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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of The Securities
Exchange Act of 1934
PENTAGENIC PHARMACEUTICALS, INC.
(Exact name of Registrant as specified in its charter)
NEVADA 95-4695073
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13139 RAMONA BLVD., SUITE G
IRWINDALE, CALIFORNIA 91706
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code:
(626) 851-9818
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
(Title of Class)
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PART I
ITEM 1 BUSINESS.
GENERAL
Pentagenic Pharmaceuticals, Inc. (the "Company") was formed on July 1,
1998, by Professor Zhen Hua Yang, members of her family and a number of other
Chinese nationals and residents, in order to create a United States
corporation that would be separately financed and independent of, although
affiliated through stock ownership and management control with, the 851
Company (China) and the Cai Tai Zhenhua 851 Marketing Health Food Company
(China) (the "851 Marketing Company"), which were founded by Professor Yang
and currently conduct business in China. The Company was established for two
primary purposes. First, the Company will serve as the exclusive distributor
in China of nutritional supplements and over-the-counter consumer health care
products developed and produced by Rexall Sundown Inc., one of the largest
manufacturers and distributors of such products in the United States. Through
its relationship with the 851 Marketing Company, which has established a
network of over 100,000 independent representatives in China, the Company
believes that it can quickly begin selling Rexall Sundown products to the
more than one billion consumers in the Peoples Republic of China. In
addition, the Company seeks to establish a chain of retail health food stores
throughout China, the first of which is already open and operating in Fujian,
China. Secondly, it is contemplated that the Company will be the vehicle
through which the marketing and sale of 851 Company products that were
developed and currently are produced, widely distributed and highly regarded,
in China can be significantly expanded. It is anticipated that the Company's
efforts to expand the distribution and sale of these 851 Company products in
the United States will include the development of either or both of an
independent distributor network and direct response marketing programs. The
Company anticipates that it will need to raise up to $5,000,000 in equity or
debt capital within the next 12 months to finance the full implementation of
its plan of proposed operations.
On July 20, 1998, as part of its acquisition of the manufacturing facility,
the Company became party to an agreement with Rexall Sundown, pursuant to which
the Company has the exclusive right to distribute certain Rexall Sundown
products (the "Rexall Sundown Products") in the Peoples Republic of China
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(the "Exclusive Distribution Agreement"). Rexall Sundown currently produces
over 1,500 products, including multivitamins, minerals, herbals, homeopathic
remedies, skin care products and over-the-counter pharmaceuticals, all of
which are covered by the Exclusive Distribution Agreement. The Company will
purchase most of the products from Rexall Sundown in bulk (tablets, capsules
or powder) and ship them to China. Once the products arrive in Fujian, China,
the plant there will complete the final packaging and labeling. Finished
products will then be distributed by the Company throughout China under
separate arrangements with the 851 Marketing Company. See "Marketing and
Distribution" below.
In July 1998, the Company also acquired certain rights to a number of
proprietary products owned by the 851 Marketing Company, and a 96,000 square
foot manufacturing, research, development and housing facility in Fujian,
China, in exchange for shares of the Company's Common Stock. As a
consequence, the Company currently holds the exclusive right to market and
sell, throughout the world except within China, products based upon the
patented Magic 851 formula which was originally developed for the 851
Marketing Company by Professor Zhen Hua Yang, the Chairman of the Board and
Chief Executive Officer of the Company. These products (the "851 Products")
consist of six formulations that currently are being sold in China by the 851
Marketing Company, which also previously sold the products in limited
quantities in the United States through independent distributors. The Company
will endeavor to enhance the marketing and distribution of 851 Products in
the United States, which will be sold in the United States under the brand
names PATENTED MAGIC 851, LEAN FIGURE, MEMOMAX, FEMINAID, SKIN ANGEL and
INTIMATE ENERGIZER. As nutritional supplements, the Company's products are
classified as foods and do not require approval from the United States Food
and Drug Administration ("FDA"), although product labeling and advertising
must meet guidelines established by the FDA, as well as those of the United
States Federal Trade Commission. The PATENTED MAGIC 851 product, which
contains a variety of natural ingredients believed to have anti-carcinogenic
properties, has won several international awards, was designated as the
official nutrient of the Asian Olympics, and was granted the status of
"supplemental drug for the treatment of cancer" by the China Food and Drug
Administration in 1993. However, this product will be marketed in the United
States only as a nutritional supplement, in strict compliance with the health
claim regulations adopted by the FDA.
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The manufacturing facility meets the guidelines of the Chinese
governmental agencies to manufacture pharmaceutical products and is certified
by the Chinese government as a GMP plant. The manufacturing facility is
located in China's Free Trade Industrial Zone which provides for
substantially reduced import and export tariffs. This will greatly benefit
the Company in its relationship with Rexall because it can do the final
packaging of all Rexall products imported for sale in China at the factory
and thus greatly reduce the tariffs it incurs.
The Company is a Nevada corporation whose headquarters are located at
13139 Ramona Boulevard, Suite G, Irwindale, California 91706, and its
telephone number is (626) 851-9818.
INDUSTRY OVERVIEW
Over the past few years, public awareness of the positive effects of
vitamins and nutritional supplements has grown in China, the United States,
and throughout the world, due to the numerous reports in health and
scientific journals. Recent studies have indicated a correlation between the
regular consumption of selected vitamins and nutritional supplements and
reduce incidences of conditions such as heart disease, cancer and stroke, and
weight loss. The growing acceptance of herbal medicine and holistic health
alternatives has further enhanced the sales of nutritional supplements.
As reported by industry sources, the annual United States retail market
for vitamins and nutritional supplements exceeded $4.8 billion in 1995. Based
on the 1995 national survey, only 33% of U.S. consumers are taking vitamins
and nutritional supplements. The Company believes that the industry has a
great potential for growth, especially as consumers become better informed
and educated about the benefits of vitamins and nutritional supplements and
as more scientific evidence is developed and disseminated confirming the
health benefits derived from the regular consumption of vitamins and
nutritional supplements.
During the three years ended December 31, 1997, retail sales in the
Pacific Rim by the 851 Marketing Company of Patented Magic 851 grew from $12
million for the year ended December 31, 1995, to $15 million for the year
ended December 31, 1996 and $19 million for the year ended December 31, 1997.
The Company believes there is a growing demand for quality American-made
health products throughout the Pacific Rim and seeks to fill that
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niche. When the Chinese health food industry first appeared in China in the
late 80s, most available health food products were made in China and marketed
with unproven health claims. As the market grew exponentially, more and more
sophisticated products have been introduced in China. Today, the Chinese
health food industry is one of the fastest growing industries in China, with
industry sales exceeding US $2 billion in 1996. The government has adopted
many new laws to regulate the health food industry, including strict labeling
laws. As a result, traditional Chinese-style health products with
hard-to-prove claims are losing market share to Western style health
supplements that have been formulated based on scientific research. In recent
years, many companies began to import health food products from the United
States and other foreign countries to China on a limited scale. The response
to American made products from Chinese consumers has been very favorable.
However, at present, both the choice of imported health food products and
retail outlets dedicated to the sale of these products are very limited in
China. The Company believes this suggests enormous potential.
PRODUCT AND MARKET STRATEGIES
The Company has two distinct strategic marketing and expansion plans,
categorized primarily by product origin and targeted market areas.
The first area of focus is on the implementation of the Exclusive
Distribution Agreement to distribute, market and sell Rexall Sundown products
to the over one billion consumers in the Peoples Republic of China. This
agreement, which gives the Company the right to distribute over 1,500
products, will enable the Company to market what is expected to be the
largest, high quality line of American brand name health food supplements
available in the Peoples Republic of China. These products include vitamins,
nutritional supplements, consumer health products, minerals, herbals,
homeopathic remedies, weight management products, skin care products and
over-the-counter pharmaceuticals. The Company plans to file for approval in
China to market a minimum of ten Rexall products over the next two years,
including the following:
REXALL 2433 CALCIUM 900 SOFT GEL: A product scientifically designed to
achieve maximum absorbed by the body. Especially important in women to
strengthen bones, held ward off osteoporosis.
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REXALL 2444 ZOO CHEWS: A complete nutritional supplement for CHILDREN
with various animal shaped chewable vitamins.
REXALL 3113 GINSENG (AMERICAN) 250 MG: Boosts stamina, resists stress
and alleviates fatigue. A new extraction process provides the maximum benefit
and absorption.
REXALL 3147 GARLIC SOFT GEL 1000 MG: Boosts immune system. Concentrated
garlic supplement specially prepared to guarantee all the active components
of fresh garlic without the odor or after-odor.
REXALL 3007 LECITHIN 1200 MG: Lecithin is an essential fatty substance
which is known to help prevent arteriosclerosis and cardiovascular disease
and improve brain and liver functioning.
REXALL 2086 SENIOR-VITE BONUS: An advanced formula specifically designed
for seniors with complete Vitamins, Minerals and Anti-Oxidants.
REXALL 4000 PMS BALANCE: PMS is specially designed for when women have a
special time by providing enough Vitamins and Minerals to balance the body
suffering.
REXALL 3009 GELATIN BEAUTY CAP: Dry hair and weak nails that break
easily may be signs of Vitamin and Mineral deficiencies, and this is an
advanced formula to supplement all of these nutritions.
REXALL 2816 B-COMPLEX TIMED RELEASE: An advanced formula designed to
provide the body with B-Complex with timed release.
REXALL 2030 STRESS FORMULA: Designed to replenish nutrients exhausted
more rapidly under stressful conditions.
The second area of focus involves the development and establishment of
distribution and marketing in the United States for the 851 Products recently
acquired from the 851 Marketing Company. It is anticipated that these, and
perhaps other products developed and produced in China, will be sold through
distributors, mail order and advertising in professional journals.
The 851 Products that initially will be available from the Company in
the United States include the following:
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PATENTED MAGIC 851: PATENTED MAGIC 851 is made from concentrated and
fermented soybean extract, vitamins, natural herbs, minerals and Amino Acids.
The product has won prestigious awards including: the World Fair for
Invention's Eureka Gold Medal Award (Brussels, Belgium ); the International
Inventor's Cavalier Medal and Success Award (Basel, Switzerland); and the
International Food Fair's Silver Award (Beijing, China). It was also selected
as the official nutrient of the Asian Olympics. The China Food and Drug
Administration granted "Yang Zhen Hua 851" the status of supplemental drug
for the treatment of cancer in 1993. The 851 Oral Liquid consists of a
variety of natural ingredients believed to be anticinogenic agents.
LEAN FIGURE: Obesity, currently one of the leading health concerns of
Americans, is mainly caused by malnutrition due to a disorder in the
endocrine system. LEAN FIGURE allows people to supplement their diet with
important amino acids, herbs, and essential vitamins and minerals thus
reducing the threat of obesity. LEAN FIGURE increases nutritional balances
and detoxifies and strengthens the body's system without interfering with
most other medication.
MEMOMAX: The brain is considered the source of intelligence and the
center of life. MEMOMAX is rich with protein, biotin enzymes, polypeptides,
cephalin, cerebrin DHA, multi-vitamins, trace minerals, fatty acids and amino
and nucleic acids. The product is formulated to enhance nutrition to the
brain and to stimulate the composition of brain nucleic acids, albumen and
various active neurohumor.
FEMINAID: FEMINAID is specifically formulated for females. The product
enhances female endocrine and blood flow, nourishes the skin and helps to
eliminate excess pigmentation. These benefits are believed to prevent
senility. The product is formulated with essential elements, fatty acids,
choline, Vitamin A, B1, B2, C, E, Proteins and amino acids. FEMINAID was the
Exclusive Assigned Beauty Nutrient of the 4th United Nations Women's
Conference.
INTAMATE ENERGIZER: The product is formulated to overcome fatigue,
stress and low sexual interest. INTAMATE ENERGIZER is made from 100 % natural
nutrients. The Formula for the product is full of unicellular proteins and
contains a unique blend of Chinese herbal wisdom and modern technology.
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SKIN ANGELS: SKIN ANGELS combines special sea-life protein, zinc, silica
and antioxidants to fortify the skin from within. SKIN ANGELS is formulated
to stimulate the growth of new skin cells and has the potential to decrease
the skin's aging process.
PRODUCT DEVELOPMENT
The Company's Chief Executive Officer, Professor Yang, has developed and
introduced a number of Magic 851 products in Asia continuously since August
1985. All of these products, including those to be marketed and sold by the
Company, have been laboratory tested in clinical studies conducted in China
and Japan. Since the formation of the Company, all continuing research and
development efforts are being undertaken on behalf of the Company by
Professor Yang , with ongoing research occuring at several different research
facilities, including at the Fujian plant, in Shanghai, China, at a
laboratory leased at the University of Kansas and at a custom research
facility at Professor Yang's residence in Kansas. Professor Yang has
scheduled clinical studies in Shanghai, China, on new and improved versions
of the 851 Products. The Company anticipates increasing from six to ten the
number of 851 Products available for sale in the United States within the
next two years.
MANUFACTURING AND QUALITY CONTROL
On July 20, 1998, the Company acquired its 96,000 square foot facility
in Fujian, China, which contains a research laboratory, manufacturing
capabilities, and housing for Company employees. This plant is located in the
Free Trade Industrial Zone of Fujian, China, which enables the Company to
greatly reduce import taxes by performing the final packaging functions
inside the zone. In addition, the plant has been in operation for several
years and its manufacturing operations at this facility meet the requirements
for Chinese governmental approvals and is a GMP approved pharmaceutical plant.
Professor Yang has been directly involved in monitoring the
manufacturing and quality control process of the products to be manufactured
at the Company's China facility and offered by the United States since their
introduction in China over ten years ago. Professor Yang and her staff in
China approve all of the raw materials and suppliers, and will continue to be
actively involved in overseeing quality control of the manufacturing process
on the Company's behalf. The Company believes it has
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adequate access to the raw materials used in the manufacture of 851 Products
to meet consumer demand for the foreseeable future.
All of the Rexall Sundown products to be sold by the Company in China
will be produced by or for Rexall, with only the final packaging and labeling
to be performed by the Company in China. The Company believes that Rexall
Sundown is one of the largest and most reputable manufacturers and
distributors of over-the-counter supplemental nutritional health products in
the United States.
MARKETING AND DISTRIBUTION
THE REXALL DISTRIBUTION AGREEMENT
The Company's exclusive distribution agreement with Rexall Sundown
provides the Company with the exclusive right to use the Rexall tradename,
trademarks, and logos, for a ten-year term in the People's Republic of China.
The Company will have access to over 1,500 products currently produced by
Rexall. The Company is obligated to make minimum annual purchases from Rexall
which increase in accordance with a specified schedule from $500,000 in the
first year to $7,500,000 in years seven through ten.
THE 851 PRODUCTS
The 851 Marketing Company will continue to market the 851 products in
China. The Company will produce the 851 products sold by the 851 Marketing
Company in China at its manufacturing facility. The agreement between the 851
Marketing Company and the Company for the wholesale purchase of the 851
products is on terms and conditions which are no less favorable to the
Company than they would otherwise obtain from an unrelated third party.
The Company is currently developing a chain of retail stores. This chain
of stores will be a joint venture between the Company and its existing
distributors. In return for their cash investment of approximately $75,000,
the local distributor will own and operate the store and be given an
exclusive territory. The Company and the distributor will each have an 80%
ownership in the stores. The Company has already opened its first store in
Fujian, China, in March of 1998 which is owned 100% by the 851 Marketing
Company. All of the products which the Company advertises on national TV in
China will be sold in the retail stores.
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GOVERNMENT REGULATION
The Chinese government requires that all imported health food products
be registered with the Department of Health as general food products, health
supplements or health food products. Only health food products can have
health-related claims and need to be approved by the government. Rexall
Sundown has products in all three categories. The length of the application
process is different for different categories of products. Usually it takes 2
months for general food products, 3-6 months for health supplements, and 9-18
months for health food products to obtain approval. The 851 products to be
sold by the Company in the United States are processed, formulated, packaged,
labeled and advertised under the stringent regulations of the Chinese Food
and Drug Administration and Disclosure Laws. In addition, the Company's
manufacturing facility was built and is maintained under the guidelines of
the Chinese Health Administration.
However, products sold by the Company in the United States will be
subject to the regulations and disclosure requirements of several United
States governmental agencies, including the Food and Drug Administration
("FDA"), the Federal Trade Commission ("FTC"), the Department of Agriculture,
and the Postal Service. The Company's products may also be regulated by
various agencies of the states, localities and foreign countries in which
they are sold.
The FDA and the FTC are the primary agencies that monitor the health
care and direct marketing industries in the United States. Nutritional
supplements are classified as foods, and, therefore, they do not require FDA
approval. However, product labeling and advertising copy must be within FDA
guidelines. FTC regulations also address advertising copy, fraud and specific
guidelines for shipping and refunds. The Company's promotional literature
presents the effectiveness of ingredients contained in the formula, based on
documented studies conducted by reputable independent health care
professionals, along with testimonials from satisfied users of the products.
In addition, the Company maintains a library of articles and studies cited in
its promotional materials as well as the original letters upon which the
customers' testimonials are based.
In November 1991, the FDA issued proposed regulations designed to, among
other things, amend its food labeling regulations. The proposed regulations
met with substantial
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opposition. In October, 1994, the "Dietary Supplement Health and Education
Act of 1994" (the "Dietary Supplement Law") was enacted. Section 11 of the
Dietary Supplement Law provided that the advance notice of proposed rule
making by the FDA concerning dietary supplements was null and void. FDA
regulations that became effective on June 1, 1994, would require standard
format nutrition labeling on dietary supplements. However, because the new
Dietary Supplement Law also addresses labeling of dietary supplements, the
FDA has indicated that it will not enforce its labeling regulations until
January, 1997. In the interim, new regulations are expected to be proposed by
the FDA. Because the FDA has not yet reconciled its existing regulations with
the new Dietary Supplement Law, the Company cannot determine to what extent
changed or amended regulations will affect its business.
The Dietary Supplement Law did not affect the July 1, 1994 effectiveness
of the FDA's health claim regulations. Those regulations prohibit any express
or implied claims for dietary supplements unless such claims are approved in
advance by the FDA through the promulgation of specific authorizing
regulations. Such approvals are rarely provided by the FDA. Therefore, no
claim may be made on a dietary supplement label or in printed sales
literature, "that expressly or by implication characterizes the relationship
of any substance to a disease or health related condition." The Company
cannot determine what effect currently proposed FDA regulations, when and if
promulgated, will have on its business in the future. Such regulations could,
among other things, require expanded documentation of the properties of
certain products and scientific substantiation. In addition, the Company
cannot predict whether new legislation regulating its activities will be
enacted, which new legislation could have a material effect on the Company.
Since its inception, the Company has had an ongoing compliance program
with assistance from experienced FDA legal counsel regarding the nature and
scope of food and drug legal matters affecting the Company's business and
products. This same compliance program, overseen by the same legal counsel
was utilized by the 851 Marketing Company prior to the sale of the 851
Products to the Company. The Company is unaware of any legal action, or
notification of any legal action pending by the FDA or any other governmental
agencies against the Company.
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COMPETITION
CHINA
The growing health food industry in China is very competitive. The
Company has determined that national television is the most economical way of
introducing a product to China's one billion potential consumers at one time.
Such advertising is very costly and a complete distribution network must be
in place to capitalize on the resulting demand created by such advertising.
The Company believes that it has an advantage over a number of existing and
potential competitors for the following reasons: First, for the past ten
years, its affiliated entity, the 851 Marketing Company, has been
establishing an extensive distribution and manufacturing network which the
Company readily utilize. Second, the Exclusive Distribution Agreement with
Rexall Sundown gives the Company the ability to distribute one of the
broadest lines of high quality, American made products in China. With an
established distribution network in place, a reputation for delivering
quality products, and the rights to distribute a line of such well known
products, the Company anticipates that it is in a favorable position to
obtain the capital needed to effectively advertise throughout China on
national television and efficiently distribute the Rexall Sundown products in
response to anticipated demand from Chinese consumers. Moreover, the
Company's acquisition of the manufacturing facility in Fujian, China will
enable the Company to produce products at a cost advantage, because it have a
lower tax base for the imported Rexall Sundown products.
UNITED STATES
The market for vitamins, minerals and nutritional supplements in the
United States is also competitive. Competition is based principally upon
price, quality of products and referrals. The 851 Products to be sold by the
Company in the United States are already well known and respected throughout
the Pacific Rim. The Company believes that most US sales to date of these 851
Products have been generated by referrals. The Company plans to provide
additional clinical studies in the United States, develop advertising
programs and expand its network of local distributors. There are numerous
companies that currently offer competing products, and it is expected that
additional competing products will be introduced by other companies in the
future. In addition, there are a variety of channels of
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distribution for nutritional supplements other than through direct response
marketing, including multi-level distributors, specialty retail health and
nutrition stores, drug stores and supermarkets. Many of the Company's
existing and potential competitors have greater financial, marketing,
distribution, and research capabilities than those of the Company. The
performance of the Company will depend on its ability to develop and market
new products that can gain customer acceptance and loyalty, as well as its
ability to adapt its product offerings to meet changing pricing
considerations and other market factors.
TRADEMARK AND PATENTS
The Company owns trademarks registered with the United States Patent and
Trademark Office or the equivalent office of certain other countries for its
REXALL (CHINA), YANG ZHEN HUA 851, MEMOMAX, LEAN FIGURE, FEMINAID, INTAMATE
ENERGIZER, and SKIN ANGELS trademarks and has the rights to use other names
in its business. The Company intends to vigorously protects its trademarks
against infringement. A U.S. Patent for the Original 851 Product, U.S. Patent
#4,877,739, was granted on October 31, 1989.
PRODUCT LIABILITY
The Company may be subject to significant liability should the
consumption of any of its products cause injury, illness or death. There is
no assurance that the product liability claims will not be asserted against
the Company or that the Company will not be obligated to recall its products.
The Company does carry the maximum insurance available for both general
liability and product liability, as regulated by the Chinese Governmental
Agency. There can be no assurance that this insurance will be adequate to
protect the Company against product liability claims. A product recall or a
product liability judgment against the Company (regardless of whether covered
by its insurer) could have a material effect on the Company's business,
financial condition and results of operation.
With respect to the products acquired from Rexall Sundown for
distribution in China, the Company will rely upon the financial strength of
Rexall Sundown, and any product liability insurance that it may carry, for
indemnification of the Company against unexpected product liability.
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EMPLOYEES
In addition to Professor Yang, the Company has a total of four employees
in the United States, one is currently involved in general administration and
three in customer services and order processing. There are approximately 140
full time employees for the manufacturing, research, and housing facility in
Fujian, China. The Company's employees are not represented by a collective
bargaining unit. The Company believes that its benefit and wage scale exceeds
market, and that it maintains an outstanding relationship with its employees.
ITEM 2 PLAN OF OPERATION.
Statements contained herein that are not purely historical are
forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, including but not limited to statements
regarding the Company's expectations, hopes, beliefs, intentions or
strategies regarding the future. Actual results could differ materially from
those projected in any forward-looking statements as a result of a number of
factors, including those detailed in this Plan of Operation, as well as those
set forth elsewhere herein. The forward-looking statements are made as of the
date of this Registration Statement and the Company assumes no obligation to
update the forward-looking statements, or to update the reasons why actual
results could differ materially from those projected in the forward-looking
statements.
The Company has formulated its business plans and strategies based on
certain assumptions of the Company's management regarding the size of the
market for nutritional supplements in China and the United States, the
Company's anticipated share of the markets in these countries and the
estimated prices for and acceptance of the Company's products. Although these
assumptions are based on the best estimates of management, there can be no
assurance that these assessments will prove to be correct. No independent
marketing studies have been conducted on behalf of, or otherwise obtained by,
the Company, nor are any such studies planned. Any future success that the
Company might enjoy will depend upon many factors, including factors which
may be beyond the control of the Company or which cannot be predicted at this
time. These factors may include product obsolescence, increased levels of
competition, including the entry of additional competitors and increased
success by existing competitors, changes in general economic conditions,
increases in operating
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costs including costs of supplies, personnel, and equipment, reduced margins
caused by competitive pressures and other factors, and changes in
governmental regulations imposed under federal, state or local laws.
In connection with the incorporation and initial organization of the
Company, the Company issued and sold an aggregate of 29,083,225 shares of its
Common Stock, to a total of 393 shareholders, for an aggregate of $27,983 in
cash plus certain tangible and intangible assets, including the manufacturing
facility in Fujian, China and the rights to the 851 Products that will be
sold by the Company in the United States.
Over the next twelve months, management of the Company believes that a
total of approximately $5,000,000.00 in cash will be required to fully
implement the Company's plan of operations on a timely basis. As of July 31,
1998, the Company had cash on hand of $52,911.00. Accordingly, it will be
necessary for the Company to raise an additional $4,900,000.00 during this
12-month period, whether such funds are generated from operations or raised
through the issuance of debt or equity securities, if the Company is to
achieve the anticipated level of operations during this period.
In order to quickly establish and start to market Rexall Sundown
products in China, the Company needs to spend approximately $2.2 million. Of
this total, approximately $1,700,000 will be spent on television advertising
for the Company's two new products, the Children's Calcium Supplement and
Rexall Calcium 900 Soft Gel. The Children's Calcium Supplement, which is in
the last stage of product development - final packaging will be available for
test marketing in approximately 40-50 days. Calcium 900 Soft Gel is in a
similar stage of development but will need several months for product
registration with the Chinese Health Department. A small batch of Calcium 900
Soft Gel was tested in a couple of small towns and the results were very
favorable. Most of the Company's regional distributors are very excited about
this product. The Company anticipates that it will spend approximately
$500,000 for product registration and marketing.
The Company plans to invest $1.9 million in the chain store operation in
China, as a wholly-owned subsidiary. Of this $1.9 million, $200,000 will be used
in setting up the central office and for operating expenses for the first year,
and $1.5 million is budgeted for expenditures on the establishment of new retail
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stores. Depending on the percentage of ownership, the Company plans to open
between thirty and forty stores over the next 12 months. The remaining
$200,000 has been budgeted for use in store promotions.
The manufacturing plant in Fujian, China is capable of handling all the
expected packing and labeling needs for the imported Rexall Sundown products.
However, in order to improve product quality control the Company intends to
reserve $400,000 for equipment upgrades as needed in the next 12 months.
The Company is currently conducting clinical studies in San Francisco
and San Diego for the 851 Oral Liquid. As there is more and more positive
feedback for 851 Oral Liquid, the Company plans to do some advertising in
professional magazines to increase sales. The Company will allocate $100,000
for advertising for 851 Oral Liquid and other products in order to start
building the Company's marketing force in the United States. More funds
generated from operations will be allocated to advertising as needed.
The Company plans to conduct more research in new products and also
product improvement. Approximately $400,000 is needed to continue the
clinical studies and research for the next 12 months. Professor Yang,
Chairperson and CEO of the Company, recently finished a research project of
her own and is in the process of applying for a patent. Professor Yang will
likely assign a partial interest in the patent to the Company upon approval
from the directors' meeting.
Although the Company has been profitable since inception, it is not
anticipated that it will be able to generate internally all of the cash
needed to implement its plan of proposed operations over the next 12 months
on the full scale currently contemplated. Accordingly, it is anticipated that
the Company may be required to reduce or delay implementation of certain
aspects of its planned operations unless it raises additional equity or debt
financing on a timely basis. Following the effectiveness of this Registration
Statement on Form 10-SB, the Company's Common Stock will be eligible for
trading by NASD member broker-dealers in the over-the-counter market.
However, the Company believes that its ability to raise additional equity or
debt capital would be significantly enhanced if its Common Stock were listed
on The Nasdaq Small-Cap Market. Accordingly, it is currently anticipated that
the Company will apply to have its Common Stock approved for trading on The
Nasdaq Small-Cap
15
<PAGE>
market as soon as practicable hereafter if and when the Company meets the
requirements for such approval. Although the Company believes that it
currently meets most of the requirements for an initial listing on The Nasdaq
Small-Cap Market, it will be necessary for the Company to satisfy certain
additional requirements, including the requirements that there be two market
makers for the Company's Common Stock and that the Company's Common Stock
must first have obtained a bid price in the over-the-counter market of at
least $4.00. There can be no assurance as to when, if ever, the Company's
Common Stock will be approved for trading on the Nasdaq Small-Cap market.
The Company is also considering an initial public offering to raise
additional equity capital. It is anticipated that a majority of the net
proceeds from such an IPO would be used to accelerate sales of the Rexall
Sundown product line, primarily by financing expended marketing and
advertising programs such as the use of television infomercials, and by
expanding the Company's network of distributors and wholesalers. Management's
experience to date suggests that China's consumer market is aware of the
benefits to be gained from the consumption of supplemental nutritional health
products, but currently has limited access to quality imported products. The
Company plans to exploit this perceived but untapped demand through its
Exclusive Distribution Agreement with Rexall Sundown which will allow it to
immediately begin to distribute quality imported over-the-counter
supplemental health food products. The proceeds of an IPO would also be used
to expand sales of the 851 Products in the United States through the
development of a distribution network and extensive advertising.
Even if the Company were able to raise the funds which it currently
believes are needed, and on a timely basis, no assurance can be given that
the Company will not encounter unforeseen difficulties which may cause it to
incur unanticipated expenditures that will deplete more rapidly the limited
amount of capital to be available to the Company. Moreover, if circumstances
indicated that the Company should endeavor to expand its business at a faster
rate than that currently planned for, it is likely that the Company would
attempt to raise additional capital to accelerate its growth. In all events,
the Company's ability to continue operations beyond an initial period of
twelve months will depend upon its ability to generate a significant cash
flow from its expanding operations. If sufficient cash flow is not being
generated at the end of this 12-month period, the Company would be required
to seek additional
16
<PAGE>
debt or equity capital. There can be no assurance that any additional capital
resources which the Company may need will be available to the Company if and
when required, or on terms that will be acceptable to the Company. If
additional financing is required, or desired, the Company may be required to
forego a substantial interest in its future revenues or dilute the equity
interests of existing shareholders, and a change in the control of the
Company may result.
Although the management of the Company has had extensive experience in
the nutritional supplement and health food industries, the Company itself is
a recently formed business entity and has only a limited history of
operation. It can be expected that future operating results will continue to
be subject to many of the problems, expenses, delays and risks inherent in
the establishment of a new business enterprise, many of which the Company has
no control over. There can be no assurances, therefore, that the Company will
be able to achieve or sustain profitability in future periods. Even if the
Company's operations prove to be marginally profitable, the value of the
Company's Common Stock, and the potential return to investors, could still be
substantially diminished by other factors. Consequently, an investment in the
Company is highly speculative and no assurance can be given that investors in
the Company will realize any return on their investment or that they will not
lose their entire investment.
The Company's operating results may vary significantly due to a variety
of factors including changing customer profiles, the availability and cost of
raw material, the introduction of new products by the Company or its
competitors, the timing of the Company's advertising and promotional
campaigns, pricing pressures, general economic and industry conditions that
affect customer demand, and other factors.
Like other distributors of consumer products, the Company will encounter
the risk of product returns from its customers. The Company's products are
sold with an unconditional, money back guarantee. Any customer who is not
satisfied with a Company product for any reason may return the unused portion
for a full refund of the purchase price. There can be no assurance that
actual levels of returns will not significantly exceed amounts anticipated by
the Company.
For the next 12 months, the Company plans to hire about 30 full time
employees in China for chain store operations. For the
17
<PAGE>
United States operation, the Company will hire 2-3 more full time sales
representatives.
ITEM 3 DESCRIPTION OF PROPERTIES.
As of July 30, 1998, the Company owned or leased the following facilities:
<TABLE>
<CAPTION>
LEASED
APPROX. OR EXPIRATION
LOCATION TYPE OF FACILITY SQ. FT. OWNED DATE
- -------- ---------------- ------- ------ ----------
<S> <C> <C> <C> <C>
Fujian, China Manufacturing-Housing Research & 96,000 Land Lease May, 2031
Development
Lawrence, Kansas Research Laboratory 4,000 Lease February, 1999
Irwindale, Office Headquarters-Sales 1,000 Lease February, 1999
California
</TABLE>
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of July 31, 1998, by
(i) each director and executive officer of the Company, (ii) each person
known to the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, and (iii) all directors and executive officers of
the Company as a group. Except as may be indicated in the footnotes to the
table, each of such persons has sole voting and investment power with respect
to the shares owned, subject to applicable community property laws. The
address of each individual listed is in care of the Company at 13139 Ramona
Boulevard, Suite G, Irwindale, California, 91706.
18
<PAGE>
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent of
Title of Class Owner Owner Class
- ----------------------------- ----------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C>
Common Stock Zhen Hua Yang 20,200,000 69%
Common Stock Dejian Liu 3,699,200 12.7%
Common Stock David Chu 200,000 *
Common Stock Shangping Liu 1,000 *
Common Stock James Sakoda 0 *
</TABLE>
- -----------------------------------------
* LESS THAN ONE PERCENT
ITEM 5 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Professor Zhen Hua Yang 54 Chairperson of the Board,
President and Chief
Executive Officer
Dejian Liu 27 Treasurer, Chief Operating
Officer, Secretary and
Director
David Chu 54 Chief Financial Officer
and Director
Shangping Liu 42 Vice President, 851 China
Operation and Director
James Sakoda 60 Vice President, Legal
Affairs, General Counsel
and Director
</TABLE>
19
<PAGE>
PROFESSOR ZHEN HUA YANG, founder of the 851 Company in 1985, has served
as Chairperson of the Board and Chief Executive Officer since the Company's
inception. Professor Yang has over 14 years experience in retail sales and
was personally involved in the expansion of the 851 Companies throughout
China, Japan, South Korea and numerous Pacific Rim Countries. Professor Yang
assisted the 851 Marketing Company in developing a 96,000 sq. ft.
manufacturing, research and housing facility in Fujian, China. The 851
Marketing Company has a network of over 2,500 major distributors with over
100,000 representatives throughout China that are presently distributing the
851 products. Professor Yang also consults for numerous Chinese Health
Agencies and is well respected for her work in the cancer related studies and
agriculture research. Some of her accomplishments and awards are:
1985 Chinese National Inventor's Convention Award
1986 Chinese National Honorary Model Teacher's Award
1987 Eureka Award at the World's Fair in Brussels, Belgium
1987 Cavalier Medal Award by the King of Belgium
1987 Chinese National Outstanding Scientist Award
1988 Silver Award from the Beijing International Food Fair
1990 Success Award at the International Inventor's Exhibition,
Basel, Switzerland
1992 Awarded as one of the "Top 100 Chinese Entrepreneurs in
the Private Sector"
1993 21st International Inventor's Convention Award, Geneva,
Switzerland
1995 Chinese Delegate to the 4th World Women's Conference of
the United Nations.
DEJIAN LIU, Professor Yang's son, has been involved with the Company and
has served as President, Chief Operating Officer and Director since its
inception. Prior to his involvement with the Company, he had served as
President and Director of the 851 Company where he assisted in developing the
United States operation and was a key player in the acquisition of the 96,000
sq. ft. manufacturing, research and housing facility in Fujian, China.
Currently, Mr. Liu is concentrating on the expansion of the Company's
operations in China: including the marketing of the new 851 products, opening
retail health food stores, obtaining governmental approvals and arranging
marketing for the new Rexall (China) products.
20
<PAGE>
DAVID CHU, has been Director and Chief Financial Officer of the Company
since its inception. Prior to the inception of the Company, he had served as
Chief Financial Officer and Director of the 851 Company since November 1997.
Mr. Chu assisted in the negotiation of the Exclusive Distribution Agreement.
SHANGPING LIU, prior to the formation of the Company, was Vice President
of the 851 China operation and a director thereof since 1996. Mr. Liu was
Director of International Finance for the Huafu Company in Hong Kong and
later transferred to the Securities Department.
JAMES SAKODA, Vice President, Legal Affairs and General Counsel occupied
the same positions with the 851 Company since May 1997. Mr. Sakoda's
credentials include degrees from Harvard, Stanford and Columbia Universities.
Mr. Sakoda maintains his own law practice.
The Company's Board of Directors has established an audit committee
comprised of Professor Zhen Hua Yang and Dejian Liu, which will meet to
consult with the Company's independent auditors concerning their engagement
and audit plan, and thereafter concerning the auditor's report and management
letter and, with the assistance of the independent auditors, will also
monitor the adequacy of the Company's internal accounting controls. The Board
has not established separate compensation or nominating committees. Rather,
all members of the Company's Board of Directors meet to review and determine
the compensation of the Company's executive officers, administer the
Company's Stock Option Plan, adopt compensation policies and practices,
review and pass upon all transactions with affiliates and other persons
having a material financial interest in the Company, and nominate the
individuals to be proposed by the Board of Directors for election as
directors of the Company.
Subject to the terms of applicable employment agreements, of which there
currently are none, officers are appointed by and serve at the discretion of
the Board of Directors. The Directors are elected by the shareholders for a
one-year term. Professor Zhen Hua Yang is the mother of Mr. Dijian Liu. No
other family relationships exist between any of the executive officers or
directors of the Company.
21
<PAGE>
ITEM 6 EXECUTIVE COMPENSATION
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
As Chief Executive Officer, Professor Yang's annual salary has been
established by the Company's board of directors for the first twelve months
following incorporation at the sum of $36,000. Each non-employee director
will be paid an annual retainer of $1,000, plus $500 for each board and
committee meeting attended.
STOCK OPTIONS
The Company's 1998 Stock Option Plan, as amended (the "Stock Option Plan"),
authorizes the granting of options to employees that are intended to qualify
as "incentive stock options" under the Internal Revenue Code of 1986
("Incentive Stock Options"), as well as stock options that are not intended
to so qualify ("Nonstatutory Options") which may be granted to officers,
directors, employees, consultants, and other expected to provide significant
services to the Company or its subsidiaries. The Stock Option Plan, which is
administered by the Board of Directors, currently covers an aggregate of
1,000,000 shares. The maximum term of a stock option granted under the Stock
Option Plan is ten years, but if the optionee at the time of grant has voting
power over more than 10% of the Company's Stock, the maximum term is five
years. If an option granted expires or terminates, the shares subject to the
unexercised portion of that option will become available for the grant of
future options under the Stock Option Plan. If an optionee terminates his or
her service to the Company, the optionee may exercise only those option
shares vested as of the date of termination and must effect such exercise
within three months, although the Board of Directors may set a longer period
for exercise of stock options. The Stock Option Plan may be amended at any
time by the Board of Directors, although certain amendments would require
stockholder approval. The Stock Option Plan will terminate in 2003 unless
earlier terminated by the Board.
The exercise price of Incentive Stock Options granted under the Stock
Option Plan must be at least equal to the fair market value of the stock
subject to the option on the date of grant, except that the exercise price of
an Incentive Stock Option granted to an optionee who owns stock possessing
more than 10% of the voting power of the Company's outstanding capital stock
must
22
<PAGE>
equal at least 110% of the fair market value of the stock subject to the
option on the date of grant. The exercise price of Nonstatutory Stock Options
granted under the Stock Option Plan must be at least equal to 85% of the fair
market value of the stock subject to the option on the date of the grant.
Payment of the exercise price may be made in cash, promissory notes or other
consideration as determined by the Board of Directors.
As of the date hereof, options to purchase an aggregate of 650,000
shares of Common Stock, at the weighted average exercise price of $.001 per
share, have been granted under the Stock Option Plan to a total of four
officers, directors, employees and consultants, including options to purchase
400,000 shares granted to David Chu, 200,000 shares granted to Dejian Liu,
and 25,000 shares granted to each of Shangping Liu and James Sakoda. See
"Principal Stockholders."
ITEM 7 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July 1998, the Company acquired certain rights to market and sell 851
Products outside of China, and a 96,000 square foot manufacturing, research,
development, and housing facility in Fujian, China, in exchange for 1.1
million shares of the Company's Common Stock. See Part I, Item 1, "General".
The historical cost of facility was $3,000,000, including $720,000 in land,
$2,280,000 in plant building and $1,354,166 in machinery and equipment. The
facility was formerly owned by the 851 Marketing Company. Mr. Ling Zhou is
the Chief Executive Officer of the 851 Marketing Company, 50% of whose
capital stock is owned by Professor Zhen Hua Yang and 50% by 851 Bioengineer
Research, Inc. The 851 Company is owned by several independent companies in
China and its current Chief Executive Officer is Mr. Xing Shou Dong.
Professor Yang owns approximately 50% of the outstanding capital stock of the
851 Company. The Company also sells private labeled products to BESO
Pharmaceutics, Inc. (a Nevada corporation), in which both have ownership
interests. For a description of certain arrangements between the Company and
851 Marketing Company, see Part I, Item 1, "Marketing and Distribution."
ITEM 8 DESCRIPTION OF SECURITIES.
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
$.001 par value. Holders of the Company's Common Stock will be entitled to one
vote per share on all matters to be voted upon by the stockholders, and there
will be
23
<PAGE>
no cumulative voting for the election of directors. Holders of the Company's
Common Stock will be entitled to receive ratably such dividends, if any, as
may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." Upon the liquidation, dissolution, or
winding up of the Company, the holders of the Company's Common Stock will be
entitled to share ratably in all assets of the Company which are legally
available for distribution, after payment of all debts and other liabilities.
Holders of the Company's Common Stock will have no preemptive, subscription,
redemption or conversion rights.
The Company acts as its own Transfer Agent and Registrar for the Common
Stock.
24
<PAGE>
PART II
ITEM 1 MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS.
Although it is the intent of the Company to apply and file for
registration to have the Common Stock quoted on the NASDAQ Small Cap Market
as soon as practicable, there currently is no public market for the Company's
Common Stock in the United States and no assurance can be given that an
active trading market for the Common Stock will develop or be sustained in
the future. The market for the securities of other companies in the same
industry as the Company has historically experienced extreme price and volume
fluctuations during certain periods. These broad market fluctuations and
other factors, such as new product developments and trends in the vitamin and
supplement industry and the investment markets generally, as well as economic
conditions and quarterly variations in the Company's results of operations,
may adversely affect any market price of the Company's Common Stock that may
develop.
As of July 31, 1998, there were 393 holders of record of shares of the
Company's Common Stock and the no holders of record of warrants or options
for the Company's common or preferred stock, including shares and warrants
held in "street" or "nominee" names for an undetermined number of beneficial
holders. No shares of Preferred Stock had been issued or were outstanding as
of July 31, 1998. There are no other options or warrants outstanding or other
securities convertible into common stock of the Company.
The Company presently intends to retain all earnings for the development
of its business and does not anticipate paying any cash dividends on the
Common Stock in the foreseeable future. Any future determination as to the
payment of cash dividends will depend on a number of factors, including
future expansion, capital requirements, future earnings, the financial
condition and prospect of the Company, any restrictions based on future
credit agreements and any other factors as may be deemed relevant by the
Company's Board of Directors. The Company does not currently have a credit
line and has no plans to secure any in the foreseeable future.
25
<PAGE>
ITEM 2 LEGAL PROCEEDINGS
There are currently no legal proceedings to which the Company is a party or
to which any of its properties are subject.
ITEM 3 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 4 RECENT SALES OF UNREGISTERED SECURITIES.
In connection with the incorporation and initial organization of the
Company, an aggregate of 29,083,225 shares of the Company's Common Stock were
issued and sold, of which 27,983,225 shares were issued and sold for an
aggregate of $29,083 in cash and an additional 1,100,000 shares were issued
as the purchase price for the facilities in Fujian, China and the rights to
market the 851 Products in the United States which were acquired from the 851
Marketing Company. See Part I, Item 2, "Plan of Operation" and Part I, Item
7, "Certain Relationships and Related Transactions." No underwriter was
involved in the sale of any of these shares. Since all of these shares were
issued to nationals and/or residents of China, registration of the issuance
and sale thereof under Section 5 of the Securities Act of 1933, as amended
(the "Securities Act"), was not required, since none of the sales occurred by
means of "interstate commerce" as such term is defined in Section 2(7) of the
Securities Act.
ITEM 5 INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limits the liability of
directors to the maximum extent permitted by Nevada law. Nevada law provides
that directors of a Nevada corporation will not be personally liable for
monetary damages for breach of the fiduciary duties as directors except for
liability as a result of their duty of loyalty to the Company for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, unlawful payments of dividends or stock
transactions, unauthorized distributions of assets, loan of corporate assets
to an officer or director, unauthorized purchase of shares, commencing
business before obtaining minimum capital, or any transaction from which a
director derived an improper benefit. Such limitations do not affect the
availability of equitable remedies such as injunctive
26
<PAGE>
relief or rescission. In addition, the Company's Bylaws provide that the
Company must indemnify its officers and directors, and may indemnify its
employees and other agents, to the fullest extent permitted by Nevada law. At
present, there is no pending litigation or proceeding involving any director,
officer, employee, or agent of the Company where indemnification will be
required or permitted. Insofar as indemnification for liabilities arising
under the Securities Act of 1933, as amended, may be permitted to officers,
directors or persons controlling the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933, as amended, and is
therefore unenforceable.
27
<PAGE>
PART F/S
PENTAGENIC PHARMACEUTICALS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Independent Auditor's Report F-2
Balance Sheet as of July 31, 1998 F-3
Statement of Income for the Month Ended July 31, 1998 F-4
Statement of Stockholders' Equity for the Month Ended July 31, 1998 F-5
Statement of Cash Flows for the Month Ended July 31, 1998 F-6
Notes to Financial Statements F-7
</TABLE>
F-1
<PAGE>
ABDEL-MALEK G. YOUSSEF, CPA (C0)
MEMBER: AICPA, CA SOCPASS, CO SOCPAS, IAAO, IPT, SAA
- -------------------------------------------------------------------------------
2525 Loma Vista Drive
Alhambra, CA 91803-4336
Phone: (626) 281-3381
Fax: (626) 282-4788
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Board of Directors
Pentagenic Pharmaceuticals, Inc.
13139 Ramona Blvd., Unit G
Irwindale, CA 91706
I have audited the accompanying balance sheet of Pentagenic Pharmaceuticals,
Inc. as of July 31, 1998 and the related statements of income, retained
earnings, and cash flows for the month then ended. These Financial statements
are the responsibility of the Company's management. My responsibility is to
express an opinion on these financial statements based on my audit. I did not
audit the newly acquired China facility for the company's acquisition costs,
which statements reflect total assets constituting of land, buildings and
equipment of $4,354,166, expressed in United States currency. Those
statements were audited by another auditor whose reports have been furnished
to me, and my opinion, insofar as it relates to the amounts included for
these assets, is based solely on the reports of the other auditor.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audit provides a
reasonable basis for my opinion.
In my opinion, based on my audit and reports of the other auditor, the
financial statements referred to above present fairly, in all material
respects, the financial position of Pentagenic Pharmaceuticals, Inc., as of
July 31, 1998, and the results of their operations and their cash flows for
the month then ended in conformity with generally accepted accounting
principles.
/s/ Abdel-Malek G. Youssef
Abdel-Malek G. Youssef
Alhambra, California
August 15, 1998
F-2
<PAGE>
PENTAGENIC PHARMACEUTICALS, INC.
BALANCE SHEET
JULY 31, 1998
- -------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current Assets:
Cash $ 52,911
Inventory 133,287
-----------
Total Current Assets 186,198
-----------
Fixed Assets, at cost, - net
Land 720,000
Plant building 2,280,000
Machinery & equipment 1,354,166
-----------
Total 4,354,166
Less: Accumulated depreciation 11,323
Net 4,342,843
-----------
TOTAL ASSETS 4,529,041
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 15,000
Taxes payable 228
-----------
Total Current Liabilities 15,228
-----------
Stockholders' Equity:
Common Stock 29,083
Authorized, 50,000,000 shares; Issued and
outstanding, 29,083,225 shares; Par value, $.001
per share
Additional paid-in capital 132,185
Paid-in capital in excess of par value 4,354,166
-----------
Total 4,515,434
Deficit (1,621)
-----------
Total Stockholders' Equity 4,513,813
-----------
-----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 4,529,041
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PENTAGENIC PHARMACEUTICALS, INC.
INCOME STATEMENT
FOR ONE MONTH ENDED JULY 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Gross Sales $ 30,000
Less: Sales returns and allowances 0
---------
Net Sales 30,000
---------
Cost of goods sold:
Inventory, July 1 133,287
Add: Purchases 15,000
---------
148,287
Total goods available for sale
Less: Inventory, July 31 133,287
---------
Cost of goods sold 15,000
---------
Gross profit 15,000
16,621
Operating expenses
---------
---------
Loss from Operations $ (1,621)
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PENTAGENIC PHARMACEUTICALS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
JULY 31, 1998
<TABLE>
<CAPTION>
<S> <C>
Total shares of common stock authorized 50,000,000
Issued and outstanding 29,083,225
Capital stock $ 29,083
Additional paid-in capital 132,185
Paid-in capital in excess of par value 4,354,166
Balance July 31, 1998 $ 4,515,434
Deficit $ (1,621)
Balance, July 31, 1998 $ 4,513,813
------------
</TABLE>
The accompanying notes are an integral part of the financial statements
F-5
<PAGE>
PENTAGENIC PHARMACEUTICALS, INC.
STATEMENT OF CASH FLOWS
FOR ONE MONTH ENDED JULY 31, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATION ACTIVITIES:
Net Loss $ (1,621)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation 11,323
Increase in inventory (133,287)
Increase in accounts payable 15,228
-----------
Net Cash Flows Used by Operating Activities (108,357)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (4,354,166)
-----------
(4,354,166)
Net Cash Flows Used by Investing Activities
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 29,083
Additional paid-in capital 132,185
Paid-in capital in excess of par value 4,354,166
-----------
Net Cash Flows From Financing Activities 4,515,434
-----------
CASH AT END OF PERIOD $ 52,911
-----------
-----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
TRANSACTION
Capital contribution of plant facility and
inventory $4,487,453
</TABLE>
The accompanying notes are an integral part of the financial statements
F-6
<PAGE>
PENTAGENIC PHARMACEUTICALS, INC.
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1998
NOTE 1. DESCRIPTION OF THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Pentagenic Pharmaceuticals, Inc. (the "Company"), develops, distributes,
markets, and sells, vitamins, nutritional supplements, and consumer health
products to primarily the over 40 consumer market. The over forty consumer
market is the fastest growing segment of the population and an excellent
consumer base for which the quality of life has become one of the most
important issues. Supplement nutritional health products fit right in for
this particular group which is also concerned about aging and health in
general.
The Company, Pentagenic Pharmaceuticals, Inc., which was incorporated under
the laws of the State of Nevada on July 1, 1998, has acquired the patented
851 formula. Additionally, on July 20, 1998, the Company acquired the
existing 96,000 square feet manufacturing, research, development and housing
facility in Fujian, China from the 851 Company (China) for 1,100,000 shares
of 144R stock, with current sales in Asia and the United States through its
private label. The Company's products are classified as foods and do not
require approval from the U.S. Food and Drug Administration("FDA"), however,
according to management, the labeling and advertising will meet the
guidelines established by the "FDA" and the U.S. Federal Trade Commission
("FTC").
FOREIGN CURRENCY TRANSLATION.
The assets, liabilities, revenue and expense accounts of foreign transactions
are translated into U.S. dollars at the average exchange rates that prevailed
during the period. The gains or losses that result from this process are
normally shown in the cumulative translation adjustment account in the
stockholders' equity section of the balance sheet. However, due to the short
period, there were no gains or losses resulting from foreign currency
transactions.
NET INCOME (LOSS) PER SHARE:
Net loss per share of common stock for the month ended July 31, 1998 is
$.00006. Net income (loss) per share of common stock
F-7
<PAGE>
(the "Common Stock"), $.001 par value is calculated by dividing the net
income by weighted average shares outstanding during the year.
NEW ACCOUNTING STANDARDS:
SFAS NO. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. This pronouncement is not expected to have a material impact on
the financial statements of the Company.
INVENTORY:
INVENTORY IS STATED AT THE LOWER OF COST OR MARKET. Cost is determined on
the first-in, first-out (FIFO) method.
PLANT & EQUIPMENT: Land, Building, and machinery and equipment are recorded
at cost. Depreciation is computed primarily by the straight-line method,
over the following estimated useful lives:
Years
Machinery and equipment 15
Plant building 50
INCOME TAXES:
Deferred income taxes are provided on a liability method whereby deferred
tax assets and deferred tax liabilities are recognized for temporary
differences. Temporary differences are the difference between the reported
amounts of assets and liabilities and their tax basis. Deferred tax assets
are reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all of the deferred tax asset
will not be realized. Deferred tax assets and liabilities are adjusted for
the effects of change in tax laws and rates on the date of enactment.
ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues
F-8
<PAGE>
and expenses during the reporting period. Actual results could vary from
those estimates.
NOTE 2. PLANT AND EQUIPMENT:
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
<S> <C>
Land $ 720,000
Buildings (96,000 sq ft) 2,280,000
Machinery and Equipment 1,354,166
-----------
TOTAL 4,354,166
Less accumulated depreciation 11,323
-----------
-----------
Property & Equipment - Net $ 4,342,843
-----------
-----------
</TABLE>
Depreciation expense for one month period amounted to 411,323.00.
NOTE 3. COMMON STOCK: On July 20, 1998, Pentagenic acquired a plant facility
consisting of land, building, machinery, equipment and inventory for
$4,487,453. One million one hundred thousand shares of common stock
(1,100,000), par value, $.001 were issued in exchange for the plant facility.
The shares were valued at $4.08 per share. Capital contribution in excess of
par value amounted to $4,354,166.
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value of $0.001 per share, of which 29,083,255 shares were
issued and outstanding as of July 31m, 1998. According to management, no
Preferred Stock will be issued.
Each share of Common Stock has an equal and ratable right to receive
dividends, when, as and if declared by the Company's Board of Directors, out
of any funds legally available for the payment thereof. In the event of
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets available for
distribution after payment of all liabilities.
Each share of Common Stock is entitled to one vote on all matters submitted
to a vote of the shareholders. Holders of common Stock are not entitled to
cumulative voting, conversion or pre-emptive rights. All outstanding shares
of Common Stock are, and when issued, the shares of Common Stock to be
issued, will be, fully paid and non-assessable.
F-9
<PAGE>
NOTE 4. COMMITMENTS:
The Company will be leasing U.S. facilities, personal property, and fixtures.
All leases will be on a month-to-month basis and can be canceled by either
party by executing a 30-day notice.
The Company is not currently engaged in any legal proceedings that are
expected, individually, or in the aggregate, to have a material adverse
effect on the Company.
NOTE 5. STOCK OPTIONS:
On July 1, 1998, the Board of Directors authorized and approved the 1998
Incentive Stock Plan providing for the granting of options or restricted
shares of the Company's common stock to the Company's officers, directors,
employees, consultants, and others with important business relationships with
the Company. The number of shares available under the plan for issuance is
1,000,000 shares of the Company's common stock. The 1,000,000 shares reserved
under the plan will be effective as of the closing date of the initial public
offering at an exercise price of $.001 per share. Upon issuance of the
options, all of such shares of Common Stock representing the conversions of
the options shall be duly authorized and validly issued, fully paid and
nonassessable shares of the Company and the capital related thereto shall be
allocated to the proper account on the books and records of the Company.
F-10
<PAGE>
PART III
INDEX TO EXHIBITS
2.1 Articles of Incorporation
2.2 By-Laws
3.1 Pentagenic Pharmaceuticals, Inc. 1998 Stock Option Plan
6.1 International Distribution Agreement with Rexall Sundown giving the
Company exclusive rights to the Rexall Sundown products
6.2 Manufacturing Plant Purchase Agreement dated July 6, 1998, between
Fuzhou 851 Marketing Company, Inc. (China) and the Company
6.3 Assignment of Marketing Rights dated July 6, 1998, between Fuzhou 851
Marketing Company, Inc. (China) and the Company
6.4 Distributorship Agreement dated July 15, 1998, between Pentagenic
Pharmaceuticals, Inc. and Sun Yang Products, Inc.
6.5 Sales Agreement dated July 8, 1998, between Pentagenic Pharmaceuticals,
Inc. and Fortune & Health Enterprises Co., Ltd.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PENTAGENIC PHARMACEUTICALS, INC.
Dated July 31, 1998 By: /s/ Yang Zhen Hua
-----------------
Yang Zhen Hua
CHAIRPERSON OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this
Registration Statement has been signed by the following persons in the
capacities and the dates indicated.
/s/ Yang-Zhen Hua
-----------------------------------------
Yang Zhen Hua
CHAIRPERSON OF THE BOARD, CHIEF EXECUTIVE
OFFICER AND PRESIDENT
/S/ DEJIAN LIU
-----------------------------------------
Dejian Liu
DIRECTOR, CHIEF OPERATING OFFICER,
SECRETARY AND TREASURER
/S/ DAVID CHU
-----------------------------------------
David Chu
DIRECTOR AND CHIEF FINANCIAL OFFICER
/S/ JAMES SAKODA
-----------------------------------------
James Sakoda
DIRECTOR AND VICE PRESIDENT
/S/ SHANGPING LIU
-----------------------------------------
Shangping Liu
DIRECTOR AND VICE PRESIDENT 851 CHINA
<PAGE>
EXHIBIT 2.1
ARTICLES OF INCORPORATION
(PURSUANT TO NRS 78)
STATE OF NEVADA
SECRETARY OF STATE
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
JULY 01, 1998
NO C15533-98 (For filing office use)
- -------------------------------------------------------------------------------
DEAN HELLER, SECRETARY OF STATE
- -------------------------------------------------------------------------------
IMPORTANT: Read instructions on reverse side before completing this form
TYPE OR PRINT (BLACK INK ONLY)
NAME OF CORPORATION: PENTAGENIC PHARMACEUTICALS, INC.
---------------------------------------------------------
RESIDENT AGENT: (designated resident agent and his STREET ADDRESS in Nevada
where process may be served)
Name of Resident Agent: David Chu
---------------------------------------------------------
Street Address: 1101 E. Tropicana Avenue, Suite 166 Las Vegas, Nevada 89119
---------------------------------------------------------------
Street No. Street Name City Zip
SHARES: (number of shares the corporation is authorized to issue)
Number of shares with par value: 50,000,000 Par value: 0.001
-------------- ------------
Number of shares without par value
------------------------------
GOVERNING BOARD: shall be styled as (check one): XX Directors Trustees
------ ------
The FIRST BOARD OF DIRECTORS shall consist of 2 members and the names and
addresses are as follows (attach additional pages if necessary)
Zhenhua Yang 1946 Strathmore Avenue, San Gabriel, Ca 91776
- --------------------------- ---------------------------------------------
Name Address City/State/Zip
Dejian Liu 3008 Andalucia Drive, West Covina, CA 91791
- --------------------------- ---------------------------------------------
Name Address City/State/Zip
PURPOSE (optional-see reverse side): The purpose of the corporation shall be:
Research, development, manufacture and sales of natural health food products.
- -----------------------------------------------------------------------------
OTHER MATTERS: This form includes the minimal statutory requirements to
incorporate under NRS 78. You may attach additional information pursuant to
NRS 78.037 or any other information you deem appropriate. If any of the
additional information is contradictory to this form it cannot be filed and
will be returned to you for correction. Number of pages attached -
----------.
David Chu
- -------------------------------------- ----------------------------------
Name (print) Name (print)
1101 E. Tropicana Ave., Su. 166,
LV, NV 89119
- -------------------------------------- -------------------------------------
Address City/State/Zip Address City/State/Zip
/s/ David Chu
- -------------------------------------- -------------------------------------
Signature Signature
State of Nevada County of Clark State of County of
--------- ----------- --------- ---------
This instrument was acknowledged This instrument was acknowledged
before me on before me on
July 1, 1998, by , 19 , by
- -------------------------------------- -------------------------------------
David Chu
- -------------------------------------- -------------------------------------
Name of Person Name of Person
as incorporator as incorporator
of Pentagenic Pharmaceuticals of
- -------------------------------------- -------------------------------------
(name of party on behalf of whom (name of party on behalf of whom
instrument was executed) instrument was executed)
Beth McAuliffe
- -------------------------------------- -------------------------------------
Notary Public Signature Notary Public Signature
(affix notary stamp or seal) (affix notary stamp or seal)
CERTIFICATE OF ACCEPTANCE OF
APPOINTMENT AS RESIDENT AGENT hereby accept appointment as Resident
Agent for the above named corporation
David Chu BETH MCAULIFFE
- -------------------------------------- -------------------------------------
/s/ David Chu 7/1/98
- -------------------------------------- -------------------------------------
Signature of Resident Agent Date
NOTARY PUBLIC
STATE OF NEVADA
SEAL
No. 98-1218-1
BETH MCAULIFFE
My appointment expires April 3, 2002
<PAGE>
BY-LAWS
OF
PENTAGENIC PHARMACEUTICALS, INC.
A Nevada Corporation
ARTICLE I - OFFICES
The registered office of the Corporation in the State of Nevada shall be located
in the City and State designated in the Articles of Incorporation. The
Corporation may also maintain offices at such other places within or without the
State of Nevada as the Board of Directors may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
------------------------------------
SECTION 1 - ANNUAL MEETINGS:
The annual meeting of the shareholders of the Corporation shall be held at the
time fixed, from time to time, by the Directors.
SECTION 2 - SPECIAL MEETINGS:
Special meetings of the shareholders may be called by the Board of Directors or
such person or persons authorized by the Board of Directors, and shall be held
within or without the State of Nevada.
SECTION 3 - PLACE OF MEETINGS:
Meetings of shareholders shall be held at the registered office of the
Corporation, or at such other places, within or without the State of Nevada as
the Directors may from time to time fix. If no designation is made, the meeting
shall be held at the Corporation's principle place of business.
SECTION 4 - NOTICE OF MEETINGS:
(a) Written or printed notice of each meeting of shareholders, whether annual or
special, signed by the president, vice president or secretary, stating the time
when and place where it is to be held, as well as the purpose or purposes for
which the meeting is called,
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 1 of 13
<PAGE>
shall be served either personally or by mail, by or at the direction of the
president, the secretary, or the officer or the person calling the meeting,
not less than ten or more than sixty days before the date of the meeting,
unless the lapse of the prescribed time shall have been waived before or
after the taking of such action, upon each shareholder of record entitled to
vote at such meeting, and to any other shareholder to whom the giving of
notice may be required by law. If mailed, such notice shall be deemed to be
given when deposited in the United States mail, addressed to the shareholder
as it appears on the share transfer records of the Corporation or to the
current address, which a shareholder has delivered to the Corporation in a
written notice.
(b) Further notice to a shareholder is not required when notice of two
consecutive annual meetings, and all notices of meetings or of the taking of
action by written consent without a meeting to him or her during the period
between those two consecutive annual meetings; or all, and at least two
payments sent by first-class mail of dividends or interest on securities
during a 12-month period have been mailed addressed to him or her at his or
her address as shown on the records of the Corporation and have been returned
undeliverable.
SECTION 5 - QUORUM:
(a) Except as otherwise provided herein, or by law, or in the Articles of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Articles of Incorporation"), a quorum shall
be present at all meetings of shareholders of the Corporation, if the holders
of a majority of the shares entitled to vote on that matter are represented
at the meeting in person or by proxy.
(b) The subsequent withdrawal of any shareholder from the meeting, after the
commencement of a meeting, or the refusal of any shareholder represented in
person or by proxy to vote, shall have no effect on the existence of a
quorum, after a quorum has been established at such meeting.
(c) Despite the absence of a quorum at any meeting of shareholders, the
shareholders present may adjourn the meeting.
SECTION 6 - VOTING AND ACTING:
(a) Except as otherwise provided by law, the Articles of Incorporation, or
these Bylaws, any corporate action, the affirmative vote of the majority of
shares entitled to vote on that matter and represented either in person or by
proxy at a meeting of shareholders at which a quorum is present, shall be the
act of the shareholders of the Corporation.
(b) Except as otherwise provided by statute, the Certificate of
Incorporation, or these bylaws, at each meeting of shareholders, each
shareholder of the Corporation entitled to vote thereat, shall be entitled to
one vote for each share registered in his name on the books of the
Corporation.
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 2 of 13
<PAGE>
(c) Where appropriate communication facilities are reasonably available, any
or all shareholders shall have the right to participate in any shareholders'
meeting, by means of conference telephone or any means of communications by
which all persons participating in the meeting are able to hear each other.
SECTION 7- PROXIES:
Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so either in person or by proxy, so long as such proxy is
executed in writing by the shareholder himself, his authorized officer,
director, employee or agent or by causing the signature of the stockholder to
be affixed to the writing by any reasonable means, including, but not limited
to, a facsimile signature, or by his attorney-in-fact thereunto duly
authorized in writing. Every proxy shall be revocable at will unless the
proxy conspicuously states that it is irrevocable and the proxy is coupled
with an interest. A telegram, telex, cablegram, or similar transmission by
the shareholder, or a photographic, photostatic, facsimile, shall be treated
as a valid proxy, and treated as a substitution of the original proxy, so
long as such transmission is a complete reproduction executed by the
shareholder. If it is determined that the telegram, cablegram or other
electronic transmission is valid, the persons appointed by the Corporation to
count the votes of shareholders and determine the validity of proxies and
ballots or other persons making those determinations must specify the
information upon which they relied. No proxy shall be valid after the
expiration of six months from the date of its execution, unless otherwise
provided in the proxy. Such instrument shall be exhibited to the Secretary at
the meeting and shall be filed with the records of the Corporation. If any
shareholder designates two or more persons to act as proxies, a majority of
those persons present at the meeting, or, if one is present, then that one
has and may exercise all of the powers conferred by the shareholder upon all
of the persons so designated unless the shareholder provides otherwise.
SECTION 8 - ACTION WITHOUT A MEETING:
Unless otherwise provided for in the Articles of Incorporation of the
Corporation, any action to be taken at any annual or special shareholders'
meeting, may be taken without a meeting, without prior notice and without a
vote if written consents are signed by a majority of the shareholders of the
Corporation, except however if a different proportion of voting power is
required by law, the Articles of Incorporation or these Bylaws, than that
proportion of written consents is required.
Such written consents must be filed with the minutes of the proceedings of
the shareholders of the Corporation.
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 3 of 13
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
--------------------------------
SECTION 1 - NUMBER, TERM, ELECTION AND QUALIFICATIONS:
(a) The first Board of Directors and all subsequent Boards of the Corporation
shall consist of (6), unless and until otherwise determined by vote of a
majority of the entire Board of Directors. The Board of Directors or
shareholders all has the power, in the interim between annual and special
meetings of the shareholders, to increase or decrease the number of Directors
of the Corporation. A Director need not be a shareholder of the Corporation
unless the Certificate of Incorporation of the Corporation or these Bylaws so
requires.
(b) Except as may otherwise be provided herein or in the Articles of
Incorporation, the members of the Board of Directors of the Corporation shall
be elected at the first annual shareholders' meeting and at each annual
meeting thereafter, unless their terms are staggered in the Articles of
Incorporation of the Corporation or these Bylaws, by a plurality of the votes
cast at a meeting of shareholders, by the holders of shares entitled to vote
in the election.
(c) The first Board of Directors shall hold office until the first annual
meeting of shareholders and until their successors have been duly elected and
qualified or until there is a decrease in the number of Directors.
Thereinafter, Directors will be elected at the annual meeting of shareholders
and shall hold office until the annual meeting of the shareholders next
succeeding his election, unless their terms are staggered in the Articles of
Incorporation of the Corporation (so long as at least one - fourth in number
of the Directors of the Corporation are elected at each annual shareholders'
meeting) or these Bylaws, or until his prior death, resignation or removal.
Any Director may resign at any time upon written notice of such resignation
to the Corporation.
(d) All Directors of the Corporation shall have equal voting power unless the
Articles of Incorporation of the Corporation provide that the voting power of
individual Directors or classes of Directors are greater than or less than
that of any other individual Directors or classes of Directors, and the
different voting powers may be stated in the Articles of Incorporation or may
be dependent upon any fact or event that may be ascertained outside the
Articles of Incorporation if the manner in which the fact or event may
operate on those voting powers is stated in the Articles of Incorporation. If
the Articles of Incorporation provide that any Directors have voting power
greater than or less than other Directors of the Corporation, every reference
in these Bylaws to a majority or other proportion of Directors shall be
deemed to refer to majority or other proportion of the voting power of all
the Directors or classes of Directors, as may be required by the Articles of
Incorporation.
SECTION 2 - DUTIES AND POWERS:
The Board of Directors shall be responsible for the control and management of
the
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 4 of 13
<PAGE>
business and affairs, property and interests of the Corporation, and may
exercise all powers of the Corporation, except such as those stated under
Nevada state law, are in the Articles of Incorporation or by these Bylaws,
expressly conferred upon or reserved to the shareholders or any other person
or persons named therein.
SECTION 3 - REGULAR MEETINGS; NOTICE:
(a) A regular meeting of the Board of Directors shall be held either within
or without the State of Nevada at such time and at such place as the Board
shall fix.
(b) No notice shall be required of any regular meeting of the Board of
Directors and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change
the time or place of any regular meeting when such time and place was fixed
before such change, notice of such action shall be given to each director who
shall not have been present at the meeting at which such action was taken
within the time limited, and in the manner set forth in these Bylaws with
respect to special meetings, unless such notice shall be waived in the manner
set forth in these Bylaws.
SECTION 4 - SPECIAL MEETINGS; NOTICE:
(a) Special meetings of the Board of Directors shall be held at such time and
place as may be specified in the respective notices or waivers of notice
thereof.
(b) Except as otherwise required statute, written notice of special meetings
shall be mailed directly to each Director, addressed to him at his residence
or usual place of business, or delivered orally, with sufficient time for the
convenient assembly of Directors thereat, or shall be sent to him at such
place by telegram, radio or cable, or shall be delivered to him personally or
given to him orally, not later than the day before the day on which the
meeting is to be held. If mailed, the notice of any special meeting shall be
deemed to be delivered on the second day after it is deposited in the United
States mails, so addressed; with postage prepaid. If notice is given by
telegram, it shall be deemed to be delivered when the telegram is delivered
to the Telegraph Company. A notice, or waiver of notice, except as required
by these Bylaws, need not specify the business to be transacted at or the
purpose or purposes of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
Director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver
of notice, whether before or after the meeting. Notice of any adjourned
meeting shall not be required to be given.
SECTION 5 - CHAIRPERSON:
The Chairperson of the Board, if any and if present, shall preside at all
meetings of the Board of Directors. If there shall be no Chairperson, or he
or she shall be absent, then the President shall preside, and in his absence,
any other director chosen by the Board of
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 5 of 13
<PAGE>
Directors shall preside.
SECTION 6 - QUORUM AND ADJOURNMENTS:
(a) At all meetings of the Board of Directors, or any committee thereof, the
presence of a majority of the entire Board, or such committee thereof, shall
constitute a quorum for the transaction of business, except as otherwise
provided by law, by the Certificate of Incorporation, or these Bylaws.
(b) A majority of the directors present at the time and place of any regular
or special meeting, although less than a quorum, may adjourn the same from
time to time, without notice, whether or not a quorum exists. Notice of such
adjourned meeting shall be given to Directors not present at time of the
adjournment and, unless the time and place of the adjourned meeting are
announced at the time of the adjournment, to the other Directors who were
present at the adjourned meeting.
SECTION 7 - MANNER OF ACTING:
(a) At all meetings of the Board of Directors, each director present shall
have one vote, irrespective of the number of shares of stock, if any, which
he may hold.
(b) Except as otherwise provided by law, by the Articles of Incorporation, or
these bylaws, action approved by a majority of the votes of the Directors
present at any meeting of the Board or any committee thereof, at which a
quorum is present shall be the act of the Board of Directors or any committee
thereof.
(c) Any action authorized in writing made prior or subsequent to such action,
by all of the Directors entitled to vote thereon and filed with the minutes
of the Corporation shall be the act of the Board of Directors, or any
committee thereof, and have the same force and effect as if the same had been
passed by unanimous vote at a duly called meeting of the Board or committee
for all purposes.
(d) Where appropriate communications facilities are reasonably available, any
or all directors shall have the right to participate in any Board of
Directors meeting, or a committee of the Board of Directors meeting, by means
of conference telephone or any means of communications by which all persons
participating in the meeting are able to hear each other.
SECTION 8 - VACANCIES:
(a) Unless otherwise provided for by the Articles of Incorporation of the
Corporation, any vacancy in the Board of Directors occurring by reason of an
increase in the number of directors, or by reason of the death, resignation,
disqualification, removal or inability to act of any director, or other
cause, shall be filled by an affirmative vote of a majority of the remaining
directors, though less than a quorum of the Board or by a sole remaining
Director, at any regular meeting or special meeting of the Board of Directors
called for
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 6 of 13
<PAGE>
that purpose except whenever the shareholders of any class or classes or
series thereof are entitled to elect one or more Directors by the Certificate
of Incorporation of the Corporation, vacancies and newly created
directorships of such class or classes or series may be filled by a majority
of the Directors elected by such class or classes or series thereof then in
office, or by a sole remaining Director so elected.
(b) Unless otherwise provided for by law, the Articles of Incorporation or
these Bylaws, when one or more Directors shall resign from the board and such
resignation is effective at a future date, a majority of the directors, then
in office, including those who have so resigned, shall have the power to fill
such vacancy or vacancies, the vote otherwise to take effect when such
resignation or resignations shall become effective.
SECTION 9- RESIGNATION:
A Director may resign at any time by giving written notice of such
resignation to the Corporation.
SECTION 10 - REMOVAL:
Unless otherwise provided for by the Articles of Incorporation, one or more
or all the Directors of the Corporation may be removed with or without cause
at any time by a vote of two-thirds of the shareholders entitled to vote
thereon, at a special meeting of the shareholders called for that purpose,
unless the Articles of Incorporation provide that Directors may only be
removed for cause, provided however, such Director shall not be removed if
the Corporation's states in its Articles of Incorporation that its Directors
shall be elected by cumulative voting and there are a sufficient number of
shares cast against his or her removal, which if cumulatively voted at an
election of Directors would be sufficient to elect him or her. If a Director
was elected by a voting group of shareholders, only the shareholders of that
voting group may participate in the vote to remove that Director.
SECTION 11 - COMPENSATION:
The Board of Directors may authorize and establish reasonable compensation of
the Directors for services to the Corporation as Directors, including, but
not limited to attendance at any annual or special meeting of the Board.
SECTION 12 - COMMITTEES:
Unless otherwise provided for by the Articles of Incorporation of the
Corporation, the Board of Directors, may from time to time designate from
among its members one or more committees, and alternate members thereof, as
they deem desirable, each consisting of one or more members, with such powers
and authority (to the extent permitted by law and these Bylaws) as may be
provided in such resolution. Unless the Articles of Incorporation or Bylaws
state otherwise, the Board of Directors may appoint natural persons who are
not Directors to serve on such committees authorized herein. Each such
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 7 of 13
<PAGE>
committee shall serve at the pleasure of the Board and, unless otherwise
stated by law, the Certificate of Incorporation of the Corporation or these
Bylaws, shall be governed by the rules and regulations stated herein
regarding the Board of Directors.
ARTICLE IV - OFFICERS
SECTION 1 - NUMBER, QUALIFICATIONS, ELECTION AND TERM OF OFFICE:
(a) The Corporation's officers shall have such titles and duties as shall be
stated in these Bylaws or in a resolution of the Board of Directors which is
not inconsistent with these Bylaws. The officers of the Corporation shall
consist of a president, secretary and treasurer, and also may have one or
more vice presidents, assistant secretaries and assistant treasurers and such
other officers as the Board of Directors may from time to time deem
advisable. Any officer may hold two or more offices in the Corporation.
(b) The officers of the Corporation shall be elected by the Board of
Directors at the regular annual meeting of the Board following the annual
meeting of shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have
been duly elected and qualified, subject to earlier termination by his or her
death, resignation or removal.
SECTION 2 - RESIGNATION:
Any officer may resign at any time by giving written notice of such
resignation to the Corporation.
SECTION 3 - REMOVAL:
Any officer elected by the Board of Directors may be removed, either with or
without cause, and a successor elected by the Board at any time, and any
officer or assistant officer, if appointed by another officer, may likewise
be removed by such officer.
SECTION 4 - VACANCIES:
A vacancy, however caused, occurring in the Board and any newly created
Directorships resulting from an increase in the authorized number of
Directors may be filled by the Board of Directors.
SECTION 5 - BONDS:
The Corporation may require any or all of its officers or Agents to post a bond,
or
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 8 of 13
<PAGE>
otherwise, to the Corporation for the faithful performance of their positions
or duties.
SECTION 6 - COMPENSATION:
The compensation of the officers of the Corporation shall be fixed from time to
time by the Board of Directors.
ARTICLE V - SHARES OF STOCK
---------------------------
SECTION 1 - CERTIFICATE OF STOCK:
(a) The shares of the Corporation shall be represented by certificates or
shall be uncertificated shares.
(b) Certificated shares of the Corporation shall be signed, (either manually
or by facsimile), by officers or agents designated by the Corporation for
such purposes, and shall certify the number of shares owned by him in the
Corporation. Whenever any certificate is countersigned or otherwise
authenticated by a transfer agent or transfer clerk, and by a registrar, then
a facsimile of the signatures of the officers or agents, the transfer agent
or transfer clerk or the registrar of the Corporation may be printed or
lithographed upon the certificate in lieu of the actual signatures. If the
Corporation uses facsimile signatures of its officers and agents on its stock
certificates, it cannot act as registrar of its own stock, but its transfer
agent and registrar may be identical if the institution acting in those dual
capacities countersigns or otherwise authenticates any stock certificates in
both capacities. If any officer who has signed or whose facsimile signature
has been placed upon such certificate, shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer at the date of its issue.
(c) If the Corporation issues uncertificated shares as provided for in these
Bylaws, within a reasonable time after the issuance or transfer of such
uncertificated shares, and at least annually thereafter, the Corporation
shall send the shareholder a written statement certifying the number of
shares owned by such shareholder in the Corporation.
(d) Except as otherwise provided by law, the rights and obligations of the
holders of uncertificated shares and the rights and obligations of the
holders of certificates representing shares of the same class and series
shall be identical.
SECTION 2 - LOST OR DESTROYED CERTIFICATES:
The Board of Directors may direct a new certificate or certificates to be
issued in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed if the owner:
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 9 of 13
<PAGE>
(a) so requests before the Corporation has notice that the shares have
been acquired by a bona fide purchaser,
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies such other requirements, including evidence of such loss,
theft or destruction, as may be imposed by the Corporation.
SECTION 3 - TRANSFERS OF SHARES:
(a) Transfers or registration of transfers of shares of the Corporation shall be
made on the stock transfer books of the Corporation by the registered holder
thereof, or by his attorney duly authorized by a written power of attorney; and
in the case of shares represented by certificates, only after the surrender to
the Corporation of the certificates representing such shares with such shares
properly endorsed, with such evidence of the authenticity of such endorsement,
transfer, authorization and other matters as the Corporation may reasonably
require, and the payment of all stock transfer taxes due thereon.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
SECTION 4 - RECORD DATE:
(a) The Board of Directors may fix, in advance, which shall not be more than
sixty days before the meeting or action requiring a determination of
shareholders, as the record date for the determination of shareholders
entitled to receive notice of, or to vote at, any meeting of shareholders, or
to consent to any proposal without a meeting, or for the purpose of
determining shareholders entitled to receive payment of any dividends, or
allotment of any rights, or for the purpose of any other action. If no record
date is fixed, the record date for a shareholders entitled to notice of
meeting shall be at the close of business on the day preceding the day on
which notice is given, or, if no notice is given, the day on which the
meeting is held, or if notice is waived, at the close of business on the day
before the day on which the meeting is held.
(b) The Board of Directors may fix a record date, which shall not precede the
date upon which the resolution fixing the record date is adopted for
shareholders entitled to receive payment of any dividend or other
distribution or allotment of any rights of shareholders entitled to exercise
any rights in respect of any change, conversion or exchange of stock, or for
the purpose of any other lawful action.
(c) A determination of shareholders entitled to notice of or to vote at a
shareholders' meeting is effective for any adjournment of the meeting unless
the Board of Directors fixes a new record date for the adjourned meeting.
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 10 of 13
<PAGE>
SECTION 5 - FRACTIONS OF SHARES/SCRIP:
The Board of Directors may authorize the issuance of certificates or payment
of money for fractions of a share, either represented by a certificate or
uncertificated, which shall entitle the holder to exercise voting rights,
receive dividends and participate in any assets of the Corporation in the
event of liquidation, in proportion to the fractional holdings; or it may
authorize the payment in case of the fair value of fractions of a share as of
the time when those entitled to receive such fractions are determined; or it
may authorize the issuance, subject to such conditions as may be permitted by
law, of scrip in registered or bearer form over the manual or facsimile
signature of an officer or agent of the Corporation or its agent for that
purpose, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of shareholder, except as therein
provided. The scrip may contain any provisions or conditions that the
Corporation deems advisable. If a scrip ceases to be exchangeable for full
share certificates, the shares that would otherwise have been issuable as
provided on the scrip are deemed to be treasury shares unless the scrip
contains other provisions for their disposition.
ARTICLE VI - DIVIDENDS
----------------------
(a) Dividends may be declared and paid out of any funds available therefor,
as often, in such amounts, and at such time or times as the Board of
Directors may determine and shares may be issued pro rata and without
consideration to the Corporation's shareholders or to the shareholders of one
or more classes or series.
(b) Shares of one class or series may not be issued as a share dividend to
shareholders of another class or series unless:
(i) so authorized by the Articles of Incorporation;
(ii) a majority of the shareholders of the class or series to be issued
approve the issue; or
(iii) there are no outstanding shares of the class or series of shares that
are authorized to be issued.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed, and shall be subject to
change by the Board of Directors from time to time, subject to applicable
law.
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 11 of 13
<PAGE>
ARTICLE VIII - CORPORATE SEAL
-----------------------------
The corporate seal, if any, shall be in such form as shall be prescribed and
altered, from time to time, by the Board of Directors. The use of a seal or
stamp by the Corporation on corporate documents is not necessary and the lack
thereof shall not in any. way affect the legality of a corporate document.
ARTICLE IX - AMENDMENTS
-----------------------
SECTION 1 - BY SHAREHOLDERS:
All Bylaws of the Corporation shall be subject to alteration or repeal, and new
Bylaws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of Directors even though these Bylaws may also be
altered, amended or repealed by the Board of Directors.
SECTION 2 - BY DIRECTORS:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, Bylaws of the Corporation.
ARTICLE X- WAIVER OF NOTICE
---------------------------
Whenever any notice is required to be given by law, the Articles of
Incorporation or these Bylaws, a written waiver signed by the person or
persons entitled to such notice, whether before or after the meeting by any
person, shall constitute a waiver of notice of such meeting.
ARTICLE XI- INTERESTED DIRECTORS
--------------------------------
No contract or transaction shall be void or voidable if such contract or
transaction is between the corporation and one or more of its Directors or
Officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
Officers, are directors or officers, or have a financial interest, when such
Director or Officer is present at or participates in the
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 12 of 13
<PAGE>
meeting of the Board, or the committee of the shareholders which authorizes
the contract or transaction or his, her or their votes are counted for such
purpose, if:
(a) the material facts as to his, her or their relationship or interest and as
to the contract or transaction are disclosed or are known to the Board of
Directors or the committee and are noted in the minutes of such meeting, and the
Board or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested Directors, even though the
disinterested Directors be less than a quorum; or
(b) the material facts as to his, her or their relationship or relationships or
interest or interests and as to the contract or transaction are disclosed or are
known to the shareholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the shareholders;
or
(c) the contract or transaction is fair as to the Corporation as of the time it
is authorized, approved or ratified, by the Board of Directors, a committee of
the shareholders; or
(d) the fact of the common directorship, office or financial interest is not
disclosed or known to the Director or Officer at the time the transaction is
brought before the Board of Directors of the Corporation for such action.
Such interested Directors may be counted when determining the presence of a
quorum at the Board of Directors' or committee meeting authorizing the contract
or transaction.
ARTICLE XII - ANNUAL LIST OF OFFICERS, DIRECTORS
AND REGISTERED AGENT
------------------------------------------------
The Corporation shall, within sixty days after the filing of its Articles of
Incorporation with the Secretary of State, and annually thereafter on or
before the last day of the month in which the anniversary date of
incorporation occurs each year, file with the Secretary of State a list of
its president, secretary and treasurer and all of its Directors, along with
the post office box or street address, either residence or business, and a
designation of its resident agent in the state of Nevada. Such list shall be
certified by an officer of the Corporation.
Bylaw of Pentagenic Pharmaceuticals, Inc. Page 13 of 13
<PAGE>
PENTAGENIC PHARMACEUTICALS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE. The Plan is intended to provide incentive to key employees
and directors of, and key consultants, vendors, customers, and others expected
to provide significant services to, the Corporation, to encourage proprietary
interest in the Corporation, to encourage such key employees to remain in the
employ of the Corporation and its Subsidiaries, to attract new employees with
outstanding qualifications, and to afford additional incentive to consultants,
vendors, customers, and others to increase their efforts in providing
significant services to the Corporation.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean the committee, if any, appointed by the
Board in accordance with Section 4 of the Plan.
(d) "Common Stock" shall mean the Common Stock, par value $0.001 per
share, of the Corporation.
(e) "Corporation" shall mean Pentagenic Pharmaceuticals, Inc., a
Nevada corporation.
(f) "Disability" shall mean the condition of an Employee who is, in
the judgment of the Board or the Committee, unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than twelve (12) months.
(g) "Employee" shall mean an individual who is employed (within the
meaning of Code Section 3401 and the regulations thereunder) by the Corporation
or a Subsidiary.
(h) "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Board or the Committee, at which an Option may exercised.
(i) "Fair Market Value" shall mean the value of one (1) Share of
Common Stock, determined as follows:
(1) If the Shares are traded on an exchange, the price at which
Shares traded at the close of business on the date of valuation;
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<PAGE>
(2) If the Shares are traded over-the-counter on the NASDAQ
System, the closing price if one is available, or the mean between the bid
and asked prices on said System at the close of business on the date of
valuation; and
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Board or the Committee in good faith. Such determination
shall be conclusive and binding on all persons.
(j) "Incentive Stock Option" shall mean an option described in
Section 422(b) of the Code.
(k) "Nonstatutory Stock Option" shall mean an option not described in
Section 422(b), 423(b) or 424(b) of the Code.
(l) "Option" shall mean any option to purchase Common Stock granted
pursuant to the Plan.
(m) "Optionee" shall mean an employee who has received an Option.
(n) "Plan" shall mean the Pentagenic Pharmaceuticals, Inc. 1998 Stock
Option Plan, as it may be amended from time to time.
(o) "Purchase Price" shall mean the Exercise Price times the number
of Shares with respect to which an Option is exercised.
(p) "Retirement" shall mean the voluntary termination of employment
by an Employee upon the attainment of age sixty-five (65) and the completion of
not less than twenty (20) years of service with the Corporation or a Subsidiary.
(q) "Share" shall mean one (1) share of Common Stock, adjusted in
accordance with Section 10 of the Plan (if applicable).
(r) "Subsidiary" shall mean any corporation at least fifty percent
(50%) of the total combined voting power of which is owned by the Corporation or
by another Subsidiary.
3. EFFECTIVE DATE. The Plan was adopted by the Board and by the
stockholders of the Corporation on July 1, 1998, which shall be the effective
date of the Plan.
4. ADMINISTRATION. The Plan shall be administered by the Board, or by a
committee appointed by the Board which shall consist of not less than three (3)
members (the "Committee"). The Board shall appoint one of the members of the
Committee, if there be one, as Chairman of the Committee. If a Committee has
been appointed, the Committee shall hold meetings at such times and places as it
may determine. Acts of a majority of the Committee at which a quorum is
present, or acts reduced to or approved in writing by a majority of the members
of the Committee, shall be the valid acts of the Committee. The Board, or the
Committee if there
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<PAGE>
be one, shall from time to time at its discretion select the employees,
directors and consultants who are to be granted Options, determine the number
of Shares to be granted to each Optionee and designate such Options such as
Incentive Stock Options or Non-statutory Stock Options, except that no
Incentive Stock Option may be granted to a non-Employee director or a
non-Employee consultant. A member of the Board or a Committee member shall
in no event participate in any determination relating to Options held by or
to be granted to such Board or Committee member. The interpretation and
construction by the Board, or by the Committee if there be one, of any
provision of the Plan or of any Option granted thereunder shall be final. No
member of the Board or of the Committee shall be liable for any action or
determination made in good faith with respect to the Plan or any Option
granted thereunder.
5. PARTICIPATION.
(a) ELIGIBILITY. The Optionees shall be such persons as the Board,
or the Committee if there be one, may select from among the following classes of
persons, subject to the terms and conditions of (b) below:
(1) Employees of the Corporation or of a Subsidiary (who may be
officers, whether or not they are directors);
(2) Directors of the Corporation or of a Subsidiary; and
(3) Consultants, vendors, customers, and others expected to
provide significant services to the Corporation or a Subsidiary.
For purposes of this Plan, an Optionee who is a director or a consultant,
vendor, customer, or other provider of significant services to the Corporation
or a Subsidiary shall be deemed to be an Employee, and service as a director,
consultant, vendor, customer, or other provider of significant services to the
Corporation or a Subsidiary shall be deemed to be employment, except that no
Incentive Stock Option may be granted to a non-Employee director or non-Employee
consultant, vendor, customer, or other provider of significant services to the
Corporation or a Subsidiary, and except that no Nonstatutory Stock Option may be
granted to a non-Employee director or non-Employee consultant, vendor, customer,
or other provider of significant services to the Corporation or a Subsidiary
other than upon a vote of a majority of disinterested directors finding that the
value of the services rendered or to be rendered to the Corporation or a
Subsidiary by such non-Employee director or non-Employee consultant, vendor,
customer, or other provider of services is at least equal to the value of the
option or options granted.
(b) TEN-PERCENT SHAREHOLDERS. An Employee who owns more than ten
percent (10%) of the total combined voting power of all classes of
outstanding stock of the Corporation, its parent or any of its Subsidiaries
shall not be eligible to receive an Incentive Stock Option unless (i) the
Exercise Price of the Shares subject to such Option is at least one hundred
ten percent (110%) of the Fair Market Value of such Shares on the date of
grant and (ii) such Option by its terms is not exercisable after the
expiration of five (5) years from the date of grant.
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<PAGE>
(c) STOCK OWNERSHIP. For purposes of (b) above, in determining
stock ownership an Employee shall be considered as owning the stock owned,
directly or indirectly, by or for his brothers, sisters, spouses, ancestors
and lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its shareholders, partners or beneficiaries. Stock
with respect to which such Employee holds an Option shall not be counted.
(d) OUTSTANDING STOCK. For purposes of (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately
after the grant of the Option to the Optionee. "Outstanding stock" shall not
include shares authorized for issue under outstanding Options held by the
Optionee or by any other person.
6. STOCK. The stock subject to Options granted under this Plan shall
be Shares of the Corporation's authorized but unissued or reacquired Common
Stock. The aggregate number of Shares which may be issued upon exercise of
Options under the Plan shall not exceed 1,000,000 shares. The number of
Shares subject to Options outstanding at any time shall not exceed the number
of Shares remaining available for issuance under this Plan. In the event
that any outstanding Option for any reason expires or is terminated, the
Shares allocable to the unexercised portion of such Option may again be made
subject to any Option. The limitations established by this Section 6 shall
be subject to adjustment in the manner provided in Section 10 hereof upon the
occurrence of an event specified therein.
7. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENTS. Options shall be evidenced by
written stock option agreements in such form as the Board, or the Committee
if there be one, shall from time to time determine. Such agreements shall
comply with and be subject to the terms and conditions set forth below.
(b) NUMBER OF SHARES. Each Option shall state the number of
Shares to which it pertains and shall provide for the adjustment thereof in
accordance with the provisions of Section 10 hereof.
(c) EXERCISE PRICE. Each Option shall state the Exercise Price.
The Exercise Price in the case of any Incentive Stock Option shall not be
less than the Fair Market Value on the date of grant and, in the case of any
Incentive Stock Option granted to an Optionee described in Section 5(b)
hereof, shall not be less than one hundred ten percent (110%) of the Fair
Market Value on the date of grant. The Exercise Price in the case of any
Nonstatutory Stock Option shall not be less than 85% of the Fair Market Value
on the date of grant.
(d) MEDIUM AND TIME OF PAYMENT. The Purchase Price shall be payable
in full in United States dollars upon the exercise of the Option; PROVIDED,
HOWEVER, that if the applicable Option Agreement so provides the Purchase Price
may be paid (i) by the surrender of Shares in good form for transfer, owned by
the person exercising the Option and having a Fair Market
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<PAGE>
Value on the date of exercise equal to the Purchase Price, or in any
combination of cash and Shares, as long as the sum of the cash so paid and
the Fair Market Value of the Shares so surrendered equal the Purchase Price,
(ii) by cancellation of indebtedness owed by the Corporation to the Optionee,
(iii) with a full recourse promissory note executed by the Optionee, or (iv)
any combination of the foregoing. The interest rate and other terms and
conditions of such note shall be determined by the Board, or the Committee if
there be one. The Board, or the Committee if there be one, may require that
the Optionee pledge his or her Shares to the Corporation for the purpose of
securing the payment of such note. In no event shall the stock
certificate(s) representing such Shares be released to the Optionee until
such note shall be been paid in full. In the event the Corporation
determines that it is required to withhold state or Federal income tax as a
result of the exercise of an Option, as a condition to the exercise thereof,
an Employee may be required to make arrangements satisfactory to the
Corporation to enable it to satisfy such withholding requirements.
(e) TERM AND NONTRANSFERABILITY OF OPTIONS. Each Option shall
state the time or times, and the conditions upon which, all or part thereof
becomes exercisable. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted, and no Incentive Stock Option
granted to an Optionee described in Section 5(b) hereof shall be exercisable
after the expiration of five (5) years from the date it was granted. During
the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee and shall not be assignable or transferable. In the event of the
Optionee's death, the Option shall not be transferable. In the event of the
Optionee's death, the Option shall not be transferable by the Optionee other
than by will or the laws of descent and distribution.
(f) TERMINATION OF EMPLOYMENT, EXCEPT BY DEATH, DISABILITY OR
RETIREMENT. If an Optionee ceases to be an Employee for any reason other than
his or her death, Disability or Retirement, such Optionee shall have the
right, subject to the restrictions of (e) above, to exercise the Option at
any time within three months after termination of employment, but only to the
extent that, at the date of termination of employment, the Optionee's right
to exercise such Option had accrued pursuant to the terms of the applicable
option agreement and had not previously been exercised; PROVIDED, HOWEVER,
that if the Optionee was terminated for cause (as defined in the applicable
option agreement) any Option not exercised in full prior to such termination
shall be canceled. For this purpose, the employment relationship shall be
treated as continuing intact while the Optionee is on military leave, sick
leave or other bona fide leave of absence (to be determined in the sole
discretion of the Committee). The foregoing notwithstanding, (i) in the case
of an Incentive Stock Option, employment shall not be deemed to continue
beyond the ninetieth (90th) day after the Optionee's reemployment rights are
guaranteed by statute or by contract, and (ii) in the case of a Nonstatutory
Option, the Board, or the Committee if there be one, may extend or otherwise
modify the period of time specified herein during which the Option may be
exercised following termination of Optionee's employment.
(g) DEATH OF OPTIONEE. If an Optionee dies while an Employee, or
after ceasing to be an Employee but during the period while he or she could have
exercised the Option under this Section 7, and has not fully exercised the
Option, then the Option may be exercised in full,
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<PAGE>
subject to the restrictions of (e) above, at any time within twelve (12)
months after the Optionee's death, by the executors or administrators of his
or her estate or by any person or persons who have acquired the Option
directly from the Optionee by bequest or inheritance, but only to the extent
that, at the date of death, the Optionee's right to exercise such Option had
accrued and had not been forfeited pursuant to the terms of the applicable
Option Agreement and had not previously been exercised. The foregoing
notwithstanding, the Board, or the Committee if there be one, may extend or
otherwise modify the period of time specified herein during which a
Nonstatutory Option may be exercised following termination of Optionee's
employment, or amend an Incentive Stock Option to convert it into a
Nonstatutory Option with an extended term.
(h) DISABILITY OF OPTIONEE. If an Optionee ceases to be an
Employee by reason of Disability, such Optionee shall have the right, subject
to the restrictions of (f) above, to exercise the Option at any time within
twelve (12) months after termination of employment, but only to the extent
that, at the date of termination of employment, the Optionee's right to
exercise such Option had accrued pursuant to the terms of the applicable
Option Agreement and had not previously been exercised. The foregoing
notwithstanding, the Board, or the Committee if there be one, may extend or
otherwise modify the period of time specified herein during which a
Nonstatutory Option may be exercised following termination of Optionee's
employment, or amend an Incentive Stock Option to convert it into a
Nonstatutory Option with an extended term.
(i) RETIREMENT OF OPTIONEE. If an Optionee ceases to be an
Employee by reason of Retirement, such Optionee shall have the right, subject
to the restrictions of (e) above, to exercise the Option at any time within
three (3) months after termination of employment, but only to the extent
that, at the date of termination of employment, the Optionee's right to
exercise such Option had accrued pursuant to the terms of the applicable
Option Agreement and had not previously been exercised. The foregoing
notwithstanding, the Board, or the Committee if there be one, may extend or
otherwise modify the period of time specified herein during which a
Nonstatutory Option may be exercised following termination of Optionee's
employment, or amend an Incentive Stock Option to convert it into a
Nonstatutory Option with an extended term.
(j) RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property),
distributions or other rights for which the record date is prior to the date
such stock certificate is issued, except as provided in Section 10 hereof.
(k) MODIFICATION, EXTENSION AND RENEWAL OF OPTION. Within the
limitations of the Plan, the Board, or the Committee if there be one, may
modify, extend or renew outstanding Options or accept the cancellation of
outstanding Options (to the extent not previously exercised) for the granting
of new Options with, if desired, lower exercise prices, in substitution
therefor. The foregoing notwithstanding, no modification of an Option shall,
without the consent of the Optionee, alter or impair any rights or
obligations under any Option previously granted.
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<PAGE>
(l) OTHER PROVISIONS. The stock option agreements authorized
under this Plan may contain such other provisions not inconsistent with the
terms of this Plan (including, without limitation, restrictions upon the
exercise of the Option) as the Board, or the Committee if there be one, shall
deem advisable.
8. LIMITATION ON VALUE OF EXERCISABLE SHARES. In the case of
Incentive Stock Options granted hereunder, the aggregate Fair Market Value
(determined as of the date of the grant thereof) of the Shares with respect
to which Incentive Stock Options become exercisable by any employee of the
Company for the first time during any calendar year (under this Plan and all
other plans maintained by the Corporation, its parent or its Subsidiaries)
shall not exceed $100,000.
9. TERM OF PLAN. Options may be granted pursuant to the Plan until
the expiration of ten (10) years from the effective date of the Plan.
10. RECAPITALIZATIONS. Subject to any required action by shareholders,
the number of Shares covered by the Plan as provided in Section 6 hereof, the
number of Shares covered by each outstanding Option and the Exercise Price
thereof shall be proportionately adjusted for any increase of decrease in the
number of issued Shares resulting from a subdivision or consolidation of
Shares or the payment of a stock dividend (but only of Common Stock) or any
other increase or decrease in the number of issued Shares effected without
receipt of consideration by the Corporation. Subject to any required action
by stockholders, if the Corporation is the surviving corporation in any
merger or consolidation, each outstanding Option shall pertain and apply to
the securities to which a holder of the number of Shares subject to the
Option would have been entitled. In the event of a merger or consolidation
in which the Corporation is not the surviving corporation, the date of
exercisability of each outstanding Option shall be accelerated to a date
prior to such merger or consolidation, unless the agreement of merger or
consolidation provides for the assumption of the Option by the successor to
the Corporation. To the extent that the foregoing adjustments relate to
securities of the Corporation, such adjustments shall be made by the Board,
or the Committee if there be one, whose determination shall be conclusive and
binding on all persons. Except as expressly provided in this Section 10, the
Optionee shall have no rights by reason of subdivision or consolidation of
shares of stock of any class, the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class or by
reason of any dissolution, liquidation, merger or consolidation or spin-off
of assets or stock of another corporation, and any issue by the Corporation
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or Exercise Price of Shares subject
to an Option. The grant of an Option pursuant to the Plan shall not affect
in any way the right or power to the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure, to merge or consolidate or to dissolve, liquidate, sell or
transfer all or any part of its business assets.
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<PAGE>
11. SECURITIES LAW REQUIREMENTS.
(a) LEGALITY OF ISSUANCE. The issuance of any Shares upon the
exercise of any Option and the grant of any Option shall be contingent upon the
following:
(1) the Corporation and the Optionee shall have taken all actions
required to register the Shares under the Securities Act of 1933, as
amended (the "Act"), and to qualify the Option and the Shares under any and
all applicable state securities or "blue sky" laws or regulations, or to
perfect an exemption from the respective registration and qualification
requirements thereof;
(2) any applicable listing requirement of any stock exchange on
which the Common Stock is listed shall have been satisfied; and
(3) any other applicable provision of state of Federal law shall
have been satisfied.
(b) RESTRICTIONS ON TRANSFER. Regardless of whether the offering
and sale of Shares under the plan has been registered under the Act or has
been registered or qualified under the securities laws of any state, the
Corporation may impose restrictions on the sale, pledge or other transfer of
such Shares (including the placement of appropriate legends on stock
certificates) if, in the judgment of the Corporation and its counsel, such
restrictions are necessary or desirable in order to achieve compliance with
the provisions of the Act, the securities laws of any state or any other law.
In the event that the sale of Shares under the Plan is not registered under
the Act but an exemption is available which required an investment
representation or other representation, each Optionee shall be required to
represent that such Shares are being acquired for investment, and not with a
view to the sale or distribution thereof, and to make such other
representations as are deemed necessary or appropriate by the Corporation and
its counsel. Any determination by the Corporation and its counsel in
connection with any of the matters set forth in this Section 11 shall be
conclusive and binding on all persons. Stock certificates evidencing Shares
acquired under the Plan pursuant to an unregistered transaction shall bear
the following restrictive legend and such other restrictive legends as are
required or deemed advisable under the provisions of any applicable law.
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH
SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE 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 ACT."
(c) REGISTRATION OR QUALIFICATION OF SECURITIES. The Corporation
may, but shall not be obligated to register or qualify the issuance of
Options and/or the sale of Shares under the Act or any other applicable law.
The Corporation shall not be obligated to take any affirmative action in
order to cause the issuance of Options or the sale of Shares under the plan
to comply with any law.
- 8 -
<PAGE>
(d) EXCHANGE OF CERTIFICATES. If, in the opinion of the
Corporation and its counsel, any legend placed on a stock certificate
representing shares sold under the Plan is no longer required, the holder of
such certificate shall be entitled to exchange such certificate for a
certificate representing the same number of Shares but lacking such legend.
12. AMENDMENT OF THE PLAN. The Board may from time to time, with
respect to any Shares at the time not subject to Options, suspend or
discontinue the plan or revise or amend it in any respect whatsoever except
that, without the approval of the Corporation's stockholders, no such
revision or amendment shall:
(a) Increase the number of Shares subject to the Plan;
(b) Change the designation in Section 5 hereof with respect to the
classes of persons eligible to receive Options; or
(c) Amend this Section 12 to defeat its purpose.
13. APPLICATION OF FUNDS. The proceeds received by the Corporation
from the sale of Common Stock pursuant to the exercise of an Option will be
used for general corporate purposes.
14. EXECUTION. To record the adoption of the Plan in the form set
forth above by the Board and stockholders as of July 1, 1998, the Corporation
has caused this Plan to be executed in the name and on behalf of the
Corporation where provided below by an officer of the Corporation thereunto
duly authorized.
Pentagenic Pharmaceuticals, Inc.,
a Nevada corporation
By:
-------------------------------------
Title:
----------------------------------
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<PAGE>
Exhibit A to
Pentagenic Pharmaceuticals, Inc. 1998 Stock Option Plan
PENTAGENIC PHARMACEUTICALS, INC.
STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION)
This Agreement is made and entered into effective as of ________ __, 199__,
by and between Pentagenic Pharmaceuticals, Inc., a Nevada corporation (the
"Corporation"), and __________________ (the "Optionee").
R E C I T A L S
A. The Board of Directors of the Corporation (the "Board") has
adopted, and the stockholders of the Corporation have approved, Pentagenic
Pharmaceuticals, Inc. 1998 Stock Option Plan (the "Plan") in order to provide
key employees of the Corporation with a favorable opportunity to acquire
shares of the Corporation's common stock (the "Stock").
B. Pursuant to the Plan, options may be granted which are intended to
qualify as "incentive stock options" within the meaning of the Internal
Revenue Code of 1986, as amended (the "Code").
C. The Board has, by resolution duly adopted, determined that it is in
the best interests of the Corporation and its shareholders to grant to
Optionee, as an officer or employee of the Corporation, the option to
purchase shares of Stock on the terms and conditions provided for in this
Agreement, as an inducement to Optionee to continue to remain in the service
of the Corporation and to provide Optionee with additional incentive for
increasing his or her efforts and contributions to the success of the
Corporation during such service.
NOW THEREFORE, it is agreed as follows:
1. DEFINITIONS AND INCORPORATION. The terms used in this Agreement
shall have the meanings given to such terms in the Plan. The Plan is hereby
incorporated in and made a part of this Agreement as if fully set forth
herein. The Optionee hereby acknowledges receipt of a copy of the Plan.
2. GRANT OF OPTION. Pursuant to the Plan, the Corporation hereby
grants to Optionee as of the date hereof the right and option to purchase, on
the terms and conditions hereinafter set forth, all or any part of an
aggregate of __________________ shares of Stock (the "Option"), subject to
adjustment in accordance with Section 10 of the Plan. The Option is intended
to qualify as an "incentive stock option" under the Code.
3. OPTION PRICE. The price to be paid for Stock upon exercise of the
Option or any part thereof shall be $_______ per share, which is equal to or
greater than the fair market value of one share of Stock as of the date hereof;
or, if Optionee is a person described in paragraph 5(b)
<PAGE>
of the Plan, such price is at least one hundred ten percent (110%) of the
fair market value of the Stock as of the date hereof.
4. RIGHT TO EXERCISE. Subject to the conditions set forth in this
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby incorporated in and made a part hereof.
The Optionee hereby accepts and agrees to be bound by each and every provision
contained in Schedule 1.
5. SECURITIES LAY REQUIREMENTS. No part of the Option shall be exercised
if counsel to the Corporation determines that any applicable registration
requirement under the Securities Act of 1933, as amended, or any other
applicable requirement of Federal or state law has not been met.
6. TERM OF OPTION. The Option shall terminate in any event on the
earliest of the 10th anniversary of the date of this Agreement first set forth
above, at 11:59 P.M., (b) the expiration of the period described in Paragraph 7
below, (c) the expiration of the period described in Paragraph 8 below, or (d)
the expiration of the period described in Paragraph 9 below.
7. EXERCISE FOLLOWING TERMINATION OF SERVICE. If the Optionee's service
with the Corporation terminates for any reason other than death, disability or
retirement, the Option (to the extent it has not previously been exercised and
is then exercisable) may be exercised within the period of three (3) consecutive
months commencing immediately following the date of such termination. The
foregoing notwithstanding, the Option shall cease to be exercisable on the date
of such termination if the termination is for cause or if the Optionee upon such
termination becomes an employee, director or consultant of a person who is in
direct competition with the Corporation. For this purpose, "cause" shall mean
conviction of a felony, misappropriation of assets of the Corporation or any
subsidiary, continued or repeated insobriety, continue or repeated absence from
service during the usual working hours of the Optionee's position for reason
other than disability or sickness, or refusal to carry out the reasonable
directions of the Corporation's executive officers or of the Board.
8. EXERCISE FOLLOWING DEATH OR DISABILITY. If the Optionee's service
with the Corporation terminates by reason of the Optionee's death or disability
(as defined in the Plan), or if the Optionee dies after termination of service
but while the Option would have been exercisable hereunder, the Option (to the
extent it has not previously been exercised and is then exercisable) may be
exercised within one year after the date of Optionee's death or termination by
reason of disability. In the case of death, the exercise may be made by
Optionee's representative or by the person entitled thereto under Optionee's
will or the laws of descent and distribution; provided that such representative
or such person consents in writing to abide by and be subject to the terms of
the Plan and this Agreement and such writing is delivered to the President of
the Corporation.
9. EXERCISE FOLLOWING RETIREMENT. If the Optionee's service with the
Corporation terminates by reason of retirement (the voluntary retirement of
employment upon attainment of 65 years of age and completion of 20 years of
service), the Option (to the extent it has not
- 2 -
<PAGE>
previously been exercised and is then exercisable) may be exercised within
one year after the date of the Optionee's retirement.
10. TIME OF TERMINATION OF SERVICE. For the purposes of this
Agreement, Optionee's service shall be deemed to have terminated on the
earlier of (a) the date when Optionee's service in fact terminated or (b) the
date when the Optionee gave or received written notice that his or her
service is to terminate.
11. NONTRANSFERABILITY. Unless the Corporation otherwise consents in
writing, the option and all rights and privileges granted hereunder shall be
non-assignable and non-transferable by the Optionee, either voluntarily or by
operation of law, except by will or by operation of the laws of descent and
distribution or pursuant to a qualified domestic relations order, shall not
be pledged or hypothecated in any way, and shall be exercisable during
lifetime only by the Optionee. Except as otherwise provided herein, any
attempted alienation, assignment, pledge, hypothecation, attachment,
execution or similar process, whether voluntary or involuntary, with respect
to all or any part of the Option or any right thereunder, shall be null and
void and, at the Corporation's option, shall cause all of Optionee's rights
under this Agreement to terminate. All certificates representing shares of
Stock purchased upon the exercise of the Option shall bear the legend as
specified in the Plan.
12. EFFECT OF EXERCISE. Upon exercise of all or any part of the
Option, the number of shares of Stock subject to option under this Agreement
shall be reduced by the number of shares with respect to which such exercise
is made.
13. METHOD OF EXERCISE. Each exercise of the Option shall be by means
of a written notice of exercise in substantially the form prescribed from
time to time by the Board delivered to the Secretary of the Corporation at
its principal office and accompanied by payment in full of the option price
for each share of Stock purchased under the Option. Such notice shall
specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the
Option is exercised by a person other than the Optionee, such notice shall be
accompanied by proof, reasonably satisfactory to the Corporation, of such
person's right to exercise the Option. The Option exercise price shall be
paid in U.S. dollars.
14. MEDIUM AND TIME OF PAYMENT. The exercise price shall be paid in
full upon the exercise of the Option, and may be paid (i) in cash, in United
States dollars, (ii) by the surrender of Shares in good form for transfer,
owned by the person exercising the Option and having a Fair Market Value (as
defined in the Plan) on the date of exercise equal to the exercise price,
(iii) by cancellation of indebtedness owed by the Corporation to the
Optionee, (iv) with a full recourse promissory note executed by the Optionee,
or (v) any in combination of the foregoing in an amount equal to the
aggregate exercise price. The interest rate and other terms and conditions
of any such note shall be determined by the Board, or the Committee if there
be one. The Board, or the Committee if there be one, may require that the
Optionee pledge his or her Shares to the Corporation for the purpose of
securing the payment of such note. In no event shall the stock
certificate(s) representing such Shares be released to the Optionee until
such note shall have been paid in full.
- 3 -
<PAGE>
15. WITHHOLDING TAXES. If the Optionee is an employee or former
employee of the Corporation when all or part of the option is exercised, the
Corporation may require the Optionee to deliver payment of any withholding
taxes (in addition to the Option exercise price) in cash with respect to the
difference between the Option exercise price and the fair market value of the
Stock acquired upon exercise.
16. ISSUANCE OF SHARES. Subject to the foregoing conditions, the
Corporation, as soon as reasonably practicable after receipt of a proper
notice of exercise and without transfer or issue tax or other incidental
expense to the person exercising the Option, shall deliver to such person at
the principal office of the Corporation, or such other location as may be
acceptable to the Corporation and such person, one or more certificates for
the shares of Stock with respect to which the option has been exercised.
Such shares shall be fully paid and nonassessable and shall be issued in the
name of such person. However, at the request of the Optionee, such shares
may be issued in the names of the Optionee and his or her spouse (a) as joint
tenants with right of survivorship, (b) as community property or (c) as
tenants in common without right of survivorship.
17. LIMITATION OF OPTIONEE'S RIGHTS. Neither Optionee nor any person
entitled to exercise the Option shall be or have any of the rights of a
shareholder of the Corporation in respect of any share issuable upon the
exercise of the Option unless and until a certificate or certificates
representing shares of Stock shall have been issued and delivered upon
exercise of the Option in full or in part. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
stock certificates are issued.
18. CONSENT REQUIRED TO TRANSFER. In connection with any underwritten
public offering by the Corporation of its equity securities pursuant to an
effective registration statement filed under the 1933 Act, including the
Corporation's initial public offering, Optionee shall not sell, make any
short sale of, loan, hypothecate, pledge, grant any option for the purchase
of, or otherwise dispose or transfer for value or otherwise agree to engage
in any of the foregoing transactions with respect to, any Stock purchased
under the Option without the prior written consent of the Corporation or its
underwriters. Such limitations shall be in effect for such period of time
from and after the effective date of such registration statement as may be
requested by the Corporation or such underwriters.
19. NOTICES. Any notice to the Corporation contemplated by this
Agreement shall be addressed to it in care of its President; any notice to
the Optionee shall be addressed to him or her at the address on file with the
Corporation on the date hereof or at such other address as Optionee may
hereafter designate in a writing delivered to the Corporation as provided
herein.
20. INTERPRETATION. The interpretation, construction, performance and
enforcement of this Agreement and of the Plan shall lie within the sole
discretion of the Board, and the Board's determinations shall be conclusive
and binding on all interested persons.
- 4 -
<PAGE>
21. GOVERNING LAW. This Agreement has been made, executed and
delivered in, and the interpretation, performance and enforcement hereof
shall be governed by and construed under the laws of the State of California.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, in the case of the Corporation by its duly authorized office, as
the day and year first above written.
PENTAGENIC PHARMACEUTICALS, INC.
a Nevada corporation
By:
------------------------------------------
Title:
---------------------------------------
"Optionee"
- --------------------------------
(Signature)
- --------------------------------
(Please print Optionee's name)
- 5 -
<PAGE>
Exhibit B to
Pentagenic Pharmaceuticals, Inc. 1998 Stock Option Plan
PENTAGENIC PHARMACEUTICALS, INC.
STOCK OPTION AGREEMENT
(NONSTATUTORY STOCK OPTION)
This Agreement is made and entered into effective as of _________, 199_,
by and between Pentagenic Pharmaceuticals, Inc., a Nevada corporation (the
"Corporation"), and ______________________ (the "Optionee").
R E C I T A L S
A. The Board of Directors of the Corporation (the "Board") has
adopted, and the stockholders of the Corporation have approved, the
Pentagenic Pharmaceuticals, Inc. 1998 Stock Option Plan (the "Plan") in order
to provide key employees and directors of, and key consultants, vendors,
customers, and others expected to provide significant services to, the
Corporation, with a favorable opportunity to acquire shares of the
Corporation's common stock (the "Stock").
B. Pursuant to the Plan, options may be granted which are intended to
qualify as Incentive Stock Options which are afforded special tax treatment
under the Internal Revenue Code of 1986, as amended (the "Code"), as well as
Nonstatutory Options which are not intended to so qualify.
C. The Board has, by resolution duly adopted, determined that it is in
the best interests of the Corporation and its shareholders to grant to
Optionee, as a ______________________ to the Corporation, the option to
purchase shares of Stock on the terms and conditions provided for in this
Agreement, as an inducement to Optionee to continue to remain in the service
of the Corporation and to provide Optionee with additional incentive for
increasing his or her efforts and contributions to the success of the
Corporation during such service.
NOW THEREFORE, it is agreed as follows:
1. DEFINITIONS AND INCORPORATION. The terms used in this Agreement
shall have the meanings given to such terms in the Plan. The Plan is hereby
incorporated in and made a part of this Agreement as if fully set forth
herein. The Optionee hereby acknowledges receipt of a copy of the Plan.
2. GRANT OF OPTION. The Corporation hereby grants to Optionee as of
the date hereof the right and option to purchase, on the terms and conditions
hereinafter set forth, all or any part of an aggregate of __________ shares
of Stock (the "Option"), subject to adjustment in accordance
<PAGE>
with Section 10 of the Plan. It is understood and acknowledged that the
Option will be a Nonstatutory Stock Option which will not qualify as an
Incentive Stock Option under the Code.
3. OPTION PRICE. The price to be paid for Stock upon exercise of the
Option or any part thereof shall be $_________ per share (the "Purchase
Price"), which is equal to or greater than 85% of the Fair Market Value of
one share of Stock as of the date hereof.
4. RIGHT TO EXERCISE. Subject to the conditions set forth in this
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby incorporated in and made a part hereof.
The Optionee hereby accepts and agrees to be bound by each and every
provision contained in Schedule 1.
5. SECURITIES LAW REQUIREMENTS. No part of the Option shall be
exercised if counsel to the Corporation determines that any applicable
registration requirement under the Securities Act of 1933, as amended, or any
other applicable requirement of Federal or state law has not been met.
6. TERM OF OPTION. The Option shall terminate in any event on the
earliest of (a) the 10th anniversary of the date of this Agreement first set
forth above, at 11:59 P.M., and (b) the expiration of the period described in
Paragraph 7 below.
7. EXERCISE FOLLOWING TERMINATION OF SERVICE. If the Optionee's
service with the Corporation terminates for any reason other than death,
disability or retirement, the Option (to the extent it has not previously
been exercised and is then exercisable in accordance with the provisions of
paragraph 4 above and Schedule 1 attached hereto) may be exercised at any
time prior to and including, but not later than the termination date set
forth in paragraph 6(a) above. The foregoing notwithstanding, the Option
shall cease to be exercisable on the date of such termination if the
termination is for cause or if the Optionee upon such termination becomes an
employee, director or consultant of a person who is in direct competition
with the Corporation. For this purpose, "cause" shall mean conviction of a
felony, misappropriation of assets of the Corporation or any subsidiary,
continued or repeated insobriety, continued or repeated absence from service
during the usual working hours of the Optionee's position for reason other
than disability or sickness, or refusal to carry out the reasonable
directions of the Corporation's executive officers or of the Board.
8. EXERCISE FOLLOWING DEATH OR DISABILITY. If the Optionee's service
with the Corporation terminates by reason of the Optionee's death or
disability, or if the Optionee dies after termination of service but while
the Option would have been exercisable hereunder, the Option (to the extent
it has not previously been exercised and is then exercisable in accordance
with the provisions of paragraph 4 above and Schedule 1 attached hereto) may
be exercised at any time prior to and including, but not later than the
termination date set forth in paragraph 6(a) above. In the case of death,
the exercise may be made by Optionee's representative or by the person
entitled thereto under Optionee's will or the laws of descent and
distribution; provided that such
2
<PAGE>
representative or such person consents in writing to abide by and be subject
to the terms of this Agreement and such writing is delivered to the President
of the Corporation.
9. EXERCISE FOLLOWING RETIREMENT. If the Optionee's service with the
Corporation terminates by reason of retirement (the voluntary retirement of
employment upon attainment of 65 years of age and completion of 20 years of
service), the Option (to the extent it has not previously been exercised and
is then exercisable in accordance with the provisions of paragraph 4 above
and Schedule 1 attached hereto) may be exercised at any time prior to and
including, but not later than the termination date set forth in paragraph
6(a) above.
10. TIME OF TERMINATION OF SERVICE. For the purposes of this
Agreement, Optionee's service shall be deemed to have terminated on the
earlier of (a) the date when Optionee's service in fact terminated or (b) the
date when the Optionee gave or received written notice that his or her
service is to terminate.
11. NONTRANSFERABILITY. Unless the Corporation otherwise consents in
writing, the option and all rights and privileges granted hereunder shall be
non-assignable and non-transferable by the Optionee, either voluntarily or by
operation of law, except by will or by operation of the laws of descent and
distribution, shall not be pledged or hypothecated in any way, and shall be
exercisable during lifetime only by the Optionee. Except as otherwise
provided herein, any attempted alienation, assignment, pledge, hypothecation,
attachment, execution or similar process, whether voluntary or involuntary,
with respect to all or any part of the Option or any right thereunder, shall
be null and void and, at the Corporation's option, shall cause all of
Optionee's rights under this Agreement to terminate.
All certificates representing shares of Stock purchased upon the
exercise of the Option shall bear the following legend:
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH
SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE 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 ACT."
12. EFFECT OF EXERCISE. Upon exercise of all or any part of the
Option, the number of shares of Stock subject to option under this Agreement
shall be reduced by the number of shares with respect to which such exercise
is made.
13. METHOD OF EXERCISE. Each exercise of the Option shall be by means
of a written notice of exercise in substantially the form prescribed from
time to time by the Board delivered to the Secretary of the Corporation at
its principal office and accompanied by payment in full of the option price
for each share of Stock purchased under the Option. Such notice shall
specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the
3
<PAGE>
person exercising the Option. If the Option is exercised by a person other
than the Optionee, such notice shall be accompanied by proof, reasonably
satisfactory to the Corporation, of such person's right to exercise the
Option.
The Purchase Price specified in paragraph 3 above shall be paid in full
upon the exercise of the Option (i) by cash, in United States dollars; (ii)
by the surrender of Shares in good form for transfer, owned by the person
exercising the Option and having a Fair Market Value on the date of exercise
equal to the Purchase Price, or in any combination of cash and Shares, as
long as the sum of the cash so paid and the Fair Market Value of the Shares
so surrendered equal the Purchase Price; (iii) by cancellation of
indebtedness owed by the Corporation to the Optionee; or (iv) by any
combination of the foregoing.
14. WITHHOLDING TAXES. If the Optionee is an employee or former
employee of the Corporation when all or part of the Option is exercised, the
Corporation may require the Optionee to deliver payment of any withholding
taxes (in addition to the Option exercise price) in cash with respect to the
difference between the Option exercise price and the fair market value of the
Stock acquired upon exercise.
15. ISSUANCE OF SHARES. Subject to the foregoing conditions, the
Corporation, as soon as reasonably practicable after receipt of a proper
notice of exercise and without transfer or issue tax or other incidental
expense to the person exercising the Option, shall deliver to such person at
the principal office of the Corporation, or such other location as may be
acceptable to the Corporation and such person, one or more certificates for
the shares of Stock with respect to which the option has been exercised.
Such shares shall be fully paid and nonassessable and shall be issued in the
name of such person. However, at the request of the Optionee, such shares
may be issued in the names of the Optionee and his or her spouse (a) as joint
tenants with right of survivorship, (b) as community property or (c) as
tenants in common without right of survivorship.
16. LIMITATION OF OPTIONEE'S RIGHTS. Neither Optionee nor any person
entitled to exercise the Option shall be or have any of the rights of a
shareholder of the Corporation in respect of any share issuable upon the
exercise of the Option unless and until a certificate or certificates
representing shares of Stock shall have been issued and delivered upon exercise
of the Option in full or in part. No adjustment shall be made for dividends or
other rights for which the record date is prior to the date such stock
certificates are issued.
17. CONSENT REQUIRED TO TRANSFER. In connection with any underwritten
public offering by the Corporation of its equity securities pursuant to an
effective registration statement filed under the 1933 Act, including the
Corporation's initial public offering, Optionee shall not sell, make any short
sale of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to, any Stock purchased under the Option
without the prior written consent of the Corporation or its underwriters. Such
limitations shall be in effect for such period
4
<PAGE>
of time from and after the effective date of such registration statement as
may be requested by the Corporation or such underwriters.
18. NOTICES. Any notice to the Corporation contemplated by this
Agreement shall be addressed to it in care of its President; any notice to
the Optionee shall be addressed to him or her at the address on file with the
Corporation on the date hereof or at such other address as Optionee may
hereafter designate in a writing delivered to the Corporation as provided
herein.
19. INTERPRETATION. The interpretation, construction, performance and
enforcement of this Agreement shall lie within the sole discretion of the
Board, and the Board's determinations shall be conclusive and binding on all
interested persons.
20. GOVERNING LAW. This Agreement has been made, executed and
delivered in, and the interpretation, performance and enforcement hereof
shall be governed by and construed under the laws of the State of California.
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, in the case of the Corporation by its duly authorized office, as
the day and year first above written.
PENTAGENIC PHARMACEUTICALS, INC.,
a Nevada corporation
By:
------------------------------------------
Title:
---------------------------------------
"Optionee"
- --------------------
5
<PAGE>
SCHEDULE 1
RIGHT TO EXERCISE
-----------------
Subject to the conditions set forth in this Agreement to which this
Schedule 1 is attached, the Option shall first become exercisable as to the
respective number of shares of Stock and at the times indicated below:
Number of Shares "Vesting" Date
____ ___________________, 199_
____ ___________________, 199_
____ ___________________, 199_
____ ___________________, 199_
____ ___________________, 199_
<PAGE>
INTERNATIONAL DISTRIBUTION AGREEMENT
------------------------------------
THIS INTERNATIONAL DISTRIBUTION AGREEMENT ("Agreement") made in the
State of Florida, United States of America, as of this 21st day of November,
1997 between REXALL SUNDOWN, INC., a Florida corporation with principal
offices at 851 Broken Sound Parkway, N.W., Boca Raton, Florida 33487
("Rexall"), and BESO PHARMACEUTICS, INC., a Nevada corporation, with
principal offices at 13139 Ramona Boulevard, Suite G, Irwindale, California
("Distributor").
1. APPOINTMENT OF DISTRIBUTOR. Rexall hereby appoints Distributor as its
exclusive authorized distributor for the retail store channel in the People's
Republic of China (the "Territory") of Rexall's REXALL brand of vitamins,
nutritional products and food supplements as set forth on SCHEDULE A hereto
and made a part hereof (collectively, the "Products"), subject to the terms
and conditions hereinafter set forth. The Products shall be marketed under
the Beso REXALL name. Distributor hereby accepts such appointment and agrees
to use its best efforts to promote, market, sell and distribute the Products
under Rexall's trademarks and under the Beso REXALL tradename within the
Territory by dealers, agents, traveling representatives, advertising and such
other promotion and merchandising methods as will insure the widest possible
distribution and maximum sales of the Products within the Territory in the
retail store channel, except that none of the Products shall be marketed or
sold through the direct sales, network marketing or multi-level marketing
channel of distribution. Notwithstanding anything contained herein to the
contrary, Rexall's wholly-owned subsidiary, Rexall Showcase International,
Inc. ("RSI"), reserves the right to sell its products, which products shall
be labeled and packaged as RSI products, under the REXALL trademarks in the
Territory through its independent distributors in the direct sales, network
marketing or multi-level marketing channel of distribution and the exclusive
distribution rights granted to Distributor herein shall in no way prevent or
restrict any such sales of RSI's products in the Territory through RSI's
independent distributors.
2. USE OF REXALL TRADENAME. TRADEMARKS AND LOGO. Distributor shall use
the authorized Rexall tradename, trademarks and logo (the "Intellectual
Property") in all written documents, oral presentations, and in general, all
communications to third parties relating to the sale, promotion and
advertising of the Products. The form and content of all such labels,
communications, promotions and advertisements shall be submitted for Rexall's
prior written approval. It is understood however, that Rexall shall remain
tge sole owner of all such tradenames, trademarks and logos and that neither
the performance of this Agreement nor the use by Distributor thereof shall
confer on Distributor any rights thereto which cannot be terminated by Rexall
as set forth herein.
3. TERM. The term of this Agreement shall be for a period of ten (10)
years (the "Term") commencing on November 30, 1997 (the "Effective Date") and
shall terminate on the tenth anniversary of the Effective Date, unless sooner
terminated as herein provided.
4. TERRITORY. Distributor shall be responsible for the marketing, sale
and distribution of the Products in the Territory. Distributor shall market,
sell and distribute the Products only in the Territory and Distributor shall
not directly or indirectly seek customers, establish branches or other sales
entities or maintain any warehouse facilities outside the Territory for the
sale of Products.
5. NON-ASSIGNABILITY BY DISTRIBUTOR. This Agreement may not be assigned
by Distributor without the prior written consent of Rexall except that
Distributor may, at any time, assign this Agreement to any of its affiliated
companies in which it owns the same interest, provided it executes the
appropriate amendments to this Agreement. Rexall may also at any time, assign
this Agreement to any of its affiliated companies.
6. RELATIONSHIP OF PARTIES.
(a) The appointment of Distributor hereunder shall not be deemed to
constitute Distributor as the agent or legal representative of Rexall or any
affiliated entity of Rexall for any purpose whatsoever. Distributor shall not
represent itself nor permit itself to be represented as an agent of Rexall or
any affiliated entity of Rexall in any telephone directory, building
directory, advertisement or in any publication
<PAGE>
or notice to the public or otherwise, provided, however, that Distributor may
use the words "DISTRIBUTOR FOR REXALL VITAMINS."
(b) Distributor is not granted any right or authority to assume or to
create any obligation or responsibility, express or implied, on behalf of or
in the name of Rexall or to bind Rexall in any way except as specifically
authorized in this Agreement. In addition, Distributor shall not obligate or
purport to obligate Rexall by issuing or making any warranties or guarantees
with respect to the Products other than as specifically authorized by Rexall
in writing. It is expressly agreed that Distributor shall be solely
responsible for any and all obligations or liabilities incurred or assumed by
Distributor in the performance hereof and Rexall shall not be held liable in
any manner therefor.
7. MINIMUM ANNUAL PURCHASE REQUIREMENT. Distributor expressly agrees to
make the following minimum annual purchases of Products from Rexall:
(a) During the first year of the Term, Distributor shall purchase a minimum
of $500,000 U.S. of Products from Rexall.
(b) During the second year of the Term, Distributor shall purchase a
minimum of $1,100,000 U.S. of Products from Rexall.
(c) During the third year of the Term, Distributor shall purchase a minimum
of $2,500,000 U.S. of Products from Rexall.
(d) During the fourth year of the Term, Distributor shall purchase a
minimum of the greater of (i) $3,500,000 U.S. of Products or (ii) 110% of
the dollar amount of Products purchased by Distributor during the third
year of the Term.
(e) During the fifth year of the Term, Distributor shall purchase a minimum
of the greater of (i) $5,100,000 U.S. of Products or (ii) 110% of the
dollar amount of Products purchased by Distributor during the fourth year
of the Term.
(f) During the sixth year of the Term, Distributor shall purchase a minimum
of the greater of (i) $6,500,000 U.S. of Products or (ii) 110% of the
dollar amount of Products purchased by Distributor during the fifth year of
the Term.
(g) During the seventh year of the Term Distributor shall purchase a
minimum of the greater of (i) $7,800,000 U.S. of Products or (ii) 110% of
the dollar amount of Products purchased by Distributor during the sixth
year of the Term.
(h) During the eighth year of the Term, Distributor shall purchase a
minimum of the greater of (i) $9,200,000 U.S. of Products or (ii) 110% of
the dollar amount of Products purchased by Distributor during the seventh
year of the Term.
(i) During the ninth year of the Term, if any, Distributor shall purchase a
minimum of the greater of (i) $11,000,000 U.S. of Products or (ii) 110% of
the dollar amount of Products purchased by Distributor during the eighth
year of the Term.
(j) During the tenth year of the Term, Distributor shall purchase a minimum
of the greater of (i) $13,000,000 U.S. of Products or (ii) 110% of the
dollar amount of Products purchased by Distributor during the ninth year of
the Term.
In order to maintain the exclusive distribution rights within the
Territory with respect to the Products granted hereby, Distributor shall
purchase not less than such minimum annual purchases of Products from Rexall
in each of the above described periods.
8. PRICES AND PAYMENT: CONDITIONS OF SALE OF PRODUCTS. Rexall will, from
time to time, furnish
<PAGE>
Distributor with descriptions of Products, with prices to Distributor. From
time to time, economic considerations may require Rexall to change its
prices. Rexall shall provide Distributor with sixty (60) days prior written
notice of such price changes. All Products shall be shipped Freight Collect,
F.O.B. Boca Raton, Florida. The conditions of payment shall be prepayment for
all Products with bank draft, cashieVs check, money order, wire transfer or
letter of credit in U.S. dollars; provided, however, payment may also be made
by irrevocable letter of credit in U.S. dollars, confirmed by a bank in the
United States of America reasonably acceptable to Rexall, payable no later
than ninety (60) days from the invoice date.
9. TAXES. Distributor shall be solely liable for the payment of any
sales, use, occupational or other charges or taxes assessed, levied, imposed
or collected by the Territory or any political subdivision thereof arising
from the sale, use, possession, ownership or storage of Products purchased by
Distributor, or arising in respect to any payment to be made by Distributor
to Rexall.
10. GOVERNMENTAL REGISTRATION. It shall be the sole responsibility of
Distributor at its cost to obtain and maintain all licenses, permits,
authorizations or registrations required by the government or by local
authorities of the Territory to sell the Products in the Territory. All such
Product registrations shall be in the name of Distributor during the Term
hereof and upon the termination of this Agreement for any reason, Distributor
shall immediately assign all such registrations to Rexall. Rexall shall
provide Distributor with all reasonable and necessary documentation to obtain
the required registrations. If Distributor receives any notice from any such
governmental authority raising any issues concerning the safety, efficacy or
quality of any of the Products, or any of the promotional practices that are
being used by Distributor to sell the Products, Distributor shall immediately
notify Rexall in writing. Upon receipt of such notification, Distributor and
Rexall will consult with each other and Rexall shall have the right, in its
sole discretion, to intervene with such governmental authority with or
without Distributor's assistance.
11. RETURNS. SHORTAGES. DAMAGE. No Products purchased from Rexall shall
be returned to Rexall without Rexall's prior written authorization.
Distributor shall notify Rexall of all claims for packing shortages within
sixty (60) days after receipt of such Products. Distributor shall maintain
adequate insurance covering Products in transit and shall supply a copy of
the covering policy to Rexall as well as copies of any extensions or
amendments thereto, within thirty (30) days after the date of this Agreement,
and shall thereafter promptly supply copies of any subsequent amendments,
extensions or substitutions thereto. Claims for damage to Products in transit
shall be made by Distributor to the transportation or insurance carrier. The
responsibility of Rexall with respect to Products shall cease and terminate
after delivery of the same in good order to the transportation carrier at
Rexall's factory. Distributor shall warehouse, store and otherwise maintain
the Products at all times under appropriate conditions that will prevent any
deterioration or damage to the Products.
12. CONTINGENCIES. Rexall shall not be liable for any loss, damage or
demurrage due to any delay or failure in performance either (a) because of
compliance with any order, request or control of any governmental authority
or person purporting to act therefor, or (b) when the supply of Products or
any facility of production, manufacture, storage, transportation,
distribution or delivery contemplated by Rexall is interrupted, unavailable
or inadequate because of wars, hostilities, public disorders, acts of
enemies, sabotage, strikes, labor or employment difficulties, fires, acts of
God, accidents or breakdowns, weather conditions or any cause beyond Rexall's
control whether or not similar to the foregoing.
13. DISTRIBUTOR'S REPRESENTATIONS AND WARRANTIES. Distributor represents
and warrants to Rexall as follows:
(a) Neither the execution and delivery of this Agreement nor compliance
with the obligations of Distributor hereunder will violate any law or
regulation, or any order or decree of any court or government
instrumentality, or will conflict with, or result in the breach of, or
constitute a default under, any contract, agreement, instrument or judgment
to which Distributor or any officer, director, employee or controlling person
of Distributor is a party, or which is or purports to be binding upon any of
the foregoing persons.
(b) No action, approval or consent, including but not limited to, any
action, approval or
<PAGE>
consent by any federal, state, municipal or other governmental agency,
commission, board, bureau or instrumentality is necessary in order to
constitute this Agreement as a valid, binding and enforceable obligation of
Distributor in accordance with its terms.
14. FINANCIAL CONDITION OF DISTRIBUTOR. In the event of (a) the
insolvency of Distributor; (b) the complete or partial liquidation or
suspension of the business of Distributor; (c) the filing by or against
Distributor of a voluntary or involuntary petition in bankruptcy; (d) the
making by Distributor of any assignment for the benefit of creditors or the
application for the appointment or the appointment of any receiver of the
property of Distributor; (e) the dissolution of Distributor; or (f) the
financial responsibility of Distributor becoming impaired or otherwise
unsatisfactory to Rexall; then, and in any such event, at Rexall's option,
this Agreement may be terminated by Rexall upon five (5) days written notice
to Distributor, and Rexall shall thereupon be released from all obligations
hereunder.
15. CONFIDENTIALITY. In connection with Distributor's responsibilities
hereunder, Rexall may disclose or make known to Distributor, and Distributor
may be given access to or become acquainted with, certain confidential
information not disclosed to the general public, including trade secrets,
relating to the business of Rexall, its distributors, customers, products,
service or other proprietary items, formulas or ideas, which Rexall considers
proprietary and desires to maintain confidential (collectively, "Confidential
Information"). Distributor hereby agrees that during the Term and at all
times thereafter, Distributor shall not in any manner, either directly or
indirectly, divulge, disclose or communicate to any person or firm, except to
or for Rexall's benefit as directed by Rexall, any of the Confidential
Information which Distributor may have acquired as an incident to his acting
as a distributor of Rexall's Products, the parties agreeing that such
information affects the successful and effective conduct of the business and
goodwill of Rexall, and that any breach of the terms of this Section is a
material breach of this Agreement. Distributor shall take all reasonable
measures to prevent its employees, agents and representatives from disclosing
the Confidential Information. Confidential Information shall not include any
documentation, data or information that is either (a) already in the
possession of the receiving party at the Effective Date of this Agreement,
(b) independently learned by the receiving party, (c) righffully received by
the receiving party from a third party having the right to make such
disclosure, or (d) publicly known or that becomes publicly known through no
wrongful act of the receiving party.
16. NON-PERFORMANCE.
(a) If Distributor shall breach or default in the performance of any
term, condition or covenant contained in this Agreement or if any
representation or warranty of Distributor hereunder shall be untrue or
incorrect in any respect, Rexall, in addition to such other rights and
remedies as it may have at law or otherwise under this Agreement, may elect
immediately to terminate this Agreement by giving written notice to
Distributor of its election to do so, and such election shall be effective
immediately upon the giving of such notice.
(b) (i) If Distributor fails to meet its minimum annual purchase
requirement for the first year of this Agreement as set forth in Section 7
hereof, Distributor shall be responsible for paying Rexall 25% of the minimum
annual purchase requirement for such year in which Distributor has failed to
meet its minimum annual purchase requirement and 25% of the second and third
year annual minimum purchase requirements;
(ii) If Distributor fails to meet its minimum annual purchase
requirement for the second year of this Agreement as set forth in Section 7
hereof, Distributor shall be responsible for paying Rexall 25% of the minimum
annual purchase requirement for such year in which Distributor has failed to
meet its minimum annual purchase requirement, 25% of the third year annual
minimum purchase requirement and 20% of the fourth year annual minimum
purchase requirement;
(iii) If Distributor fails to meet its minimum annual purchase
requirement for the third year of this Agreement as set forth in Section 7
hereof, Distributor shall be responsible for paying Rexall 25% of the minimum
annual purchase requirement for such year in which Distributor has failed to
meet its minimum annual purchase requirement, 20% of the fourth year annual
minimum purchase, and 15% of the
<PAGE>
minimum annual purchase requirement for the fifth year of this Agreement;
(iv) If Distributor fails to meet its minimum annual purchase
requirement for the fourth year of this Agreement as set forth in Section 7
hereof, Distributor shall be responsible for paying Rexall 20% of the minimum
annual purchase requirement for such year in which Distributor has failed to
meet its minimum annual purchase requirement and 15% of the annual minimum
purchase requirement for the fifth year of this Agreement;
(v) If Distributor fails to meet its minimum annual purchase
requirement for the fifth year of this Agreement as set forth in Section 7
hereof, Distributor shall be responsible for paying Rexall 15% of the minimum
annual purchase requirement for such year in which Distributor has failed to
meet its minimum annual purchase requirement and 10% of the annual minimum
purchase requirement for the sixth year of this Agreement.
(vi) If Distributor fails to meet its minimum annual purchase
requirement for the sixth through the tenth year of this Agreement as set
forth in Section 7 hereof, Distributor shall be responsible for paying Rexall
10% of the minimum annual purchase requirement for such year in which
Distributor has failed to meet its minimum annual purchase requirement and
10% of the annual minimum purchase requirement for the following year of this
Agreement.
17. EFFECT OF TERMINATION.
(a) Any termination of this Agreement shall not release Distributor from
payment of any sum which may then be owing to Rexall, including but not
limited to, any sums due under Section 16 hereof.
(b) Upon termination of this Agreement, all rights and privileges herein
granted to Distributor shall immediately cease and terminate, and Distributor
agrees that upon its disposition of inventory bearing such trade names, logos
and trademarks of Rexall, which shall not exceed a period of six months from
the date of termination, thereupon to discontinue forever the use of
trademarks, logo and tradenames of Rexall in its business operations.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter hereof. This
Agreement may not be changed, altered, renewed, or otherwise modified except
by written instrument signed by or on behalf of the party to be charged
therewith.
19. WAIVER. No waiver of the provisions hereof shall be effective unless
in writing and signed by the party to be charged with such waiver. No waiver
shall be deemed a continuing waiver or waiver in respect of any subsequent
breach or default, either of similar or different nature unless expressly so
stated in writing.
20. HEADINGS. The headings or captions under paragraphs of this
Agreement are for convenience and reference only and do not form a part
hereof, and do not in any way modify, interpret or construe the intent of the
parties or affect any of the provisions of this Agreement.
21. NOTICES. Any notice, demand or payment required,' permitted or
desired to be given pursuant to any of the provisions of this Agreement shall
be deemed to have been sufficiently given or served for all purposes if sent
by registered or certified mail, return receipt requested, and postage
prepaid addressed to Rexall or Distributor at their respective addresses
hereinabove set forth.
22. EXECUTION; GOVERNING LAW: JURISDICTION: ARBITRATION.
(a) This Agreement shall not be binding upon Rexall until it has been
executed on behalf of Rexall at Boca Raton, Florida, by a duly authorized
officer of Rexall.
(b) This Agreement and all purchases made hereunder shall be governed by
the law of the State of
<PAGE>
Florida, as that law applies to contracts made and performed wholly within
the State of Florida. The invalidity or unenforceability of any portion of
this Agreement, should that be the case, shall not be deemed to affect the
remaining portion(s) of this Agreement.
(c) Distributor irrevocably consents to the jurisdiction of the courts
of the State of Florida and of any federal courts in the State of Florida in
connection with any suit, action or proceeding arising out of, or relating to
this Agreement. In any such suit, action or proceeding, Distributor waives
personal service of any summons, complaint, or other process and agrees that
service thereof may be made in accordance with Paragraph 21 hereof or in such
other manner as may be permissible under applicable court rules.
(d) All disputes arising out of or under this Agreement shall be
submitted to the American Arbitration Association (AAA) to be heard in Palm
Beach County, Florida, under the rules then in force, such determination of
the AAA shall be enforceable through collateral proceedings to enforce
arbitration awards in the state courts of Florida which shall have the
authority to enjoin any violation of this Agreement. The parties acknowledge
that any controversy or claim arising out of, or relating to this Agreement,
or its breach, shall be determined in accordance with the then governing
rules of the AAA. Judgment upon the award rendered may be entered and
enforced in any court of competent jurisdiction. In the event that either
party seeks to enforce its rights under this Agreement, the prevailing party
shall be entitled to recover reasonable fees (including attorneys' fees),
costs and other expenses incurred in connection therewith.
23. PENALTIES. No provision of this Agreement is to be interpreted as a
penalty upon any party to this Agreement. In particular, without limitation,
the parties hereby agree that the provisions of Sections 7, 14 and 16 with
respect to the rights of each party in the event the other party takes or
fails to take certain actions pursuant to this Agreement, are reasonable, and
that the parties desire such certainty with regard to such matters.
24. COMPLIANCE WITH FOREIGN CORRUPT PRACTICES ACT. Distributor
represents and agrees that it has not offered, given, promised to give or
authorized giving, and will not offer, give, promise to give or authorize
giving, directly or indirectly, any money or anything else of value to any
governmental official, political party, political official or candidate for
political office in connection with its activities hereunder.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first above set forth.
REXALL SUNDOWN, INC.
By:
-----------------------------
Name:
Title:
BESO PHARMCEUTICS, INC.
By:
-----------------------------
Name:
Title:
<PAGE>
Manufacturing Plant Purchase Agreement
THIS Manufacturing Plant Purchase Agreement (The Agreement), is made and entered
into as of the 6th day of July 1998, by and between Pentagenic Pharmaceuticals,
Inc., a corporation organized and existing under the laws of the State of Nevada
(Buyer), and Fuzhou 851 Marketing Company, Inc., a corporation organized and
existing under the laws of People's Republic of China (Seller).
PREAMBLE
Buyer desires to purchase from Seller, and Seller desires to sell and transfer
to Buyer a Manufacturing Plant located at Ruoxing Road, Mawei, Fujian China (the
Plant), and certain assets of Seller used in connection with the operation of
the Plant, upon the terms and subject to the conditions set forth herein.
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1
Sale and Purchase
Section 1.1 Sale and Transfer of Assets. Seller hereby agrees to sell,
convey, transfer, assign and deliver to Buyer at closing, as hereinafter
defined, and Buyer hereby agrees to purchase as herein provided, all the assets,
property, rights, and interests in connection with the operation of the Plant,
tangible of intangible and regardless of whether of hot carried or reflected in
the books and records of Seller, used in the operation if the Plant. The assets
and property to be purchases and sold hereunder (collectively, the Purchased
Assets) include the following:
(a)All machinery, equipment (including office equipment), tools, furniture,
leasehold improvements and all other personal property in the Plant, and used in
connection with the Plant, including, but not limited to, those items listed or
referenced in Exhibit A attached hereto and incorporated herein (collectively,
the Fixed Assets), together with any expressed or implied warranties by the
manufactures or sellers of any item or component part thereof and all
maintenance records, brochures, catalogues and other documents relating thereto
or to the installation or functioning thereof which are now in or may hereafter
come onto the possession of Seller;
(b)All the existing inventory in the factory and US$133,287 worth of inventory
located in 13139 Ramona Blvd. Suite G, Irwindale, CA 91706, USA, and;
(c)All computer software used in the operation of the Plant.
Section 1.3 Purchase Price. The purchase price payable to the Seller by the
Buyer in consideration for the Purchased Assets shall be 1.1 million shares of
the Buyer's common stocks.
Purchase Agreement Page 1 of 9
<PAGE>
Section 1.4 Assumption of Certain Liabilities. As further consideration
for the Purchased Assets, at the Closing, Buyer shall assume and agree to pay,
perform and discharge, when due, the executory liabilities and commitments
included in or pertaining to the Purchases Assets, but only to the extent that
the same were incurred by Seller in the ordinary course of business (the Assumed
liabilities), and Excluding:
(a) Consequential damages arising out or any breach by Seller, at any
time, of any such contract, agreement, lease, license or commitment; and
(b) Noncontractual liabilities, claims or obligations arising out of or
related to Sellers operation of the Plant prior to the Closing Date;
(c) Any liability of Seller for Federal, State of local income and
franchise taxes applicable to operations prior to the Closing Date, and for
sales tax , and any penalties, interest, fines or assessments in connection
therewith;
(d) Any liability for commitments relating to the employment, relocation
or termination of any employees of Seller;
(e) Any matter required to be disclosed in response to Sellers
representations and warranties set forth in Article 2, but not so disclosed;
(f) Liabilities or obligations in respect of previous sales of the assets
of Seller outside of the ordinary course of business;
(g) Obligations or expenses of Seller in connection with the transactions
contemplated hereby, including, without limitations, legal and accounting fees
and expenses and brokerage finders fees due; and
(h) Liabilities imposed upon Seller as a result of litigation pending
against Seller as of Closing Date.
ARTICLE 2
Representations and Warranties of Seller and Buyer
Section 2.1 Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer as follows:
(a) Due Incorporation and Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of People's
Republic of China, with all requisite corporate power and authority to own,
operate, lease and utilize the assets, properties of the Plant.
(b) Authority. Seller has the legal power and authority to enter into and
perform this
Purchase Agreement Page 2 of 9
<PAGE>
Agreement and the transactions contemplated by this Agreement. The execution,
delivery and performance of this Agreement by Seller and the transactions
contemplated by this Agreement have been duly and validly approved and
authorized by all necessary corporate and shareholder action of Seller.
(c) Title to Plant. Seller has good and marketable title to all of the
Fixed Assets and other property conveyed and all such property is held by
Seller free of all liens, encumbrances, security interests and charges.
(d) Compliance with Applicable Laws. The Seller has complied with all
laws, regulations and orders applicable to the Plant. The Plant is not in
default with respect to any order, writ, injunction or decree of any court or
any court or Federal, State, Municipal or other Governmental authority or
agency. The Plant as now operated does not violate any zoning ordinance,
restrictive covenant, administrative regulation, environmental law or
regulation, or any other provision of law.
(e) Actions Pending. There are no actions, suits or proceedings pending
or, to the knowledge of Seller, threatened against or affecting the Plant at
law or in equity, or before any governmental or public office, agency or
authority which involves the possibility of any liability or which may result
in any adverse change in the operation or ownership of the Plant or the
Purchased Assets.
(f) Condition of Fixed Assets. All Fixed Assets conveyed hereunder are
in good and operable condition, normal wear and tear excepted.
(g) Absence of Conflicts and Consent Requirements. Sellers execution
and delivery of this Agreement and performance of its obligations hereunder,
including the sale of the Plant and the Purchased Assets hereunder, do not
(i) conflict with or violate Sellers Articles of Incorporation or Bylaws,
(ii) violate or, alone or with notice or the passage of time, result in the
material breach or termination of, or otherwise give any contracting party
the tight to terminate or declare a default under, the terms of any written
agreement to which Seller is a party or by which its properties or assets may
be bound; or (iii) violate any judgment, order, decree, or to the knowledge
of Seller, any law, statute, regulation or other judicial or governmental
restriction to which Seller is subject.
(h) Licenses, Permits and Compliance with Law. Seller holds all
licenses, certificates, permits, franchises and rights from all appropriate
Federal, State or other public authorities necessary for the use of the
Purchased Assets in the operation of the Plant, and all such material
licenses, certificates, permits, franchises and rights are set forth in
Exhibit D attached hereto and incorporated herein. Seller is presently
conducting the Plant so as to comply with all applicable statutes,
ordinances, rules, regulations and orders of any governmental authority.
Further, to its knowledge, Seller is not presently charged with and Seller is
not under governmental investigation with respect to any actual or alleged
violation of any statute, ordinance, rule or regulation affection the
Purchases Assets or the Plant.
Purchase Agreement Page 3 of 9
<PAGE>
Section 2.2 Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller as follows:
(a) Due Organization. Buyer is a corporation duly organized, existing
and in good standing under the laws of the Stare of Nevada.
(b) Authority. Buyer has the legal power and authority to enter into and
perform this Agreement and the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement by Buyer and the
transactions contemplated by this Agreement have been duly and validly approved
and authorized by all necessary corporate action of Buyer. Neither the execution
and delivery by the Buyer of this Agreement, nor the consummation of the
transactions contemplated hereby, not compliance by Buyer with any of the
provisions hereof will:
ARTICLE 3
Closing
Section 3.1 Closing Date. The closing for the consummation of the
transactions contemplated by this Agreement (the Closing) shall be on July 6,
1998 (Closing Date).
Section 3.2 Obligations of Seller. At the closing, Seller shall deliver
to Buyer, as appropriate:
Such warranty deeds, leases, bills of sale, endorsements, assignments, and
other good and sufficient instruments of conveyance and transfer, and such
further assurances and evidences of conveyances as may be reasonably
requested by Buyer in form satisfactory to Buyer and its counsel, as shall be
effective to vest, in accordance with the terms of this Agreement, all
rights, title and interest in and to the Purchased Assets and other rights
contemplated by this Agreement;
Section 3.3 Obligations of Buyer. At the closing, buyer shall execute
and/or deliver to Seller payment of the purchase price.
ARTICLE 4
Covenants of Seller
Seller agrees and covenants with Buyer as follows:
Section 4.1 Conduct of the Plant. Except as otherwise agreed to in
writing by Buyer, Seller shall conduct the Plant only in the ordinary course
and shall take no action which should interfere with or prevent performance
of this Agreement. Seller agrees that, unless Buyer agrees in writing, until
the Closing Date:
(a) Preservation of the Plant. Without purporting to make any commitment
on behalf of Buyer, Seller shall exercise all reasonable efforts to: (i)
preserve intact the present business organization and personnel of Seller; (ii)
preserve the present relationship of
Purchase Agreement Page 4 of 9
<PAGE>
Seller with all persons having business dealings with Seller; (iii) preserve
and maintain in force all licenses, permits, registrations, franchises, and
other similar rights applicable to the Plant; and
(b) Maintenance of the Purchased Assets. The Purchased Assets shall be
maintained in good repair, order and condition, reasonable wear and tear
excepted.
(c) Employment Agreement. Seller shall not enter into any employment or
consulting agreements or terminate any employee of the Plant without prior
notice to the Buyer.
(d) Insurance. The Seller shall maintain in full force insurance
covering loss or damage to the property conveyed hereunder and general
liability coverage for operation of the Plant, and shall take all actions
necessary to preserve all rights under such insurance.
(e) Books and Records. Seller shall maintain complete and accurate
books, accounts and records for the Plant in the usual, regular and ordinary
manner, and on a basis consistent with prior years.
(f) Compensation. Seller shall not: (i) increase the compensation
payable to any personnel of Seller except in the ordinary course of business
and in accordance with usual and customary compensation practices; or (ii)
introduce any pension of profit-sharing plan, or any other employee benefit
arrangement affecting the Plant.
(g) Actions Affecting Accuracy of Representations and Warranties.
Seller shall not take any action which would render any representation or
warranty made herein by Seller untrue in any material respect as of the
Closing Date.
Section 4.2 Notice of Breach or Failure of Condition. Seller will give
notice promptly to Buyer of the occurrence of any event or the failure of any
event to occur that would preclude the satisfaction of any condition
contained herein.
Section 4.3 Further Assurances. Seller shall promptly execute and
deliver such instruments and take such actions as Buyer reasonably may
request in order to effect the transactions contemplated by this Agreement
and to satisfy each of the conditions set forth in Article 6 of this
Agreement.
Section 4.4 Best Efforts of Seller to Obtain Consents. Seller shall use
its best efforts to obtain promptly all consents and authorizations of third
parties, to make all filings, and to give all notices to third parties which
may be necessary and reasonably required in order to effect, or in connection
with, the transactions contemplated by this Agreement.
Section 4.5 Non-Competition and Consulting Agreement. Seller and all
shareholders of Seller shall enter into an agreement with the Buyer at
closing, which agreement shall be substantially in the form of Exhibit E
attached hereto and incorporated herein.
Purchase Agreement Page 5 of 9
<PAGE>
ARTICLE 5
Covenants of Buyer and Seller
Section 5.1 Best Efforts. Buyer and Seller will use their best efforts
to perform or cause to be satisfied each covenant or condition to be
performed or satisfied by them.
Section 5.2 Governmental and other Filings. Seller and Buyer agree to
cooperate with each other in filing any necessary applications, reports or
other documents with any Federal; or State authorities having jurisdiction
with respect to the transactions contemplated by this Agreement and in
seeking necessary consultation with and favorable action by any such
agencies, authorities or bodies.
Section 5.3 Cooperation After Closing. After the Closing Date, Buyer
and Seller shall whenever and as often as shall be reasonably required by the
other, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, any and all further instruments as may be
necessary or expedient to consummate the transactions provided for in this
Agreement.
ARTICLE
Conditions to Sale
Section 6.1 Conditions Precedent to Obligations of Buyer. All
obligations of Buyer under this Agreement are, at the option of Buyer,
subject to and shall be conditioned upon the satisfaction on or prior to the
Closing Date, of each of the following additional conditions:
(a) Representations, Warranties and Agreements of Seller. Except for
changes contemplated by this Agreement and changes occurring in the ordinary
course of business, the representations, warranties and agreements made by
Seller herein shall be true in all material respects on an as of the Closing
Date with the same effect as though such representations and warranties had
been made or given on and as of the Closing Date. Seller and all shareholders
of Seller shall have performed in all material respects the obligations,
agreements and covenants undertaken by them herein to be performed at or
prior to the Closing Date.
(b) Consents to Assignments. Buyer shall have received evidence,
satisfactory to buyer and its counsel, that any necessary consents to the
assignments of the contracts agreements, leases, licenses and commitments
contemplated hereunder have been obtained.
(c) Necessary Approvals: Regulatory Authorizations. All authorizations
and approvals of any third parties, including Federal or State regulatory
bodies and officials, necessary, in the reasonable opinion of Buyer, for the
consummation of the transactions contemplated by this Agreement, and the
continuation in all material respects of the business without interruption
after the Closing Date in substantially the manner in which such business is
now conducted, shall have been received and shall be in full force and
Purchase Agreement Page 6 of 9
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effect.
(d) Corporate Authorization. All resolutions and actions necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Seller shall have
been duly and validly made and taken, and Seller shall have full power and
right to consummate the transactions contemplated hereby.
(e) Status and Condition of the Plant. The Plant shall not have
suffered, prior to the closing, any loss or damage on account of fire, flood,
accident or any other calamity to an extent that would materially interfere
with the conduct of the Plant or materially impair its value as a going
concern, regardless of whether any such loss or losses have been insured
against.
(f) Payment of Transfer Taxes. The Seller shall have paid or made
provision for payment of all transfer taxes sales taxes or other similar
taxes, which become due by reason of the transactions herein provided, if any.
Section 6.2 Conditions Precedent to Obligations of Seller. All
obligations of Seller under this Agreement are subject to and shall be
conditioned upon the satisfaction prior to the Closing Date, of each of the
following conditions:
(a) Representations, Warranties and Agreements of Buyer. The
representations, warranties and agreements made by Buyer herein shall be true
in all material respects on and as of the Closing Date with the same effect
as though such representations and warranties had been made or given on and
as of the Closing Date with the same effect as though such representations
and warranties had been made or given on and as of the Closing Date, except
as affected by transactions contemplated hereby. Buyer shall have performed
in all material respects the obligations, agreements and covenants undertaken
herein to be performed at or prior to the Closing Date.
(b) Corporate Authorization. All resolutions and actions necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby by Buyer shall have been
duly and validly made and taken, and Buyer shall have full power and right to
consummate the transactions contemplated hereby.
ARTICLE 8
Termination
Section 8.1 Termination by Mutual Consent. At any time on or prior to
the Closing Date, this Agreement may be terminated by the mutual consent of
Buyer and Seller without liability on the part of any party. In the event of
the termination of this Agreement by mutual consent, this Agreement shall
become void and have no effect, without any liability on the part of any
party or its directors, officers or shareholders.
Purchase Agreement Page 7 of 9
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Section 8.2 Termination Upon Breach or Default. At any time on or prior
to the Closing Date, if a material default shall be made by a party in the
observance or in the due and timely performance of the covenants herein
contained, or if there shall have been a material breach by a party of any of
the representations and warranties set forty in this Agreement, Buyer or
Seller, as the case may be, any terminate this Agreement without prejudice to
its other rights and remedies, including such partys right to recover its
expenses, costs, and other damages.
Section 8.3 Termination Based Upon Conditions. If the conditions of
this Agreement to be complied with or performed by a party on or before the
Closing Date shall not have been complied with and such noncompliance or
nonperformance shall not have been waived, the party to whom the benefit of
such condition runs may terminate this Agreement without prejudice to its
other rights and remedies, including such partys right to recover its
expenses, costs and other damages.
ARTICLE 9
Miscellaneous
Section 9.1 Amendment. This agreement may be amended, modified or
supplemented in whole or in part only by an instrument in writing executed by
both Buyer and Seller.
Section 9.2 Assignment. The parties agree that neither this Agreement
nor any rights created hereby shall be assignable by any party.
Section 9.3 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be considered to be an original
instrument.
Section 9.4 Expenses. Seller and Buyer shall each bear the respective
expenses incurred by them in connection with the negotiation, execution and
delivery of this Agreement and the consummation of he transactions
contemplated hereby.
Section 9.5 Entire Agreement. This Agreement contains the entire
agreement between Buyer and Seller with respect to the sale of the Purchased
Assets and related transactions and supersedes all prior arrangements or
understandings with respect thereto.
Section 9.6 Descriptive Headings. The description headings are for
convenience of reference only and shall not control or affect the meaning or
construction of any provision of this Agreement.
Section 9.7 Notices. All notices or other communications that are
required or permitted hereunder shall be in writing and sufficient if
delivered personally or sent by registered or certified mail, postage
prepaid, addressed as follows:
Purchase Agreement Page 8 of 9
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IF TO BUYER: 13139 Ramona Blvd. Suite #G
Irwindale, CA 91706, USA
IF TO SELLER: 58 Hotspring Branch Road,
Fuzhou, Fujian, China
Section 9.8 Specific Performance. Seller acknowledges that the
Purchased Assets are unique and that if Seller fails to consummate the
transactions contemplated by this Agreement, such failure will cause
irreparable harm to Buyer for which there will be no adequate remedy at law.
Buyer shall be entitled, in addition to its other remedies at law, to
specific performance of this Agreement of Seller, without just cause, refuses
to consummate the transactions contemplated by this Agreement.
Section 9.9 Survival of Covenants, Representations, Warranties and
Indemnifications.
All covenants, representations and warranties made by any party to this
Agreement shall be deemed made for the purpose of inducing the other parties
to enter into this Agreement. The representations, warranties and covenants
contained in this Agreement shall, except as otherwise provided in this
Agreement, survive the Closing indefinitely. The provisions of Article 7 of
this Agreement shall survive the Closing indefinitely. The covenants,
presentations and warranties of both Seller and Buyer are made only to and
for the benefit of the other party to this Agreement and shall not create or
vest rights in other persons.
Section 9.10 Controlling Law. This Agreement shall be governed by and
construed pursuant to the laws of Nevada.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their authorized officers on the date stated above.
BUYER: Pentagenic Pharmaceuticals, Inc.
BY:
---------------------------
Name: Dejian Liu
Title: Vice President
SELLER: Fuzhou 851 Marketing Company, Inc.
BY:
---------------------------
Name: Ling Zhou
Title: President
Purchase Agreement Page 9 of 9
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ASSIGNMENT OF MARKETING RIGHT
THIS Assignment of Marketing Right (The Agreement), is made and entered into as
of the 6th day of July 1998, by and between Pentagenic Pharmaceuticals, Inc., a
corporation organized and existing under the laws of the State of Nevada
(Pentagenic), and Fuzhou 851 Marketing Company, Inc., a corporation organized
and existing under the laws of People's Republic of China (851 Company).
PREAMBLE
As supplement to the MANUFACTURING PLANT PURCHASE AGREEMENT signed between
Pentagenic and 851 Company, on July 6, 1998, Pentagenic desires to receive from
851 Company, and 851 Company desires to assign to Pentagenic the worldwide
(People's Republic of China excluded) exclusive marketing right of 851 Company's
products.
ACCORDINGLY, THE PARTIES AGREE AS FOLLOWS:
1. Territory:
The territory for the assignment of exclusive Marketing Right is worldwide
excluding People's Republic of China.
2. Products :
The products included in this agreement:
(a) 851 Oral Liquid and Powder product (Capsules and Tablets): including
but no limited to, private labeled "Haelan 951" for Haelan Products,
Inc. of Washington, USA, private labeled "Econogenic 851" for
Econogenic Inc. of California, USA.
(b) Private Labeled Products for BESO Pharmaceutics, Inc. of California,
USA: FeminAid, Skin Angel, Memomax, Lean Figure, and Intamate
Energizer
3. Exclusive
Pentagenic will enjoy the Marketing Right exclusively with full authority
to assign the Marketing Right of all of part of the Products to any third
party in Territory.
4. Rights to 851 Marketing Company:
851 Company will have marketing right in China for 10 years (from July
6, 1998) to any and all products manufacturing by the Manufacturing
Plant, including but not limited to, all the products listed in Products
and any Rexall Sundown product produced or packaged by the Manufacturing
Plant. 851 Company have right to distribute all the products mentioned
above through its established distributor network or assign part of the
marketing right to any third party in China for the purpose of
distributing the products.
5. Termination
851 Company is to maintain the Right in Section 4 for 10 years, except:
(a) In the event 851 Company cease to exist as a lawful cooperation for
any reasons, all the Right in Section 4 will automatically return to
Pentagenic.
Assignment Agreement Page 1 of 2
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Pentagenic is to maintain the Marketing Right permanently, except:
(a) In the event Pentagenic cease to exist as a lawful cooperation for any
reasons, all the Marketing Right remain in Pentagenic will
automatically return to 851 Company. 851 Company will automatically
assume the rights and ownership defined in all agreements of
assignment of Marketing Right to third Parties between Pentagenic and
involved third parties.
(b) With mutual written agreement, Pentagenic can return all of part of
the Marketing Right to 851 Company.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their authorized officers on the date stated above.
Pentagenic Pharmaceuticals, Inc. Fuzhou 851 Marketing Company, Inc.
BY: BY:
--------------------------- ------------------------------
Name: Dejian Liu Name: Ling Zhou
Title: Vice President Title: President
Assignment Agreement Page 2 of 2
<PAGE>
DISTRIBUTORSHIP AGREEMENT
This Distributorship Agreement ("Agreement"), made and effective this
15th of July 1998, by and between Pentagenic Pharmaceuticals, Inc.
("Manufacturer") and SanYang Products Inc.. ("Distributor").
Manufacturer desires to appoint Distributor, and Distributor desires
to accept appointment, as a distributor of Manufacturer's products
within a defined area as set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements promises set
forth herein, the parties agree as follows:
1. RIGHTS GRANTED.
Manufacturer hereby grants to Distributor the right, on the terms and
conditions contained herein, to purchase, inventory, promote and
resell "Manufacturer's Products" (as defined below) within the
following area (the "Territory"):
SOUTH KOREA.
2. PRODUCTS.
As used in this Agreement, the term "Manufacturer's Products" shall
mean the products manufactured and/or sold by Manufacturer as follows:
YANG'S 851 ORAL LIQUID;
MOMOMAX;
FEMIAID;
INTAMATE ENERGIZER;
LEAN FIGURE.
Distributor has rights to request the Manufacturer to modify the
Product by means of adding Distributor-provided substances and/or
slight modification of manufacturing procedures.
3. TERMS OF SALE.
All sales of Manufacturer's Products to Distributor shall be made
pursuant to this Agreement at the prices listed on Manufacturer's
price list, FOB Fuzhou, China or Los Angeles, USA.
4. PAYMENT.
Except for the first shipment (100% prepaid), all orders should be 50%
prepaid by the Distributor when placing orders and the balance is
within thirty (30) days after the date of Manufacturer's invoice. An
unpaid balance past due 60 days will be treat as a violation of this
agreement, and could result in termination of this agreement.
5. ADVERTISING POLICIES.
Nothing herein shall prevent Distributor from independently
advertising and marketing the Products within the Territory, provided
the form and content of the advertising or marketing materials are
approved by Manufacturer in advance.
Page 1 of 4
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6. PACKAGING.
Manufacturer will sell Products to Distributor in Manufacturer's
retail package or with Labels provided by Distributor.
7. PRODUCT WARRANTY POLICIES.
In the event that any of Manufacturer's Products are proved to
Manufacturer's satisfaction to have been defective at time of sale to
Distributor, Manufacturer will make an appropriate adjustment in the
original sales price of such product.
8. INDEMNIFICATION.
A. Manufacturer agrees to protect Distributor and hold Distributor
harmless from any loss or claim arising out of inherent defects in
Products existing at the time such product is sold by Manufacturer to
Distributor, provided that Distributor gives Manufacturer immediate
notice of any such loss or claim and cooperates fully with
Manufacturer in the handling thereof.
B. Distributor agrees to protect Manufacturer and hold Manufacturer
harmless from any loss or claim arising out of the negligence of
Distributor, Distributor's agents, employees or representatives in the
installation, use, sale or servicing of Manufacturer's Products or
arising out of any representation or warranty made by Distributor, its
agents, employees or representations with respect to Manufacturer's
Products that exceeds Manufacturer's limited warranty. Further, in
the event that any of Distributor's dealers shall, with respect to any
of Manufacturer's Products purchased from Distributor, fail to
discharge the dealer's obligations to the original consumer pursuant
to the terms and conditions of Manufacturer's product warranty and
consumer service policies, Distributor agrees to discharge promptly
such unfulfilled obligations.
9. USE OF MANUFACTURER'S NAME.
Distributor will not use, authorize or permit the use of, the name
"Beso Biological Research, Inc." or any other trademark or trade name
owned by Manufacturer as part of its firm, corporate or business name
in any way. Distributor shall not contest the right of Manufacturer
to exclusive use of any trademark or trade name used or claimed by
Manufacturer. Distributor may, subject to Manufacturer's policies
regarding reproduction of name, utilize Manufacturer's name,
trademarks or logos in advertising on stationery and business cards.
10. RELATIONSHIP OF THE PARTIES.
Distributor, its agents and employees shall, under no circumstances,
be deemed employees, agents or representatives of Manufacturer.
Distributor will not modify any of Manufacturer's Products without
written permission from Manufacturer. Neither Distributor nor
Manufacturer shall have any right to enter into any contract or
commitment in the name of, or on behalf of the other, or to bind the
other in any respect whatsoever.
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<PAGE>
11. TERM AND TERMINATION.
The term of this Agreement shall commence as of the date first above
written and shall continue until DECEMBER 31, 1999.
Manufacturer may terminate this Agreement upon notice to Distributor,
upon any of the following events:
(1) Any assignment or attempted assignment by Distributor of any
interest in this agreement or delegation of Distributors
obligations without Manufacturer's written consent;
(2) Failure to pay invoices on time.
(3) Any other violation of terms stated in this agreement.
12. OBLIGATIONS ON TERMINATION.
On termination of this Agreement, Distributor shall cease to be an
authorized distributor of Manufacturer and:
A. All amounts owing by Distributor to Manufacturer shall,
notwithstanding prior terms of sale, become immediately due and
payable;
B. Neither party shall be liable to the other because of such
termination for compensation, reimbursement or damages on account of
the loss of prospective profits or anticipated sales, or on account of
expenditures, investments, lease or commitments in connection with the
business or goodwill of Manufacturer or Distributor or for any other
reason whatsoever growing out of such termination.
13. USE OF NAME PROHIBITED.
On termination of this Agreement, Distributor will remove and not
thereafter use any sign containing any trade name, logo or trademark
of Manufacturer including, but not limited to, "Beso Biological
Research, Inc" and will immediately destroy all stationery,
advertising matter and other printed matter in its possession or under
its control containing such name, or any of Manufacturer's trademarks,
trade names or logos. Distributor will not at any time after such
termination use or permit any such trademark, trade name or logo to be
used in any manner in connection with any business conducted by it or
in which it may have an interest, or otherwise whatsoever as
descriptive of or referring to anything other than merchandise or
products of Manufacturer.
14. ACKNOWLEDGMENTS.
Each party acknowledges that no representation or statement, and no
understanding or agreement, has been made, or exists, and that in
entering into this Agreement each party has not relied on anything
done or said or on any presumption in fact or in law, (1) with respect
to this Agreement, or to the duration, termination or renewal of this
Agreement, or with respect to the relationship between the parties,
other than as expressly set forth in this Agreement; or (2) that in
any way tends to change or modify the terms, or any of them, of this
Agreement or to prevent this Agreement
Page 3 of 4
<PAGE>
becoming effective; or (3) that in any way affects or relates to the
subject matter hereof. Distributor also acknowledges that the terms and
conditions of this Agreement, and each of them, are reasonable and fair
and equitable.
15. FINAL AGREEMENT.
This Agreement terminates and supersedes all prior understandings or
agreements on the subject matter hereof. This Agreement may be
modified only by a further writing that is duly executed by both
parties.
16. ASSIGNMENT.
Neither this Agreement nor any interest in this Agreement may be
assigned by Distributor without the prior express written approval of
Manufacturer, which may be withheld by Manufacturer at Manufacturer's
absolute discretion.
17. NOTICES.
Any notice required by this Agreement or given in connection with it,
shall be in writing and shall be given to the appropriate party by
personal delivery or by certified mail, postage prepaid, or recognized
overnight delivery services.
18. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with the
laws of the state of CALIFORNIA.
19. SEVERABILITY.
If any term of this Agreement is held by a court of competent
jurisdiction to be invalid or unenforceable, then this Agreement,
including all of the remaining terms, will remain in full force and
effect as if such invalid or unenforceable term had never been
included.
20. HEADINGS.
Headings used in this Agreement are provided for convenience only and
shall not be used to construe meaning or intent.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PENTAGENIC PHARMACEUTICALS, INC. : SANYANG PRODUCTS INC. :
--------------------------- ---------------------------
Dejian Liu Tae-Don Kim
Page 4 of 4
<PAGE>
Sales Agreement
Agreement made this 8th day of July 1998, between Pentagenic
Pharmaceuticals, Inc., hereinafter Pentagenic, and Fortune & Health Enterprises
CO., Ltd., hereinafter Fortune.
The parties to this agreement, in consideration of the mutual covenants and
stipulations set out, agree as follow:
1. Fortune intends to buy custom manufactured 851 capsules products from
Pentagenic;
2. Fortune expects to order 5000 bottle of 851 capsules products (480mg x
90 per bottle) every three months;
3. Fortune will send labels to Pentagenic with 30% down payment when the
order is placed;
4. Pentagenic agrees to offer the products @ US$12.00 per bottle;
5. In order to compensate Fortune's loss on currency exchange rate,
Pentagenic agrees to offer additional 10% of every order placed this
year free to Fortune;
6. Fortune is obligated to market the product only in Taiwan and Fortune
is solely responsible for getting government regulation approval and
release Pentagenic from any potential law sues and claims except in
the case of product warranty which Pentagenic will replace the damage
products according to Pentagenic's warranty policy.
7. Fortune is allowed to use Pentagenic's products' literatures and trade
name in promotion and marketing of the 851 products with written
approval from Pentagenic.
8. The US$12 per bottle price is good through December 31, 1998.
Pentagenic reserved to right to adjust the price any time after
December 31, 1998.
IN WITNESS WHEREOF, the parties have executed this agreement on the day and
year first above written.
- ------------------------- ---------------------------
Dejian Liu HuoZhang Wen
Pentagenic Pharmaceuticals, Inc. Fortune & Health Enterprises CO., Ltd.,
