and huge risks associated with commercialization, the Company may sublicense the
manufacturing and marketing rights to portfolio pharmaceutical products to one
or more corporate partners in exchange for license fees, milestone payments and
royalty payments. Depending on its financial capability, the Company may retain
rights to its portfolio pharmaceutical products and develop the products itself.
The Company or its sublicensee would submit to the FDA a New Drug Application
("NDA") to obtain the FDA's clearance to market the drug. The Company's business
model thus provides the opportunity to maximize return on investment while
controlling costs and risks. However, there can be no assurance that the Company
will be able to successfully develop any pharmaceutical products directly or
indirectly through sublicensees (assuming it is able to obtain sublicensees, as
to which no assurance can be given). The Company's portfolio consists of
compounds in the research and development stage which may ultimately prove
useful in the treatment of infectious diseases and certain types of cancer. It
also has a portfolio of diagnostic products.
In addition, as a result of the Company's November 1998 acquisition of
Sierra, the Company operates an FDA-approved manufacturing facility of
approximately 7,606 square feet located in Sonora, California, where it
manufactures its "Gonostat" in-vitro diagnostic for the detection of gonorrhea,
which received marketing clearance from the US Food and Drug Administration
("FDA") in June 1998. The Company's sole Gonostat customer is the Alabama
Department of Health, which in November 1998 contracted with the Company to fill
its on-going requirements. See "Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Program Review"
The Company, through Sierra, also has developed and filed a U.S. patent
application claiming a new technology for the preservation of nucleic acids in
diversified body fluids, which would solve a common problem of molecular testing
systems by maintaining the integrity of a sample from the time it is taken out
of the body until the time it is analyzed. This technology protects DNA and RNA
from degradation in urine, serum, plasma, and tissues for up to eight days at
temperatures up to 37 degrees Celsius, and thus allows samples to be stored and
transported at room temperature and tested in batches. The Company is not aware
of any other technology for the stabilization of nucleic acids in urine. Sales
of evaluation quantities of "DNA/RNA Protect" started in July 1999. See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations--Program Review"
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The Company has been, and for the foreseeable future likely will continue
to be, dependent on the proceeds of securities offerings to meet its working
capital requirements, and its inability to successfully complete such offerings
could have a material adverse effect on its business and prospects. The Company
intends to use the net proceeds of its offerings primarily to pay the license
fees, milestone payments and patent prosecution expenses due under its license
agreements, to fund preclinical and clinical research, including production of
clinical trial materials, and for working capital. There can be no assurance
that the Company will be able to obtain all or any portion of the financing
sought or that it will successfully develop any pharmaceutical formulations or
become profitable.
Technology Licenses
1. Verotoxin/Neoplasia
Licensed Technology. In December 1996, the Company obtained from The
University of Toronto Innovations Foundation ("IF") the exclusive, worldwide
license (the "Verotoxin License"), with the right to grant sublicenses, to make,
use and sell any verotoxin pharmaceutical composition for the treatment of
neoplasia (a tumorous condition) described in the inventions claimed in certain
Canadian and United States patent applications and any improvements therein
(collectively, the "Licensed Verotoxin Technology"). The Company is responsible
for all expenses of filing, prosecuting and maintaining any patents or patent
applications issued or filed under the Verotoxin License, and it has a right of
first refusal on any improvements made by IF. If the Company chooses to exercise
such right, it will be obligated to pay all expenses associated with the filing
and prosecution of patent applications, selection of counsel, countries of
filing and the like. In the event that the Company has not achieved commercial
sales by December 31, 2005, IF has the option of converting the exclusive
Verotoxin License to a non-exclusive license or, if the Company cannot
demonstrate reasonable due diligence towards commercial exploitation,
terminating the Verotoxin License.
Verotoxin is a naturally occurring protein produced by certain strains of
E. coli bacteria which binds to specific receptor sites found on the exterior
surfaces of certain living cells, including certain types of malignant tumor
cells, epithelial intestinal cells of humans, certain dividing endothelial cells
and certain lymphocytes. The verotoxin molecule, after binding itself to a
receptive cell, penetrates the cell and kills it. Preliminary, pre-clinical
studies suggest that the receptor to which verotoxin binds itself is found on
the exterior surfaces of cells which constitute cancerous ovarian, testicular,
cervical, breast and astrocytoma tumors of the brain. Preliminary, pre- clinical
testing of the effects of verotoxin on astrocytoma tumors implanted in live
"nude" mice has suggested that the molecule may inhibit the growth of such
tumors and cause them to regress, in some cases completely, over a short time
period and not reoccur.
This same research suggests that the receptor to which verotoxin binds
itself is not found on the surface of most healthy, non-tumorous cells which
form human tissue. Should this be established by further testing and studies, it
would indicate that verotoxin, if used as a cancer
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chemotherapy agent, would tend not to cause many of the side effects associated
with or attributable to currently administered chemotherapies, which are less
target-specific, i.e., the cell receptors to which they bind are found on more
types of non-tumorous cells. The Company therefore believes that development and
commercial exploitation of the subject molecule, as to the success of which no
assurances can be given, may lead to a drug formulation which will attack
certain malignant tumors while producing fewer or less severe manifestations of
the side effects caused by many chemotherapies currently administered. See "Item
2. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Program Review"
Licensing Fee. The Company paid a non-refundable licensing fee of $210,000
(CDN) in cash and shares of its Common Stock. (Throughout this document, all
amounts are stated in U.S. dollars unless otherwise indicated).
Milestones. The Verotoxin License Agreement requires the Company to achieve
certain results and to expend minimum amounts of money in developing a
commercially marketable formulation of the Licensed Verotoxin Technology. In the
event that one or more milestones are not timely attained in any given calendar
year, the Company must pay an annual penalty of $50,000 (CDN) in calendar years
2003, 2004 and 2005. The $50,000 annual penalty is credited to future royalties
in excess of annual minimum royalties. The Company believes it is in compliance
with the milestone requirements of the agreement.
Royalties. The Company will pay to IF a royalty equal to four (4%) percent
of its net sales of all verotoxin products used in the treatment of human
tumors; provided, however, that in the event that the Company licenses another
royalty bearing product for inclusion in its verotoxin products and the
aggregate royalties payable by the Company on the final product are greater than
six (6%) percent, then the royalty due to IF shall be reduced to three (3%)
percent. Prior to the date of the first commercial sale of a pharmaceutical
product containing the Licensed Verotoxin Technology, the parties will negotiate
annual minimum royalties to be paid by the Company, taking into account market
size, competitive position and patent issues, in order to provide IF with
continuing assurance of the Company's diligence toward exploitation. (A minimum
annual royalty is payable even if earned royalties, i.e., royalties computed
based on actual net sales for the year, do not equal the amount of the minimum
royalty.) The amount of the Company's minimum annual royalty has not yet been
determined.
Sublicensing Fees. The Company shall pay to IF 30% to 40% of any sublicense
fees it receives from an unaffiliated sublicensee.
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Sponsored Research Agreement. As additional consideration under the
Verotoxin License, the Company entered into a Sponsored Research Agreement,
effective December 1996, (the "Verotoxin Research Agreement") with the Hospital
for Sick Children Research Institute (the "Research Institute") and Dr. C. A.
Lingwood, a director of the Company. Under the Verotoxin Research Agreement, the
Company agreed to provide the Research Institute with $87,075 (CDN) of financial
support for a research program, the final installment of which, $19,575 (CDN),
was due August 1, 1999 and has not yet been paid. See "Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Program Review"
All intellectual property arising out of or in connection with the research
program, whether or not patentable, will be the property of the Research
Institute. Each intellectual property invention which is disclosed to the
Research Institute, shall be disclosed to the Company, which will have 30 days
to determine whether to support the filing of a patent application. If after 30
days the Company elects not to sponsor a patent application, the Research
Institute may file a patent application at its own expense and the Company shall
have no rights in that application or any subsequent patent issued for that
invention. For each patent invention that the Company sponsors the Research
Institute grants the Company a non-assignable option to obtain an exclusive
license to make, use and sell products incorporating any patent inventions and
an exclusive worldwide license, with rights to sublicense, on any improvement
encompassed by a patent invention. These licenses are subject to the terms and
conditions of the Technology Owner's Agreement between Dr. Lingwood and the
University of Toronto Innovations Foundation, dated March 10, 1994, and the
Verotoxin Research Agreement. This license option shall be exercisable until
either the Company or the Research Institute terminates the Verotoxin Research
Agreement, or ninety days following the expiration of such Agreement, whichever
is earlier. The term of the Verotoxin Research Agreement expires 12 months after
its effective date, unless earlier terminated by the default of the Research
Institute or the default or bankruptcy of the Company or the unavailability of
Dr. Lingwood. It may be renewed by the Company for subsequent 12 month periods
by giving notice 30 days prior to any date of termination.
2. Intracellular Transport Technology/Cancer and other Vaccines
Optioned Technology and Terms. In June 1998, the Company obtained from the
Institut Curie and the Centre National de la Recherche Scientifique
(collectively, "IC/CNRS") an option to enter into an exclusive, worldwide
license (collectively, the "Intracellular Transport Research and Option
Agreement") with the right to grant sublicenses, to make, use and sell any human
or animal healthcare product incorporating T-cell response modifier technology
claimed in the subject Canadian and United States patent applications and any
improvements therein (collectively, the "Licensed Intracellular Transport
Technology"). The underlying technology is based on the expression of the
verotoxin receptor by human dendritic cells which initiate the response of the
body's immune systems. Based on preliminary in-vitro research the
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Company and IC/CNRS believe it may be possible to use the pathway involving the
verotoxin receptor to develop vaccines against cancer and other diseases. The
Agreement contemplates an initial research stage, expected to last for one year,
to validate in vitro the concept of the technology, and the Company is obligated
to provide $100,000 (USD), or 40%, of the funding therefor. The second research
stage, expected to last two to three years from the end of the first stage, will
invalidate in vivo the effect of the product in animal models, including Phase I
clinical trials. If and when the Company exercises its option, the parties shall
establish funding requirements for additional research stages, the funding of
which will be the sole responsibility of the Company.
The option period will terminate at the end of the first period of the
research program, or on June 9, 2000, unless extended for an additional six
months by the Steering Committee consisting of members of IC/CNRS and the
Company. In the event that the Company has not proposed a long term development
and commercialization plan by June 9, 2000, IC/CNRS has the option of
terminating the Agreement. In order for the Company to exercise the option two
requirements must be met: (1) a business plan for the development and
commercialization of the Licensed Intracellular Transport Technology must be
completed and (2) the funding of the second and third stages of the research
program must be insured. The Company is responsible for all expenses of filing,
prosecuting and maintaining any patents or patent applications issued or filed
during the option period, and has a right of first refusal on any improvements
made by IC/CNRS. The cost of filing any patent applications for improvements
will be borne by the party making the improvement.
Licensing Fee. In the event the Company acquires a license, it must pay a
non-refundable licensing fee equal to $200,000 (USD), of which $100,000 (USD) is
due within 30 days of execution of the license and balance is due six months
thereafter. The Company also must pay an additional non-refundable license fee
of $50,000 (USD) upon completion of each of the second and third stages of the
research program.
Milestones. Additional development milestones will be set by the parties
within two years following the execution of the license agreement. If the
Company has not achieved commercial sales by the year 2008, the Company will be
required to pay a penalty of $200,000 (USD) or, if the Company cannot
demonstrate reasonable due diligence towards exploitation, IC/CNRS has the
option of terminating the license. The Company believes it is in compliance with
the milestone requirements of the license agreement.
Royalties. The Company will pay to IC/CNRS a royalty equal to six (6%)
percent of its net sales of pharmaceutical products containing the Licensed
Intracellular Transport Technology. Prior to the date of first commercial sale,
the parties will negotiate annual minimum royalties to be paid by the Company,
taking into account market size, competitive position and patent issues, in
order to provide IC/CNRS with continuing assurance of the Company's diligence
toward exploitation.
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Sublicensing Fees. The Company shall pay to IC 30% to 50% of any sublicense
fees it receives from an unaffiliated sublicensee.
3. Tyrosine Kinase/HIV
Licensed Technology. In November 1997, the Company obtained from The
University of Toronto Innovations Foundation ("IF") the exclusive, worldwide
license (the "Tyrosine Kinase License"), with the right to grant sublicenses, to
make, use and sell an invention relating to early diagnosis of seronegative HIV
infection using Tyrosine Kinase Activity described in the inventions claimed in
certain Canadian and United States patent applications (collectively, the
"Licensed Tyrosine Kinase Technology"). In the event that the Company has not
achieved commercial sales by December 31, 2005, IF has the option of converting
the exclusive Tyrosine Kinase License to a non-exclusive license or, if the
Company cannot demonstrate reasonable due diligence towards commercial
exploitation, terminating the license. The Company is responsible for all
expenses of filing, prosecuting and maintaining any patents or patent
applications issued or filed under the Tyrosine Kinase License, and it has a
right of first refusal on any improvements made by IF.
HIV infections are usually diagnosed by measuring antibodies produced in
response to the infection. Two important issues in managing HIV infections are
the lag time between infection and production of antibodies, and the inability
to use antibody response to track the viral load of the infection. At present,
viral load is measured to monitor the effectiveness of therapies for HIV by
nucleic acid assays which are complex and costly. Although no assurance can be
given, a new assay method using the Licensed Tyrosine Kinase Technology, which
does not rely on antibody or nucleic acid markers, may find application in a
number of areas for the management of HIV therapies.
Licensing Fee. The Company paid a non-refundable licensing fee equal to
$100,000 (CDN), in cash and shares of its Common Stock. Such payments may be
credited towards future earned royalties.
Milestones. The Tyrosine Kinase License requires the Company to achieve
certain results and to expend minimum amounts of money in developing a
commercially marketable formulation of the Licensed Tyrosine Kinase Technology,
as to the success of which no assurances can be given. In the event that one or
more milestones are not timely attained in any given calendar year, the Company
must pay an annual penalty ranging from $10,000 (CDN) for calendar years 1998
and 1999 to $40,000 (CDN) in calendar years 2001, 2002, 2003, 2004 and 2005.
Such payments may be credited towards future earned royalties. The Company has
agreed to pay the $10,000 penalty in relation to 1998 and believes it is in
compliance with the ongoing requirements of the Tyrosine Kinase License.
Royalties. The Company will pay to IF a royalty equal to five percent (5%)
of its net sales of all Tyrosine Kinase products sold as research products where
there is an issued patent, and
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a royalty equal to three percent (3%) of its net sales of all Tyrosine Kinase
products sold as diagnostic products where there is an issued patent. Prior to
the date of the first commercial sale of a pharmaceutical product containing the
Licensed Tyrosine Kinase Technology, the parties will negotiate annual minimum
royalties to be paid by the Company, taking into account market size,
competitive position, and patent issues in order to provide the licensor with
continuing assurance of the Company's diligence toward exploitation. The amount
of the Company's minimum annual royalty has not yet been determined.
Sublicensing Fees. The Company shall pay to IF 30% to 50% of any sublicense
fees it receives from an unaffiliated sublicensee.
4. Bone Marrow Purging
Licensed Technology. In February 1998, the Company entered into a license
agreement with the University of Toronto Innovations Foundation ("IF") and the
Ontario Cancer Institute (the "Cancer Institute") whereby it obtained an
exclusive worldwide license (the "CD77 License"), with the right to grant
sublicenses, to make, have made, use and sell any product using any method of
selectively purging CD77 positive cells from bone marrow described in certain
U.S. and PCT patent applications, and to use, have used, make and have made the
method for treatment of Non-Hodgkin's Lymphomas described in such applications
(the "Licensed CD77 Technology") for the purpose of producing products using the
CD77 Technology ("Licensed CD77 Products"). (On September 1, 1998, U.S. Patent
No. 5,801,145 issued, which covers the Licensed CD77 Technology. See "Item 1.B.
Business of the Company -- Patents and Proprietary Rights.") The Company is
responsible for the expenses of filing, prosecution and maintenance of patent
applications it selects for filing. If the Company chooses not to file a patent
application, the Cancer Institute may do so at its own expense. The Company has
a right of first refusal for any improvements made by the Cancer Institute. In
the event that the Company has not achieved commercial sales by December 31,
2002, IF has the option of converting the exclusive CD77 License to a
non-exclusive license or, if the Company cannot demonstrate reasonable due
diligence towards commercial exploitation, terminating such License. The CD77
License will remain in effect so long as there is at least one patent in force
or patent application pending.
Although no assurance can be given, the Licensed CD77 Technology may lead
to improved interventions for cancer patients whose therapies include autologous
stem cell transplantation (ASCT). Preliminary research indicates that stem cells
may be removed from patients undergoing radiation or chemotherapy, and then
transplanted back into the patient using the Licensed CD77 Technology.
Shiga-like toxin 1, a bacterial toxin, is used as an agent to selectively kill
cancer cells in the patient's bone marrow without harming the essential marrow
cells which allow regeneration of marrow's capacity for forming blood cells.
Although no assurance can be given, elimination of cancer cells in the marrow
using the Licensed CD77 Technology may result in improved clinical outcomes for
such patients. See "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Program Review."
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Licensing Fee. The Company paid $97,902 in cash and shares of its Common
Stock.
Milestones. The CD77 License requires the Company to achieve certain
results and to expend minimum amounts of money in developing a commercially
marketable formulation of the Licensed CD77 Technology, as to the success of
which no assurances can be given. Development milestones for years 2000 to 2005
will be set by the Company in the first two years of development. The Company
believes it is in compliance with the milestone requirements of the CD77
License.
Royalties. The Company is required to pay to IF a royalty equal to four
percent (4%) of the Company's net sales of all Licensed CD77 Products; provided,
however, that in the event the Company licenses another royalty bearing product
for inclusion in the Licensed CD77 products and the aggregate royalties payable
by the Company on the final product are greater than six percent (6%), then the
royalty fee due to IF shall be reduced to three percent (3%). Prior to the date
of the first commercial sale of a Licensed CD77 Product, the parties will
negotiate annual minimum royalties to be paid by the Company, taking into
account market size, competitive position and patent issues, in order to provide
IF with continuing assurance of the Company's diligence toward exploitation. The
amount of the Company's minimum annual royalty has not yet been determined.
Sublicensing Fees. The Company is required to pay IF 30% to 50% of any
sublicense fees it receives from an unaffiliated sublicensee.
5. Clinical Monitoring of Malignant Lymphomas
Licensed Technology. On March 1, 1999, the Company obtained from the
University of Alberta ("U of A") an exclusive worldwide license, with the right
to grant sublicenses, to use a method of clinical monitoring of malignant
lymphocytes (the "University Technology") claimed in pending U.S. and PCT patent
applications (the "University Patents"), and to manufacture, distribute, and
sell goods in connection with the use of all or some of the University
Technology.
Licensing Fee. The Company paid the U of A an initial license fee of
$18,000.
Royalties. The Company shall pay a 3% royalty on the Company's net revenue
from its sales of products incorporating the University Technology.
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Sublicensing Fees. The Company shall pay the U of A 40% of its sublicensing
fees, net of the research and development costs incurred by the Company, but not
less than 20% of the sublicense fee received by the Company.
6. Gonostat Test Kit
Licensed Technology. The Company, through Sierra, developed, manufactures
and sells an in-vitro diagnostic kit (known under the trade name "Gonostat")
which detects the presence of gonococchal DNA by using genetic transformation
technology and a mutant strain of Neisseria gonorrhea. The kit incorporates test
methodology for the laboratory diagnosis and test strain of neisseria
gonorrhoeae, covered by U.S. Patent No. 4,446,230 (the "Licensed Patent"), which
Sierra licensed from Temple University ("Temple") in January, 1994 (the "Test
Method License").
The Test Method License gives the Company (1) an exclusive license with the
right to grant sublicenses, to make in the United States0 any product, process,
or use (the "Licensed Product") covered by the Licensed Patent and (2) an
exclusive worldwide license, with the right to grant sublicenses, in any
confidential technical information relating to the Licensed Product (the
"Technical Information").
Royalties. For Licensed Product manufactured or sold in the United States,
the Company pays Temple a royalty of 4% of annual net sales up to and including
$2,000,000, plus 3% of annual net sales greater than $2,000,000 but not more
than $4,000,000, plus 2% of annual net sales in excess of $4,000,000. Royalties
on foreign sales are all reduced by 1%. The Company makes minimum annual royalty
payments to Temple in the amount of $10,000 regardless of actual net sales of
Licensed Product.
Sublicensing fees. The Company must pay Temple 25% of all sums of money,
other than royalties on account of net sales of Licensed Product, which the
Company receives from sublicensees, including, but not limited to all sublicense
fees and minimum royalties paid by sublicensees to the Company.
Research and Development
During its fiscal years ended June 30, 1998 and 1999, the Company spent
approximately $822,935 and $1,424,526, respectively, on research and
development.
Patents and Proprietary Rights
Patents and other proprietary rights are extremely important to the
Company's business. However, the patent positions of biopharmaceutical firms,
including the Company, are uncertain and involve complex legal and factual
questions which can be difficult to resolve.
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The Company's general policy is to license the right to develop,
manufacture and market selected early-stage compounds which themselves (i.e.,
their "composition of matter") are, or their use for the licensed indication is,
covered by a United States patent application which is pending or which the
Company intends to file. To date, one patent has issued on the Company's
portfolio therapeutics compounds: the "Method for Selectively Purging CD77+
Cells from Bone Marrow, U.S. Patent No. 5,801,145, dated September 1, 1998.
Patents for other portfolio therapeutic compounds are being sought. Two of the
Company's diagnostic technologies are the subject of allowed claims although the
U.S. patents have not yet issued: (1) "Methods for Early Detection of HIV
Infection," dated June 3, 1998 and (2) "Verotoxin Pharmaceutical Compositions
and Medical Treatments Therewith," dated Sept 23, 1998, and one is the subject
of an issued patent: "Test Method for the Laboratory Diagnosis and Test Strain
of Neisseria Gonorrhea," U.S. Patent No. 4,446,230, dated May 1, 1984. The
Company typically bears all patent prosecution expenses and patent maintenance
expenses for any issued patent. The Company also may rely upon trade secrets and
know-how.
The patent application and issuance process may take several years and
involves considerable expense, and there is no assurance that any patent sought
by the Company or its licensors will issue. The coverage claimed in a patent
application can be significantly reduced before a patent is issued.
Consequently, neither the applicant nor the licensee knows whether any claim
contained in a patent application will be allowed and result in the issuance of
a patent or, if any patent is issued, whether it will provide meaningful
proprietary protection or will be circumvented or invalidated. Since patent
applications in the United States are maintained in secrecy, until foreign
counterparts, if any, are published, and because publication of discoveries in
the scientific or patent literature often lags behind actual discoveries, the
Company cannot be absolutely certain that it or its licensor was the first
inventor of the subject matter covered by the patent application, was the first
to file a patent application therefor, or would obtain the freedom to practice
the claimed inventions and the right to prevent others from doing so. Moreover,
priority in filing a patent application for an invention can be overcome by a
different party who first practiced the invention. Accordingly, the Company
might have to participate in extensive proceedings in U.S. and/or foreign patent
offices or courts, including interference proceedings declared by the U.S.
Patent and Trademark Office (the "Patent Office"), to determine priority and/or
patent validity. Any such proceeding would be costly and consuming of
management's time. There can be no assurance either that the Company's owned or
licensed patents would be held valid or that the Company's products would not be
found to infringe patents owned by others. In the event of a determination that
the Company is infringing a third party's patent, the Company likely would be
required to pay royalties, which could be substantial, to such third party.
However, it is possible that the third party could refuse a license to the
Company in order to keep the Company's product off the market.
There can be no assurance that any patent rights held by the Company will
provide any actual competitive advantage to the Company. Competitors might be
able to develop similar and competitive products outside the scope of the
Company's patents. For example, should third parties patent or otherwise develop
and receive governmental clearance to commercialize a substance such as
verotoxin, for a use not covered by the Company's patents, physicians could use
those third party products in place of the Company's verotoxin products even
though such third party products were not approved by the FDA for the same
indications as the Company's products. Any such "off-label" use of third party
products could have a material adverse effect on sales of the Company's products
and the amount of royalty revenues received by the Company.
-12-
<PAGE>
From time to time, third parties may claim or the Company may identify
intellectual property rights not owned or licensed by the Company which may be
infringed by the Company. To the extent that such properties are in the public
domain, in the first instance the Company would seek the opinion of patent
counsel to avoid claims of willful infringement. In addition, whether or not
such properties are in the public domain, the Company, after consultation with
patent counsel and based on the Company's evaluation of applicable
considerations, including without limitation the potential duration, expense and
outcome of an infringement proceeding, the validity or enforceability of such
potential claims and other business considerations, might seek to license such
intellectual properties in consideration of the Company's payment of royalties.
There can be no assurance that the Company will be able to obtain from third
parties patent licenses on commercially reasonable terms, if at all.
The Company also relies upon trade secret protection for its confidential
and proprietary information. There can be no assurance that others will not
independently develop substantially equivalent proprietary technology and
techniques or otherwise gain access to the Company's trade secrets or disclose
such technology or that the Company can meaningfully protect its trade secrets.
Government Regulation
The research, testing, manufacture and marketing of pharmaceutical products
are extensively regulated by numerous governmental authorities in the United
States, Canada and other countries. In the United States, drugs are subject to
rigorous regulation by the FDA. The federal Food, Drug and Cosmetic Act, as
amended (the "FDC Act"), and the regulations promulgated thereunder, and other
federal and state statutes and regulations, govern, among other things, the
research, development, testing, manufacture, storage, recordkeeping, labeling,
promotion, marketing and distribution of pharmaceutical products. Failure to
comply with applicable regulatory requirements may subject a company to
administrative or judicially imposed sanctions such as civil penalties, criminal
prosecution, injunctions, product seizure or detention, product recalls, total
or partial suspension of product, and FDA refusal to approve pending NDAs or NDA
supplements to approved applications.
The process of obtaining FDA and other required regulatory approvals,
including foreign approvals, often takes many years and can vary substantially
based upon the type, complexity and novelty of the products involved.
Furthermore, such approval process is extremely expensive and uncertain. There
can be no assurance that the Company's potential pharmaceutical products, all of
which are "early stage", will be approved for marketing by the FDA or any
similar regulatory body of Canada or any other country. Even if regulatory
approval of a product is granted, there can be no assurance that the Company
will be able to obtain the labeling claims it seeks for the promotion of the
product, and FDA requirements prohibit the marketing or promotion of a drug for
indications the FDA has not approved. Furthermore, regulatory marketing approval
may entail ongoing requirements for postmarketing studies.
-13-
<PAGE>
The steps ordinarily required before a new pharmaceutical product may be
marketed in the United States include: (i) preclinical studies; (ii) the
submission to the FDA of an investigational new drug application ("IND"), which
must become effective before clinical testing in humans may commence; (iii)
adequate and well-controlled clinical trials to establish the safety and
effectiveness of the drug for each claimed indication; (iv) the submission of
the NDA to the FDA; and (v) FDA review and approval of the NDA prior to any
commercial sale or shipment of the drug. Preclinical testing of a drug includes
laboratory evaluation of chemistry and formulation as well as animal studies to
assess safety and efficacy. Preclinical tests must be conducted in compliance
with Good Laboratory Practice ("GLP") regulations, and compounds for clinical
use must be formulated according to FDA requirements. The results of preclinical
testing are submitted to the FDA as part of the IND. A 30-day waiting period
after the filing of each IND is required prior to the commencement of clinical
testing in humans. If the FDA has not commented on or questioned the IND within
this 30-day period, clinical studies may begin. If the FDA has comments or
questions, the questions must be answered to the satisfaction of the FDA before
initial clinical testing can begin. In addition, at any time the FDA may impose
a clinical hold on ongoing clinical trials.
If the FDA imposes a clinical hold, clinical trials cannot commence or
recommence without FDA authorization and then only under terms authorized by the
FDA. In some instances, the IND application process can result in substantial
delay and expense.
Clinical trials are conducted under the supervision of a qualified
investigator in accordance with Good Clinical Practice regulations under
protocols detailing the objective of the study, the parameters to be used in
monitoring safety and the effectiveness criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the IND. Further, each clinical study
must be conducted under the auspices of an independent Institutional Review
Board ("IRB") at the institution at which the study will be conducted. The IRB
considers, among other things, ethical factors, the safety of human subjects and
the possible liability of the institution.
Clinical trials to support NDAs are typically conducted in three sequential
phases, but the phases may overlap. In Phase I, the initial introduction of the
drug into healthy human subjects or patients, the drug is tested to assess
metabolism, pharmacokinetics and pharmacological actions and safety, including
side effects associated with increasing doses. Phase II usually involves studies
in a limited patient population to (i) determine the efficacy of the drug in
specific, targeted indications, (ii) determine dosage tolerance and optimal
dosage and (iii) identify possible adverse effects and safety risks. If a
compound is found in Phase II to be effective and to have an acceptable safety
profile, Phase III trials are undertaken to further evaluate clinical efficacy
and to further test for safety within an expanded patient population at
geographically dispersed clinical study sites.
After successful completion of the required clinical testing, an NDA
generally is submitted. FDA approval of the NDA is required before marketing may
begin in the United States. The NDA must include the results of clinical and
other testing and the compilation of data relating to the product's chemistry,
pharmacology and manufacture, the cost of all of which is substantial. The FDA
reviews all submitted NDAs before it accepts them for filing, and it may request
additional
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<PAGE>
information before such acceptance, in which event the NDA must be resubmitted
with the additional information and, again, is subject to review before
acceptance for filing. Once the submission is accepted for filing, the FDA
begins an in-depth review of the NDA. Under the FDC Act, the FDA has 180 days in
which to review the NDA and respond to the applicant. The review process is
often significantly extended by FDA requests for additional information or
clarification of information in the submission, which typically are made in a
"non-approvable" letter. The FDA may refer the NDA to an appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the NDA should be approved; however, the FDA is not
bound by the recommendation of its advisory committee although it usually
follows its recommendations. If FDA evaluation of the NDA and its inspection of
the proposed manufacturing facility are favorable, the FDA may issue either an
approval letter authorizing commercial marketing of the drug for certain
specified indications or a conditional approval letter which usually contains a
number of conditions that must be met in order to secure final approval of the
NDA. When and if those conditions have been met to the FDA's satisfaction, the
FDA will issue an approval letter. As a condition of NDA approval, the FDA may
require postmarketing testing and surveillance to monitor the drug's safety or
efficacy. Once granted, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or problems occur following initial
marketing.
If the FDA's evaluation of the NDA submission or manufacturing facilities
is not favorable, the FDA may refuse to approve the NDA or issue a
non-approvable letter, outlining the deficiencies in the submission and often
requiring additional testing or information. Notwithstanding the submission of
any requested additional data or information in response to a conditional
approval or non-approvable letter, the FDA ultimately may decide that the
application does not satisfy the regulatory criteria for approval.
If regulatory approval is obtained, the Company will be subject to ongoing
FDA obligations and continued regulatory review. In particular, a drug
manufacturer is required to adhere to regulations setting forth current Good
Manufacturing Practices ("cGMPS"), which require that it manufacture its
products and maintain its records in a prescribed manner with respect to
manufacturing, testing and quality control activities. Further, the manufacturer
must pass a preapproval inspection of its manufacturing facilities by the FDA
before obtaining marketing approval. Failure to comply with applicable
regulatory requirements may result in penalties such as restrictions on a
product's marketing or withdrawal of the product from the market. In addition,
identification of certain side effects after a drug is on the market or the
occurrence of manufacturing problems could cause subsequent withdrawal of
approval, reformulation of the drug, additional preclinical testing or clinical
trials and changes in labeling of the product.
THE COMPANY HAS NOT RECEIVED REGULATORY APPROVAL IN THE UNITED STATES OR
ANY FOREIGN JURISDICTION FOR THE COMMENCEMENT OF CLINICAL TRIALS OR THE
COMMERCIAL SALE OF ANY OF ITS POTENTIAL PHARMACEUTICAL PRODUCTS. THERE CAN BE NO
ASSURANCE THAT PHASE I, PHASE II OR PHASE III TESTING WILL BE COMPLETED
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<PAGE>
SUCCESSFULLY WITHIN ANY SPECIFIED TIME PERIOD, IF AT ALL, WITH RESPECT TO ANY OF
SUCH POTENTIAL PRODUCTS.
Environmental Matters. The Company currently uses third party independent
contractors to conduct research and development on its proposed drugs. However,
to the extent the Company's manufacturing operations and any future Company
research and development activities involve the use of hazardous materials and
chemicals, or produce waste products, the Company would be subject to federal,
state and local laws and regulations governing the use, manufacture, storage,
handling and disposal thereof. Although the Company would expect that its safety
procedures for handling and disposing of such materials would comply with the
standards prescribed by such laws and regulations, the risk of contamination or
injury from these materials could not be eliminated completely. In such event,
the Company could be held liable for any damages that result and any such
liability could exceed the resources of the Company. There can be no assurance
that the Company would not be required to incur significant costs to comply with
environmental laws and regulations in the future, or that the Company's
business, financial condition or results of operations would not be materially
adversely affected by current or future environmental laws or regulations.
Product and Clinical Studies Liability. Administration of any drug to humans
involves the risk of allergic or other adverse reactions in certain individuals.
Accordingly, it is possible that claims might be successfully asserted against
the Company for liability with respect to injuries that may arise from the
administration or use of its products during clinical trials or following
marketing. However no claims involving a material liability has ever been
brought against the Company. The Company presently carries what it believes to
be adequate product liability insurance coverage, however it does not have
coverage for clinical studies liability.
Competition. The pharmaceutical and biotechnology industries are characterized
by intense competition. Virtually all competitors have substantially greater
experience in pharmaceutical testing, development, regulation and out-licensing
and have vastly larger financial, personnel, and other resources than the
Company.
Employees. As of August 31, 1999, the Company had seven employees, all of whom
are full-time. Six work for its Sierra Diagnostics subsidiary. In addition, the
Company retains four of its directors, Robert Bender, Craig Sibley, and Dr.
Allan Green, under consulting contracts and makes extensive use of expert
consulting resources. See "Item 5. Directors, Executive Officers, Promotors and
Control Persons" and "Item 7. Certain Relationships and Related Transactions".
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other parts of this Form contain forward-looking
statements which involve risks and uncertainties. The Company's actual results
may differ materially from the results discussed in the forward-looking
statements. Factors that might cause such a difference include, but are not
limited to, those discussed in "Item 1."
OVERVIEW
The Company is a development stage biopharmaceutical company formed to
acquire and develop rights to selected early-stage compounds which have
potential use as therapeutics or diagnostics . Since its inception on December
6, 1996, substantially all of the Company's resources have been dedicated to
research and development and technology acquisition and management. To date, the
Company has not generated significant product revenue from the sale of Gonostat,
launched
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in January 1999, and it does not expect to generate significant revenues for at
least three years while its other products are under development. The
continuation of the Company as a going concern is dependent on additional equity
financing and on the development of economically viable products. The Company
has incurred losses of $2,467,328, and $1,919,240 in fiscal 1999 and 1998,
respectively, and negative cash flow is expected to continue for the Company for
at least the next three years. There can be no assurance that funding will be
available to the Company or that the Company will be able to develop an
economically viable product.
The Company expects its sources of revenue for the next several years to
consist principally of sales of diagnostic products and of payments under future
corporate partnerships. The process of developing the Company's therapeutic
products will require significant additional research and development,
preclinical testing and clinical trials, as well as regulatory approval. These
activities, together with the Company's general and administrative expenses, are
expected to result in operating losses for at least three more years. The
Company will not receive product revenue from therapeutic products unless it
completes clinical trials and successfully commercializes or arranges for the
commercialization of one or more of its products, as to the success of which no
assurance can be given.
The Company is subject to risks common to biopharmaceutical companies,
including risks inherent in its research and development efforts and clinical
trials, reliance on collaborative partners, enforcement of patent and
proprietary rights, the need for future capital, potential competition and
uncertainty of regulatory approval. In order for a product to be commercialized,
it will be necessary for the Company and its collaborators to conduct
preclinical tests and clinical trials, demonstrate efficacy and safety of the
Company's product candidates, obtain regulatory clearances and enter into
manufacturing, distribution and marketing arrangements either directly or
through sublicensees. There can be no assurance that the Company will generate
revenues or achieve and sustain profitability in the future.
Program Review
The Company has eliminated several research projects and focused on those
which are (relative to other pharmaceutical development projects) both near term
and relatively low in projected developmental costs. Nonetheless, significant
capital relative to the Company's resources will be required to bring these
programs to a stage where their therapeutic efficacy can be demonstrated. This
is usually accompanied by a significant increase in the value of the
intellectual property.
At the beginning of the year the Company had licensed a number of
technologies including a novel approach to development of antibiotic compounds
and compounds aimed at therapeutic intervention in 'hamburger disease'. Research
on both of these projects was carried out and it was judged that neither project
should be continued by the Company despite their initial promise. Accordingly
intellectual property rights were returned and the Company terminated its
support for these research projects.
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<PAGE>
Direct and indirect (ex-vivo purging) applications of the bacterial toxin,
verotoxin "VT" continue to show promise. In April 1999, the Company submitted a
Pre-Investigation New Drug Application as a first step towards obtaining
approval for clinical investigations, in Canada of the use of purging in
treatment of multiple myeloma. The Company has received comments and will need
to obtain additional funding to comply with the additional regulatory
requirements for initiating clinical investigation, as to the receipt of which
no assurance can be given. Independently, the Hospital for Sick Children plans
to carry out a program of investigation of the direct use of VT as a
chemotherapeutic. Significant extension of the basic patent is believed possible
and the Company is pursuing an active program of expanding its patent portfolio.
In order to move into clinical trials it is necessary to produce VT under
conditions which satisfy regulatory requirements. Qualified subcontractors have
been identified; however, the program has been halted due to constraints of
available funding. Significant additional capital will be required to bring
these programs through to the first clinical milestones sufficient to validate
the commercial potential of these projects. While results to date are positive,
there can be no assurance as to the ultimate technical or economic viability of
products resulting from these applications of VT. The assay technology for
multiple myeloma licensed by the Company is an important asset relative to
validation of the utility of the purging technology and its ability to improve
therapeutic outcomes. This technology allows significant time and cost savings
in the clinical programs to evaluate marrow and stem cell purging.
The application of VT to present antigens to dendritic cells continues to
be a promising approach to development of therapeutic vaccines for cancer and
other diseases which circumvent the immune systems surveillance. Research
carried out under the Company's option agreement with the Institut Curie has
resulted in promising findings and a plan for clinical investigation of the
technology is being developed in collaboration with Dr. Evan Hersh at the
Arizona Cancer Center. As with chemotherapeutic applications of VT,
significantly increased levels of expenditure will be required as investigations
move from the research laboratory setting to the clinical setting. These
expenses include but are not limited to development of materials and
formulations which are compliant with regulatory requirements and the costs of
patient recruitment and monitoring in trial settings.
Both the purging program and the dendritic cell program involve ex-vivo
therapies (i.e. treatments are carried out on patient tissues which have been
removed from the patient). A common characteristic of ex-vivo therapies is that,
relative to systemic administration, they are less costly to investigate. The
Company's focus is on identification of opportunities which combine low cost of
development with a strong proprietary position and potentially short time to
market. While there can be no assurance that viable products will result from
the Company's programs, they have the potential to yield therapeutic products
within time and financial constraints which offer attractive risk-return
opportunities for development.
During fiscal year 1999, the Company purchased Sierra Diagnostics Inc., a
developer and manufacturer of diagnostic products for consideration comprising
stock and assumption of debts and operating costs. The purchase and subsequent
development of Sierra was motivated by three factors: a need for in-house
capability to develop diagnostic tests required for therapeutic programs such as
ex-vivo purging, a requirement for a facility to develop and manufacture the
Company's HIV diagnostic, and the desire to develop earnings from operations in
order to offset development costs. Sierra has a base of proprietary technology
relating to assays for sexually transmitted diseases
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and handling of clinical samples. It has launched two products in 1999, both of
which have significant revenue potential. The first product, Gonostat, is a
clinical laboratory test for gonorrhea which offers unique advantages in cost
and performance relative to other technologies available in the market. Although
the market is highly competitive, Gonostat is expected to capture a significant
niche and become a profitable product. There can, however be no assurance of
performance in the market. The second product brought to market by Sierra is a
sample preservation and handling product which eliminates the need for
refrigeration of clinical samples intended for molecular (DNA/RNA based) assays.
This product fits into the general practice of clinical testing and is expected
to find wide application due to elimination of sample degradation and thus the
need for repeat testing or sampling with attendant costs and inconvenience. The
technology is proprietary and believed to be patentable. Sales and licensing of
the technology to third parties are beginning. Sierra has operated within its
budget projections and sales indicate that its products are gaining some
acceptance in their markets. However, to date, the operations of Sierra have
generated losses and there can be no assurance that profitable operations will
be achieved or that, if achieved, they can be maintained.
The Company continues to seek and evaluate opportunities for new
therapeutics within its defined development criteria. The Company is developing
a portfolio of proprietary product opportunities and is aggressively pursuing
patents prosecution. In addition to licensed patents, the Company has agreements
which provide for options on related inventions arising from sponsored work.
Together with a strong network of institutional investigators, management
believes that it has been able to identify and build protection for a
significant base for the development of unique products. Competition in the
areas of the Company's interests is intense and both the scientific and
commercial environments change rapidly. By focusing on intellectual property
development and using external contractors, the Company hopes to be able to
maintain the required flexibility to adapt to changing circumstances. The
Company's key resources include qualified subcontractors and it believes that it
can move rapidly into clinical investigations and development of products based
on its intellectual property given adequate funding. The funding required as the
Company enters clinical trials significantly exceeds the magnitude of funds
raised by the Company to date and there can be no assurance that such funding is
available on acceptable terms if at all.
RESULTS OF OPERATIONS
Years Ended June 30, 1999 and 1998.
For the fiscal year ended June 30th 1999 and 1998, the Company incurred a
net loss of $2,467,328 or $0.46 per share of common stock. This compares to a
loss of $1,919,240 or $0.45 per share in 1998. Select has been unprofitable
since its formation in 1997 and has a cumulative deficit of $4,585,602 as of
June 30, 1999. The increase in net loss is a result of the routine operations of
the Company in its development stage. The Company expects losses are to continue
and increase for the next several years as the Company pursues development and
commercialization of its intellectual property resources.
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Revenues. The Company recognized revenues of $130,055, its sole revenues to
date, in the year ended June 30, 1999. These revenues arose from sales of
diagnostic products through its wholly owned subsidiary, Sierra Diagnostics. The
Company has no other product or license revenues. Management anticipates that
future revenues may consist primarily of product sales either directly by the
Company or, more likely, through collaborative development and marketing
agreements with other companies in the pharmaceutical industry. Sierra's
operations are expected to achieve breakeven during fiscal 2000 and thereafter
be profitable, however, there can be no assurance that such performance will be
realized or maintained.
Costs and Expenses. Operating expenses increased significantly in 1999,
from $1,919,240 in 1998 to $2,540,918 in 1999. This is due primarily to
increased research and development activity and the addition of manufacturing
and marketing operations in Sierra Diagnostics. As projects move from laboratory
investigations into product development and clinical trials there will be a
substantial increase in the level of activity and associated costs , including,
without limitation, the cost, which may be substantial, of obtaining quantities
of drugs manufactured in compliance with regulatory requirements (cGMP) for use
in clinical trials. In addition clinical investigations require extensive
management and have costs associated with patient management. The Company has
paid significant amounts to acquire technology rights and spends money to
support related research at collaborating institutions. Patent filing and
prosecution, maintenance and possibly defense costs are expected to continue to
rise as they are an essential component of the Company's business.
During fiscal 1999 the Company acquired Sierra Diagnostics for aggregate
consideration of $747,997.
All research and development activities of the Company are expensed as
incurred. Personnel costs including retained consultants and external
contractors are the largest ongoing cost of operations. The Company has no long
term employment contracts or liabilities for severances. As of June 30, 1999 the
Company employed seven people, mainly at Sierra Diagnostics, and retained the
services of three key consultants who are an integral part of the Company
management. Locating and retaining appropriate personnel resources is a priority
and the Company anticipates that personnel costs will continue to increase.
However the percentage of expenditures related to personnel and other operations
is expected to decline as increasing commitments are made to external
manufacturing and clinical studies.
Capital Expenditures. There were no significant capital expenditures during
the fiscal year.
Patent costs are expensed due to the uncertainties involved in realizing
value from specific patents and patent applications.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations since inception primarily through
private placements of its common stock. As of August 24, 1999, the Company had
received approximately $3,417,297 in net proceeds from the sale of equity
securities.
Cash at June 30, 1999 totaled $121,000 compared to $2,070,705 at June 30,
1998. In July 1999, the Company received $125,000 from the private sale of
50,000 shares of restricted common stock.
Sales of Sierra's products to date are not sufficient to cover operating
costs and the Company's limited financial resources have forced it to curtail
some of its planned operations through 1999. The Company will require
substantial additional funding in order to complete its research and development
activities and sublicense any potential products. The Company's future capital
requirements will depend on many factors, including scientific progress in its
research and development programs, the size and complexity of such programs, the
scope and results of preclinical studies and clinical trials, the ability of the
Company to establish and maintain corporate partnerships, the time and costs
involved in obtaining regulatory approvals, the costs involved in filing,
prosecuting and enforcing patent claims, competing technological and market
developments, the cost of manufacturing preclinical and clinical material and
other factors not within the Company's control. There can be no assurance that
the additional financing necessary to meet the Company's short and long-term
capital requirements will be available on acceptable terms or at all.
Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its research or development programs, to lose rights
under existing licenses earlier than the Company would otherwise choose, and may
adversely affect the Company's ability to operate as a going concern. If
additional funds are raised by issuing equity securities, substantial dilution
to existing stockholders may result. The Company currently has funds sufficient
to continue operations for less than three months and does not have funds
required to move current projects into clinical investigations. Management has
been in discussions with a number of parties regarding obtaining additional
financing, including business relationships other than direct equity sales, and
while the Company is optimistic that such funds may be available there is no
assurance that this will be the case.
Funding needs for the Company will vary substantially depending on the
extent of clinical development programs The Company elects to undertake. By
controlling the scheduling of development and clinical programs the Company has
considerable flexibility to maintain key parts of its intellectual property
portfolio at low expenditure rates. While this gives a wider range of choices
than might otherwise be available, the ongoing restriction of development
activities is detrimental to the value of the portfolio and there is a
requirement for ongoing support and license payments. Should the Company
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be unable to obtain additional funding, most of its portfolio rights would
revert to its licensors.
Year 2000. Year 2000 ("Y2K") issues arise because many computer systems use
two rather than four digits to identify the year thus creating ambiguities which
may produce errors before, on or after January 1, 2000. If not addressed ,
errors could impact all aspects of operations including financial reporting,
clinical and production records or controls and communications. Errors may range
from minor to significant systems failures and could be imported from suppliers'
systems.
The Company has assessed, taken corrective actions in light of, and
continued to monitor its vulnerability to Y2K issues in all aspects of its
business, including information and computer systems and critical suppliers and
service providers. To the best of its knowledge, systems and equipment critical
to its operations are Y2K compliant; however, it is not possible to be certain
that the systems of its suppliers, service providers or other third parties upon
which it relies are compliant or that they will unaffected by problems in their
own supply chain. Based on the nature of the Company's operations and ongoing
assessments, the Company believes that it has little direct exposure to Y2K
issues.
The Company estimates that its direct costs of addressing the Y2K issue are
less than $5,000, which are being expensed in the normal course of its business
operations.
Item 3. Description of Property.
The Company operates a manufacturing facility in Sonora, California on
three adjacent properties which total approximately 7,606 square feet. The space
is leased from an unaffiliated third party. The properties are leased for a
combined monthly rental of $4,627 pursuant to a 20 month lease which expires
February 28, 2001. The Company believes its facility meets or exceeds all cGMP
(current Good Manufacturing Practices) requirements.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners
The following table sets forth certain information regarding the ownership
of the Company's Common Stock (being the Company's only voting securities) which
are deemed under the current rules of the Securities and Exchange Commission to
be beneficially owned by any person (including any "group" as that term is used
in Instruction No. 4 to S-B Item 403) known by the Company to be the beneficial
owner of more than five percent (5%) of the Common Stock of the Company as of
August 24th 1999. Except as otherwise indicated, the Company has been advised
that
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all individuals listed below have the sole power to vote and dispose of the
number of shares set forth opposite their names.
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
of Beneficial Owner Beneficial Ownership of Class
- ------------------- -------------------- --------
<S> <C> <C>
Robert Bender 665,000(1) 12%
50 O'Connor Street, Suite 300
Ottawa, Ontario
Canada K1P 6L2
Sally Hansen 665,000(2) 12%
50 O'Connor Street, Suite 300
Ottawa, Ontario
Canada K1P 6L2
J. Peter Lynch 372,500(3) 7%
407 Pound Ridge Road
Route 124
South Salem, NY 10590-1621
Dr. Clifford A. Lingwood 367,000(4) 7%
116 Kingsway Crescent
Toronto, Ontario
Canada M8X 2R9
Dr. Allan M. Green 360,000(5) 7%
19 Francis Avenue
Cambridge, MA 02138
Craig A. Sibley 360,000(6) 7%
1372 Saginaw Crescent
Mississauga, Ontario
Canada L5H 1X5
ARGIL Management 300,000(7) 6%
c/o Dr. Allan M. Green
19 Francis Avenue
Cambridge, MA 02138
</TABLE>
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- ----------
(1) Includes 95,000 shares owned by his wife, Sally Hansen, 300,000 shares
owned by ARGIL Management, a company in which Sally Hansen is a principal
shareholder, and 150,000 shares owned by 996834 Ontario Ltd., a company
controlled by Sally Hansen.
(2) Includes 120,000 shares owned by her husband, Robert Bender, 300,000 shares
owned by ARGIL Management, a company in which she is a principal
shareholder, and 150,000 shares owned by 996834 Ontario Ltd., a company in
which she holds a controlling interest.
(3) Includes 100,000 shares owned by Salem Financial Inc., a company he
controls.
(4) Includes 183,500 shares owned by his spouse.
(5) Includes 300,000 shares owned by ARGIL Management, a company in which he is
a principal shareholder.
(6) Includes 145,000 shares owned by his spouse and 67,000 shares owned by a
corporation he controls.
(7) ARGIL Management is owned by Dr. Allan Green (51%) and Sally Hansen (49%),
wife of the Company's Chairman, Robert Bender.
(b) Security Ownership of Management
The following table sets forth certain information regarding the ownership
of the Company's Common Stock (being the Company's only voting securities) which
are deemed under the current rules of the Securities and Exchange Commission to
be beneficially owned by the Company's directors, executive officers named in
Item 5 below and directors and executive officers as a group, as of August 24th
1999. Except as otherwise indicated, the Company has been advised that all
individuals listed below have the sole power to vote and dispose of the number
of shares set forth opposite their names.
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<TABLE>
<CAPTION>
Name, Title and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership Percent of Class
- ------------------- ----------------------- ----------------
<S> <C> <C>
Robert Bender 665,000(1) 12%
Chairman of the Board
50 O'Connor Street, Suite 300
Ottawa, Ontario
Canada K1P 6L2
Dr. Clifford A. Lingwood 367,000(2) 7%
Director
116 Kingsway Crescent
Toronto, Ontario
Canada M8X 2R9
Craig A. Sibley 360,000(3) 7%
Director
1372 Saginaw Crescent
Mississauga, Ontario
Canada L5H 1X5
Dr. George L. Spitalny 231,000 4%
Director
6 Brookfield Court
Cheshire, CT 06410
Paul Lucas 10,000 -- *
Director
c/o Glaxo Wellcome Canada, Inc.
7333 Mississauga Road
Mississauga, Ontario
Canada L5N 6L4
Dr. Allan M. Green 360,000(4) 7%
Director
19 Francis Avenue
Cambridge, MA 02138
Thomas Reardon 10,000 -- *
Director
c/o 49 Candlewood Road
Ipswich, MA 01938
Allen Krantz, Ph.D. 10,000 -- *
Director
847 N Humboldt St. #310
San Mateo, CA 94401
</TABLE>
-25-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
All directors and 1,713,000 30%
executive officers
as a group
(8 individuals)
</TABLE>
- ----------
* Owns less than 1%
(1) Includes 95,000 shares owned by his wife, Sally Hansen, 300,000 shares
owned by ARGIL Management, a company in which Sally Hansen is a principal
shareholder, and 150,000 shares owned by 996834 Ontario Ltd., a company
controlled by Sally Hansen.
(2) Includes 183,500 shares owned by his spouse.
(3) Includes 145,000 shares owned by his spouse and 67,000 shares owned by a
corporation he controls.
(4) Includes 300,000 shares owned by ARGIL Management, a company in which he is
a principal shareholder.
(c) Changes in Control.
There are no arrangements known to the Company which may result in a change
in control of the Company.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
(a) Officers and Directors: The following table provides information
concerning each executive officer and director of the Company. All directors
hold office until the next annual meeting of shareholders or until their
successors have been elected and qualified.
Name Age Title
- ---- --- -----
Robert Bender 52 Chairman of the Board,
Secretary and Treasurer
Dr. George L. Spitalny 52 President, Select Therapeutics
(Canada) Inc., a wholly-owned
subsidiary of the Company, and
Director
Dr. Clifford A. Lingwood 49 Director
-26-
<PAGE>
Craig A. Sibley 41 Director
Paul Lucas 49 Director
Dr. Allan M. Green 54 Director
Allen Krantz, Ph.D. 59 Director
Thomas Reardon 53 Director
Robert Bender: Mr. Bender is a co-founder of the Company. He has been a
director of the Company since inception. He served as its President from
inception in January, 1997 until May 1997 at which time he became the Company's
Chairman, Secretary and Treasurer. Since 1972, he has been active in
entrepreneurial technology-based companies, primarily in the medical field and
his professional focus has been on the assessment and development of new
ventures. Mr. Bender has extensive experience in institutional and private
venture capital, having been associated with Adler & Co. (New York City) and
Ventures West (Vancouver). He has participated in the management and/or
development of a number of privately held start-up companies and been active in
the transfer of technology between corporations and from academic institutions.
Dr. George L. Spitalny: Dr. Spitalny is a co-founder of the Company and has
been a director of the Company since inception. He has more than 25 years of
experience in clinical and biopharmaceutical development, and since October 1995
he has been an industry consultant. From the Company's inception in December
1996 until December 1998, he served as its Chief Operating Officer and from May
1997 until December 1998, he served as President of the Company. In January
1999, he became President of Select Therapeutics (Canada) Inc., a wholly-owned
subsidiary of the Company. From October 1996 to January 1997 he was President of
Immune Network Research Ltd. From December 1990 to October 1995 he was Vice
President, Research and Development, and then Chief Scientific Officer, of
TargeTech, Inc., a start-up biopharmaceutical company which was acquired by
Immune Response Corp. From 1983 to 1990 Dr. Spitalny was employed by
Bristol-Myers Squibb as a director of research and development and as a manager
of its research and clinical operations. Dr. Spitalny received a Ph.D. from New
York University School of Medicine in 1973 and is the author or co-author of 55
articles on a wide range of biopharmaceutical related topics.
Dr. Clifford A. Lingwood: Dr. Lingwood is a co-founder of the Company and
has been a director of the Company since inception. For the last 20 years he has
worked in academia, during which time he participated in the development of the
scientific technology which has been licensed to the Company. Since 1989, Dr.
Lingwood has been affiliated with both the University of Toronto and The
Hospital for Sick Children in Toronto ("HSC"), currently serving as (i) an
Associate Professor in the Departments of Clinical Biochemistry, Biochemistry
and Microbiology at the University of Toronto and (ii) a Senior Scientist in the
Departments of Microbiology and
-27-
<PAGE>
Biochemistry at HSC. Dr. Lingwood is one of the inventors of and a patent
applicant with regard to certain of the Company's licensed technologies.
Craig A. Sibley: Mr. Sibley is a co-founder of the Company and has been a
director since inception. Mr. Sibley has been involved in the marketing,
promotion and sale of medical, pharmaceutical and diagnostic products for the
last 13 years. From December 1993 thru 1997, Mr. Sibley was employed by Serono
Canada, Inc., in several capacities in sales and marketing including where since
November 1996 he has served as Group Director, Reproduction Biology, responsible
for the promotion, marketing and sale of fertility products and
reproduction-endocrinology products. From August 1991 to June 1993, he served as
Product Manager for Amgen Canada, Inc., a start-up biopharmaceutical company.
From January 1989 to August 1991, he was employed by Schering Canada as a sales
representative specializing in biological products and as a product manager.
Paul Lucas: Mr. Lucas has been a Director of the Company since September
1998. Mr. Lucas is the President and CEO of Glaxo Wellcome, Canada. He joined
Glaxo Wellcome in September 1986. He has more than 20 years experience in the
Canadian pharmaceutical industry, and he was instrumental in overseeing the
successful 1995 merger of Glaxo Canada and Burroughs Wellcome. He currently
serves on several university committees and is the Vice Chairman of the
Pharmaceutical Manufacturers Association of Canada (PMAC). In addition, he is
the Chairman of the Board of Altimed Pharmaceutical Inc. and is a Director of
BioChem Pharma.
Allan M. Green, M.D., Ph.D., J.D.: Dr. Green has been a director of the
Company since January 1999. He is a physician, lawyer, and research scientist
with experience as an operating officer in the pharmaceutical industry. He is
Vice President, Pharmaceutical/Biomedical Products for ML Strategies, Inc.,
where he looks after the interests of a wide range of health care, biotechnology
and pharmaceutical clients. He also is of counsel to the Boston/Washington law
firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. He has successfully
represented many American and Canadian clients in their relationships with the
FDA and has organized a number of multi-disciplinary conferences on healthcare,
pharmaceutical and funding issues. Dr. Green was formerly Medical Director of
New England Nuclear/Dupont Medical Products. He is a director of NEUROCHEM, Inc.
and North American Scientific, Inc. He has served on various government
committees as a technical consultant and has held several medical school
appointments. Dr. Green is the author of many scientific papers in biochemistry
and drug development and is well known for his Issues and Commentary series,
which analyzes the competitive commercial aspects and potential markets for
emerging pharmaceutical technologies. Dr. Green received his B.S. in Economics
in 1966 and his Ph.D. in Biochemistry and Metabolism in 1971 from Massachusetts
Institute of Technology. He received his M.D. from Case Western Reserve
University School of Medicine in 1972. He holds board certification in both
Internal Medicine and in Nuclear Medicine. Dr. Green received his J.D. from
Boston College Law School in 1991.
Allen Krantz, Ph.D.: Dr. Krantz has been a director of the Company since
January 1999. He is trained as an organic chemist and worked at Syntex for the
past 13 years, most recently
-28-
<PAGE>
as a Vice President at Syntex Research, Canada. Prior to that he was a tenured
Associate Professor of Chemistry and Pharmacology at State University of New
York, at Stony Brook. In 1994 he joined Red Cell, Inc., a start-up biotechnology
company as Executive Vice President-Research. Since 1997, he has been President
of Bullet Therapeutics, a start-up drug development enterprise.
Thomas M. Reardon: Mr. Reardon has been a director of the Company since
January 1999. He is Co-Chairman of the Health Law Group at Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C. and President of its affiliated ML Strategies,
Inc. He has been at Mintz, Levin since April, 1990. In September 1999, he became
the CEO of Vector Health Solutions, an affiliate of Quorum Health Resources,
LLC. In addition, he serves as a director of numerous organizations in the
healthcare field.
(b) Significant Employee:
Tony K. Baker: Mr. Baker, age 53, has been Vice President of the Company in
charge of the development of diagnostic products since November 1998. Mr. Baker
was the President and Chief Scientist of Sierra Diagnostics, Inc., which he
founded in May 1994, until Sierra's acquisition by the Company in November 1998.
From 1993 to 1995, Mr. Baker worked for Genentech as a Senior Development
Specialist. From 1991 to 1993, he was the Immunodiagnostic Development Manager
for Sigma Diagnostics. From 1987 to 1991 he was a Vice President of Product
Development for Gen-Trans Biotechnology. From 1971 to 1987, he held a variety of
senior positions in the biotechnology field, including Manager of In-Vitro Assay
Development-Infectious Diseases for Merck Sharp and Dohme. Mr. Baker received
his M.S. in Microbiology from Northern Arizona University and he served as an
Officer in the U.S. Marine Corps.
Scientific and Medical Advisory Board:
Allan M. Green M.D., Ph.D., J.D. : Dr. Green is a director of the Company
and Chairman of the Company's Scientific and Medical Advisory Board.
Mark L. Greenberg, M.D., M.B., Ch.B.: Dr. Greenberg is Chief of Oncology
and Co-Head of the Division of Hematology/Oncology, The Hospital for Sick
Children, University of Toronto. He is also a Professor in the Departments of
Pediatrics and Surgery at the University of Toronto. Dr. Greenberg joined The
Hospital for Sick Children (Toronto) in 1970. He received his medical education
at the University of Witwatersrand (Johannesburg, South Africa) (M.B., Ch.B. in
1966) and served as an intern and resident at the Johannesburg General Hospital,
Transvaal Memorial Hospital and Presbyterian St. Luke's Hospital (Chicago)
before joining The Hospital for Sick Children. He is a member of the FRCP(c)
(Fellow of the Royal College of Physicians (Canada)) and other professional
bodies. Dr. Greenberg has published extensively in the medical literature
principally on oncology.
Gabriel H. Hortobagyi, M.D.: Dr. Hortobagyi is the Chairman of the
Department of Breast Medical Oncology in the Division of Medicine at the
University of Texas, M.D. Anderson Cancer Center. He received his M.D. at the
Universidad Nacional de Columbia (Bogota, Columbia) in 1970 and served as intern
and resident at The Hospital San Juan de Dios (Bogota, Columbia) and
-29-
<PAGE>
St. Luke's Hospital (Cleveland). He joined M.D. Anderson Hospital in 1974 as a
Fellow in Developmental Therapeutics. Since joining M.D. Anderson, Dr.
Hortobagyi has had numerous academic and professional appointments. He holds
specially diplomas in internal medicine and medical oncology.
John Thomas Lamont, M.D.: Dr. Lamont is Chief of the Division of
Gastroenterology of the Beth Israel Deaconess Medical Center and Professor of
Medicine at the Boston University of Rochester. He interned at the UCLA Medical
Center in Los Angeles, where he later served as Chief Medical Resident. He has
been on the faculty of Boston University since 1980 and is certified in Internal
Medicine and Gastroenterology. His research interests include the structure and
function of intestinal mucin and the mechanisms of action of bacterial toxins.
Evan M. Hersh, M.D.: Dr. Hersh is a Professor of Microbiology and
Immunology at the University of Arizona, Tucson, and is the Associate Director
of Clinical Research and Director of Immunology at the Arizona Cancer Center. He
has been active in the development of novel therapeutic anti-cancer strategies.
Dr. Hersh's laboratory will collaborate with the Company and the Institut Curie
in Paris in pre-clinical and early clinical studies on therapeutic cancer
vaccines based on the proprietary antigen presentation technology being
developed at the Institut Curie.
Item 6. Executive Compensation.
(a) Summary Compensation: The following Summary Compensation Table reflects
certain information for the Company's Chief Executive Officer and other
executive officers, if any, whose total annual salary and bonus exceeded
$100,000.
-30-
<PAGE>
Annual Compensation
<TABLE>
<CAPTION> Other
Name and Annual
Principal Salary Bonus Comp. (1)
Position Year ($) ($) ($)
- -------- ---- ------ ----- ------
<S> <C> <C> <C> <C>
Robert Bender, CEO 1999 144,000(2) nil nil
1998 74,000 nil nil
1997 nil nil nil
Dr. George Spitalny, 1999 158,144 20,000 6,069
President, Select 1998 146,924 nil 12,000
Therapeutics (Canada), 1997 30,000 nil nil
Inc.
</TABLE>
- ----------
(1) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.
(2) $120,000 was paid in cash, and the balance of $24,000 is accrued.
Item 7. Certain Relationships and Related Transactions.
The Company has an oral employment agreement with Dr. George Spitalny, a
director, retaining his full time services as President of the Company's
Canadian subsidiary on a month to month basis at a monthly salary of $13,179.
The Company has entered into a consulting agreement with the consulting
company owned by Robert Bender, the Company's CEO, retaining his services for a
monthly fee of $12,000 of which $10,000 is to be paid monthly and the balance is
accrued. The Company also has entered into consulting arrangements with three of
its other directors, Craig Sibley, Dr. Clifford Lingwood and Dr. Allan Green,
whereby the Company has agreed to pay them monthly consulting fees of
approximately $5,200, $1,300 and $10,000, respectively. Mr. Sibley devotes a
substantial fraction of his professional time to the Company and is responsible
for relationship management and technology sourcing for its Canadian subsidiary.
Dr. Lingwood's laboratory at the Hospital for Sick Children ("HSC") is a
principal source of technology for the Company and receives research support
through contractual arrangements with HSC. Dr. Green devotes a substantial
fraction of his professional time to the Company and is responsible for
regulatory oversight, research program planning and coordination and scientific
direction.
-31-
<PAGE>
In addition, Dr. Lingwood owns 35% of the share owned by HSC in the Patent
Application entitled "Verotoxin Pharmaceutical Compositions and Medical
Treatment therewith" (the "Licensed Verotoxin Technology". He and the other
owners of the patent granted the University of Toronto Innovations Foundation
the exclusive right to grant licenses thereunder and such Foundation has granted
an exclusive license thereto to the Company. See "Item 1.B. Business of the
Company - Technology Licenses - Verotoxin/Neoplasia."
Item 8. Legal Proceedings.
None.
Item 9. Market Price for Common Equity and Related Stockholder Matters.
(a) Market Information
The Company's Common Stock is currently listed on the Over the Counter
Bulletin Board under the symbol "SLPU".
The following table sets forth the range of high and low bid information
for the Company's Common Stock for each quarter within the last two fiscal years
since quotation thereof commenced, as provided by the National Quotation Bureau,
Inc. Such quotations reflect inter-dealer prices without retail mark-up,
mark-down or commission and may not represent actual transactions.
LOW HIGH
Fiscal 1999 --- ----
-----------
April 1 through $3.125 $5.03125
June 30, 1999
Jan. 1 through $3.50 $5.75
March 31, 1999
Oct. 1 through $3.3125 $5.3125
Dec. 31, 1998
July 1 through $3.875 $6.625
Sept. 30, 1998
-32-
<PAGE>
Fiscal 1998
-----------
April 1 through $4.625 $11.625
June 30, 1998
Jan. 1 through $2.375 $6
Mar. 31, 1998
Oct. 28 (first available) $1.50 $3
through Dec. 31, 1997
(b) Holders
As of August 26, 1999, there were 167 holders of record of the Company's
Common Stock.
(c) Dividends
Since its inception, the Company has not declared any dividends on its
common stock and does not anticipate paying any in the foreseeable future.
Item 10. Recent Sales of Unregistered Securities.
In January 1997, the Company sold to its founders 2,567,000 shares of
Common Stock for an aggregate price of $2,567 ($.0001 per share) in reliance on
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933, as amended ("Section 4(2)") for transactions not involving a public
offering.
In March and April 1997, the Company sold to private investors 800,000
shares of Common Stock for an aggregate price of $200,000 ($.25 per share) in a
private placement made pursuant to the exemption from registration provided by
Section 3(b) of the Securities Act ("Section 3(b)") and Rule 504 of Regulation D
promulgated under the Securities Act ("Rule 504"). The investors paid cash for
their shares.
In April, May and June 1997, the Company sold to private investors 800,000
shares of Common Stock for an aggregate price of $800,000 ($1.00 per share) in a
private placement made pursuant to the exemption from registration provided by
Section 3(b) and Rule 504. The investors paid cash for their shares.
In April, May and June 1998, the Company sold 762,531 shares of Common
Stock for an aggregate cash price of $2,287,593 ($3.00 per share) in a private
placement to accredited and non-accredited investors under Section 4(2) and Rule
506 of Regulation D promulgated under the Securities Act of 1933, as amended
("Rule 506"). The Company paid sales commissions aggregating approximately
$212,000.
In December 1998, the Company issued an additional 240,000 shares for
services
-33-
<PAGE>
rendered aggregating $720,000. In August 1999, the Company authorized the
issuance of 381,264 additional shares of Common Stock to reduce the offering
price from $3.00 to $2.00 per share. Such issuances were and will be in reliance
on the exemption from registration provided by Section 4(2) and Rule 506.
In November 1998, the Company sold to accredited investors 219,999 shares
of its Common Stock in exchange for all of the issued and outstanding shares of
Sierra Diagnostics, Inc., in reliance on the exemption from registration
provided by Section 4(2) and Rule 506.
In March 1999, the Company issued 11,000 shares of its Common Stock as
payment for services rendered, aggregating $33,000, in reliance on the exemption
from registration provided by Section 4(2).
In May 1999, the Company issued 51,782 shares of Common Stock as payment of
license fees to the University of Toronto Innovations Foundation and 30,000
shares of Common Stock to three directors in connection with their election as
directors, in reliance on the exemption from registration provided by Section
4(2).
In May 1999, the Company issued 100,000 restricted common shares to an
accredited investor for cash consideration of $250,000, in reliance on the
exemption from registration provided by Section 4(2).
In July 1999, the Company issued 50,000 restricted common shares to an
accredited investor for cash consideration of $125,000, in reliance on the
exemption from registration provided by Section 4(2).
Item 11. Description of Securities.
Common Stock
Voting Rights
Each share of Common Stock entitles the holder thereof to one vote, either
in person or by proxy, at a meeting of shareholders. The holders are not
permitted to vote their shares cumulatively. Accordingly, the holders of more
than 50% of the issued and outstanding shares of Common Stock can elect all of
the directors of the Company.
Dividends
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<PAGE>
All shares of Common Stock are entitled to participate ratably in dividends
when, as and if declared by the Company's Board of Directors out of the funds
legally available therefor. Any such dividends may be paid in cash, property or
additional shares of Common Stock. The Company has not paid any dividends since
its inception and presently anticipates that no dividends will be declared in
the foreseeable future. Any future dividends will be subject to the discretion
of the Company's Board of Directors and will depend upon, among other things,
future earnings, the operating and financial condition of the Company, its
capital requirements, general business conditions and other pertinent facts.
Therefore, there can be no assurance that any dividends on the Common Stock will
be paid in the future.
Miscellaneous Rights and Provisions
Holders of Common Stock have no preemptive or other subscription rights,
conversion rights, and there are no redemption or sinking fund provisions
applicable to the common stock. In the event of liquidation, dissolution or
winding up, whether voluntary or involuntary, of the Company, each share of
Common Stock is entitled to share ratably in any assets available for
distribution to holders of the equity securities of the Company after
satisfaction of all liabilities and after provision has been made for each class
of stock, if any, having preference over the common stock.
Preferred Stock
Although no series of preferred stock has been issued and therefore no
voting or other rights have been designated or specified, the Company is
authorized to issue "blank check" preferred stock with such designations, rights
of conversion into common stock and other rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the
Company's Board of Directors, without stockholder approval, may issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company.
Delaware Anti-Takeover Law
The Company is subject to certain anti-takeover provisions under Section
203 of the Delaware General Corporation Law. In general, under Section 203, a
Delaware corporation may not engage in any business combination with any
"interested stockholder" (a person that owns, directly or indirectly, 15% or
more of the outstanding voting stock of a corporation or is an affiliate or
associate of a corporation and was the owner of 15% or more of the outstanding
voting stock), for a period of three years following the date such stockholder
became an interested stockholder, unless (i) prior to such date the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, or (ii) upon consummation of the transaction which resulted in the
stockholder becoming an
-35-
<PAGE>
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation outstanding at the time the transaction
commenced, excluding for purposes of determining the number of shares
outstanding those shares owned (a) by persons who are directors and also
officers, and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer, or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders and not by written
consent, by at least 66-2/3% of the outstanding voting stock which is not owned
by the interested stockholder. The restrictions imposed by Section 203 will not
apply to a corporation if the corporation's original certificate of
incorporation contains a provision expressly electing not to be governed by this
section or the corporation by action of its stockholders holding a majority of
the outstanding stock adopts an amendment to its certificate of incorporation or
by-laws expressly electing not to be governed by Section 203.
The Company has not elected out of Section 203, and therefore, the
restrictions imposed by Section 203 will apply to the Company. Such provision
could have the effect of discouraging, delaying or preventing a takeover of the
Company, which could otherwise be in the best interest of the Company's
stockholders, and have an adverse effect on the market price for the Company's
Common Stock.
Item 12. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law ("GCL") of the State of Delaware
empowers a Delaware corporation, such as the Company, to indemnify its directors
and officers under certain circumstances. The Company's Certificate of
Incorporation provides that the Company shall indemnify such persons to the
fullest extent permitted by Delaware law. At present, GCL provides that, in
order to be entitled to indemnification, an individual must have acted in good
faith and in a manner he or she reasonably believed to be in or not opposed to
the Company's best interests and, with respect to a criminal action or
proceeding, had no reasonable cause to believe that his or her conduct was
unlawful.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors and officers and controlling persons of
the Company pursuant to the provisions of Delaware law or otherwise, the Company
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in said Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit, or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such
-36-
<PAGE>
indemnification by it is against public policy as expressed in said Act and will
be governed by the final adjudication of such issue.
Article Tenth of the Company's Certificate of Incorporation limits the
personal liability of its directors to the Company or its stockholders for
monetary damages arising from a breach of their fiduciary duties as directors.
This provision does not prevent the Company or its stockholders from seeking
equitable remedies, such as injunctive relief or rescission. If equitable
remedies are found not to be available to stockholders in any particular case,
stockholders may not have any effective remedy against actions taken by
directors that constitute negligence or gross negligence.
Item 13. Financial Statements.
-37-
<PAGE>
Consolidated Financial Statements
(Stated in U.S. dollars)
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
<PAGE>
kpmg
kpmg LLP
Chartered Accountants Telephone (416) 228-7000
Yonge Corporate Centre Telefax (416) 228-7123
4120 Yonge Street Suite 500 www.kpmg.ca
North York ON M2P 2B8
INDEPENDENT AUDITORS' REPORT
To the Directors of Select Therapeutics Inc.
We have audited the accompanying consolidated balance sheets of Select
Therapeutics Inc. (A Development Stage Enterprise) as at June 30, 1999 and 1998
and the related consolidated statements of operations, changes in shareholders'
equity and cash flows for the years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
June 30, 1999 and 1998 and the results of its operations and its cash flows for
the years ended June 30, 1999 and 1998 and period from December 6, 1996, date of
inception, to June 30, 1997 in conformity with generally accepted accounting
principles in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
"KPMG LLP" (signed)
Chartered Accountants
Toronto, Canada
August 23, 1999
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Balance Sheets
(Stated in U.S. dollars)
June 30, 1999 and 1998
<TABLE>
<CAPTION>
===========================================================================================
1999 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 120,881 $ 2,070,705
Restricted cash (note 11(a)) 72,000 -
Accounts receivable 7,380 -
Inventory 32,130 -
Prepaid expenses and other assets 21,740 30,000
Property, plant and equipment (note 4) 104,547 3,278
Intangible assets (note 5) 900,581 -
- -------------------------------------------------------------------------------------------
$ 1,259,259 $ 2,103,983
- -------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable $ 43,309 $ 809,560
Accrued liabilities 655,798 231,670
--------------------------------------------------------------------------------------
699,107 1,041,230
Shareholders' equity:
Capital stock (note 6):
Authorized:
1,000,000 preferred shares
10,000,000 common shares,
$0.001 par value
Issued:
5,634,094 common shares (1998 - 4,981,313) 5,634 4,981
Contributed surplus 5,140,120 3,176,046
Deficit accumulated during the development stage (4,585,602) (2,118,274)
--------------------------------------------------------------------------------------
560,152 1,062,753
Going concern (note 1)
Commitments (note 9)
Subsequent event (note 6(b))
- -------------------------------------------------------------------------------------------
$ 1,259,259 $ 2,103,983
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Operations
(Stated in U.S. dollars)
<TABLE>
<CAPTION>
==============================================================================================================
Period from Period from
Year Year December 6, December 6,
ended ended 1996 to 1996 to
June 30, June 30, June 30, June 30,
1999 1998 1997 1999
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 130,055 $ -- $ -- $ 130,055
Cost of revenue 90,121 -- -- 90,121
- --------------------------------------------------------------------------------------------------------------
39,934 -- -- 39,934
Interest income 33,656 -- -- 33,656
Research and development 1,424,526 822,935 182,607 2,430,068
Selling, general and administration 929,756 1,095,726 16,427 2,041,909
Depreciation 13,470 579 -- 14,049
Amortization 173,166 -- -- 173,166
- --------------------------------------------------------------------------------------------------------------
2,540,918 1,919,240 199,034 4,659,192
- --------------------------------------------------------------------------------------------------------------
Loss for the period $ 2,467,328 $ 1,919,240 $ 199,034 $ 4,585,602
==============================================================================================================
Loss per share (note 10) $ (0.46) $ (0.45) $ (0.06)
Weighted average number of shares 5,318,743 4,285,474 3,207,000
==============================================================================================================
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
(Stated in U.S. dollars)
==============================================================================================================
Deficit
accumulated
during the
Common shares Contributed development
Shares Amount surplus stage Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 28, 1997 -- $ -- $ -- $ -- $ --
Issue of common shares 4,159,683 4,159 954,890 -- 959,049
Net loss -- -- -- (199,034) (199,034)
- --------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 4,159,683 4,159 954,890 (199,034) 760,015
Issue of common shares 821,630 822 2,221,156 -- 2,221,978
Loss for the period -- -- -- (1,919,240) (1,919,240)
- --------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 4,981,313 4,981 3,176,046 (2,118,274) 1,062,753
Issue of common shares 652,781 653 1,964,074 -- 1,964,727
Loss for the period -- -- -- (2,467,328) (2,467,328)
- --------------------------------------------------------------------------------------------------------------
Balance, June 30, 1999 5,634,094 $ 5,634 $ 5,140,120 $(4,585,602) $ 560,152
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Consolidated Statements of Cash Flows
(Stated in U.S. dollars)
<TABLE>
<CAPTION>
===============================================================================================================
Period from Period from
Year Year December 6, December 6,
ended ended 1996 to 1996 to
June 30, June 30, June 30, June 30,
1999 1998 1997 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Loss for the period $(2,467,328) $(1,919,240) $ (199,034) $(4,585,602)
Items not involving cash:
Depreciation 13,470 579 -- 14,049
Amortization 173,166 -- -- 173,166
Changes in non-cash operating working capital:
Amount receivable 92,620 -- -- 92,620
Inventory 2,300 -- -- 2,300
Prepaid expenses and other assets 9,522 105,686 (135,686) (20,478)
Accounts payable and accrued liabilities 379,395 1,084,521 95,439 1,559,355
- ---------------------------------------------------------------------------------------------------------------
(1,796,855) (728,454) (239,281) (2,764,590)
Financing activities:
Proceeds from issue of common shares,
net of issue costs 250,000 2,083,248 959,049 3,292,297
Repayment of loans due to the former
shareholders of Sierra Diagnostics, Inc. (285,999) -- (285,999)
Restricted cash (72,000) -- -- (72,000)
- ---------------------------------------------------------------------------------------------------------------
(107,999) 2,083,248 959,049 2,934,298
Investing activities:
Additions to property, plant and equipment (44,970) -- (3,857) (48,827)
- ---------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash (1,949,824) 1,354,794 715,911 120,881
Cash and cash equivalents, beginning of period 2,070,705 715,911 -- --
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 120,881 $ 2,070,705 $ 715,911 $ 120,881
===============================================================================================================
Supplementary disclosure:
Non-cash financing and investing activities:
Issue of common shares to purchase
licenses $ 138,730 $ -- $ -- $ 138,730
Issue of common shares related to the
acquisition of Sierra Diagnostics, Inc. 780,997 -- --
780,997
Issue of common shares for services 795,000 -- -- 795,000
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements (continued)
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
Select Therapeutics Inc. (the "Company" or "Select Therapeutics") was
incorporated under the laws of Delaware as VT Development, Inc. on January 28,
1997 and changed its name to Select Therapeutics Inc. on July 18, 1997.
Substantially all of the operations and assets are located in the United States
and the Company conducts biotechnological research and development for the
purpose of developing pharmaceutical products, and in-vitro diagnostic and
related products.
1. Going concern:
The Company is currently involved in research and development and did not
generate any significant revenue during the period of operations. The
continuation of the going concern assumption is dependent on additional
equity financing and on the development of an economically viable product.
The Company has incurred losses of approximately $4,586,000 to June 30,
1999. The Company is not expected to generate profits in the next three
years while its products are under development. There can be no assurance
that sufficient funding can be raised to fund ongoing research and
operating expenses or that the Company will be able to develop an
economically viable product.
The Company's acquisition of Sierra on November 2, 1998 has provided the
Company with a Federal Drug Administration Current Good Manufacturing
Practice ("cGMP") facility which will enable the Company to manufacture
diagnostic products which comply to regulatory requirements. Further,
Sierra has a product ready for market, sales of which are expected to
generate sufficient cash flow to cover the operating costs of Sierra and
the cGMP facility. The first delivery of Sierra's products took place in
January 1999. However, consolidated negative cash flow from operating
activities is expected to continue for Select Therapeutics for at least the
next two years.
Despite its negative cash flow, the Company has been able to secure
financing to support its operations to date, based on equity financing and
the payment for certain services to the Company through the issuance of
common shares. However, there can be no assurance that the Company will be
able to obtain sufficient financing to support its operations.
4
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
2. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company's wholly-owned subsidiaries, Select Therapeutics (Canada) Inc.
from the date of incorporation on December 6, 1996, and Sierra
Diagnostics, Inc. from the date of acquisition on November 2, 1998.
All material intercompany accounts and transactions have been
eliminated.
(b) Measurement uncertainty:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reported period. Actual results could differ
from those estimates.
(c) Research and development:
Research and development costs are expensed as incurred.
(d) Income taxes:
The Company records income taxes using the asset and liability method
as required by the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates
and laws that are expected to be in effect when the differences are
expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts that are more
likely than not to be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that
such tax rates changes are enacted.
5
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
2. Significant accounting policies (continued):
(e) Property, plant and equipment:
Property, plant and equipment are stated at cost and are amortized on
a straight-line basis over their estimated useful lives as follows:
----------------------------------------------------------------------
Leasehold improvements 10 years
Manufacturing equipment 7 years
Computer equipment 3 years
Office equipment 5 years
----------------------------------------------------------------------
All costs incurred relating to patents and licenses were expensed
during the year due to the uncertainty relating to their future
benefit.
(f) Intangible assets:
Intangible assets consist of goodwill and acquired license which arose
on the acquisition of Sierra on November 2, 1998 (note 3). Goodwill,
representing the excess cost over the fair value of net assets
acquired, is amortized on a straight-line basis over a period of five
years. The Company reviews the value of goodwill regularly. The
measurement of possible impairment is based primarily on the ability
to recover the balance of goodwill from expected future operating cash
flow through the remaining amortization period on an undiscounted
basis. If an impairment exists, the amount of such impairment is
calculated based on the estimated fair value of the asset. An acquired
license, representing the fair value of a license acquired, is
amortized over the one year life of a related contract plus a one year
renewal period.
(g) Fair value of financial instruments:
The carrying values of cash and cash equivalents and accounts payable
approximate their fair values due to the relatively short periods to
maturity of the instruments.
6
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
2. Significant accounting policies (continued):
(h) Cash and cash equivalents:
The Company considers all highly liquid investments purchased with a
maturity of 90 days or less to be cash equivalents. Cash and cash
equivalent balances consist of cash balances and investments in money
market funds.
3. Acquisition of Sierra Diagnostics, Inc.:
Effective November 2, 1998, the Company acquired 100% of the issued and
outstanding common shares of Sierra for consideration of 219,999 common
shares valued at $747,997 and direct costs of acquisition of $33,000. The
acquisition has been accounted for using the purchase method. The total
consideration exceeded the fair value of the net assets acquired by
$923,747, which has been recorded as goodwill and is being amortized on a
straight-line basis over five years.
The following unaudited pro-forma information for the year ended June 30,
1999 had been compiled assuming the acquisition of Sierra had occurred on
July 1, 1998.
--------------------------------------------------------------------------
Revenue and license fees $ 163,388
Net loss 2,729,965
Net loss per share (0.51)
--------------------------------------------------------------------------
7
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
3. Acquisition of Sierra Diagnostics, Inc. (continued):
The pro-forma data does not purport to represent the results of operations
that might have occurred had the transaction actually taken place on July
1, 1998, or the results of operations of Select or Sierra for any future
period. Further, the historical results of operations provide no indication
of the future performance of Select or Sierra.
4. Property, plant and equipment:
<TABLE>
<CAPTION>
===================================================================================================
Accumulated Net book
June 30, 1999 Cost amortization value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Leasehold improvements $ 12,942 $ 1,941 $ 11,001
Manufacturing equipment 109,747 29,865 79,882
Office equipment 23,913 10,249 13,664
---------------------------------------------------------------------------------------------------
$ 146,602 $ 42,055 $ 104,547
===================================================================================================
===================================================================================================
Accumulated Net book
June 30, 1998 Cost amortization value
---------------------------------------------------------------------------------------------------
Office equipment $ 3,857 $ 579 $ 3,278
===================================================================================================
</TABLE>
5. Intangible assets:
Intangible assets consist of the following:
<TABLE>
<CAPTION>
===================================================================================================
Accumulated Net book
June 30, 1999 Cost amortization value
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Goodwill $ 923,747 $ 123,166 $ 800,581
Acquired license 150,000 50,000 100,000
---------------------------------------------------------------------------------------------------
$ 1,073,747 $ 173,166 $ 900,581
===================================================================================================
</TABLE>
8
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
6. Capital stock:
(a) During the year ended June 30, 1998, the Company completed the
following capital stock transactions:
(i) 7,317 common shares were issued for cash proceeds of $7,317 which
related to the June 30, 1997 offering;
(ii) 23,810 common shares were issued for $68,800 as consideration for
a license agreement;
(iii) 27,972 common shares were issued for $69,930 as consideration
for a license agreement; and
(iv) 762,531 common shares were issued for gross cash proceeds of
$2,287,593 through a private offering of shares.
(b) During the year ended June 30, 1999, the Company completed the
following capital stock transactions:
(i) 11,000 common shares were issued for $33,000 as consideration for
professional services provided in relation to the acquisition of
Sierra;
(ii) 219,999 common shares were issued on the acquisition of Sierra
for a fair value of $747,997;
(iii) 321,782 common shares were issued to settle amounts payable of
$933,730; and
(iv) 100,000 common shares were issued for gross cash proceeds of
$250,000.
Share issue costs incurred during the year ended June 30, 1999 in the
amount of nil (1998 - $211,662) have been netted against contributed
surplus.
9
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
6. Capital stock (continued):
In May 1999, the Board of Directors approved the issuance of 48,000
common shares of the Company to settle amounts payable relating to
services which are valued at $120,000 of which $75,000 were rendered
during the fiscal year. These shares were issued subsequent to year
end. In addition, in August 1999, the Board of Directors approved the
reduction of the April 1998 private offering common share price from
$3.00 per share to $2.00 per share and authorized the issuance of an
additional 381,264 common shares to the subscribers of the April 1998
private offering.
In July 1999, the 50,000 common shares were issued for cash proceeds
of $125,000.
(c) Preferred shares:
The Company's Board of Directors is authorized to establish the number
of shares to be included in each preferred share series and to fix the
designation, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof. As
at June 30, 1999, no series of preferred shares are authorized by the
board and no preferred shares are issued.
7. Related party transactions:
During the year ended June 30, 1999, the Company paid technical consulting
fees of $151,842 (1998 - $55,699; 1997 - $44,629) to members of the Board
of Directors. This amount is included in research and development expenses.
10
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
8. Income taxes:
The effective rate of income taxes of zero differs from the statutory
Federal rate of 35% due to losses for which no tax benefit has been
recorded because it is not more likely than not that such benefits will be
realized.
The tax effects of temporary differences that give rise to future tax
assets at June 30, 1999 are as follows:
===========================================================================
Future income tax assets:
Licenses expensed for
accounting purposes $ 138,000
Net operating loss carryforwards 720,000
-----------------------------------------------------------------------
858,000
Valuation allowance (823,000)
---------------------------------------------------------------------------
Net future income tax assets 35,000
Future income tax liability:
Acquired license 35,000
---------------------------------------------------------------------------
Net future income tax assets $ --
===========================================================================
The tax effects of temporary differences that give rise to future income
tax assets at June 30, 1998 are as follows:
===========================================================================
Future income tax assets:
Licenses expensed for
accounting purposes $ 148,000
Net operating loss carryforward 175,000
-----------------------------------------------------------------------
323,000
Valuation allowance (323,000)
---------------------------------------------------------------------------
Net future income tax assets $ --
===========================================================================
11
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
8. Income taxes (continued):
At June 30, 1999, the Company and its subsidiaries had operating loss
carryforwards for tax purposes which expire as follows:
===========================================================================
2012 $ 525,000
2013 669,000
2014 694,000
===========================================================================
9. Commitments:
A subsidiary of the Company leases premises under an operating lease which
expires February 28, 2001. The Company has an option to renew the lease for
a further 40 months. Minimum lease payments due under the premises lease
are as follows:
===========================================================================
Year ending June 30:
2000 $ 55,460
2001 36,889
===========================================================================
Rent payment for the year ended June 30, 1999 totalled $14,455 (1998 - nil;
1997 - nil).
The Company has entered into several license agreements under which the
Company has obtained rights to license and sublicense certain intellectual
property. These licenses require the Company to pay royalties of between 2%
and 7% of net revenue from products using the licensed intellectual
property. The licenses also require the Company to pay between 20% and 70%
of sublicense fees.
12
<PAGE>
SELECT THERAPEUTICS INC.
(A DEVELOPMENT STAGE ENTERPRISE)
Notes to Consolidated Financial Statements
(Stated in U.S. dollars)
Years ended June 30, 1999 and 1998 and period from
December 6, 1996, date of inception, to June 30, 1997
================================================================================
9. Commitments (continued):
In addition, for the Company to retain its rights under these licenses, the
licenses require the Company to fund research and development and make
further license payments in both Canadian and United States dollars which
are, in aggregate, as follows:
===========================================================================
Canadian United States Total
---------------------------------------------------------------------------
2000 $ 402,064 $ 200,000 $ 602,064
===========================================================================
Further, in order to retain its rights under these licenses, the Company is
committed to make payments on the achievement of certain milestones
outlined in the various license agreements which total in aggregate
$374,744. Further, there are certain penalties in the license agreements
which total, in aggregate $200,000 if specified development milestones are
not reached. In some cases, failure to meet these payments will result in
termination of certain license agreements.
The Company can terminate the license agreements at any time, provided that
30 days' notice is given.
10. Loss per share:
Loss per share has been calculated using the weighted average number of
common shares outstanding during the periods.
The weighted average number of common shares which was used to calculate
the loss per share is as follows:
===========================================================================
June 30, 1999 5,318,743
June 30, 1998 4,285,474
June 30, 1997 3,207,000
===========================================================================
There are no common share purchase options or other dilutive potential
common shares outstanding.
13
<PAGE>
11. Other information:
(a) Restricted cash represents funds held in escrow by the Company's legal
representatives under the terms of an employment contract.
(b) SFAS 130, "Reporting Comprehensive Income" and SFAS 131 "Disclosure
about Segments of an Enterprise on Related Information" became
effective with the fiscal year commencing July 31, 1998. Adoption of
these standards had no impact of the financial statements.
12. Segment information:
The Company operates in a single operating segment consisting of
biotechnological research and development for the purpose of developing
pharmaceutical products and in-vitro diagnostic and related products.
All revenue are generated from a single customer located in the United
States.
13. New accounting not yet adopted:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for
Derivative Instruments and Hedging Activities". This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts (collectively
referred to as derivatives), and for hedging activities. It requires that
an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments as fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 5, 1999.
Management does not believe that the adoption of this new accounting
standard will immediately affect its historical results of operations or
shareholders' equity.
14
<PAGE>
Financial Statements
(Stated in U.S. dollars)
SIERRA DIAGNOSTICS, INC.
Period from January 1, 1998 to November 2, 1998
<PAGE>
kpmg
kpmg LLP
Chartered Accountants Telephone (416) 228-7000
Yonge Corporate Centre Telefax (416) 228-7123
4120 Yonge Street Suite 500 www.kpmg.ca
North York ON M2P 2B8
INDEPENDENT AUDITORS' REPORT
To the Director of Sierra Diagnostics, Inc.
We have audited the accompanying balance sheet of Sierra Diagnostics, Inc. as at
November 2, 1998 and the statements of operations, changes in shareholders'
deficiency and cash flows for the period from January 1, 1998 to November 2,
1998. 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 United States generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as at November 2,
1998 and the results of its operations and its cash flows for the period then
ended in conformity with generally accepted accounting principles in the United
States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in note 1.
These financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
"KPMG LLP" (signed)
Chartered Accountants
Toronto, Canada
January 21, 1999
<PAGE>
SIERRA DIAGNOSTICS, INC.
Balance Sheet
(Stated in U.S. dollars)
November 2, 1998
===============================================================================
Assets
Prepaid expenses $ 1,800
Inventory 34,430
Property, plant and equipment (note 3) 69,769
- -------------------------------------------------------------------------------
$ 105,999
===============================================================================
Liabilities and Shareholders' Deficiency
Liabilities:
Bank overdraft $ 538
Accounts payable 174,450
Accrued liabilities 12,762
Due to shareholders (note 4) 285,999
- -------------------------------------------------------------------------------
473,749
Shareholders' deficiency:
Capital stock:
Authorized:
750,000 shares
Issued:
1,404 shares 291,575
Deficit (659,325)
- -------------------------------------------------------------------------------
(367,750)
Going concern (note 1)
Commitments (note 7)
- -------------------------------------------------------------------------------
$ 105,999
===============================================================================
See accompanying notes to financial statements.
1
<PAGE>
SIERRA DIAGNOSTICS, INC.
Statement of Operations
(Stated in U.S. dollars)
Period from January 1, 1998 to November 2, 1998
===============================================================================
License fees $ 233,333
Expenses:
Research and development 261,553
Selling, general and administration 162,868
Depreciation 11,131
Interest 13,900
--------------------------------------------------------------------------
449,452
- -------------------------------------------------------------------------------
Loss before income taxes (216,119)
Income taxes --
- -------------------------------------------------------------------------------
Loss for the period $(216,119)
===============================================================================
Statement of Changes in Shareholders' Deficiency
(Stated in U.S. dollars)
Period from January 1, 1998 to November 2, 1998
<TABLE>
<CAPTION>
=============================================================================================
Common shares
Shares Amount Deficit Total
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1997 1,404 $ 291,575 $(443,206) $(151,631)
Loss for the period -- -- (216,119) (216,119)
=============================================================================================
Balance, November 2, 1998 1,404 $ 291,575 $(659,325) $(367,750)
=============================================================================================
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
SIERRA DIAGNOSTICS, INC.
Statement of Cash Flows
(Stated in U.S. dollars)
Period from January 1, 1998 to November 2, 1998
================================================================================
Cash provided by (used in):
Operating activities:
Loss for the period $(216,119)
Depreciation 11,131
Change in non-cash operating working capital:
Prepaid expenses 1,287
Inventory (3,514)
Accounts payable 127,968
Accrued liabilities 12,762
Deferred revenue (233,333)
--------------------------------------------------------------------------
(299,818)
Financing activities:
Increase in amount due to shareholders 225,390
Investing activities:
Additions to capital assets (430)
- -------------------------------------------------------------------------------
Decrease in cash (74,858)
Cash, beginning of period 74,320
- -------------------------------------------------------------------------------
Bank overdraft, end of period $ (538)
================================================================================
See accompanying notes to financial statements.
3
<PAGE>
SIERRA DIAGNOSTICS, INC.
Notes to Financial Statements (continued)
(Stated in U.S. dollars)
Period from January 1, 1998 to November 2, 1998
================================================================================
Sierra Diagnostics, Inc. (the "Company") was incorporated under the laws of
California on May 18, 1994 and its primary business activity is biotechnological
research and development for the purpose of developing and manufacturing invitro
diagnostics and reagents.
1. Going concern:
These financial statements have been prepared on a going concern basis,
which assumes the realization of assets and the liquidation of liabilities
in the normal course of business. Therefore, these financial statements do
not include any adjustments relating to the recovery of asset carrying
amounts or amounts of liabilities that might result should the Company be
unable to continue as a going concern.
The continuation of the going concern assumption is dependent on continued
financing by the Company's shareholders and on the development of an
economically viable product. Although management is confident that
sufficient financing will be provided, there can be no assurance that such
financing will be available to the Company or that the Company will be able
to develop an economically viable product. The Company has incurred losses
of approximately $659,000 to November 2, 1998, which have been funded by
the shareholders through debt and equity financing. Although management is
confident that sufficient financing can be raised, there can be no
assurance that such funding will be available to the Company in that the
Company will be able to develop an economically viable product.
At the close of business on November 2, 1998, all of the issued and
outstanding common shares of the Company were acquired by Select
Therapeutics, Inc.
Subsequent to this acquisition, the Company received an order for the
Company's Gonostat test kits and shipment commenced in January 1998.
Management anticipates that this order and other projected product sales
will cover the Company's operating expenses in 1999. Further, the Company's
shareholder, Select Therapeutics, Inc. ("Select") intends to expand the
Company's Federal Drug Administration Current Good Manufacturing Practice
facility and use the facility to supply compounds required for research
being funded by Select. Select also intends to fund several research
projects carried out by the Company. Fees from these activities will
further improve operating results.
Despite its negative cash flow, the Company has been able to secure
financing to support its operations to date, based on equity financing and
loans from the shareholder of the Company.
4
<PAGE>
SIERRA DIAGNOSTICS, INC.
Notes to Financial Statements
(Stated in U.S. dollars)
Period from January 1, 1998 to November 2, 1998
================================================================================
2. Significant accounting policies:
(a) Measurement uncertainty:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue
and expenses during the reported period. Actual results could differ
from those estimates.
(b) Research and development costs:
Research and development costs are expensed as incurred.
(c) Income taxes:
The Company records income taxes using the asset and liability method
as required by the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.
Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of
assets and liabilities and are measured using the enacted tax rates
and laws that are expected to be in effect when the differences are
expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts that are more
likely than not to be realized. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that
such tax rates changes are enacted.
(d) Property, plant and equipment:
Property, plant and equipment are stated at cost and are amortized on
a straight-line basis over their estimated useful lives as follows:
======================================================================
Leasehold improvements 10 years
Manufacturing equipment 7 years
Office equipment 5 years
======================================================================
5
<PAGE>
SIERRA DIAGNOSTICS, INC.
Notes to Financial Statements
(Stated in U.S. dollars)
Period from January 1, 1998 to November 2, 1998
================================================================================
3. Property, plant and equipment:
---------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
---------------------------------------------------------------------------
Leasehold improvements $ 12,942 $ 1,079 $ 11,863
Manufacturing equipment 73,705 22,678 51,027
Office equipment 13,335 6,456 6,879
---------------------------------------------------------------------------
$ 99,982 $ 30,213 $ 69,769
---------------------------------------------------------------------------
4. Due to shareholders:
The amount due to shareholders bears no interest and has no fixed repayment
terms.
5. Financial instruments:
The carrying values of cash and accounts payable and accrued liabilities
approximate their fair values due to the relatively short periods to
maturity of the instruments. It is not practical to determine a fair value
of the amount due to shareholder due to the unusual terms and related party
nature of this instrument.
6. Income taxes:
The tax effects of temporary differences that give rise to future income
tax assets at November 2, 1998 are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
Federal State Total
---------------------------------------------------------------------------
<S> <C> <C> <C>
Future income tax assets:
Net operating loss carryforward $ 228,000 $ -- $ 228,000
Valuation allowance (228,000) -- (228,000)
---------------------------------------------------------------------------
Net future income tax assets $ -- $ -- $ --
---------------------------------------------------------------------------
</TABLE>
6
<PAGE>
SIERRA DIAGNOSTICS, INC.
Notes to Financial Statements
(Stated in U.S. dollars)
Period from January 1, 1998 to November 2, 1998
================================================================================
7. Commitments:
The Company has entered into an exclusive worldwide license agreement under
which the Company has obtained rights to license and sublicense certain
intellectual property. This license requires the Company to pay royalties
of between 7% and 3% on net revenue from products using the licensed
intellectual property with a minimum annual royalty of $10,000. The royalty
agreement ends January 1, 2007, the date of expiry of the Patent on the
licensed intellectual property. The license also requires the Company to
pay 25% of sublicense fees.
The Company leases premises under an operating lease which expires February
29, 1999. The Company has an option to renew the lease for a further two
years. Minimum lease payments due under the current premises lease are as
follows:
---------------------------------------------------------------------------
Year ending December 31:
1998 $ 1,512
1999 1,512
---------------------------------------------------------------------------
Rent payments for the period January 1, 1998 to November 2, 1998 totalled
$17,614.
7
<PAGE>
Pro forma Consolidated Statement of Operations
(Stated in U.S. dollars)
SELECT THERAPEUTICS INC.
Year ended June 30, 1999
(Unaudited)
<PAGE>
SELECT THERAPEUTICS INC.
Pro forma Consolidated Statement of Operations
(Stated in U.S. dollars)
Year ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Select Sierra
Therapeutics Diagnostics, Pro forma
Inc. Inc. adjustments Note 3 Pro forma
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 130,055 $ - $ - $ 130,055
Cost of revenue 90,121 - - 90,121
- -------------------------------------------------------------------------------------------------------------
39,934 - - 39,934
License fees - 233,333 (200,000) (a) 33,333
Interest income 33,656 - - 33,656
- -------------------------------------------------------------------------------------------------------------
73,590 233,333 (200,000) 106,923
Expenses:
Research and
development 1,424,526 261,553 (148,939) (a) 1,537,140
Selling, general and
administration 929,756 162,868 (80,514) (a) 1,012,110
Depreciation 13,470 11,131 (6,500) (a) 18,101
Amortization 173,166 - 86,583 (b) 259,749
Interest - 13,900 (4,112) (a) 9,788
--------------------------------------------------------------------------------------------------------
2,540,918 449,452 (153,482) 2,836,888
- -------------------------------------------------------------------------------------------------------------
Loss for the year $(2,467,328) $(216,119) $ (46,518) $(2,729,965)
- -------------------------------------------------------------------------------------------------------------
Loss per share $ (0.46) $ (0.51)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to pro forma consolidated statement of operations.
1
<PAGE>
SELECT THERAPEUTICS INC.
Notes to Pro forma Consolidated Statement of Operations (continued)
(Stated in U.S. dollars)
Year ended June 30, 1999
(Unaudited)
================================================================================
1. Basis of presentation:
The accompanying pro forma consolidated statement of operations has been
prepared by management of Select Therapeutics Inc. ("Select") for inclusion
in the Form 10-SB registration document filed with the United States
Securities and Exchange Commission relating to the acquisition by Select of
Sierra Diagnostics, Inc. ("Sierra") on November 2, 1998. The pro forma
consolidated financial statement has been prepared in accordance with
generally accepted accounting principles to reflect the transaction.
The pro forma consolidated statement of operations should be read in
conjunction with the audited financial statements of Select and Sierra
included elsewhere in the document.
The pro forma consolidated statement of operations for the year ended June
30, 1999 has been compiled from the audited consolidated financial
statements of Select as at and for the year ended June 30, 1999 and the
audited results of Sierra for the period from January 1, 1998 to November
2, 1998, date of acquisition.
The pro forma consolidated statement of operations assumes that the
transaction was effective July 1, 1998.
The pro forma consolidated financial statement does not purport to
represent the results of operations that might have occurred had the
transaction actually taken place on the date indicated or results of
operations of Select or Sierra as at or for any future date or period.
Further, the historical results of operations provide no indication of the
future performance of Select or Sierra.
2. Acquisition of Sierra:
Pursuant to an agreement between Select and Sierra dated October 19, 1998,
Select has acquired 100% of the issued and outstanding common shares
effective November 2, 1998 of Sierra for consideration of $747,997, settled
through the issuance of 219,999 common shares of Select, with a fair value
of $3.40 per share. Costs relating to the acquisition totalled $33,000.
2
<PAGE>
SELECT THERAPEUTICS INC.
Notes to Pro forma Consolidated Statement of Operations
(Stated in U.S. dollars)
Year ended June 30, 1999
(Unaudited)
================================================================================
2. Acquisition of Sierra (continued):
The acquisition has been accounted for using the purchase method and the
purchase price of $780,997 has been allocated to the assets acquired and
the liabilities assumed using the estimates of their fair values as
follows:
==========================================================================
Book value,
November 2, Fair value
1998 adjustments Fair value
--------------------------------------------------------------------------
Current assets $ 36,230 $ - $ 36,230
Amount receivable - 100,000 100,000
Acquired license - 150,000 150,000
Goodwill - 923,747 923,747
Other assets 69,769 - 69,769
--------------------------------------------------------------------------
105,999 1,173,747 1,279,746
Current liabilities (187,750) (25,000) (212,750)
Long-term liabilities (285,999) - (285,999)
--------------------------------------------------------------------------
(473,749) (25,000) (498,749)
--------------------------------------------------------------------------
$ (367,750) $ 1,148,747 $ 780,997
==========================================================================
Goodwill arising on the transaction is being amortized over five years and
the acquired license is being amortized over two years.
3. Pro forma adjustments:
The pro forma consolidated financial statement incorporate the following
adjustments:
(a) To remove the results of Sierra from January 1, 1998 to June 30, 1998
to reflect the assumption that the acquisition of Sierra was effective
July 1, 1998.
(b) To record the amortization for the period from July 1, 1998 to
November 2, 1998 of goodwill and acquired license contract arising on
the acquisition by Select of Sierra of $61,583 and $25,000,
respectively.
3
<PAGE>
Item 14. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements Filed
INDEPENDENT AUDITORS' REPORT
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 1999 AND 1998 AND
CONSOLIDATED STATEMENTS OF OPERATIONS, CASH FLOWS, AND CHANGES IN
SHAREHOLDERS' EQUITY FOR EACH OF THE TWELVE MONTHS THEN ENDED AND THE
PERIOD FROM DECEMBER 6, 1996 (DATE OF INCEPTION), TO JUNE 30 1997.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT
SIERRA DIAGNOSTICS, INC. BALANCE SHEET AS OF NOVEMBER 2, 1998 AND
STATEMENTS OF OPERATIONS, CASH FLOWS, AND CHANGES IN SHAREHOLDERS'
DEFICIENCY FOR THE PERIOD FROM JANUARY 1, 1998 TO NOVEMBER 2, 1998.
NOTES TO FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR
ENDED JUNE 30, 1999
NOTES TO PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(b) Exhibits Filed
2. Stock Purchase Agreement with the shareholders of Sierra
Diagnostics, Inc. dated October 19, 1998
3.1 Restated Certificate of Incorporation
3.2 By-Laws
10.1 License Agreement, dated September 1, 1993, between Temple
University and Sierra Diagnostics, Inc.
10.2 Contract 4004293, effective 10/27/98 between Sierra
Diagnostics, Inc. and State of Alabama
-38-
<PAGE>
10.3 Lease Agreement dated July 1, 1999, between H&H Properties
and Sierra Diagnostics, Inc.
10.4 Consulting Agreement with Robert Bender Consulting Limited,
dated January 1, 1999
10.5 Consulting Agreement with Craig Sibley dated January 1, 1999
10.6 Consulting Agreement with Clifford Lingwood, dated January
1, 1999
10.7 Consulting Agreement with Allan Green, M.D., J.D., Ph.D.,
dated January 1, 1999
11. Statement re: Computation of per share earnings
21. Subsidiaries
27. Financial Data Schedule
-39-
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
SELECT THERAPEUTICS INC.
(Registrant)
Date: September 16, 1999
By: /s/ Robert Bender
-----------------
Name: Robert Bender
Title: Chairman of the Board
-40-
EXHIBIT 2
AGREEMENT
dated as of October 19, 1998
by and among
Select Therapeutics Inc.
and
the Stockholders of
Sierra Diagnostics, Inc.
<PAGE>
AGREEMENT (the "Agreement") dated as of October 19, 1998 (the "Closing
Date") by and between SELECT THERAPEUTICS INC. ("Select"), and the persons
listed on Exhibit A hereto (collectively, the "Stockholders").
WHEREAS, (i) Select is a corporation organized and existing under the laws
of the State of Delaware; (ii) SIERRA DIAGNOSTICS, INC. ("Sierra") is a
corporation organized and existing under the laws of the State of California and
(iii) TONY K. BAKER ("Baker") is an executive officer and the principal
stockholder of Sierra; and
WHEREAS, the Stockholders wish to sell to Select, and Select wishes to
purchase from the Stockholders, all of the issued and outstanding capital stock
of Sierra upon the terms and conditions hereinafter set forth (the
"Acquisition"); and
WHEREAS, the respective parties desire to make certain representations,
warranties and agreements in connection with the Acquisition.
NOW, THEREFORE, in consideration of the foregoing, the representations,
warranties, covenants and agreements set forth herein and such other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
Article I. Sale and Purchase of Sierra Shares.
1.1 Sale of Sierra Shares. Each Stockholder does hereby sell and deliver to
Select, and Select does hereby purchase from
<PAGE>
each Stockholder, the number of shares of Sierra common stock owned by such
Stockholder as set forth on Exhibit A hereto (the "Sierra Shares") by delivering
to Sierra stock certificates representing his Sierra Shares, accompanied by a
stock power executed by such Stockholder, with his signature Medallion
Guaranteed, together with all applicable stock transfer tax stamps relative to
said certificates.
1.2 Payment of Purchase Price. Simultaneous with its receipt of all of the
Sierra Shares from the Stockholders, Select hereby delivers to each Stockholder
that number of shares of Select common stock (the "Select Shares") set forth
opposite his name on Exhibit A (collectively, the "Purchase Price").
Article II. Representations, Warranties, Covenants, and Acknowledgments of
Stockholders. Each Stockholder severally (but not jointly) represents, warrants
covenants, acknowledges and agrees as follows:
2.1 Investment. Such Stockholder is acquiring the Select Shares for his own
account, and not for the account of any other person. Such Stockholder is
acquiring the Select Shares for investment and not with a view to distribution
or resale thereof except in compliance with applicable laws regarding the sale
of securities.
-2-
<PAGE>
2.2 Business Experience. Such Stockholder is capable of evaluating the
merits and risks of his investment in Select by acquiring the Select Shares
pursuant to this Agreement.
2.3 Access to Information. Such Stockholder has had the opportunity to ask
questions of, and to receive answers from, Robert Bender, the Chairman of
Select, with respect to the terms and conditions of the transactions
contemplated by this Agreement and with respect to the business, affairs,
financial condition, results and prospects of operations of Select. Such
Stockholder has received from Sierra's counsel and has read Select's April 15,
1998 Offering Materials (comprising a Subscription Agreement, Risk Factors and
Select's Consolidated June 30, 1997 (audited) and December 31, 1997 (unaudited)
Financial Statements, pursuant to which Select sold 762,534 shares of Common
Stock not registered under the Securities Act of 1933, as amended (the
"Securities Act"), at a price of $3.00 each) and Select's press release dated
June 11, 1998 (re: Institut Curie Agreement) and has had access to such
financial and other information as he has deemed necessary for him to make a
fully-informed decision to invest in Select by acquiring Select Shares pursuant
to this Agreement; and he has had the opportunity to obtain any additional
information necessary to verify any of such information to which he has had
access.
2.4 Speculative Investment. Such Stockholder's investment in Select by
acquiring the Select Shares pursuant to
-3-
<PAGE>
this Agreement is highly speculative in nature and is subject to a high degree
of risk of loss in whole or in part. The amount of such potential total
investment loss is within such Stockholder's risk capital means and is not so
great in relation to his total financial resources as to jeopardize his personal
financial needs or those of his family in the event such investment were to be
lost in whole.
2.5 Select Shares Unregistered. Such Stockholder must bear the economic
risk of his investment in the Select Shares for an indefinite period of time,
because the Select Shares being issued to him pursuant to this Agreement have
not been registered under the Securities Act and therefore such Shares cannot be
sold or otherwise transferred by such Stockholder unless such Shares are
registered under the Securities Act or an exemption from such registration is
available. None of Select nor any of its officers, employees, agents or
representatives has made any agreements, covenants or undertakings whatsoever
either (i) to register the Select Shares, or any of them, or (ii) except as set
forth in Section 7.14(b) as to whether any exemption will be available from the
registration requirements of the Securities Act for the future sale of any
Select Shares, including without limitation for sales thereof under Rule 144
promulgated under the Securities Act. Such Stockholder acknowledges that the
exemption under Rule 144 as currently in effect would not be available until at
least one year after the Closing Date and not then unless: (i) a public trading
-4-
<PAGE>
market then exists for Select's Common Stock; (ii) adequate current information
as to Select's financial and other affairs and operations is then available to
the public; and (iii) all other applicable terms and conditions of Rule 144 have
been satisfied by Select and such Stockholder.
2.6. Stock Certificate Restrictive Legend. Stock certificates evidencing
the Select Shares shall bear a restrictive legend for securities not registered
under the Securities Act, substantially as follows:
THE OFFERING AND SALE OF THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1993 ("SECURITIES ACT") OR UNDER ANY STATE
SECURITIES ACT ("STATE ACT"). ANY TRANSFER OF SUCH
SECURITIES WILL BE INVALID UNLESS A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT IS IN EFFECT AS TO
SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE
ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR
SUCH TRANSFER TO COMPLY WITH THE SECURITIES ACT AND
THE STATE ACT.
2.7 Questionnaire. Such Stockholder has truthfully completed the
Questionnaire in the form of Exhibit 2.7 hereof.
2.8 Tax Advice. Select has made no warranties or representations to such
Stockholder with respect to the income tax consequences of the transactions
contemplated by this Agreement and such Stockholder is in no manner relying on
Select or Sierra or their respective representatives for an assessment of such
tax consequences.
2.9 Authorization.
-5-
<PAGE>
(a) Such Stockholder has full power and authority and legal capacity to enter
into this Agreement and to perform this Agreement in accordance with its terms;
and the execution, delivery and performance of this Agreement by such
Stockholder has been duly authorized by all necessary corporate or other action.
Such Stockholder is not bound by any contractual or other obligation that would
be violated by his execution and performance of this Agreement; and this
Agreement is a valid and binding obligation of such Stockholder enforceable in
accordance with its terms.
(b) Neither the execution and delivery of this Agreement nor the
consummation by such Stockholder of any of the transactions contemplated herein
nor compliance by such Stockholder with the terms, conditions and provisions
hereof or of any agreement or instrument contemplated hereby will (i) conflict
with, result in a breach of, or constitute an event of default under (1) any
material instrument, agreement, lease, license, franchise, permit, or other
authorization, right, or obligation to which such Stockholder is a party or any
of his properties is subject or by which they are bound, or (2) any statute,
ordinance, rule, regulation, judgment, order, award or decree applicable to such
Stockholder, or (ii) require the approval, consent or authorization of, or the
making of any declaration, filing or registration with, any third party or any
foreign, federal, state or local court, governmental authority or regulatory
body.
-6-
<PAGE>
2.10 Ownership of Sierra's Shares. Such Stockholder is the record owner and
the beneficial owner of the capital stock of Sierra set forth opposite his name
on Exhibit A. Such Stockholder owns his Sierra Shares free and clear of all
liens and encumbrances, and he has the full and complete right and power to
dispose of his Sierra Shares in accordance with the terms of this Agreement.
Such Stockholder will transfer his Sierra Shares to Select free and clear of all
liens and encumbrances. There are no existing arrangements that require or
permit any of such Stockholder's Sierra Shares to be voted by or at the
discretion of anyone other than such Stockholder.
2.11 Confidentiality. Such Stockholder, if he has not executed and
delivered to Sierra a Proprietary Information Agreement in the form of Exhibit
3.13 hereto, agrees to maintain as confidential and not use for his own benefit
or for the benefit of any third party, all material information and knowledge of
Sierra not generally known or available to the public, including, without
limitation, its business, affairs, research and development, strategic and
operating plans, products and prospects (the "Confidential Information"), except
(i) with respect to those governmental agencies to which disclosure is required
by law or applicable regulation, (ii) pursuant to subpoena or other compulsory
process, or (iii) as may otherwise be required by law. In the event disclosure
of Confidential Information is required under subsections (i) through (iii)
above, such Stockholder will,
-7-
<PAGE>
to the extent lawfully possible, give Select at least five (5) days prior
written notice before his disclosure and will provide Select with copies of any
responsive materials.
2.12 Non-Solicitation. (a) For a period of three years after the Closing
Date such Stockholder will not either directly or indirectly for himself or any
third party, (a) solicit, induce, recruit, or cause any person who was, is or
hereafter becomes an employee of Sierra to terminate his employment for the
purpose of joining, associating or becoming employed by any business or activity
(i) which is in competition with any product sold, or any business or activity
now or hereafter engaged in, by Sierra or Select or (ii) in which such
Stockholder is an officer or director or directly or indirectly has any
ownership interest or to which he provides any services or (b) interfere or harm
the contractual or business relationships of Sierra or Select with any person,
firm or entity which was, is or hereafter becomes a licensor, licensee or
independent contractor of Sierra or Select.
2.13 Release of Sierra. (a) As a material inducement to Select to enter
into this Agreement and deliver the Select Shares hereunder, such Shareholder
hereby irrevocably and unconditionally releases, acquits, and forever discharges
Sierra and each of its stockholders, predecessors, successors, assigns, agents,
directors, officers, employees, representatives, attorneys, subsidiaries,
affiliates (and agents, directors, officers, employees, representatives, and
attorneys of such divisions, subsidiaries, and
-8-
<PAGE>
affiliates), and all persons acting by, through, under, or in concert with any
of them (Sierra and each of its stockholders, etc. are collectively the "Sierra
Releasees"), or any of them, from any and all charges, complaints, claims,
liabilities, obligations, promises, agreements, controversies, damages, actions,
causes of action, suits, rights, demands, costs, losses, debts and expenses
which such Stockholder now has, owns, or holds, or claims to have, own, or hold,
or which he at any time heretofore had, owned, or held, or claimed to have, own
or hold, or which he at any time hereafter may have, own, or hold, or claim to
have, own, or hold, against each or any of the Sierra Releasees with respect to
any events which occurred prior to the date of this Agreement; provided,
however, that the foregoing shall in no event apply, with respect to any
Stockholder who is also an officer, director or employee of Sierra, to claims by
the Stockholder (i) relating to vested rights under any Sierra employee benefit
plans to which such Stockholder was entitled as of the Closing Date, (ii)
relating to medical or health insurance coverage to which such Stockholder was
entitled as of the Closing Date, including COBRA benefits, (iii) arising from a
failure on the part of Sierra to make and pay any required employee tax
withholdings for periods of employment prior to the Closing Date, or (iv) for
which Sierra would otherwise have an indemnity obligation under applicable law
to such Stockholder with respect to third party claims brought against the
Stockholder for matters relating to the performance (or nonperformance) of the
-9-
<PAGE>
Stockholder's duties as an employee of Sierra prior to the Closing Date.
(b) For the purposes of implementing a full and complete release and
discharge of the Sierra Releasees, such Stockholder expressly acknowledges that
this Agreement is intended to include in its effect, without limitation, all
claims, other than those for indemnification, which he does not know or suspect
to exist in his favor as of the date of this Agreement, and that this Agreement
contemplates the extinguishment of any such claim or claims.
(c) The foregoing provisions of Section 2.13(a) and (b) shall not in any
way be construed as any claim or admission by any Sierra Releasee that Sierra
has acted wrongfully with respect to such Stockholder or to any other person, or
that such Stockholder has any rights whatsoever against Sierra.
Article III. Representations and Warranties of Baker. Baker represents and
warrants to Select as follows:
3.1 Corporate Organization. Sierra is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and is
duly authorized to carry on its business where and as now conducted and to own,
lease and operate its properties and assets as it now does. Sierra is qualified
or licensed to do business as a foreign corporation, and is in good standing, in
each jurisdiction in which the nature of the business conducted by it or its
ownership or leasing of the
-10-
<PAGE>
properties owned or leased by it requires such qualification or licensing and
where the failure to be so qualified or licensed would have a material adverse
effect on Sierra. The copies of the certificate of incorporation and by-laws of
Sierra that have been delivered to Select are complete and correct as of the
date of this Agreement, and the duplicate minute book of Sierra which has been
furnished to Select is complete and accurately reflects all material actions or
consents to action taken prior to the date of this Agreement by the Board of
Directors and stockholders of Sierra.
3.2 Authorization.
(a) Sierra is not bound by any contractual or other obligation that would be
violated by the execution, delivery, consummation and performance of this
Agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation of any of the transactions contemplated herein, nor the performance
of the terms, conditions and provisions hereof or of any agreement or instrument
contemplated hereby, will (i) conflict with, result in a breach of, or
constitute an event of default under (1) the certificate of incorporation or
by-laws of Sierra, (2) any material instrument, agreement, lease, license,
franchise, permit, or other authorization, right, or obligation to which Sierra
is a party or any of its properties is subject or by which and is bound, or (3)
any statute, ordinance, rule, regulation, judgment, order, award or
-11-
<PAGE>
decree applicable to Sierra, or (ii) require the approval, consent or
authorization of, or the making of any declaration, filing or registration with,
any third party or any foreign, federal, state or local court, governmental
authority or regulatory body.
3.3 Capitalization. The authorized, issued and outstanding capital stock of
Sierra is as set forth on Schedule 3.3. All the issued and outstanding shares of
Sierra were duly authorized for issuance and are validly issued, fully-paid and
non-assessable, have not been issued in violation of the preemptive rights of
any Sierra stockholder and were issued in full compliance with all federal and
state securities laws. All prior sales of securities of Sierra were either
registered under the Securities Act and applicable state securities laws or
exempt from such registration, and no Stockholder or other security holder has
any rescission rights with respect thereto. There are no outstanding
subscriptions, options, warrants, agreements, convertible securities, preemptive
or other rights, calls, commitments or other rights or agreements of any kind to
subscribe for, purchase or otherwise acquire any issued or unissued capital
stock or equity interests of Sierra. Sierra is not obligated to purchase, redeem
or otherwise acquire any securities of Sierra or of any other person or entity.
3.4 Subsidiaries. Sierra does not own any capital stock or other interest
in any corporation or other business entity.
-12-
<PAGE>
3.5 Joint Ventures. For purposes of this Agreement, a "Joint Venture" means
an entity in which Sierra, either jointly or individually, is, directly or
indirectly, the beneficial owner of any class of capital stock or other equity
security or any profit participation interest. Sierra is not a participant in
any Joint Venture.
3.6 Financial Statements. The following financial statements of Sierra,
which are set forth on Schedule 3.6, have been prepared in United States Dollars
and present fairly the financial condition of Sierra at the dates indicated and
the consolidated results of its operations for the periods indicated:
(a) balance sheets of Sierra as at December 31, 1997 and June 30,
1998; and
(b) the liabilities of Sierra existing as of the Closing Date are set
forth on Schedule 3.6. Baker represents and warrants that Schedule 3.6
contains a true and complete list as of the Closing Date of all
indebtedness or liabilities of Sierra of every nature and description,
absolute, contingent or otherwise, except for (i) costs related to employee
compensation accrued on or after October __, 1998 in the ordinary course,
(ii) legal fees and expenses of the Stockholders to be borne by Sierra
pursuant to Section 7.2 hereof relating to the negotiation and
documentation of this Agreement and (iii) miscellaneous items ordered from
vendors and not yet invoiced or other amounts not exceeding $5,000.00 in
the aggregate.
-13-
<PAGE>
3.7 Absence of Undisclosed Liabilities; Books of Account. Except to the
extent fully reflected in Schedule 3.6, Sierra has no liabilities of any nature,
whether accrued, absolute, contingent or otherwise, including, but not limited
to, any tax or other liabilities of any nature that were unknown or undetermined
as of the Closing Date. There is no basis for the assertion against Sierra of
any liability of any nature as of the Closing Date not fully reflected in
Schedule 3.6 except those expressly permitted by Section 3.6(b) hereof to be
omitted therefrom. All the books of account of Sierra have been exhibited or
made available to Select and accurately record all material transactions of
Sierra during the periods covered by them.
3.8 Absence of Certain Changes. Since June 30, 1998 and except as disclosed
on Schedule 3.8, Sierra has operated its business in the ordinary course and
consistent with past practices and there has not been any material adverse
change in the consolidated financial condition of Sierra, results of operations
or businesses of Sierra, and it has not taken any of the following actions which
individually or in the aggregate involved more than US$5,000:
(a) entered into any transaction or incurred any liability or obligation other
than in the ordinary course of its business;
(b) made any declaration, set aside or paid any dividend or other
distribution in respect of any shares of capital
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stock of Sierra, nor purchased, redeemed or otherwise acquired any outstanding
shares of capital stock or other securities of, or other ownership interests in,
Sierra;
(c) paid any dividends or made any other distributions on, or acquired, any
shares of its capital stock or, directly or indirectly, made any other payments
or loans of any kind to the Stockholder, except compensation for services
rendered and reimbursement for expenses in amounts consistent with past
practices;
(d) incurred any indebtedness for borrowed money, other than short term
borrowing in the ordinary course of business;
(e) issued any capital stock or other securities, granted any options or
agreed to any amendment of any material term of any outstanding Sierra
securities;
(f) sustained any material damage, destruction or other casualty loss
(whether or not covered by insurance) affecting the business or assets of
Sierra;
(g) made any material change in any method of accounting or accounting
practice;
(h) (1) granted any severance or termination pay to, or increased any
compensation, bonus or other benefits payable to, or entered into any written
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with, any officer or director of Sierra, or any
other employee of Sierra whose 1998 base annual salary exceeded $50,000,
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or (2) increased any benefit payable under any existing severance or termination
pay policies or employment agreements; or (3) granted or agreed to grant any
general increase in any rate or rates of salaries or compensation to its
employees or any specific increase in the salary or compensation to any employee
or agent, or paid or agreed to pay any bonus to any employee of Sierra, other
than in the ordinary course of business.
3.9 Ownership of Properties. Sierra does not own any real estate or
interest therein other than a leasehold interest in property in Sonora,
California identified on Schedule 3.16. Sierra owns outright, free and clear of
any claim, lien, security interest, pledge, restriction, charge or encumbrance,
all leasehold improvements, equipment, inventory and other personal property
used in its business or presently located in any of its premises, except for the
lien, if any, of current taxes not yet due and payable (the lien of Scherer
Capital Associates under the Security Agreement dated November 26, 1996 having
been extinguished by virtue of Sierra's satisfaction in full of all its
obligations thereto and its receipt therefrom of a General Release). Sierra does
not use or lease any property that is owned by any officer, director or
affiliate of Sierra or any relative of any thereof.
3.10 Real Property and Other Leases. All leases of real property and all
material leases of other property, and amendments and modifications thereof, are
in full force and effect and have not been modified or amended in any material
respect, all rents and
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additional rents due to date under each such lease have been paid, Sierra has
been in peaceable possession since the commencement of the original term of such
lease, and Sierra does not have any knowledge of an uncured default under such
leases by Sierra or by the lessor under any of such leases nor of any event
which with notice or lapse of time or both would constitute a default thereunder
by Sierra.
3.11 Inventory. All of the inventory of Sierra is carried on its books at
cost (on the basis of FIFO and average cost).
3.12 Machinery and Equipment. All machinery and equipment owned or leased
by Sierra is in good operating condition, normal wear and tear excepted, and the
use thereof is in material conformance with all applicable ordinances and
regulations, and all building, zoning and other laws.
3.13 Intellectual Property.
(a) Schedule 3.13 contains a true and complete list of all patents issued,
assigned to or licensed by, and trademarks registered to, Sierra and all pending
applications therefor (the "Scheduled IP"). Except as set forth on said
Schedule, Sierra owns or has an exclusive right or license to use the Scheduled
IP free and clear of all liens and encumbrances. No consent of any third party
is or will be required for the use by Select of any of the Scheduled IP or the
transfer of Sierra's rights therein to Select. Except as set forth on said
Schedule, Sierra is not obligated to
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pay any royalties or fees with respect to the Scheduled IP. Said Schedule also
contains a true and complete list of all licenses of or rights to any
intellectual property rights granted by Sierra to others.
(b) Except as may be disclosed in the Gonostat Trademark Search Report
dated September 1, 1993, Sierra does not have knowledge of any infringement by
it upon the patents, trademarks, trade names, service marks, trade secrets,
copyrights or other intellectual property rights of others. Sierra has not
received any notice of, nor has it been a defendant or plaintiff in any suit,
action or proceeding which involves, any claim that Sierra has infringed or is
infringing any intellectual property rights of others. Sierra has taken all
measures as it has deemed necessary and appropriate in the circumstances to
maintain the confidentiality of the process and formulae, research and
development results and other know-how of Sierra. Sierra has obtained from its
current employees and consultants written confidentiality agreements in the form
of the Proprietary Information Agreement attached hereto as Exhibit 3.13.
3.14 Accounts Receivable. All of the accounts receivable of Sierra arose
from bona fide transactions in the ordinary course of business, and, to Baker's
knowledge, none is subject to any defense, set-off or counterclaim.
3.15 Taxes.
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(a) For the purposes of this Agreement, "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means, for any entity, (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, withholding on amounts paid to
or by such entity or any subsidiary thereof, payroll, employment, excise,
severance, stamp, occupation, property, environmental or windfall profit tax, or
other tax, together with any interest or any penalty, addition to tax or
additional amount imposed by any governmental authority responsible for the
imposition of any such tax (domestic or foreign) (a "Taxing Authority"), and
(ii) liability of such entity or any subsidiary thereof for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any taxable period, and
(iii) liability of such entity or any subsidiary thereof for the payment of any
amounts of the type described in clauses (i) or (ii) as a result of any express
or implied obligation to indemnify any other person.
(b) Except as set forth in Schedule 3.15:
(i) all Tax returns, statements, reports and forms (including
estimated Tax returns and reports and information returns and reports)
required to be filed with any Taxing Authority with respect to any Taxable
period ending on or before the Closing Date by or on behalf of Sierra (the
"Sierra Tax Returns"), have been or will be filed when due (subject to
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any extensions of such due date) and, to Sierra's knowledge, each Sierra
Tax Return is materially correct and complete as filed;
(ii) Sierra has timely paid, withheld or made provision on its books
for all Taxes shown as due and payable on Sierra Tax Returns that have been
filed, except that payroll taxes were, in some instances, paid late but are
currently paid when due with no outstanding delinquency;
(iii) no Sierra Tax Returns relating to income or franchise Taxes
filed with respect any Taxable years of Sierra has been examined by
appropriate income tax authorities;
(iv) Sierra has not granted any extension or waiver of the limitation
period applicable to any Sierra Tax Returns;
(v) there is no claim, audit, action, suit, proceeding, or
investigation now pending or threatened in a writing received by Sierra
against or with respect to Sierra in respect of any Tax or assessment;
(vi) there are no requests for rulings in respect of any Tax pending
between Sierra and any Taxing Authority;
(vii) there are no liens for Taxes upon the assets of Sierra except
liens for current Taxes not yet due;
(viii) to Baker's knowledge and except for the effect of a change from
cash to accrual method reporting as may be required as a result of the
transactions contemplated by this Agreement, Sierra will not be required to
include any
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adjustment in Taxable income for any Tax period (or portion thereof) ending
after the Closing Date as a result of a change in method of accounting for
any Tax period (or portion thereof) ending on or before the Closing Date or
pursuant to the provisions of any agreement entered into with any Taxing
Authority with regard to the Tax liability of Sierra for any Tax period (or
portion thereof) ending on or before the Closing Date;
(ix) Sierra has not been a member of an affiliated group other than
one of which Sierra was the common parent, or filed or been included in a
combined, consolidated or unitary Tax return other than one filed by
Sierra, or a return for a group consisting solely of its predecessors, or
participated in any other similar arrangement whereby any income, revenues,
receipts, gains, losses, deductions, credits or other Tax items of Sierra
was determined or taken into account for Tax purposes with reference to or
in conjunction with any such items of another person other than Sierra or
any such predecessor;
(x) Sierra is not currently under any contractual obligation to pay to
a Taxing Authority the income or franchise tax obligations of, or with
respect to transactions relating to, any other person or to indemnify any
other person with respect to any income or franchise tax; and
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(xi) Sierra has not signed any letter or entered into any agreement or
arrangement in writing consenting to the surrender or sharing of any
deductions, credits or other Tax attributes with any other person or
transferred or assigned to any other person for Tax purposes any such
items.
3.16 Agreements, etc. Schedule 3.16 contains a true and complete list of:
(a) all material agreements and other commitments of Sierra for the purchase of
any materials, supplies or inventory; (b) all notes and agreements relating to
any outstanding indebtedness of Sierra for borrowed money, (c) all leases or
other rental agreements under which Sierra is either lessor or lessee which call
for annual lease payments in excess of US$5,000 individually, (d) all other
agreements (including, but not limited to, employment agreements, commitments
and understandings, written or oral) to which Sierra is a party or by which it
or its assets or properties is bound which require payment by Sierra of more
than US$5,000 in any calendar year and which cannot be terminated by Sierra,
without liability, on notice of 30 days or less, and (e) all product liability,
fire, commercial and other insurance carried by Sierra with respect to its
business and properties. Except as set forth on such Schedule, all such
scheduled documents, commitments and understandings of Sierra (including, but
not limited to, commitments for the purchase of inventory) were entered into in
the ordinary course of business and were entered into on an arm's-length basis.
True and complete copies of all scheduled
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documents, commitments and understandings have been delivered to Select.
3.17 Agreements Regarding Employees. (a) Sierra is not a party to or bound
by any employment agreement, or any collective bargaining or other labor
agreement, or any pension, retirement, stock option, stock purchase, savings,
profit sharing, deferred compensation, retainer, consultant, bonus, group
insurance or other incentive or welfare agreement, plan or arrangement, written
or oral, except as set forth on Schedule 3.17. True and complete copies of each
written agreement, plan or arrangement listed on Schedule 3.17 have been
delivered to Select.
(b) All officers and directors have resigned from Sierra effective as of
the Closing Date. Sierra has not received notice from Baker or Tom Krieg that
either intends to terminate his employment following the Closing Date.
(c) Except as set forth on Schedule 3.17, Sierra does not maintain any
employee benefit plans.
3.18 Absence of Defaults. Except as disclosed on Schedule 3.18, Sierra does
not have knowledge of any material existing default by any party under any
lease, agreement, commitment or understanding to which Sierra is a party is
bound or by which it or to which its assets or properties are subject.
3.19 Compliance with Laws. Sierra does not have knowledge that it is in
violation of or has violated, in any material respect, any applicable provisions
of any laws, statutes,
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ordinances or regulations or any term of any judgment, decree, injunction or
order binding against it.
3.20 Compliance with Laws-Environmental.
(a) For purposes of this Section 3.20:
"Hazardous Material" shall mean any material or substance that, whether by
its nature or use, is now or hereafter defined as hazardous waste, hazardous
substance, pollutant or contaminant under any Environmental Law (defined below),
or which is toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic or otherwise hazardous and which is now or hereafter
regulated under any Environmental Law, or which is or contains petroleum,
gasoline, diesel fuel or another petroleum hydrocarbon product, lead paint,
asbestos, asbestos-containing materials or polychlorinated biphenyls;
"Environmental Laws" means those United States, provincial or local laws,
statutes, ordinances, rules, regulations, orders and decrees (including any
amendments thereto) relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or threatened
releases of Hazardous Materials, pollutants, wastewater (other than non-contact
cooling or process water), or wastes constituting hazardous substances in, into,
onto or upon the environment (including, without limitation, ambient air,
surface water, groundwater, or land), or otherwise relating to the processing,
distribution, use,
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treatment, collection, accumulation, storage, disposal, transport, or handling
of Hazardous Materials.
(b) The operations of Sierra have been and are now in material compliance
with all Environmental Laws. All approvals of government authorities required to
be held by Sierra concerning the environment have been obtained, are valid and
are in full force and effect, have been and are being complied with in all
material respects and there are no proceedings commenced or threatened to revoke
or amend any such approvals. The business operations of Sierra have not and are
not now the subject of any remedial order (being any administrative complaint,
direction, order or sanction issued, filed or imposed by any governmental
authority pursuant to any Environmental Laws). To Baker's knowledge, no part of
any premises occupied by Sierra in the operation of its business has ever been
used as a landfill or for the disposal of waste or, except for the operations of
Sierra conducted in material compliance with Environmental Laws, for the
storage, treatment or disposal of Hazardous Material. Sierra neither uses nor
stores in or on the premises occupied by it in the operation of its business any
Hazardous Material other than in material compliance with Environmental Laws.
Sierra has no knowledge of any Hazardous Material in, on or under the premises
occupied by it in the operation of its business other than those used in the
ordinary course of Sierra's business.
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<PAGE>
3.21 Regulatory and Product Matters.
(a) Schedule 3.21(a) contains a true and complete list of (1) all Forms FDA
483, "warning letters" from the U.S. Food and Drug Administration ("FDA") and
Field Alerts, as defined in the Federal Food, Drug, and Cosmetic Act, as amended
(the "FDA Act"), received by Sierra and (2) all reports filed by Sierra with
respect to adverse drug experiences relating to its products.
(b) Sierra has not received any notice from the FDA or the U.S. Drug
Enforcement Administration ("DEA") that any of its products is either (1) an
unapproved new drug or an adulterated or misbranded drug within the meaning of
the FDA Act or any other similar law, or (2) an article which may not, pursuant
to the FDA Act, be introduced into interstate commerce at the time of delivery.
As used above, "notice" includes (1) written correspondence from the FDA or DEA
alleging the foregoing, (2) an order or request from the FDA or DEA that Sierra
cease to market any of its products, or (3) a lawsuit by the FDA or DEA filed
against any of its products or against Sierra or any of its officers, directors
or employees alleging any of the foregoing. True, complete and accurate copies
of each such notice and other written correspondence, if any, from the FDA in
which the FDA asserted that the business may not be in material compliance with
the FDA Act, and Sierra's written response, if any, thereto have been furnished
to Select. True, correct and complete copies of all
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<PAGE>
Forms FDA 483 and "warning letters", if any, received by Sierra with respect to
its products have been furnished to Select.
(c) To Sierra's knowledge, Sierra has filed with the FDA and, if required,
the DEA, all reports required to be filed by Sierra with respect to adverse drug
experiences relating to its products (to the extent Sierra had knowledge of such
adverse drug experiences) or shortages or unaccounted for amounts of controlled
substances in connection with its products, except where the failure to make
such filings could not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the ability of Select to sell after the
Closing Date the Sierra product to which the experience relates.
(d) Except as set forth on Schedule 3.21(b):
(1) Sierra has all product licenses and Establishment Registrations
necessary to manufacture and market its products in the United States, as
listed on such Schedule. All such Product Licenses and Establishment
Registrations are valid and in full force and effect, and true, complete
and correct copies thereof, including all supplements, amendments and
annual and periodic reports relating to the Products, have been made
available to Select.
(2) Sierra has filed in a timely manner all annual reports required to
be filed with the FDA and the DEA relating to Sierra's products.
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(e) No Sierra product has been recalled, withdrawn, suspended or
discontinued by Sierra in the United States, and no action (whether completed or
pending) has been commenced in or outside the United States of which Sierra has
knowledge seeking the recall, withdrawal, suspension or seizure of any Sierra
products.
(f) As to each Sierra product and except for prior instances of
non-compliance which have been cured as of the Closing Date, (i) Sierra has
complied with 21 U.S.C. Sections 355 and 357 and 21 C.F.R. Parts 312, 314,
430-448, 452, 453, 455 and 460, as applicable; (ii) Sierra has complied with all
registration and listing requirements set forth in 21 U.S.C. Section 360 and 21
C.F.R. Part 207, as applicable; (iii) the manufacture, labeling, packaging and
marketing is in compliance with the FDA Act; (iv) it has been manufactured in
material compliance with the good manufacturing practice regulations set forth
in 21 C.F.R. Parts 210 and 211.
(g) To Baker's knowledge, no Sierra employee has made an untrue statement
of a material fact or fraudulent statement to the FDA or provided a basis for
the FDA to invoke its policy respecting "Fraud, Untrue Statements of Material
Facts, Bribery, and Illegal Gratuities", set forth in 56 Fed. Reg. 46191
(September 10, 1991). Neither Sierra, nor, to its knowledge, any employee has
been convicted of any crime under the FDA Act or, to Sierra's knowledge, engaged
in any conduct for which debarment is mandated
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by 21 U.S.C. Section 335(a) or authorized by 21 U.S.C. Section 335a(b).
(h) All Drug Master Files ("DMFs") submitted to the FDA by Sierra with
respect to its products are current and accurately represent in all material
respects Sierra's current manufacturing operations to the extent required by the
Act; and, to Sierra's knowledge, all persons authorized to reference the DMFs
and the FDA have been notified of any changes of information in the DMFs in
accordance with 21 C.F.R. Section 314.420(c).
3.22 Principal Customers and Suppliers.
(a) Schedule 3.22(a) contains a true and complete list of the top 10
purchasers (by dollar volume) of Sierra's products during the 12 months ended
September 30, 1998 and the aggregate dollar amount of their purchases thereof
during such period. Since January 1, 1998 and except with respect to the pending
settlement of the Sanofi litigation, no such purchaser has terminated its
relationship with Sierra or notified Sierra in writing of its intention (for any
reason) to terminate its relationship or reduce its purchases of Products by
more than 50%.
(b) Schedule 3.22(b) contains a true and complete list of Sierra's top 15
suppliers (by dollar volume) during the 12 months ended September 30, 1998 and
the aggregate dollar amount of purchases from such suppliers during such period.
Since January 1, 1998 and except as disclosed on Schedule 3.22(b), no such
supplier
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has terminated its relationship with Sierra or notified Sierra in writing of its
intention (for any reason) to terminate such relationship or reduce its sales to
Sierra from the level during the six months ended December 30, 1997.
3.23 Product Returns. Schedule 3.23 hereto contains a true and complete
description of the product return experience of Sierra for the two years ended
September 30, 1998.
3.24 Product Liability. Schedule 3.24 hereto contains a true and complete
description of Sierra's product liability experience with respect to its
business since its inception.
3.25 Questionable Payments. Neither Sierra nor any active employee acting
on Sierra's behalf has used any corporate funds for: (i) illegal contributions,
entertainment or gifts for purposes of influencing the activities or decision
making of a political official; or (ii) illegal payments, bribes or kickbacks to
any United States government official or employee or foreign government official
or employee or other third party. Neither Sierra nor, to the best knowledge of
Baker, any director, officer or other employee of Sierra has: (i) made any
payments or provided services or other favors in the United States of America or
in any other country in order to obtain preferential treatment or consideration
by any governmental entity with respect to any aspect of the business of Sierra;
or (ii) made any political contributions which would not be lawful under the
laws of the United States and the foreign country in which such payments were
made. Neither
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Sierra nor, to the best knowledge of Baker, any director, officer or other
employee of Sierra or any customer or supplier of Sierra has been the subject of
any inquiry or investigation by any governmental entity in connection with
payments or benefits or other favors to or for the benefit of any governmental
or armed services official, agent, representative or employee with respect to
any aspect of the business of Sierra or with respect to any political
contribution.
3.26 Litigation. Except as set forth on Schedule 3.26, there is no
litigation, proceeding or governmental investigation pending or threatened, or
any order, injunction, decree or judgment outstanding, against or relating to
Sierra or its properties or business. Such Schedule contains a true and complete
description of each named item and Sierra's potential liability thereunder.
3.27 Violations. To Baker's knowledge, the improvements located on real
estate owned or leased by Sierra and the continuation of the present use,
occupancy and operation of said improvements comply in full with all current
zoning requirements and do not depend on or require, to any extent, any further
ordinance, variance, special exception or other special governmental approval
for its continuing legality. To Baker's knowledge, there is no violation of any
recorded restriction, condition or agreement affecting said real estate. Sierra
has not received notice of any violation of, and to Baker's knowledge,
continuation of the present uses, occupancies and operations will
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not result in a violation of, building, health, safety, environmental pollution
control, fire or similar law, ordinance, order or regulation respecting said
real estate. Except as set forth on Schedule 3.27, no notice has been received
by Sierra alleging any such violation.
3.28 Labor Matters.
(a) With respect to Sierra's employees, (1) no unfair labor practice charge
or complaint against Sierra with respect to its employees ever has been brought
or filed before the National Labor Relations Board, and to Sierra's knowledge
none has been threatened; (2) there is no labor strike, dispute, arbitration,
request for representation, slowdown or stoppage actually pending against or
affecting Sierra and, to Sierra's knowledge, none is threatened or has been
threatened or has occurred within the last three years; and (3) no employees
employed by Sierra at any time during the last three years have been represented
by a labor union or governed by a collective bargaining agreement in respect of
such employment. To Sierra's knowledge, no union or other labor organization has
attempted to organize any of its employees of the business.
(b) To Baker's knowledge, Sierra is in compliance in all material respects
with Title VII of the Civil Rights Act of 1964, as amended, the Age
Discrimination in Employment Act, the National Labor Relations Act, the Labor
Management Relations Act, the Fair Labor Standards Act, as amended, the
Immigration Reform
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and Control Act of 1986, the Americans with Disabilities Act, the Family Medical
Leave Act, and all other Laws governing illegal discrimination, equal employment
opportunity, civil rights and payment of minimum wages and overtime rates. There
are no current claims or suits, nor have there been any written threats of
claims or suits, against Sierra arising out of, or relating to, or alleging any
violation of any of the foregoing.
3.29 Finders' Fees. Neither Sierra nor any Stockholder has employed or
utilized the services of any broker, finder or other intermediary in connection
with this Agreement or the transaction contemplated by this Agreement.
3.30 Restrictions on Business Activities. Except as disclosed on Schedule
3.30, there is no agreement, judgment, injunction, order or decree binding upon
Sierra which has or could reasonably be expected to have the effect of
prohibiting or materially impairing
(a) the ability of Sierra to conduct its business in any geographic area or
field of use, (b) any acquisition of property by Sierra, or
(c) the conduct of business by Sierra as currently conducted or as currently
proposed to be conducted by Sierra.
3.31 Accuracy of Representations and Warranties. No representation or
warranty by Baker in this Agreement, and no written statement made to Select by
Baker or Sierra or contained in any certificate or instrument delivered or to be
delivered to Select by Baker or Sierra pursuant to this Agreement, or in
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connection with the transactions contemplated by this Agreement contains or will
contain any untrue statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained therein not misleading.
Article IV. Representations and Warranties of Select. Select represents and
warrants to Sierra as follows:
4.1 Organization. Select is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is duly
authorized to carry on its business where and as now conducted and to own, lease
and operate properties as it now does.
4.2 Corporate Authority, Etc.
(a) Select has full power and authority to enter into this Agreement and to
perform this Agreement in accordance with its terms; the execution, delivery and
performance of this Agreement by Select and the consummation of the Acquisition
have been duly authorized by its Board of Directors and Select is not bound by
any contractual or other obligation that would be violated by the execution or
performance of this Agreement; and this Agreement is a valid and binding
obligation of Select enforceable in accordance with its terms; and
(b) Neither the execution and delivery of this Agreement nor the
consummation by Select of any of the transactions contemplated herein nor
compliance by Select with the terms, conditions and provisions hereof or of any
agreement or instrument
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contemplated hereby will (i) conflict with, result in a breach of, or constitute
an event of default under the certificate of incorporation or by-laws of Select,
or any material instrument, agreement, lease, license, franchise, permit,
judgment, order, award, decree or other authorization, right, or obligation to
which Select is a party or any of its properties is subject or by which they are
bound, or any statute, ordinance, rule or regulation applicable to Select, or
(ii) require the approval, consent or authorization of, or the making of any
declaration, filing or registration with, any third party or any foreign,
federal, state or local court, governmental authority or regulatory body.
4.3 Governmental Consents and Approvals. The execution, delivery and
performance by Select of this Agreement and the consummation of the Acquisition
by Select requires no action by or in respect of, or filing with, any United
States, state or local governmental body, agency, official or authority.
4.4 Capitalization. Select's authorized capitalization is 11,000,000 shares
of capital stock, consisting of 10,000,000 shares of common stock and 1,000,000
shares of preferred stock. There are issued and outstanding 4,929,531 shares of
common stock and no shares of preferred stock. All the outstanding shares of
Select were duly authorized for issuance and are validly issued, fully-paid and
non-assessable.
4.5 Litigation. There is no litigation, proceeding or governmental
investigation pending or, so far as is known to
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Select, threatened, or any order, injunction or decree outstanding, against or
relating to Select or any of its properties or businesses.
4.6 Finders' Fee. Select has not employed or utilized the services of any
broker, finder or other intermediary in connection with this Agreement or the
transactions contemplated by this Agreement.
4.7 Absence of Undisclosed Liabilities. Except to the extent fully
reflected or reserved against in its June 30, 1998 balance sheet, Select has no
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
including, but not limited to, any tax or other liabilities of any nature that
were unknown or undetermined as of that date but that, if then known or
determined, would have been required to be reflected in a balance sheet prepared
in accordance with generally accepted accounting principles applied on a
consistent basis. There is no basis for the assertion against Select of any
liability of any nature (and in any amount) not fully reflected or reserved
against in the June 30, 1998 balance sheet or not incurred in the ordinary
course of business thereafter.
4.8 Litigation. There is no litigation, proceeding or governmental
investigation pending or, so far as is known to Select, threatened, or any
order, injunction or decree outstanding, against or relating to Select or any of
its properties or businesses.
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4.9 Select Shares. The Select Shares issued to the Stockholders under this
Agreement, when so issued, will be duly and validly issued, fully paid and
non-assessable.
Article V. Survival of Representations and Indemnity.
5.1 Survival. The representations, warranties, covenants and agreements by
the parties shall survive the Closing Date for a period of two (2) years.
Article VI. Indemnification.
(a) Select does hereby agree to indemnify, defend and hold harmless each
Stockholder from and against any and all claims, demands, damages, losses,
injuries, liabilities, penalties, costs, expenses (including without limitation
reasonable attorneys' fees), suits, actions, investigations, judgments and fees
which may be imposed upon, incurred or suffered by or asserted against it
arising out of or in connection with any one or more of the following:
(i) any failure to perform or comply with any agreements, obligations
or undertakings to be performed by Select, pursuant to this Agreement; and
(ii) any breach of any representation, warranty, covenant or agreement
made in this Agreement, or in respect of the facts associated therewith, by
Select.
(b) Each Stockholder (severally but not jointly) does hereby agree to
indemnify, defend and hold harmless Select
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from and against any and all claims, demands, damages, losses, injuries,
liabilities, penalties, costs, expenses (including without limitation reasonable
attorneys' fees), suits, actions, investigations, judgments and fees which may
be imposed upon, incurred or suffered by or asserted against it arising out of
or in connection with any one or more of the following:
(i) any failure to perform or comply with any agreements, obligations
or undertakings to be performed by such Stockholder pursuant to this
Agreement; and
(ii) any breach of any representation, warranty, covenant or agreement
made in this Agreement, or in respect of the facts associated therewith, by
such Stockholder.
(c) Notwithstanding any other term of this Article VI, (i) an indemnifying
party shall have no liability to any indemnified party for any claim made under
this Article VI (a "Claim") unless a written notice specifying the Claim in
reasonable detail is provided by the indemnified party to the indemnifying party
within two years after the Closing Date, and (ii) Baker shall have no liability
to any indemnified party for any Claim made in respect of Article III of this
Agreement unless either (x) such Claim is for more than $5,000 or (y) the sum of
the aggregate amount of all prior Claims made against Baker in respect of
Article III plus the amount of the subject Claim exceeds $5,000; provided,
however, that Baker shall only have liability under clauses (x) and
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<PAGE>
(y) to the extent, and for the amount by which, such Claim or Claims exceed
$5,000.
(d) In no event shall the cumulative liability of any Stockholder to Select
as an indemnifying party under Section 6(b) exceed the aggregate value of the
Select Shares he receives pursuant to Exhibit A hereof. The obligations of a
Stockholder under Seciton 6(b) may, at such Stockholder's election, be paid
either in cash or by transfer of Select Shares to the indemnified party. For
purposes of this subsection (d), Select Shares shall be valued at their National
Quotation Bureau "Pink Sheet" closing price on the Closing Date.
(e) Each party hereto acknowledges and agrees that, from and after the
Closing Date, its sole and exclusive remedy with respect to any and all claims
against another party hereto relating to the subject matter of this Agreement
shall be pursuant to the indemnification provisions set forth in this Article
VI, except that nothing in this Agreement shall be deemed to constitute a waiver
of any tort claims of, or causes of action arising from, fraudulent
misrepresentation or deceit. In furtherance of the foregoing, each party hereto
hereby waives, from and after the Closing Date, to the fullest extent permitted
under applicable law, any and all rights, claims and causes of action (other
than tort claims of, or causes of action arising from, fraudulent
misrepresentation or deceit or claims arising under Article VI of this
agreement) it may have relating to the subject matter of this
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<PAGE>
Agreement arising under or based upon any federal, state, local or foreign
statute, law, ordinance, rule or regulation or otherwise.
(f) A party seeking indemnification shall notify the indemnifying parties
within a reasonable time in writing of any action, claim or liability in respect
of which it intends to claim such indemnification, provided that, subject to
Article VI(c)(i), the failure to give timely notice shall not release any of the
indemnifying parties from any liability to the extent the indemnifying parties
are not prejudiced thereby. The indemnifying parties shall have the right, by
prompt notice to the party seeking indemnification to assume the defense of such
claim with counsel reasonably satisfactory to the party seeking indemnification,
and at the sole cost of the indemnifying parties. If the indemnifying parties do
not so assume the defense of such claim, the party seeking indemnification may
assume such defense with counsel of its choice and at the sole cost of the
indemnifying parties. If the indemnifying parties so assume such defense, the
party seeking indemnification may participate therein through counsel of its
choice, but at its sole cost. The party not assuming the defense of any such
claim shall render all reasonable assistance to the party assuming such defense,
and all out-of-pocket costs of such assistance shall be for the account of the
Indemnifying Parties. No such claim shall be settled other than by the party
defending the same, and then only with the consent of the other party, which
shall not be unreasonably withheld; provided that the party seeking
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<PAGE>
indemnification shall have no obligation to consent to any settlement of any
such claim which imposes on Select any liability or obligation which cannot be
assumed and performed in full by the Indemnifying Parties.
Article VII. Miscellaneous.
7.1 Schedules. Any information furnished in a schedule to this Agreement
shall be deemed to be furnished under any other schedule which calls for the
furnishing of the same information whether or not that information is separately
stated in such other schedule.
7.2 Expenses. Each party shall bear its own expenses incurred in connection
with the negotiation and preparation of this Agreement and in connection with
all duties and obligations required to be performed by it under this Agreement;
provided that Sierra may bear $10,000 of the expenses of the Stockholders.
7.4 Further Assurances. Each party agrees to cooperate fully with the other
parties and to execute such further instructions, documents and agreements and
to give such further written assurances as may be reasonably requested by any
other party to better evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
7.5 Notices. All notices, requests, demands and other communications under
this Agreement shall be in writing and shall be deemed given when delivered
personally or by reputable overnight
-41-
<PAGE>
courier or mailed by registered or certified mail, return receipt requested, to
the parties at the following addresses (or to such other address as a party may
have specified by notice to the other parties pursuant to this provision):
(a) if to Sierra, at:
Sierra Diagnostics, Inc.
21109 Longeway, #C
Sonora, California 95370
Attn: Mr. Tony K. Baker
with a copy to:
Dudnick, Detwiler, Rivin & Stikker, LLP
351 California Street, 15th Floor
San Francisco, California 94104
Attn: Jeffrey B. Detwiler, Esq.
(b) if to Select, at:
Select Therapeutics Inc.
50 O'Connor Street - Suite 300
Ottawa, Ontario K1P 6L2
CANADA
Attn: Mr. Robert Bender, Chairman
with a copy to:
Hofheimer Gartlir & Gross, LLP
633 Third Avenue
New York, New York 10017
Attn: Richard G. Klein, Esq.
(c) if to any Stockholder, at his address set forth on
Exhibit A.
7.6 No Assignment. This Agreement is personal to each of the parties and
may not be assigned without the written consent of the other parties.
7.7 Entire Agreement. This Agreement (with its schedules and exhibits)
contains, and is intended as, a complete
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<PAGE>
statement of all the terms of the agreements among the parties with respect to
the matters provided for, supersedes any previous agreements and understanding
among the parties with respect to those matters, and cannot be changed or
terminated except by a writing signed by the parties.
7.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the substantive laws of the State of New York, without respect
to its choice of law principles.
7.9 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
7.10 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
7.11 Parties in Interest. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
7.12 Choice of Language. The parties declare that at their request, the
present Agreement, along with all notices,
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<PAGE>
schedules, etc. has been drawn up in the English language and henceforth, all
communications between them are to be in the English language.
7.13 Severability. Any term or provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms or provisions of this
Agreement in any other jurisdiction. If any provision of this Agreement is so
broad as to be unenforceable, the provision shall be interpreted to be only so
broad as is enforceable.
7.14 Certain Post Closing Covenants.
(a) Select shall pay all accounts payable of Sierra listed on Schedule
3.6 and existing on the Closing Date within 60 days after the Closing Date.
(b) Commencing as of the first anniversary of the Closing Date, and
for one year thereafter, Select shall use its reasonable efforts to (i)
make and keep available current pubic information about Select as defined
in Rule 144 of the Securities Act, (ii) file with the Commission in a
timely manner all reports and other documents required of Select under the
Securities Act and the Securities Exchange Act of 1934; and (iii) furnish
to a Stockholder on written request a copy of the most recent annual or
quarterly report of Select, and such other reports and documents of Select
and other information in the possession of or reasonably obtainable by
Select as a Stockholder may reasonably request in
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<PAGE>
availing himself of any rule or regulation of the Commission allowing a
Stockholder to sell any Select Shares without registration.
-45-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed as
of the date first written above.
SELECT THERAPEUTICS INC.
By:/s/ Robert Bender
----------------------------
Name: Robert Bender
Title: CEO
STOCKHOLDERS:
/s/ Eileen McCarthy
-------------------------------
Eileen McCarthy
/s/ Guy Nohra
-------------------------------
Guy Nohra
/s/ Garrett Gruener
-------------------------------
Garrett Gruener
/s/ Marino Polestra
-------------------------------
Marino Polestra
/s/ Timothy Dibble
-------------------------------
Timothy Dibble
/s/ William Egan
-------------------------------
William Egan
/s/ Craig Burr
-------------------------------
Craig Burr
/s/ Daniel Janney
-------------------------------
Daniel Janney
/s/ Edward Williams
-------------------------------
Edward Williams
/s/ Robert Montgomery
-------------------------------
Robert Montgomery
/s/ Jean Deleage
-------------------------------
Jean Deleage
/s/ Pablo Valenzuela
-------------------------------
Pablo Valenzuela
/s/ W. Geoffrey Scherer
-------------------------------
W. Geoffrey Scherer
/s/ Jeffrey B. Detwiler
-------------------------------
Jeffrey B. Detwiler
/s/ Tony Baker
-------------------------------
Tony Baker
-46-
Exhibit 2.7
SELECT THERAPEUTICS INC.
QUESTIONNAIRE
220,000 Shares of Common Stock
to be Issued in Exchange for all of the
Outstanding Shares of Sierra Diagnostics, Inc.
* * * * *
OCTOBER 19, 1998
<PAGE>
INSTRUCTIONS
1. Provide all requested information on, and sign, the following
Questionnaire.*
2. The price to be paid by each Subscriber for his shares of Common Stock
of Select Therapeutics Inc. ("Select") is that number of shares of Sierra
Diagnostics, Inc. Common Stock set forth opposite Subscriber's name in Exhibit A
to the Stock Purchase Agreement (the "Agreement") among the Subscribers and
Select, dated October 19, 1998.
- --------
* The purchasers of the subject securities are collectively referred to as
the "Subscribers". The words "Subscriber" and "undersigned", and all pronouns,
and any variations thereof, used in this Questionnaire shall be deemed to refer
to the masculine or feminine, singular or plural, as the identity of the person
or persons may require.
-2-
<PAGE>
QUESTIONNAIRE
ITEM 1. READ AND THEN INITIAL THE FOLLOWING STATEMENT:
_______ For the sole purpose of inducing Select to sell its Common
Stock to me pursuant to the Agreement, and acknowledging that
Select will rely on the truthfulness of my representations in
reasonably believing that the sale thereof is exempt from the
registration requirements of the Securities Act, I hereby
represent to Select that the statement or statements initialed
by me below are true and correct in all respects. I understand
that a false representation may constitute a violation of law
and that Select and any other person who suffers damage as a
result of a false representation may have a claim against me
for damages.
ITEM 2. SUPPLY THE FOLLOWING PERSONAL INFORMATION
_______________________________ ______________________
Date of Birth Social Security Number
Residence Address
_______________________________
_______________________________
City State Zip Code
Telephone: _______________ home
_______________ office
Occupation: _______________________________________
Employer: Name ____________________________________
Address _________________________________
_________________________________
Telephone No. ___________________________
-3-
<PAGE>
Education: I am a college graduate: ______ ______
Yes No
Name of College: ___________________________
Degree: ____________________________________
Year: ______________________________________
ITEM 3. REGARDING YOUR "ACCREDITED INVESTOR" STATUS, INITIAL EACH
OF THE FOLLOWING STATEMENTS THAT APPLIES:
_______ (a) I am a natural person having an individual net worth, or a
joint net worth with my spouse, in excess of $1,000,000. For
purposes of this Questionnaire, "net worth" means the
difference between my, or our, total assets at fair market
value, including home and personal property, and my, or our,
total liabilities.
_______ (b) I am a natural person with annual income in excess of
$200,000, or joint annual income with my spouse in excess of
$300,000, in each of the two most recent years, and I
reasonably expect to have an individual annual income in
excess of $200,000, or joint annual income with my spouse in
excess of $300,000, for the current year. For purposes of this
Questionnaire, "income" means adjusted gross income, as
reported for Federal income tax purposes, increased by the
following amounts: (i) the amount of any tax exempt interest
income received; (ii) the amount of losses claimed as a
limited partner in a limited partnership and deducted in
arriving at adjusted gross income; (iii) any deduction claimed
for depletion; (iv) deductible amounts contributed to an IRA,
Keogh or Canadian R.R.S.P. retirement plan; and (v) alimony
paid.
_______ (c) Although I do not qualify as an accredited investor under
Items 3(a) or (b) above, I have a net worth greater than
$500,000, and for the last calendar year I had, and --- I
estimate that for the current calendar year I will have,
taxable income, as defined in Section 63 of the Internal
Revenue Code of 1986, as amended, of at least $500,000.
ITEM 4. REGARDING WHETHER YOU ARE AN "AFFILIATE" OF SELECT, READ
AND THEN INITIAL EACH OF THE FOLLOWING STATEMENTS WHICH
ARE CORRECT:
_______ (a) I am not a beneficial owner, or a member of the immediate
family of any beneficial owner, of ten percent
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<PAGE>
(10%) or more of Select's Common Stock. For these purposes,
"immediate family" means any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, daughter-in-law or
sister-in-law, including adoptive relationships.
_______ (b) I am not a member of the immediate family of any officer
or director of Select or any person who controls, is
controlled by or is under common control with Select.
_______ (c) I am not a beneficial owner, or a member of the immediate
family of any beneficial owner, of ten percent (10%) or more
of the equity interest in any entity which controls, is
controlled by or is under common control with Select.
_______ (d) I do not own, and I am not a member of the immediate
family of any person who owns, ten percent or more of any
trust or estate which controls, is controlled by or is under
common control with Select nor do I serve as trustee, executor
or in any similar capacity of any such trust or estate.
_______ (e) To my best knowledge, I am not an affiliate of any other
Subscriber. For these purposes, "affiliate" means a person
that directly, or indirectly through one or more
intermediaries, controls, is controlled by or is under common
control with the person specified.
_______ (f) To my best knowledge, I am not an affiliate of any
shareholder of Select.
For each statement above that you did not initial, explain the relationship you
do have:________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
ITEM 5. INITIAL THE APPROPRIATE ANSWER TO THE FOLLOWING QUESTION:
I have appointed and utilized a Purchaser Representative in
connection with my acquisition of Select Shares pursuant to
the Agreement.
_____ ______
Yes No
-5-
<PAGE>
ITEM 6. ANSWER THE FOLLOWING QUESTION AND SUPPLY ANY REQUIRED
INFORMATION:
State whether you or any of your associates or affiliates (i)
are a member or a person associated with a member of the
National Association of Securities Dealers, Inc. (the "NASD"),
(ii) own any stock or other securities of an NASD member
(other than purchased on the open market), or (iii) have made
a subordinated loan to any NASD member?
_____ ______
Yes No
If you marked yes to Item 5 or 6 above, please briefly
describe the facts below:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
ITEM 7. SIGNATURE:
____________________________________
Subscriber's Signature
Name: ______________________________
(please print)
Date: ______________________________
-6-
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
VT DEVELOPMENT, INC.
(under Section 245 of the General Corporation Law)
The undersigned corporation hereby amends, revises and restates, in its
entirety, the Certificate of Incorporation of the corporation, originally filed
under its then name "VT Development, Inc." by the Secretary of State of the
State of Delaware on January 28, 1997, as follows:
FIRST: The name of the corporation is SELECT THERAPEUTICS INC. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the State of
Delaware is c/o UNITED CORPORATE SERVICES, INC., 15 East North
Street, in the City of Dover, County of Kent, State of Delaware,
19901. The name of the registered agent at such address is United
Corporate Services, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is Eleven Million (11,000,000) shares, of which
Ten Million (10,000,000) shares shall be designated common stock and
shall have a par value of $.0001 per share and One Million
(1,000,000) shares shall be designated preferred stock and shall
have a par value of $.0001 per share.
The Corporation's Board of Directors is authorized, subject to the
limitations prescribed by law and the provisions of this Article
"FOURTH", to provide for the issuance of the above authorized
preferred stock in series, and by filing a certificate of
designations pursuant to Section 151 of the General Corporation Law
of the State of Delaware, as the same may be amended, to establish
from time to time 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
1
<PAGE>
series and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series
shall include, but not be limited to, determination of the
following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate, if any, on the shares of that series,
whether dividends shall be cumulative, and, if so, from which
date or dates, and the relative rights of priority, if any, of
payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the
terms of such voting rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion,
including provision for adjustment of the conversion rate upon
such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they
shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption dates;
(f) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up
of the Corporation, and the relative rights of priority of
payment of shares of that series; and
(g) Any other relative rights, preferences and limitations
of that series.
Dividends on outstanding shares of preferred stock shall be paid or
declared and set apart for payment before any dividends shall be
paid or declared and set apart for payment on common shares with
respect to the same dividend period.
FIFTH: The name and mailing address of the incorporator of the Corporation
is as follows:
Bruce S. DePaola
c/o Hofheimer Gartlir & Gross, LLP
633 Third Avenue
2
<PAGE>
New York, New York 10017
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The number of directors which shall constitute the whole Board of
Directors of the Corporation shall be designated in the By-Laws of
the Corporation. Election of directors need not be by written ballot
unless the By-Laws so provide.
EIGHTH: In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make,
alter or repeal the By-laws of the Corporation, without the need for
shareholder approval.
NINTH: In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the General Corporation Law of the State of Delaware,
this Certificate of Incorporation, and any By-Laws adopted by the
stockholders; provided, however, that no By-Laws hereafter adopted
by the stockholders shall invalidate any prior act of the directors
which would have been valid if such By-Laws had not been adopted.
TENTH: To the fullest extent permitted by the General Corporation Law of
the State of Delaware, as the same exists or as it may hereafter be
amended, no director of the Corporation shall be personally liable
for monetary damages for breach of his/her fiduciary duty as a
director. The Corporation shall indemnify each officer and director
of the Corporation to the fullest extent permitted by Section 145 of
the General Corporation Law of the State of Delaware, as the same
may be amended from time to time. Any repeal or modification of this
Article TENTH by the stockholders of the Corporation shall not
adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification with
respect to acts or omissions occurring prior to such repeal or
modification.
ELEVENTH: Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the By-laws may provide. The books
of the Corporation may be kept (subject to any contrary provision
contained in the General Corporation Law of the State of Delaware)
outside of the State of Delaware at such place or places as may
3
<PAGE>
be designated from time to time by the Board of Directors or in the
By-laws of the Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this
reservation.
THIRTEENTH This restated Certificate of Incorporation was duly adopted in
accordance with Section 228 of the General Corporation Law of the
State of Delaware
IN WITNESS WHEREOF, I have hereunto signed my name and affirm that the
statements made herein are true under the penalties of perjury, this 17th day of
July, 1997.
/s/ Robert Bender
-----------------------
Robert Bender, Chairman
4
EXHIBIT 3.2
BY-LAWS
OF
VT DEVELOPMENT, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. - The registered office shall be established
and maintained at c/o United Corporate Services, Inc., 15 East North Street,
Dover, Delaware 19901 and United Corporate Services, Inc. shall be the
registered agent of this corporation in charge thereof.
SECTION 2. OTHER OFFICES. - The corporation may have other offices, either
within or without the State of Delaware, at such place or places as the Board of
Directors may from time to time appoint or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. - Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the registered office of the
corporation in Delaware.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS. - Meetings of stockholders for any purpose other
than the election of directors may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting.
SECTION 3. VOTING. - Each stockholder entitled to vote in accordance with
the terms of the Certificate of Incorporation and in accordance with the
provisions of these By- Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held
<PAGE>
by such stockholder, but no proxy shall be voted after three years from its date
unless such proxy provides for a longer period. Upon the demand of any
stockholder, the vote for directors and the vote upon any question before the
meeting, shall be by ballot. All elections for directors shall be decided by
plurality vote; all other questions shall be decided by majority vote except as
otherwise provided by the Certificate of Incorporation or the laws of the State
of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM. - Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS. - Special meetings of the stockholders for any
purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. - Written notice, stating the place, date
and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than fifty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. - Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the
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<PAGE>
corporate action without a meeting by less than unanimous written consent shall
be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. - The number of directors shall be four (4). At
any time that there are less than three (3) directors, the number of directors
may not be less than the number of shareholders. The directors shall be elected
at the annual meeting of the stockholders and each director shall be elected to
serve until his successor shall be elected and shall qualify. A director need
not be a stockholder.
SECTION 2. RESIGNATIONS. - Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. - If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. - Any director or directors may be removed either for
or without cause at any time by the affirmative vote of the holders of a
majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
SECTION 5. INCREASE OF NUMBER. The number of directors may be increased by
amendment of these By-Laws by the affirmative vote of a majority of the
directors, though less than a quorum, or, by the affirmative vote of a majority
in interest of the stockholders, at the annual meeting or at a special meeting
called for that purpose, and by like vote the additional directors may be chosen
at such meeting to hold office until the next annual election and until their
successors are elected and qualify.
SECTION 6. POWERS. - The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES. - The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or
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disqualified member at any meeting of the committee. In the absence or
disqualification of any member or such committee or committees, the member or
members thereof present at any such meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board
of Directors, or in these By-Laws, shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers which may require it; but no such committee shall have the
power of authority in reference to amending the Certificate of Incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and unless the resolution, these By-Laws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. - The newly elected Board of Directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent, in
writing, of all the directors.
Unless restricted by the incorporation document or elsewhere in these
By-Laws, members of the Board of Directors or any committee designated by such
Board may participate in a meeting of such Board or committee by means of
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at such meeting.
Regular meetings of the Board of Directors may be scheduled by a resolution
adopted by the Board. The Chairman of the Board or the President or Secretary
may call, and if requested by any two directors, must call special meeting of
the Board and give five days' notice by mail, or two days' notice personally or
by telegraph or cable to each director. The Board of Directors may hold an
annual meeting, without notice, immediately after the annual meeting of
shareholders.
SECTION 9. QUORUM. - A majority of the directors shall constitute a quorum
for the transaction of business. If at any meeting of the board there shall be
less than a quorum present, a majority of those present may adjourn the meeting
from time to time until a quorum is obtained, and no further notice thereof need
be given other than by announcement at the meeting which shall be so adjourned.
SECTION 10. COMPENSATION. - Directors shall not receive any stated salary
for their services as directors or as members of committees, but by resolution
of the board a fixed fee and expenses of attendance may be allowed for
attendance at each meeting. Nothing herein
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contained shall be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent or otherwise, and
receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. - Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee therof,
may be taken without a meeting, if prior to such action a written consent
thereto is signed by all members of the board, or of such committee as the case
may be, and such written consent is filed with the minutes of proceedings of the
board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. - The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. - The Board of Directors may appoint
such other officers and agents as it may deem advisable, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board of Directors.
SECTION3. CHAIRMAN. - The Chairman of the Board of Directors, if one be
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. - The President shall be the chief executive officer
of the corporation and shall have the general powers and duties of supervision
and management usually vested in the office of President of a corporation. He
shall preside at all meetings of the stockholders if present thereat, and in the
absence or non-election of the Chairman of the Board of Directors, at all
meetings of the Board of Directors, and shall have general supervision,
direction and control of the business of the corporation. Except as the Board of
Directors shall authorize the execution thereof in some other manner, he shall
execute bonds, mortgages and other contracts in behalf of the corporation, and
shall cause the seal to be affixed to any instrument requiring it and when so
affixed the seal shall be attested by the signature of the Secretary or the
Treasurer or Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT. - Each Vice-President shall have such powers and
shall perform such duties as shall be assigned to him by the directors.
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SECTION 6. TREASURER. - The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be ordered
by the Board of Directors, or the President, taking proper vouchers for such
disbursements. He shall render to the President and Board of Directors at the
regular meetings of the Board of Directors, or whenever they may request it, an
account of all his transactions as Treasurer and of the financial condition of
the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY. - The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by the law or by these By-Laws, and in case of his absence or refusal
or neglect so to do, any such notice may be given by any person thereunto
directed by the President, or by the directors, or stockholders, upon whose
requisition the meeting is called as provided in these By-Laws. He shall record
all the proceedings of the meetings of the corporation and of the directors in a
book to be kept for that purpose, and shall perform such other duties as may be
assigned to him by the directors or the President. He shall have the custody of
the seal of the corporation and shall affix the same to all instruments
requiring it, when authorized by the directors or the President, and attest the
same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. - Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V.
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. - A certificate of stock, signed by the
Chairman or Vice-Chairman of the Board of Directors, if they be elected,
President or Vice- President, and the Treasurer or an Assistant Treasurer, or
Secretary or Assistant Secretary, shall be issued to each stockholder certifying
the number of shares owned by him in the corporation. When such certificates are
countersigned (1) by a transfer agent other than the corporation or its
employee, or, (2) by a registrar other than the corporation or its employee, the
signatures of such officers may be facsimiles.
SECTION 2. LOST CERTIFICATES. - A new certificate of stock may be issued in
the place of any certificate theretofore issued by the corporation, alleged to
have been lost or destroyed, and the directors may, in their discretion, require
the owner of the lost or destroyed certificate, or his legal representatives, to
give the corporation a bond, in such sum as they may
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direct, not exceeding double the value of the stock, to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss of any such certificate, or the issuance of any such new
certificate.
SECTION 3. TRANSFER OF SHARES. - The shares of stock of the corporation
shall be transferrable only upon its books by the holders thereof in person or
by their duly authorized attorneys or legal representatives, and upon such
transfer the old certificate shall be surrendered to the corporation by the
delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. - In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any date, which shall not be more than sixty nor less than
ten days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjournment meeting.
SECTION 5. DIVIDENDS. - Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. - The corporate seal shall be circular in form and shall
contain the name of the corporation, the year of its creation and the words
"Corporate Seal, Delaware, 1900". Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. - The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS. - All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
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SECTION 9. NOTICE AND WAIVER OF NOTICE. - Whenever any notice is required
by these By-Laws to be given, personal notice is not meant unless expressly so
stated, and any notice so required shall be deemed to be sufficient if given by
depositing the same in the United States mail, postage, prepaid, addressed to
the person entitled thereto at his address as it appears on the records of the
corporation, and such notice shall be deemed to have been given on the day of
such mailing. Stockholders not entitled to vote shall not be entitled to receive
notice of any meetings except as otherwise provided by Statute.
Whenever any notice whatever is required to be given under the provisions
of any law, or under the provisions of the Certificate of Incorporation of the
corporation of these By-Laws, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at any
annual meeting of the stockholders or at any special meeting thereof if notice
of the proposed alteration or repeal of By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal of By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
ARTICLE VII
INDEMNIFICATION
No director shall be liable to the corporation or any of its stockholders
for monetary damages for breach of fiduciary duty as a director, except with
respect to (1) a breach of the director's duty of loyalty to the corporation or
its stockholders, (2) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) liability which may be
specifically defined by law or (4) a transaction from which the director derived
an improper personal benefit, it being the intention of the foregoing provision
to eliminate the liability of the corporation's directors to the corporation or
its stockholders to the fullest extent permitted by law. The corporation shall
indemnify to the fullest extent permitted by law each person that such law
grants the corporation the power to indemnify.
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EXHIBIT 10.1
LICENSE AGREEMENT
This Agreement is made this 1st day of September, 1993 between Temple
University Of The Commonwealth System of Higher Education, a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania,
having a principal place of business at Broad Street and Montgomery Avenue,
Philadelphia, Pennsylvania and Sierra Diagnostics, a corporation organized and
existing under the laws of the State of California, having a principal place of
business at 15785 Shady Oak Drive, Sonora, California 95370.
WHEREAS, Temple University - Of The Commonwealth System of Higher Education
is the assignee of the entire interest in United States Patent Number 4,446,230
issued May 1, 1984 entitled "Test Method for the Laboratory Diagnosis of
Gonorrhea and Test Strain of Neisseria Gonorrhoeae"; and
WHEREAS, Sierra Diagnostics desires to obtain an exclusive worldwide
license under the aforementioned patent and know-how related thereto.
NOW, THEREFORE, in consideration of the premises and of the covenants and
obligations hereinafter set forth, the parties, intending to be legally bound,
agree as follows:
1. DEFINITIONS
The following definitions will apply throughout this Agreement:
1.1 "COMPANY" shall mean Sierra Diagnostics and its AFFILIATES.
1.2 "TEMPLE" shall mean Temple University Of The Commonwealth System of
Higher Education.
1.3 "AFFILIATES" shall mean each and every business entity controlled by or
under common control with COMPANY for the purposes of manufacture and
distribution of LICENSED PRODUCT. For purposes of this definition "control"
shall mean ownership, directly or indirectly, of at least fifty percent (51%) of
the voting stock.
1.4 "CONFIDENTIAL INFORMATION" shall mean all information disclosed or
samples supplied by either party to the other party pursuant to this Agreement.
However, CONFIDENTIAL INFORMATION shall not include information which: (i)
was known to the receiving party prior to the date of disclosure by the other
party or is developed independently of information received from the disclosing
party by those who have not had access to this information; or (ii) is lawfully
received in good faith at any time by the receiving party from a third party
lawfully in possession of the same and having the right to disclose the same;
<PAGE>
or (iii) is, as of the date of receipt in the public domain or subsequently
enters the public domain other than by reason of acts or omissions of the
receiving party; or (iv) is required to be disclosed by law, rule of court or
regulation.
1.5 "LICENSED PATENT" shall mean United States Patent Number 4,446,230
issued May 1, 1984 entitled "Test Method for the Laboratory Diagnosis of
Gonorrhea and Test Strain of Neisseria Gonorrhoeae".
1.6 "LICENSED PRODUCT" shall mean any product, process or use thereof
covered by LICENSED PATENT.
1.7 "TECHNICAL INFORMATION" shall mean any confidential technical
information relating to LICENSED PRODUCT, which information is the possession of
TEMPLE as of the effective date of this Agreement, and which is necessary or
useful to COMPANY in furtherance of the development, manufacture or marketing of
LICENSED PRODUCT.
1.8 " NET SALES" shall mean the gross receipts from sales by COMPANY or by
its sublicensees of LICENSED PRODUCT sold and subject to royalty under this
Agreement less deductions for: (i) transportation charges, including insurance,
sales and excise taxes and duties paid; (ii) normal and customary trade,
quantity and cash discounts allowed; (iii) sales commissions; and (iv)
allowances on account of rejection or return by customers of products subject to
royalty under this Agreement.
2. DISCLOSURE OF INFORMATION
2.1 "CONFIDENTIAL INFORMATION" disclosed in documentary form shall be
marked "Confidential." Oral discussions of CONFIDENTIAL INFORMATION shall be
reduced to writing by the disclosing party and a copy marked "Confidential"
provided to the receiving party within thirty (30) days of the date of the
disclosure.
2.2 The receiving party shall, for a period of five (5) years from the date
of disclosure of CONFIDENTIAL INFORMATION, hold said CONFIDENTIAL INFORMATION in
strict confidence; not use said CONFIDENTIAL INFORMATION except as provided in
this Agreement; and not disclose, directly or indirectly, said CONFIDENTIAL
INFORMATION to any third party except with the prior written consent of the
disclosing party.
2.3 The receiving party shall, upon request by the other party, promptly
return all written materials or samples of tangible property received hereunder,
as well as all summaries thereof and notes pertaining thereto, with the
exception that one copy of said written materials may be retained by the
receiving party solely for archival purposes.
2.4 Notwithstanding any other provision of this Agreement, it is recognized
by COMPANY that TEMPLE shall have the right to publish the results of any
research concerning LICENSED PRODUCT. However, TEMPLE agree to notify COMPANY in
writing of any such proposed publication thirty (30) days before submission.
COMPANY may request deletion of
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sensitive information from the proposed publication, and TEMPLE agrees to give
good faith consideration to such a request.
3. GRANT OF LICENSE
3.1 Beginning on the effective date of this Agreement, TEMPLE grants to
COMPANY a non-exclusive license under the LICENSED PATENT, with the right to
grant sub-licenses, to make, have made, use and sell LICENSED PRODUCT in the
United States, which license shall become exclusive beginning January 1, 1994.
3.2 Beginning on the effective date of this Agreement, TEMPLE grants to
COMPANY a non-exclusive worldwide license under the TECHNICAL INFORMATION, with
the right to grant sub-licenses, to make, have made, use and sell LICENSED
PRODUCT, which license shall become exclusive beginning January 1, 1994.
3.3 Notwithstanding the preceding license grant, TEMPLE shall retain the
right to practice LICENSED PATENT and TECHNICAL INFORMATION royalty-free for its
own internal, non-commercial purposes.
4. PAYMENTS
4.1 In consideration of the license granted to COMPANY under the LICENSED
PATENT by TEMPLE pursuant to Paragraph 3.1, COMPANY shall pay to TEMPLE a
royalty on NET SALES of LICENSED PRODUCT manufactured or sold in the United
States during the term of this Agreement, said royalty to be equal to:
(i) four percent (4%) of such NET SALES up to and including two million
dollars ($2,000,000.00) in each calendar year; plus
(ii) three percent (3%) of such NET SALES in excess of two million dollars
($2,000,000.00) but not in excess of four million dollars
($4,000,000.00) in each calendar year; plus
(iii) two percent (2%) of such NET SALES in excess of four million dollars
($4,000,000.00) in each calendar year.
4.2 In consideration of the license granted to COMPANY under the TECHNICAL
INFORMATION by TEMPLE pursuant Paragraph 3.2, COMPANY shall pay to TEMPLE an
additional royalty on NET SALES of LICENSED PRODUCT manufactured or sold
anywhere in the world during the term of this Agreement said royalty to be equal
to:
(i) three percent (3%) of such NET SALES up to and including two million
dollars ($2,000,000.00) in each calendar year; plus
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(ii) two percent (2%) of such NET SALES in excess of two million dollars
($2,000,000.00) but not in excess of four million dollars
($4,000,000.00) in each calendar year; plus
(iii) one percent (1%) of such NET SALES in excess of four million dollars
($4,000,000.00) in each calendar year.
4.3 The royalty payments due pursuant to Paragraph 4.1 will end coincident
with the expiration date of LICENSED PATENT.
4.4 The royalty payments due pursuant to Paragraph 4.2 will end seven (7)
years from the effective date of this Agreement.
4.5 COMPANY shall make minimum annual royalty payments to TEMPLE in the
amount of ten thousand dollars ($10,000.00), regardless of or irrespective of
actual NET SALES of LICENSED PRODUCT, beginning on the third anniversary of the
execution of this Agreement and continuing on each anniversary thereafter.
5. STATEMENTS AND REMITTANCES
5.1 COMPANY shall keep and shall require its sub-licensees to keep complete
and adequate records relating to the manufacture and sale of LICENSED PRODUCT.
5.2 Within sixty (60) days after the close of each calendar quarter,
COMPANY shall remit to TEMPLE a statement of sales by COMPANY and by its
sub-licensees on account for the quarter. The financial statements of COMPANY
and of its sub-licensees will be audited annually by an independent certified
public accountant. TEMPLE shall have the right to employ, at its own expense, a
qualified accountant of its own selection to whom COMPANY shall have no
unreasonable objection, to examine the books and records of COMPANY and its
sub-licensees relating to sales of LICENSED PRODUCT for the purpose of verifying
the amount of royalty payments due. Such examination of books and records of
COMPANY and its sub-licensees shall take place during regular business hours
during the term of this Agreement and for two (2) years after its termination,
provided however, that such an examination shall not take place more than once a
year and shall not cover records for more than the preceding three (3) years,
and provided that such accountant shall report to TEMPLE only as to the accuracy
of the royalty statements and payments. If such accountant shall find an
underpayment to TEMPLE, presentation of a written statement substantiating the
underpayment will be provided to COMPANY. If COMPANY is not in agreement with
the findings of the qualified accountant selected by TEMPLE, then COMPANY shall
so notify TEMPLE in writing within thirty (30) days of receipt by COMPANY of
said findings, in which case the parties will jointly appoint, within a further
period of thirty (30) days, an independent qualified accountant to validate, at
COMPANY's expense, TEMPLE's accountant's findings, and the decision of said
independent accountant shall be final. If said independent accountant verifies
that an underpayment has occurred, the amount due and interest (accruing at the
prevailing Prime Rate from the date payment was due through the date of actual
payment to TEMPLE) shall be paid to TEMPLE within thirty (30) days. Should such
underpayment represent more than five percent (5%) of the
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royalties due TEMPLE, COMPANY shall reimburse TEMPLE for the cost of the
examination by TEMPLE's accountant which disclosed such underpayment.
5.3 All payments by COMPANY to TEMPLE under this Agreement shall be made in
United States dollars. TEMPLE shall have the right, upon giving written notice
to COMPANY, to request and receive royalty payments within a particular country
or territory of the LICENSED TERRITORY in the local currency if permitted by
law.
5.4 All payments due TEMPLE, pursuant to Paragraphs 4.1 and 4.2, on account
of NET SALES of LICENSED PRODUCT made by COMPANY and by its sub-licensees during
each calendar quarter and, pursuant to Paragraph 9.2, on account of all amounts
of money received by COMPANY from its sub-licensees during each calendar
quarter, shall be paid by COMPANY to TEMPLE within sixty (60) days of the close
of said calendar quarter.
5.5 If COMPANY fails to make any payment due TEMPLE within the time
prescribed by the terms of this Agreement, a penalty equal to five percent (5%)
of the unpaid amount shall added to the amount due.
6. REPRESENTATIONS
6.1 TEMPLE represents that it has the right to enter into this Agreement
and to grant the licenses under the LICENSED PATENT and TECHNICAL INFORMATION.
6.2 A holding of invalidity or unenforceability of LICENSED PATENT shall
not affect the royalty obligation of COMPANY under TECHNICAL INFORMATION.
7. PATENT PROSECUTION AND LITIGATION
7.1 TEMPLE agrees to maintain LICENSED PATENT, at its own expense, during
the term of this Agreement.
7.2 COMPANY, at its option, may defend any claim, made by others, of patent
infringement resulting from the manufacture, use, sale or other disposition of
LICENSED PRODUCT, whether such claim shall be made against TFEMPLE or COMPANY,
and if COMPANY defends such claim, COMPANY shall bear all costs and expenses,
including reasonable attorneys' fees, incurred in connection with any such
claim. These costs will be a credit against fifty percent (50%) of royalty
payments due to TEMPLE each year during the term of this Agreement until fully
offset. Each party of this Agreement agrees that it shall notify the other party
in writing in the event any claim of infringement is made against that party.
7.3 In the event either party becomes aware of any actual or threatened
infringement of LICENSED PATENT, that party shall promptly notify the other
party in writing. COMPAN-Y shall have the first right to bring an infringement
action against any third party and to use TEMPLE's name if legally required in
connection therewith. If COMPANY does not proceed with a particular patent
infringement action or attempt to sub-license such third party within ninety
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(90) days of notification, TEMPLE, after notifying COMPANY in writing, shall be
entitled to proceed against such infringement at its own expense, through
counsel of its choosing. The party conducting such suit shall have full control
over its conduct. In any event, TEMPLE and COMPANY shall assist one another and
cooperate in any such litigation. TEMPLE and COMPANY may also jointly
participate in any infringement action if both parties agree to do so in writing
in advance, and set forth the basis for sharing of expenses.
7.4 Any recovery by either party as a result of any litigation or
settlement thereof shall first satisfy the attorney's fees and costs incurred by
the enforcing party in such litigation. Any excess of recoveries over attorney's
fees and costs of the enforcing party shall first satisfy royalty payments due
to TFEMPLE, with any remaining balance to the enforcing party. Each party shall
always have the right to be represented by counsel of its own selection and at
its own expense in any suit instituted by another for infringement. If the
parties have agreed to participate jointly in an infringement action, any
recovery in excess of satisfying the parties' attorney fees, costs of the
litigation and payment of the royalty due to TEMPLE on account of the
infringement, shall be allocated to the parties in the same proportion as the
sharing of the litigation expenses.
8. INDEMNITY
8.1 COMPANY agrees to indemnify, hold harmless, and defend TEMPLE, its
trustees, officers, employees and agents against any and all claims, excluding
claims, stemming from TEMPLE's use of LICENSED PRODUCT as outlined in Paragraphs
3.1 and 3.2, including legal fees and costs arising out of the exercise of any
rights under this Agreement, without limiting the generality of the foregoing,
against any damages, losses or liabilities whatsoever including but not limited
to death or injury to person or damage to property arising from the commercial
sale and clinical research of LICENSED PRODUCT by COMPANY, its sub-licensees or
any customers of any of them in any manner whatsoever. TEMPLE shall give COMPANY
written notice of any claim(s) related to LICENSED PRODUCT within thirty (30)
days, and TEMPLE shall reasonably cooperate with COMPANY and its insurance
carrier in the defense of any such claim(s).
8.2 In addition to the foregoing, COMPANY shall maintain, during the period
that any LICENSED PRODUCT is sold pursuant to this Agreement, Comprehensive
Liability Insurance, including Products Liability Insurance, with a reputable
and financially secure insurance carrier(s) to cover the activities of COMPANY
and its sublicensees, if any, contemplated by this Agreement for minimum limits
of two million dollars ($2,000,000.00) per occurrence. Such insurance shall name
TEMPLE, its trustees, officers, employees, and agents as additional insureds.
COMPANY shall furnish a Certificate of Insurance, upon request, evidencing
coverage of two million dollars ($2,000,000.00) with thirty (30) days written
notice of cancellation or material change to TEMPLE. COMPANY's insurance shall
be written to cover claims incurred, discovered, manifested, or made during the
term, or after the expiration, of this Agreement. COMPANY shall at all times
comply, through insurance or self-insurance, with all statutory workers'
compensation and employers' liability requirements covering any and all
employees with respect to activities performed under this Agreement.
9. SUB-LICENSES
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9.1 COMPANY shall have the right to enter into sub-license agreements,
provided that all applicable material terms of this Agreement are incorporated
into such sublicense agreements to provide for the protection of TEMPLE,
trustees, officers, employees and agents, and provided further that COMPANY
remains primarily liable for its obligations under this Agreement. A copy of any
sub-license agreement shall be provided to TEMPLE for its review prior to
execution.
9.2 COMPANY agrees to pay to TEMPLE twenty five percent (25%) of all sums
of money, other than royalties on account of NET SALES of LICENSED PRODUCT,
which COMPANY receives from its sub-licensees, including but not limited to all
sublicense fees and minimum royalties paid by sub-licensees to COMPANY.
10. ASSIGNMENT
10.1 Neither party may assign this Agreement, in whole or in part, without
the Written consent of the other, except if such assignment occurs in connection
with the sale of all or substantially all of the business and assets of TEMPLE
or COMPANY. Both parties agree that such consent to an assignment of this
Agreement shall not be unreasonably withheld.
11. TERMINATION
11.1 COMPANY may terminate this Agreement for any reason whatsoever, in
COMPANY's sole discretion, by giving TEMPLE three (3) months prior written
notification.
11.2 Any expiration or early termination of this Agreement shall be without
prejudice to the rights of either party against the other for recovery of monies
accrued or accruing under this Agreement prior to termination.
11.3 Either party may terminate this Agreement by giving the other party
sixty (60) days prior written notice upon material breach of any material
provision of this Agreement by the other party, unless such breach is cured
within the period of such notice, or an extension of this period is agreed to in
writing by both parties. However, the notice period shall be only thirty (30)
days for any breach by COMPANY for nonpayment of monies due TEMPLE under this
Agreement.
11.4 This Agreement shall immediately terminate if either party is
adjudicated bankrupt, files a voluntary petition in bankruptcy, makes or
executes an assignment for the benefit of creditors, is liquidated or dissolved,
or a receiver, trustee, liquidator, sequestrator or other judicial
representative is appointed for either party or its property. In such event,
that party shall execute any documents that are necessary to reassign or
transfer the interest granted hereunder.
12. RIGHTS AND DUTIES ON TERMINATION
12.1 Upon termination of this Agreement all provisions regarding
confidentiality shall continue in full force and effect until five (5) years
from the date of termination.
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<PAGE>
12.2 Upon termination of this Agreement, TEMPLE shall have the right to
retain any amounts already paid to it by COMPANY under this Agreement and
COMPANY shall pay to TEMPLE all amounts accrued which are then due and which
become due based on sales of LICENSED PRODUCT, manufactured or produced prior to
the effective date of termination.
13. GOVERNING LAW
13.1 This Agreement shall be construed and the respective rights of the
parties hereto determined according to the substantive laws of the Commonwealth
of Pennsylvania, notwithstanding the provisions governing conflict of laws under
such Pennsylvania law to the contrary.
14. SEVERANCE
14.1 If any provision of this Agreement is held to be invalid or
unenforceable under the laws of any jurisdiction of the parties, all other
provisions shall, nevertheless continue in full force and effect.
15. AMENDMENTS
15.1 This Agreement constitutes the entire agreement between the parties
and supersedes all previous arrangements, whether written or oral. Any amendment
or modification to this Agreement shall be made in writing signed by both
parties.
16. PATENT MARKING
16.1 COMPANY agrees to mark or have marked all LICENSED PRODUCT sold by
CONTANY or by its sub-licensees under this Agreement in accordance with the
statutes of the United States and countries and territories relating to the
marketing of patented articles in which any LICENSED PRODUCT covered by a
granted patent is marketed.
17. NOTICES
17.1 Notices and payments to TEMPLE shall be addressed to:
Office of Technology Transfer
Temple University (083-45)
406 University Sciences Building
Broad & Oxford Streets
Philadelphia, Pennsylvania 19122
Notices to COMPANY shall be addressed to:
Sierra Diagnostics
15785 Shady Oak Drive
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<PAGE>
Sonora, California 95370
Either party may change its address for notice by giving notice to the other
party in the manner herein provided. Any notice required or provided for by the
terms of this Agreement shall be in writing and sent by registered or certified
mail, return receipt requested, postage prepaid and properly addressed in
accordance with the paragraph above. The effective date of notice shall be the
actual date of receipt by TEMPLE or COMPANY.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
FOR TEMPLE UNIVERSITY OF THE COMMONWEALTH SYSTEM OF HIGHER EDUCATION
BY /s/ Laurent J. Remillard DATE 9/21/93
-------------------------------------
Name: Laurent J. Remillard
Title: Vice President, Chief Financial Officer and Treasurer
FOR SIERRA DIAGNOSTICS
BY /s/ Tony K. Baker DATE 10/27/93
-------------------------------------
Name: Tony K. Baker
Title: President
ATTEST /s/ Judith E. Baker DATE 10/27/93
---------------------------------
Name: Judith E. Baker
Title: Secretary
-9-
EXHIBIT 10.2
STATE OF ALABAMA
DEPARTMENT OF FINANCE
DIVISION OF PURCHASING
<TABLE>
<CAPTION>
<S> <C> <C>
RSA Union Building
100 North Union Street
DON SIEGELMAN Suite 192 BILL NEWTON
Governor P.O. Box 302620 Assistant Finance Director
Montgomery, Alabama 36130-2620 Acting Director of Purchasing
HENRY C. MARRY, III Telephone (334) 242-7250
Director of Finance Fax (334) 242-4410
</TABLE>
July 20, 1999
Tony Baker
Sierra Diagnostics
21109 Longeway Road
Sonora, CA 95370
Dear Mr. Baker:
Subject: Contract 4004293, Gonostat Kits
The above contract will expire September 30, 1999. It is the desire of the using
agency to extend this contract for an additional year. This would be at the same
terms, conditions, and prices currently in effect. The new expiration date will
be September 30, 2000. If this is acceptable to your company, please indicate
below and return to my attention at FAX 334/242-4419. If you have any questions,
please contact me at 334/242-4201.
Thank you for your cooperation.
Best regards: Agreed /s/ Tony Baker 20 July, 1999
----------------------------------------
Signature Date
/s/ Bernie Arant
Buyer
<PAGE>
STATE OF ALABAMA CONTRACT NO. 4004293 Page 1
BUYER BERNIE ARANT
DEPARTMENT OF FINANCE BUYER PHONE (334) 242-4201
DIVISION OF PURCHASING T-NUMBER TA128
DATE ISSUED 07/20/99
SNAP REQ. NO. 1153027
EFFECTIVE DATE 10/27/98
AGENCY TERM CONTRACT AWARD EXPIRATION DATE 09/30/00
SOLICITATION NO. 98-X-2071912
VENDOR NUMBER 77037465600
VENDOR PHONE (209)536-0886
SIERRA DIAGNOSTICS
21109 LONGEWAY RD
SONORA CA 95370
BID SIGNED BY TONY BAKER
AGENCY TERM CONTRACT: GONOSTAT KITS
1. EFFECTIVE PERIOD: 10/27/98 TO 09/30/00
2. F.O.B. POINT: DEST
3. DELIVERY TERMS: 30 DAYS ARO
4. CASH DISCOUNT TERMS: NET
5. BID REFERENCE NO.:
6. AWARDED LINES: 00001
7. DISCOUNTS: UNIT PRICES INCLUDE ALL APPLICABLE DISCOUNTS
ALL TERMS, CONDITIONS, AND ANY AMENDMENTS TO SOLICITATION 98-X-2071912 ARE
PART OF THIS CONTRACT AS IF FULLY REPRODUCED HEREIN.
APPROVED:/s/ Bill Newton
------------------------
ACTING PURCHASING DIRECTOR
VENDOR COPY
<PAGE>
<TABLE>
<CAPTION>
PRICE SHEET AGENCY TERM CONTRACT AWARD
VENDOR: SIERRA DIAGNOSTICS CONTRACT NO.:4004293 PAGE 2
VENDOR NO.: 77037465600
LINE ESTIMATED EXTENDED AMT
NO. COMMODITY/SERVICE DESCRIPTION QUANTITY UNIT UNIT PRICE IF APPLICABLE
<S> <C> <C> <C> <C>
UNLESS SPECIFIED OTHERWISE BELOW:
SHIP TO: Rl
STATEWIDE
00001 COMMODITY CODE! 193-40-071377 1 KIT $175.00000 $ 175.00
SUPPLY THE FOLLOWING PRODUCTS
FOR THE PERIOD 4-1-98 THRU 9-30-2000
WITH THE OPTION TO RENEW FOR 2 MORE
YEARS.
ITEMS TO BE ORDERED AS NEEDED BY THE
BUREAU OF CLINICAL LABORATORIES.
GONOSTAT DIAGNOSTIC TEST KIT FOR N.
GONORRHOEAE.
TECHNOLOGY: GENETIC TRANSFORMATION
TECHNOLOGY.
TRADE NAME: GONOSTAT
FOR DETECTION OF INFECTION BY N.
GONORRHOEAE IN MALE URETHERAL AND FEMALE
ENDOCERVICAL SPECIMENS. 100 TESTS/KIT.
PERFORMANCE CHARACTERISTICS:
(A) SENSITIVITY: 90%
(B) SPECIFICITY: 99%
KIT CONTENTS (INCLUDES ALL REAGENTS AND
CONTROLS TO PERFORM 100 TESTS.)
(A) 4 X 3.5ML VIALS GONOSTAT MUTANT
(B) 2 X 30ML VIALS GONOSTAT EXTRACTION
BUFFER A.
(C) 2 X 30ML VIALS GONOSTAT EXTRACTION BUFFER B.
(D) 4 GONOSTAT POSITIVE CONTROL SWABS.
(E) 4 GONOSTAT NEGATIVE CONTROL SWABS.
(F) PRODUCT INSERT.
MALE SWABS
PACKAGED INDIVIDUALLY IN A PLASTIC TUBE.
COTTON BUD ON A PLASTIC SHAFT.
FOR USE WITH ABOVE KIT.
FEMALE SWABS
PACKAGED INDIVIDUALLY IN A PLASTIC TUBE.
COTTON BUD ON A PLASTIC SHAFT.
FOR USE WITH ABOVE KIT,
ALL KITS WILL HAVE AT LEAST 9 MONTHS DATING PRIOR TO
EXPIRATION. KITS WILL BE SHIPPED ON DRY ICE IN
SPECIALLY VALIDATED GONOSTAT SHIPPERS
VIA FEDERAL EXPRESS.
SUCCESSFUL BIDDER TO SUPPLY THE FOLLOW
ING EQUIPMENT FOR THE DURATION OF THE
CONTRACT AT NO ADDITIONAL COST TO THE
LABS LISTED BELOW:
</TABLE>
VENDOR COPY
<PAGE>
<TABLE>
<CAPTION>
PRICE SHEET AGENCY TERM CONTRACT AWARD
VENDOR: SIERRA DIAGNOSTICS CONTRACT NO.:4004293 PAGE 3
VENDOR NO.: 77037465600
LINE ESTIMATED EXTENDED AMT
NO. COMMODITY/SERVICE DESCRIPTION QUANTITY UNIT UNIT PRICE IF APPLICABLE
<S> <C> <C> <C> <C>
(A) C02 INCUBATOR (FLOOR MODEL)
(AT LEAST 27 CU. FT.)
ITEM (A) TO BE SUPPLIED TO MONTGOMERY,
BIRMINGHAM, DECATUR AND MOBILE LABORA-
TORIES.
(B) C02 INCUBATOR (TABLETOP MODEL) (AT LEAST 6 CU. FT.)
ITEM (B) TO BE SUPPLIED TO DOTHAN
LABORATORY.
(C) HEAT BLOCK
(D) WATER BATH AND LID
(AT LEAST 50 LITER VOLUME)
(E) 400 UL FIXED PIPETTOR. MLA BRAND.
(F) 400 UL VARIABLE PIPETTOR (2)
LABSYSTEMS CAT #4540000 ITEMS (C) THROUGH (F) TO BE
SUPPLIED TO MONTGOMERY, BIRMINGHAM, DECATUR, DOTHAN, AND
MOBILE LABORATORIES.
SUCCESSFUL BIDDER TO PROVIDE AT LEAST THREE DAY'S ON-SITE
TRAINING AT EACH OF THE FOLLOWING FIVE SITES:
1. BUREAU OF CLINICAL LABORATORIES
8140 UNIVERSITY DRIVE
MONTGOMERY, AL 36117
2. BIRMINGHAM REGIONAL LABORATORY
1400 6TH AVENUE SOUTH
BIRMINGHAM, AL 35233
3. DECATUR REGIONAL LABORATORY
510 CHERRY STREET, N.E.
DECATUR, AL 35601
4. DOTHAN REGIONAL LABORATORY
1781 EAST COTTONWOOD ROAD
SUITE 2
DOTHAN, AL 36301
5. MOBILE REGIONAL LABORATCRY
757 MUSEUM DRIVE
MOBILE, AL 36608
UNIT PRICE = COST OF ONE KIT (1OO TEST).
ALL SPECIFIED CONSUMABLES AND EQUIPMENT
FOR 5 LABORATORIES.
</TABLE>
VENDOR COPY
<PAGE>
PRICE SHEET AGENCY TERM CONTRACT AWARD
VENDOR: SIERRA DIAGNOSTICS CONTRACT NO.:4004293 PAGE 4
T-NUMBER.: TA128
AWARD:
AWARD WILL BE MADE "ALL OR NONE" TO THE LOWEST RESPONSIBLE BIDDER MEETING ALL
SPECIFICATIONS.
FREIGHT:
BID IS F.O.B. DESTINATION. ANY FREIGHT CHARGES MUST BE INCLUDED IN THE BID
PRICES.
DESCRIPTIVE LITERATURE:
BRANDS AND NUMBERS ARE A LEVEL OF QUALITY AND UNLESS SPECIFIED, ARE NOT
RESTRICTIVE. TO PROVIDE A COMPLETE EVALUATION FOR THE BID ITEMS,
DESCRIPTIVE/TECHNICAL LITERATURE SHOULD ACCOMPANY THE BID. REFERENCE TO
LITERATURE OF A PREVIOUS BID WILL NOT SATISFY THIS REQUIREMENT. A PHYSICAL
INSPECTION AND OPERATIONAL EVALUATION MAY BE REQUIRED WITHOUT COST OR OBLIGATION
TO THE STATE OF ALABAMA.
VENDOR COPY
EXHIBIT 10.3
LEASE AGREEMENT
DATE: July 1, 1999
LESSOR: H & H Properties
P.O. Box 547
San Jose, CA 95106
LESSEE: Sierra Diagnostics, Inc.
21109 Longeway Rd., Unit "B"
Sonora, CA 95370
Notices: All notices and demands required to be sent to the Lessor or Lessee
under the terms of this Lease shall be personally delivered or sent by certified
or registered mail to the addresses indicated above or to such other addresses
as the parties may from time to time designated by notice.
1. Premises: Lessor hereby leases to Lessee, and Lessee hereby hires and takes
from Lessor, for the term, the rental and upon the conditions hereinafter set
forth, those certain premises hereinafter referred to as "the premises", located
in the County of Tuolumne, State of California, described as a manufacturing
building consisting of 7,606 square feet located at 21109 Longeway Road, Suite
"A, B, & C."
2. Special Provisions: Lessor has been paying $92.00 per month for floor coating
in Unit B from a previous lease agreement. $3,300.00 was the cost of coating
which is to paid off in three (3) years. This provision is incorporated in this
lease. February 2000 is the final payment.
3. Exhibits: Exhibit "A" is attached hereto and incorporated herein by
reference.
4. Use of Premises: The premises are to be used for manufacturing an in-vitro
diagnostic test kit for the detection of neisseria gonorrhea infection. The test
kit contains neisseria gonorrhea mutant, DNA extraction buffers and test control
swabs. All manufacturing will take place in a class 100 totally contained clean
room. Manufacturing will be done under FDA, GMP guidelines and FDA audit, State
of California medical device regulations and audit and CDC guidelines and audit.
Additionally, Ca1ifornia OSHA regulations and audit will be complied with. A
complete validated, device master file is on file at the manufacturing facility.
Tenant shall not use or store any personal property in the Premises that
are flammable, explosive, dangerous to the health of humans, or which will
increase the insurance premiums of Landlord's insurance policy. Tenant shall not
conduct any unstated business in the Premises, shall not permit any occupancy by
humans or animals and shall not do or permit to be done any act that
-1-
<PAGE>
may create, a nuisance. Tenant shall not store any goods or engage in any act
that shall be in violation of applicable law, ordinance, code, rule or order of
any government agency or any of the rules and regulations of Landlord as may be
adopted and/or revised by Landlord from time to time.
5. Term: The term of this lease shall be for a period of twenty (20) months
commencing on the 1st day of July 1999 and ending on the 28th day of February,
2001, inclusive.
6. Rent: Lessee agrees to pay Lessor at Lessor's address shown above without
prior notice or demand, rent as follows:
From July 1, 1999 through February 28, 2000, rent equal to
57.62(cent) + 2(cent) CAM + $92.00 or $4,383.00 + $152.00 + 92.00
($4,627.00) per month payable the 1st day of each month.
From March 1, 2000 through February 28, 2001, rent equal to
58.62(cent) + 2(cent) or $4,459.00 + $152.00 = ($4,611.00) per
month payable the 1st day of each month.
7. Renewal Option: At the termination of this lease, Lessee is hereby granted
and have, if not in default at the time under this lease, an option to renew for
an additional 40 months.
A. Said renewal shall be on the same terms, covenants and conditions herein
contained, except that the rental shall be fixed by agreement of the parties at
least thirty (30) days prior to the expiration of the previous term.
8. Permits: Lessee will obtain a use permit from the County within thirty (30)
days of full execution of this Lease. Lessee shall use due diligence in pursuing
such permits and pay all costs associated with them. Lessee shall have the
responsibility to maintain any use permit and to comply with all terms and
conditions of said use permit during the term of this Lease. If Lessee's
application for a use permit is denied, Lessor or Lessee may declare this lease
void, in which event all deposits shall be returned.
9. Late Charge: If Lessor does not receive any rent payment within fifteen (15)
days after it becomes due, Lessee shall pay Lessor a late charge of Five Hundred
Dollars ($500.00).
10. Taxes: Lessor shall be responsible to pay all real property taxes and
assessments levied upon the property. Lessee shall pay all taxes and assessments
levied against any personal property, trade fixtures, or other improvements on
the premises belonging to the Lessee including but without prejudice to the
generality of the foregoing, shelves, counters, wall safes, partition, fixtures,
machinery and atmospheric coolers, and if any such taxes are levied against the
Lessor or Lessor's property, and if Lessor pays the same, which Lessor shall
have the right to do regardless of the validity of any such levy, or if the
assessed value of the Lessor's premises is increased by the inclusion therein of
a value placed on such property, and if Lessor pays the taxes based upon such
-2-
<PAGE>
increased assessment, which the Lessor shall have a right to do, regardless of
the validity thereof, Lessee, within fifteen (15) days after demand by Lessor
shall, as the case may be, repay to Lessor the taxes so levied against Lessor.
11. Liability and Property Damage Insurance: Lessee will, at all times during
the term hereof aud any extended term hereof carry at its expense broad form
public liability insurance with insurance of not less than $2,000,000.00 for
injury to or death of one person, and less than $2,000,000.00 for injury to or
death of two or more persons arising out of a single accident or occurrence, and
property damage insurance in any amount not less than $100,000.00, which
policies shall insure the contingent liability, if any, of Lessor. Lessee's
insurance coverage shall include fire legal liability coverage in an amount of
not less than $100,000.00 per occurrence. Lessee will furnish to Lessor a
certificate evidencing that the contingent liability of Lessor is covered by
said policies, including evidence of the fire legal liability coverage
heretofore mentioned, and that Lessor is an additional insured under such
policies.
12. Fire Extinguishers: Lessee will furnish and maintain fire extinguishers on
premises at Lessee's own cost.
13. Utilities: Lessee shall be solely responsible for paying the cost of all
water, sewer, storm drain, gas, electricity, telephone, and fire sprinkler
system water connection fees billed against the premises.
14. Trash and Refuse: Lessee shall keep premises clean of trash and refuse at
Lessee's cost. Lessee shall provide for refuse and rubbish service. Lessee shall
remove immediately from the premises any old tires, abandoned vehicles and
miscellaneous auto parts. Lessee shall immediately remove all papers or debris
that collect in the landscaped areas and in other areas outside of the building.
15. Landscape Maintenance: The monthly CAM (Common Area Maintenance) charge of
2(cent) built into monthly schedule of payments is meant to pay for all
landscape maintenance. Lessor will pay for all water to be used in landscaping
unless the area immediately adjacent to the building is metered by the same
meter that provides water to the interior of the building.
16. Asphalt and Blacktop Maintenance: The monthly CAM charge of 2(cent) built
into the monthly schedule of payments is meant to maintain and repair all
asphalt and blacktop adjacent to the premises.
17. Fire Sprinkler System: Lessor shall pay for maintaining the building
sprinkler system. Any checking of the sprinkler system by insurance company or
governing bodies shall be at Lessee's expenses. The installation and monthly fee
of any detection system which may be required to monitor sprinkler system shall
be the responsibility of the Lessee. At the present time, the fee for this
service is Twenty Dollars (S20.00) per month from the alarm company.
18. Heating and Air Conditioning: Lessee shall provide, at Lessee's expense, a
semi-annual maintenance contract to maintain heating and air-conditioning
systems to include changing of filters
-3-
<PAGE>
and cleaning system. Any major breakdown of system will be repaired or replaced
at Lessor's expense unless Lessee fails to maintain the system properly or if
breakdown is caused by Lessee, or its employees or agents, negligence.
19. Pest and Rodent Control: Lessee shall be responsible for insect and rodent
control both inside and outside of the building. This includes spiders, bird
nests, ants, cockroaches, files, and other pests. Lessee is responsible for
keeping the inside of the building rid of spider webs.
20. Environmental Issues:
a. Lessor's Environmental Obligations: Lessor shall comply, and take all
necessary action to cause the building to comply with all applicable
federal, state and local requirements relating to the protection of public
health, safety and welfare, and with all applicable environmental laws
relating to the building. Lessor is responsible for, and agrees to hold
harmless, indemnify and defend Lessee from any and all claims, losses,
liabilities, damages, costs and expenses, including reasonable attorney's
fees, related to the presence of hazardous substances in or on the premises
or the building, unless caused or allowed by Lessee or Lessee's agents,
employees, contractors, suppliers, shippers, customers or invitees. The
parties agree that notwithstanding any term or provision of any applicable
law or regulation, Lessee shall not be liable for any claims, losses,
liabilities, damages, costs and expenses, including reasonable attorney's
fees, and/or for investigating and complying with any governmental order
(federal, state and/or local) relating to any hazardous substances on the
premises or building that were not caused or allowed by Lessee or Lessee's
agents, employees, contractors, suppliers, shippers, customers or invitees.
b. Lessee Environmental Obligations: Lessee shall comply, and take all
necessary actions to cause its operations in and on the premises to comply,
with all applicable federal, state and local requirements relating to the
premises. Lessee is responsible for, and agrees to hold harmless, indemnify
and defend Lessor from any and all claims, losses, liabilities, damages,
costs and expenses, including reasonable attorney's fees, caused by or
related to Lessee's delivery, storage or use of hazardous substances in or
on the premises, common areas, soil or surrounding area or Lessee's acts or
those of Lessee's agents, employees, contractors, suppliers, shippers,
customers or invitees which result in violation of any such laws. To the
extent Lessee or Lessee's agents, employees, contractors, suppliers,
shippers, customers or invitees cause or allow the presence of or places
hazardous substances in or on the premises, common areas, soil or
surrounding area or violate any such laws, Lessee at its sole cost and
expense shall promptly take any and all actions necessary or required to
return the premises, common areas, soil or surrounding area to the
condition existing prior to such placement of the hazardous substances
including the cost of required subsequent monitoring of such spill; in any
such event, Lessee shall be liable for any related claims, losses,
liabilities, damages, costs and expenses, including reasonable attorneys'
fees, and/or investigating and in complying with any governmental order
(federal, state and/or local).
c. Lessor Notification: Lessee will advise Lessor within three (3) days of
the existence of any hazardous substances on the premises, common areas,
soil or surrounding area and in
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<PAGE>
addition to complying with the provisions of the preceding paragraph,
either obtain approval from Lessor within thirty (30) days from notice or
remove and clean up said hazardous substances to standards required by the
Lessor within sixty (60) days from notice. If Lessee or Lessee's agents,
employees, contractors, suppliers, shippers, customers or invitees cause or
allow any release (as defined in any federal, state or local agency, law,
rule or ordinance) or spill of, or contamination by hazardous substances,
Lessee shall immediately notify Lessor.
21. Roll-up Doors: Lessor shall deliver roll-up overhead door in the building in
good operating condition at start of this Lease. Lessee shall during this lease
maintain the roll-up overhead doors in good condition and return these doors to
Lessor in the same condition as received except for normal wear and tear.
22. Janitorial and Maintenance Services: Lessee shall provide the premises with
usual janitorial and maintenance services necessary for continued commercial
occupancy and to maintained the premises in a clean and well-ordered manner,
including, but not limited to the removal of cobwebs.
23. No Warranties by Lessor: Lessor does not warrant that any of the services
above mentioned will be free from interruptions caused by repairs, renewals,
improvements, alterations, strikes, lockouts, accidents, inability of the Lessor
to obtain water or any other cause or causes beyond the reasonable control of
the Lessor. Any such interruption of service shall never be deemed an eviction
or disturbance of the Lessee's use and possession of the premises, or any part
thereof, or render the Lessor liable to the Lessee for damages, or relieve the
Lessee from performance of the Lessee's obligation under this Lease, provided,
however, that Lessor will at all times use reasonable efforts promptly to remedy
any situation which might interrupt such service.
24. Premises in Good Order & Repair: Lessee has examined, inspected, and knows
the condition of the premises and every part thereof and has received the same
in good order and repair and accepts the same in their present condition. On the
last day of the term hereof or on any sooner termination on this Lease, Lessee
will peaceably and quietly surrender and yield up said premises to Lessor, with
all appurtenances and fixtures in good order, condition and repair. Reasonable
use, wear, tear and damage by the elements are excepted.
25. Repairs & Alterations: Lessee shall take good care of the premises and they
shall not be altered, repaired, or changed without the written consents of
Lessor. Lessor agrees to keep the roof, excluding any skylights or other
openings therein, and exterior walls of the building of which these premises are
a part in good order, condition and repair and will maintain the sewer line from
the premises to the property line in good order and repair. All other repairs
shall be at the expense of the Lessee. Lessee covenants and agrees to make any
and all repairs in a timely manner and prevent any condition which may be
deleterious to the good condition of the premises or of the buildings with which
it is situated. Lessee shall be responsible for the replacement of all defective
light bulbs and ballast in fixtures excepting that Lessor shall be responsible
for all defective ballast during the first year of this lease.
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<PAGE>
26. Assign or Sublet: Lessee shall not assign, mortgage or hypothecate this
lease or any interest therein or permit the use of the premises by any person or
persons other than Lessee or sublet the premises, or any part thereof, without
the written consent of the Lessor which shall not be unreasonably withheld.
27. Delivery of Possession: In the event of the inability of Lessor to deliver
possession of the premises at the time of the commencement of the term of this
Lease, neither Lessor nor its agents shall be liable for any damage caused
thereby, nor shall the term herein specified be in any way extended but in such
event, Lessee shall not be liable for any rent until such time as Lessor can
deliver possession.
28. Prohibited Use: Lessee shall not do or permit anything to be done in or
about the premises, nor bring nor keep anything therein which will in any way
affect fire or other insurance upon the building, or any of its contents, or
which shall in any way conflict with any law, ordinance, rule, or regulation
affecting the occupancy and use of the premises, which are or may hereafter be
enacted or promulgated by any public authority or in any way obstruct or
interfere with the rights of other Lessees in the building and/or the premises
or injure or annoy them, nor use, nor allow the premises to be used for any
improper, immoral, unlawful or objectionable purposes. Nor shall Lessee keep or
maintain any waste oil, toxic or dangerous substance on or about the premises
unless such is maintained in absolute compliance with law and in accordance with
instructions and direction of the Lessor's fire insruance company.
29. Signs: Lessee will not permit or suffer any signs, advertising or notices to
be displayed, inscribed upon or affixed on any part of the outside or inside of
the premises, unless approved by Lessor in writing and then only such size,
color and style as Lessor may approve. The sign design and plan shall be in
compliance with the local ordinances and regulations of the governing
jurisdiction.
30. Subordination: This Lease shall be subordinate and subject at all times to
any mortgage, deed of trust, ground lease, or other security device covering the
premises, or which at any time hereafter shall be made, and to all advances
made, or hereafter to be made, upon the security hereof.
31. Holding Over: If Lessee hold possession of the premises after the term of
this Lease, Lessee may at the option of the Lessor, on Lessor's written notice
to Lessee and not otherwise, become a Lessee from month to month upon the terms
and conditions herein specified, so far as applicable at a basic monthly rental
to be established by the Lessor, payable in advance, in lawful money of the
United States, and shall continue to be such Lessee until thirty (30) days after
Lessee shall have given to Lessor, or Lessor shall have given to Lessee a
written notice of intention to terminate such monthly tenancy. With respect to
acceptance of the Lessee's holding over, Lessor shall not be deemed to have
accepted any holding over by the Lessee by virtue of the mere acceptance of rent
from the Lessee, and Lessee shall remain a Lessee at Sufferance.
32. Right and/or Duty of Removal by Lessee: All improvements or alterations
installed by the Lessee shall be and remain the property of Lessee (except where
the same is a replacement of an item theretofore furnished and paid for by
Lessor or against which Lessee has receive a credit), all
-6-
<PAGE>
movable property, furniture, furnishings, and trade fixtures, other than those
affixed to the realty so that it cannot be removed without material damage,
shall remain the property of Lessee, and in case of damage by reason of such
removal, Lessee shall restore the demised premises to good order and condition.
33. Lessee's Election Not to Remove: In case Lessee shall decide not to remove
any part of such property, it shall notify Lessor in writing not less than
thirty (30) days prior to the expiration of the terms of this Lease specifying
the items of property which it has decided not to remove. If within fifteen (15)
days after the service of such notice Lessor shall request Lessee to remove any
of the said property, Lessee shall, at its expense, at or before the expiration
of the terms of this Lease, remove said property, and, in the case of damage by
reason of such removal, restore the demised premises to good order and
condition. If Lessee fails to remove any of the said property before the
expiration of the term of this Lease, Lessor may, at Lessor's option, remove at
the expense of Lessee or elect to retain ownership and possession of said
improvements.
34. Mechanic's Liens: The Lessee shall not suffer or permit any Mechanic's liens
or materialmen's lien to be filed against the fee of the real property of which
the premises form a part nor against the Lessee's leasehold interest in the
premises. Any such filing shall constitute an immediate breach of this Lease.
Lessor shall have the right at all reasonable times to post and keep posted on
the premises any notices which it deems necessary for protection from such
liens. If any such liens are so filed and the Lessee fails to file an
appropriate release bond or fails to legally respond to the filing of such lien,
Lessor, in addition to its option of terminating the Lease, may elect to pay and
satisfy the sum demanded by the lien, and in such event the sum so paid by
Lessor with interest at the highest legal rate pursuant to the laws of the state
where leased premises are located, per annum from the date of payment, shall be
deemed to be additional rent due and payable by Lessee at once without notice or
demand.
35. Destruction: If the premises or the building wherein the same are situated
shall be destroyed by fire or other cause, or be so damaged thereby that they
are untenantable and cannot be rendered tenantable within ninety (90) days from
the date of such destruction or damages, this Lease may be terminated by Lessor
or Lessee by written notice. In case the damages or destruction be not such as
to permit a termination of the Lease as above provided, then a proportionate
reduction shall be made in the rent herein reserved corresponding to the time
during which and to the portion of the premises of which Lessee shall be
deprived of possession.
36. Condemnation: If the whole or any part of the premises shall be taken or
condemned by any competent authority under power of eminent domain for a public
or quasi-public use or purpose, then, at Lessor's option to be exercised by
written notice to be given by Lessor to Lessee, the term hereby granted shall
cease from the time when possession of the part so taken shall be required for
such public or quasi-public use or purpose and without an apportionment of the
award, Lessee hereby assigning to Lessor all right and claim to the award. The
current rent, however in such case shall be apportioned. If such taking
materially affects Lessee's ability to conduct its business within the premises,
Lessee shall have the option to terminate this Lease by providing Lessor Sixty
(60) days' notice of such intent, in writing.
-7-
<PAGE>
37. Exemption of Lessor from Liability: Lessee hereby agrees that Lessor shall
not be liable for injury to Lessee's business or any loss of income therefrom or
for damage to the goods, wares, merchandise or other property of Lessee,
Lessee's employees, invitees, customers, or any other person in or about the
premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire and landscape
sprinklers, wire, appliances, plumbing, air conditioning or lighting fixtures,
or from any other cause, whether said damage or injury results from conditions
arising upon the premises, or from other sources or places and regardless of
whether the cause of such damage or injury or the means of repairing the same is
inaccessible to Lessee. Lessor shall not be liable for any damages arising from
any act or neglect of any other Lessee, occupant or user of the premises, nor
from the failure of Lessor to enforce the provisions of any other lease of the
premises.
38. Indemnification of Lessor: Lessor shall not be liable to Lessee and Lessee
hereby waives all claims against Lessor for any injury to or death of any person
or damage to or destruction of property in or about the premises or the complex
by or from any cause whatsoever, including, without limitation, gas, fire, oil,
electricity, or leakage of any character from the roof, walls, basement or other
portion of the premises or the complex but excluding, however, the negligence of
Lessor, its agents, servants, employees, invitees, or contractors of which
negligence Lessor has knowledge and reasonable time to correct. Except as to
injury to persons or damage to property the principal cause of which is the
negligence of Lessor, Lessee shall hold Lessor harmless from and defend Lessor
against any and all expenses, including reasonable attorney's fees, in
connection therewith, arising out of any injury to or death of any person or
damage to or destruction of property occurring in, on or about the premises, or
any part thereof, from any cause whatsoever.
39. Waiver of Subrogation: Lessor hereby releases Lessee and Lessee hereby
releases Lessor and their respective officers, agents, employees and servants,
from any and all claims or demands for damages, loss, expense or injury to
equipment or inventory or other property of either Lessor or Lessee in, about,
or upon the demised premises, as the case may be, which be caused by or result
from perils, events, or happenings which are the subject of insurance carried by
the respective parties and enforced at the time of any such loss, provided,
however, that such waiver shall be effective only to the extent permitted by the
insurance covering such loss and to the extent such insurance is not prejudiced
thereby or the expense of such insurance is not thereby increased.
40. Lessee to Replace Glass: The Lessee shall repair, at its own expense, all
damage or destruction of any plate or window glass in the demised premises. If
the Lessee fails to repair the damage of any plate glass or window glass in the
demised premises then the Lessor may repair said damage or destruction and
charge the cost of such repairing to the Lessee and the amount thereof shall be
deemed to be, and be paid as, additional rent.
41. Remedies on Lessee's Default: Should Lessee breach this Lease or breach this
Lease and abandon said premises prior to the natural expiration of the term of
this Lease, Lessor, in addition to any other remedy given Lessor by law or
equity, may:
a. Continue Lease.
-8-
<PAGE>
Continue this Lease in effect by not terminating Lessee's right to
possession of said premises, in which event Lessor shall be entitled to enforce
all Lessor's rights and remedies under this Lease including the right to recover
the rent specified in this Lease as it becomes due under this Lease, or
b. Terminate Lease.
Terminate this Lease and recover from Lessee:
(1) The worth at the time of award of the unpaid rent which had been
earned at the time of termination of the Lease;
(2) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination of the Lease until the
time of award exceeds the amount of rental loss that Lessee proves could
have been reasonably avoided;
(3) The worth at the time of the award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of rental loss that Lessee proves could be reasonably avoided; and
(4) Any other amount necessary to compensate Lessor for all detriment
proximately caused by Lessee's failure to perform his obligations under
this Lease; or
c. Seek Unlawful Detainer.
Terminate the Lease and in addition to any recoveries Lessor may seek under
the previous paragraphs of this Lease, bring an action to reenter and gain
possession of said premises in the manner provided by the laws of unlawful
detainer of the State of California then in effect.
42. Default by Lessee: All covenants and agreements contained in this Lease are
declared to be conditions to this Lease and to the term hereby demised to
Lessee. Lessee shall be in breach of this Lease, giving Lessor the remedies
specified in Paragraph "Remedies on Lessee's Default" of this Lease, should:
a. Nonpayment of Rent.
Any such rent be unpaid when due and remain unpaid for five (5) days after
written notice to pay such rent or surrender possession of said premises is
served on Lessee by Lessor; or
b. Breach of Covenant.
Lessee default in the performance of, or breach of any covenant, condition,
or agreement, requiring the payment of money, contained in this Lease and such
default or breach is not cured within five (5) days after written notice thereof
is given by Lessor to Lessee; or Lessee
-9-
<PAGE>
default in the performance of, or breach any, non-monetary, covenant, condition,
or agreement, contained in this Lease and such default or breach is not cured
within ten (10) days, or such larger time as may be allowed by Lessor, after
written notice thereof is given by Lessor to Lessee; or
c. Failure to Cure.
Should any monetary default or breach not be cured within five (5) days
after written notice from Lessor to Lessee specifying such default, or should
any non-monetary default or breach not be cured within ten (10) days after
written notice from Lessor to Lessee specifying such default, then Lessor or
Lessor's agent or attorney may, at Lessor's option, terminate this Lease
forthwith by written notice to Lessee and take such action or pursue such remedy
as may be permitted by under the laws of the state in which the leased premises
are located, provided, however, that no such termination shall be effected or
action taken or remedy pursued until the expiration of such additional period as
may be requested in writing by the Lessee, if any, as may be reasonably
necessary, in the determination of the Lessor, to remedy the default if it is of
such nature as to require more than ten (10) days to remedy.
43. Acts Constituting a Default: Lessee's default in the performance or breach
of any other covenant, condition or agreement contained in this Lease includes
the following actions which are specifically designated as acts constituting
default:
a. Unauthorized Purposes.
Use of the premises for any purpose other than as authorized in this Lease;
or
b. Personal Property Tax.
Failure to pay persona property tax or other taxes when due; or
c. Abandonment.
Abandonment or vacation of Lessee from the premises; or
d. Bankruptcy.
The filing by Lessee or any other person of a voluntary or involuntary
petition in bankruptcy or an arrangement by or against Lessee; the adjudication
of a receiver of the business or of the assets of Lessee, except a receiver
appointed at the insistence or request of Lessor; the general or any other
assignment by lessee of the benefits of his creditors; or
e. Performance.
A continuing default; after written notice, in the performance of any of
the terms, covenants, and conditions herein contained; or
-10-
<PAGE>
f. Mechanic's Liens.
The suffering by Lessee of the filing of a mechanic's lien against the
premises for work ordered and contracted for by the Lessee and the failure by
Lessee to file a release bond, covering the premises.
44. Waiver of Breach: The waiver by Lessor of any breach by Lessee of any of the
provisions of this Lease shall not constitute a continuing waiver or a waiver of
any subsequent default or breach by Lessee either of the same or a different
provision of this Lease.
45. Inspections: Lessee will permit Lessor and its agents to enter into and upon
the premises in emergencies and at all reasonable times for the purpose of
inspecting the same, or for the purpose of protecting owner's reversions, or to
make alterations and additions to the premises or to any other portion of the
building in which the premises are situated, without any rebate of rent to
Lessee for any loss of occupancy, or quiet enjoyment of the premises, or
damages, injury, or inconvenience thereby occasioned, and will permit Lessor at
any time within thirty (30) days prior to the expiration of this Lease to bring
upon the premises for purposes of inspection or display, prospective tenants
thereof.
46. Covenants: It is mutually agreed that the letting hereunder is made upon and
subject to the terms, covenants and conditions of this Lease and that Lessee
covenants as a material part of the consideration for this Lease, to keep and
perform each and all of said terms, covenants and conditions by him to be kept
or performed, and that this Lease is made upon the conditions of such
performance.
47. Provisions Deemed Covenants and Conditions: The parties hereby agree that
all the provisions hereof are to be construed as covenants and conditions where
used in each instance and that all of the provisions hereof shall bind and inure
to the benefit of the parties hereto and their respective heirs, legal
representatives, successors and assigns.
48. Time of Essence: Time is of the essence in the performance of each provision
of this Lease.
49. Cumulative Remedies: The specified remedies to which Lessor or Lessee may
resort under the terms of this Lease are cumulative and not intended to be
exclusive of any other remedies afforded by law. The waiver of the performance
of any covenants, terms or conditions of this Lease by Lessor and Lessee shall
not be construed as a waiver of any subsequent breach of the same covenant, term
or condition.
50. Attorney's Fees: Should either party hereto institute any legal action to
enforce any provision hereof, the prevailing party in such action shall be
entitled to receive from the losing party such amount as the court may adjudge
to be reasonable attorney's fees.
51. Interest on Past Due Obligations: Any amount owed by Lessee to Lessor which
is not paid when due shall bear interest at the rate of fifteen percent (15%)
per annum from the due date of such
-11-
<PAGE>
amount. However, interest shall not be payable on late charges to be paid by
Lessee under this Lease. The payment of interest on such amounts shall not
excuse or cure any default by Lessee under this Lease. If the interest rate
specified in this Lease is higher than the rate permitted by law, the interest
rate is hereby decreased to the maximum legal interest rate permitted by law.
52. Invalidity: If any term, covenant, condition or provision of this Lease is
held to by a Court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the provisions hereof shall remain in full force
and effect and shall in no way be affected, impaired or invalidated thereby.
53. Agency: Nothing contained in this Lease shall be deemed or construed by the
parties hereto or by any third person to create the relationship of principal
and agent or of partnership or of joint venture or of any other association
other than Lessor and Lessee.
54. Extensions: All references to the terms of this Lease shall include any
extensions of such term.
55. Binding Effect; Counterparts: This Lease shall not be binding and in effect
until a counterpart hereof has been executed and delivered by the parties, each
to the other.
56. Agreement in Counterparts: This agreement may be executed in several
counterparts, and as executed, shall constitute one agreement, binding on all
parties hereto, notwithstanding that all of the parties are not signatory to the
original or the same counterpart.
57. Governing Law: This Lease shall be governed by the laws of the state in
which the premises are located.
58. Commissions: Commissions paid to leasing agent will be the sole
responsibility of the Lessor.
59. Quiet Enjoyment: Lessor covenants and agrees that the Lessee upon paying the
rent and performing the covenants contained herein shall and may peaceably and
quietly hold and enjoy the premises for the term of the lease.
-12-
<PAGE>
Execution: The parties have executed this Lease at the place and on the date
specified opposite their respective signatures.
LESSOR:
Date: July 1, 1999 H & H PROPERTIES
Place: San Jose, CA P.O. BOX 547
Telephone: (408) 295-0353 SAN JOSE, CA 95106
Signature: /S/FREDERICK T. HONORE
-----------------------
Print: FREDERICK T. HONORE
Title: Partner
LESSEE:
Date: July 8, 1999 SIERRA DIAGNOSTICS, INC.
Place: Sonora, CA 95370 21109 LONGEWAY ROAD, UNIT "B"
Telephone: (209) 536-0886 S0NORA, CA 95370
Signature: /S/ TONY BAKER
-----------------------
Print: TONY BAKER
Title: President
-13-
<PAGE>
LEASE MEMORANDA
For information purposes only
July 1, 1999
Important Features of Lease between
H & H & Properties and Sierra
Diagnostics, Inc.
Reference to Lease of 21109
Longeway Road Units A, B & C, Sonora, CA
Premises:
1. 21109 Longeway Road, Units A, B, & C, Sonora, CA
Term:
2. Twenty Months commencing July 1, 1999 and ending February 28, 2001
Rate:
3. July 1, 1999 through February 28, 2000, rent equal to $4,627.00 per month
March 1, 2000 through February 28, 2000, rent equal to $4,611.00 per month
Late Charge:
4. A $500.00 late charge applies if rent is not received by the 15 days after
due date.
Insurance:
5. Lessee to carry minimum of $2,000,000.00 and $100,000.00 property damage.
Lessor to be listed as additional insured.
Utilities:
6. Lessee shall pay for cost of water, sewer, storm drain, gas, electricity,
and telephone.
Heating & Air Conditioning:
7. Lessee shall provide and pay a semi-annual maintenance contract on heating
and air conditioning systems.
Renewal:
8. Lessee has option to renew for an additional 40 months at lease
termination.
-14-
EXHIBIT 10.4
SELECT THERAPEUTICS INC.
124 Mt. Auburn St.
Suite 200N
Cambridge, MA 02138
Telephone: 617-520-6693
Fax: 617-547-1431
1 January 1999
Robert Bender Consulting Limited
Attn: Robert Bender
Re: Consulting Services
This memo confirms retention of Robert Bender Consulting Limited by SELECT
Therapeutics Inc. on a continuing basis to provide:
-general management as CEO on an ongoing basis
-technology strategy and acquisition planning
-investment baking and capital raising services
-program management
-scientific and medical liaison
You will work as an independent contractor and SELECT will not provide insurance
or other benefits. Expenses will be reimbursed as incurred and submitted;
expenses billed to [INTENTIONALLY OMITTED] will be paid directly subject to
adjustments as advised. Reconciliation of misc. cash expense items will be done
at the earlier of the end of the calendar year or end of the engagement. A
monthly rate of $12,000 US is confirmed, $10,000 will be paid monthly and $2,000
will be accrued. This agreement shall remain effective unless specifically
terminated; termination or changes may be made on 30 days notice. This agreement
must be disclosed as a >related party transaction.=
/s/ Robert Bender
- --------------------------------
For SELECT Therapeutics Inc.
EXHIBIT 10.5
SELECT THERAPEUTICS INC.
#300 , 50 O=Connor Street
Ottawa, Ontario K1P 6L2
CANADA
Telephone: 613-721-6751
Fax: 613-721-6752
1 January 1999
PRESCIENCE Holdings
Attn: Craig Sibley
Re: Consulting Service Contract
Further to our discussions and past practice this memo confirms that SELECT
Therapeutics (Canada) Inc. intends to utilize your services in conjunction with:
-liaison with UofT and HSC
-sourcing and managing research and IP acquisition
-liaison with scientific and medical advisors
-program management for ASCT and marrow programs
You will work as an independent contractor and be paid on a gross basis with no
deductions or insurance coverage. You will be responsible for billing any
applicable taxes such as GST.
SELECT will reimburse you for appropriate expenses incurred on behalf of the
Company subject to approval. This agreement shall remain effective unless
specifically terminated.
Your monthly rate of $8,000 Canadian is confirmed. Termination may be made on 30
days notice.
As you are a Director of SELECT this agreement must be disclosed by the Company.
/s/ Robert Bender
- -------------------------------
R. Bender, CEO
EXHIBIT 10.6
SELECT THERAPEUTICS INC.
#300 , 50 O=Connor Street
Ottawa, Ontario K1P 6L2
CANADA
Telephone: 613-721-6751
Fax: 613-721-6752
1 January 1999
Cliff Lingwood
@HSC
Re: Consulting Service Contract
Further to our discussions and past practice this memo confirms that SELECT
Therapeutics (Canada) Inc. intends to utilize your services in conjunction with:
-research evaluation and technology assessment
-sourcing and managing research and IP acquisition
-liaison with scientific and medical advisors
This consulting is separate from research sponsored by the Company at HSC. You
will work as an independent contractor and be paid on a gross basis with no
deductions or insurance coverage. You will be responsible for billing any
applicable taxes such as GST.
SELECT will reimburse you for appropriate expenses incurred on behalf of the
Company subject to approval. This agreement shall remain effective unless
specifically terminated.
Your monthly rate of $2,000 Canadian is confirmed. Termination or changes may be
made on 30 days notice.
As you are a Director of SELECT this agreement must be disclosed by the Company.
/s/ Robert Bender
- ------------------------------
R. Bender, CEO
EXHIBIT 10.7
SELECT THERAPEUTICS INC.
124 Mt. Auburn St.
Suite 200N
Cambridge, MA 02138
Telephone: 617-520-6693
Fax: 617-547-1431
1 January 1999
Allen Green, MD. PhD. JD
Re: Consulting Services
This memo confirms retention your by SELECT Therapeutics Inc. on a continuing
basis to provide
-technology strategy and acquisition planning
-medical, scientific and regulatory advisory services
-scientific and medical liaison
You will work as an independent contractor and SELECT will not provide insurance
or other benefits. Expenses will be reimbursed as incurred and submitted;
subject to approval. A monthly rate of $10,000 US is confirmed, $5,000 will be
paid monthly and $5,000 will be accrued. This agreement shall remain effective
unless specifically terminated; termination or changes may be made on 30 days
notice. Since you are a Director, this agreement must be disclosed as a 'related
party transaction.'
/s/ Robert Bender
- ------------------------------
R. Bender, CEO
Exhibit 11
Computation of per share loss June 30, 1999
Loss for the year $2,467,328
----------------------------------------
12 months
Months outstanding
----------------------------------------
Common shares beginning of the year 4,981,313 4,981,313
Issue of common shares
July 1998 11,000 12 11,000
November 1998 219,999 8 146,666
December 1998 240,000 7 140,000
March 1999 81,782 4 27,264
May 1999 50,000 2 8,333
June 1999 50,000 1 4,167
----------- -----------
Common shares end of year 5,634,094 5,318,743
----------------------------------------
Loss per common share $0.46
EXHIBIT 21
SUBSIDIARIES
1. Sierra Diagnostic, Inc., a California corporation.
2. Select Therapeutics (Canada) Inc., an Ontario, Canada,
corporation.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Select
Therapeutics Inc. financial statements for the year ended June 30, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-START> Jul-1-1998
<PERIOD-END> Jun-30-1999
<CASH> 120,881
<SECURITIES> 0
<RECEIVABLES> 7,380
<ALLOWANCES> 0
<INVENTORY> 32,130
<CURRENT-ASSETS> 0
<PP&E> 146,602
<DEPRECIATION> 42,055
<TOTAL-ASSETS> 1,259,259
<CURRENT-LIABILITIES> 699,107
<BONDS> 0
0
0
<COMMON> 5,634
<OTHER-SE> 554,518
<TOTAL-LIABILITY-AND-EQUITY> 1,259,259
<SALES> 130,055
<TOTAL-REVENUES> 163,711
<CGS> 90,121
<TOTAL-COSTS> 90,121
<OTHER-EXPENSES> 2,540,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,467,328)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,467,328)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,467,328)
<EPS-BASIC> (0.46)
<EPS-DILUTED> 0
</TABLE>
