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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1997
Commission file number: 1-8366
POLYDEX PHARMACEUTICALS LIMITED
(Exact Name of Registrant as Specified in Its Charter)
Commonwealth of the Bahamas None
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
421 Comstock Road, Scarborough, Ontario, Canada M1L 2H5
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (416) 755-2231
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Shares, $.00167 Par Value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: Same
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant, computed by reference to the average bid and
ask prices of such stock as of March 31, 1997: $15,836,322
The number of Common Shares outstanding as of March 31, 1997: 28,252,182
Documents Incorporated By Reference
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 31, 1997, are incorporated by reference into Part II.
Portions of the Registrant's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held on June 19, 1997, are incorporated by reference into
Part III.
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PART I
ITEM 1. BUSINESS
Introduction
- ------------
Polydex Pharmaceuticals Limited (the "Registrant") was incorporated
under the laws of the Commonwealth of the Bahamas on June 14, 1979 as Polydex
Chemicals Limited, and changed its name on March 28, 1984. The address of its
statutory office in the Bahamas is c/o Higgs & Johnson, 83 Shirley Street,
Nassau, Bahamas: telephone (242) 322-8571. The Registrant's current business is
conducted through two of its subsidiaries, Polydex Chemicals (Canada) Limited, a
wholly-owned Canadian corporation incorporated in 1969, which itself conducts
its business through its wholly-owned subsidiary, Dextran Products Limited
("Dextran Products") (incorporated in Ontario in 1966) and Chemdex, Inc.
("Chemdex"), a 90% owned Kansas corporation incorporated in 1987. On November
30, 1992, Chemdex acquired from Continental Grain Company 100% of the issued and
outstanding share capital of Veterinary Laboratories Inc. ("Vet Labs"), a Kansas
corporation, which previously had been wholly-owned by the Registrant. On
December 1, 1992, Vet Labs and Sparhawk Laboratories Inc. ("Sparhawk") entered
into a joint venture (the "Sparhawk Joint Venture") for the purpose of
manufacturing and selling veterinary pharmaceutical products. Sparhawk is an
affiliated company owned primarily by the management of the Sparhawk Joint
Venture. The Registrant controls the Sparhawk Joint Venture through its control
of the board of directors. On May 9, 1995, the Registrant acquired from its then
Chairman (now Vice-Chairman), Thomas C. Usher, a 90% interest in Novadex
International Inc. ("Novadex International"), a Bahamas corporation. The
principal asset of Novadex International is a patent, developed by Mr. Usher,
for the use of Cellulose Sulphate in a number of applications, including the
development of a new contraceptive gel.
General
- -------
The current business of the Registrant is the manufacture and sale of
Dextran and several of its derivatives, including Iron Dextran and Dextran
Sulphate, veterinary pharmaceutical products and other specialty chemicals, and
cosmetic raw materials, with some related research and development.
Dextran, a generic name applied to certain synthetic compounds formed
by bacterial growth on sucrose, is a polymer or giant molecule. The name Polydex
combines the words "polymer" and "dextran."
Description, Usage and Regulated Aspects of the Products
- --------------------------------------------------------
The operations of the Registrant are presently carried on through
Dextran Products and Vet Labs. These subsidiaries operate principally in one
industry: the manufacture of veterinary pharmaceutical products.
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Dextran Products manufactures and sells Dextran and several of its derivatives.
Vet Labs develops, manufactures and sells veterinary pharmaceutical products.
Iron Dextran
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A. Description
-----------
Iron Dextran is a derivative of Dextran produced by complexing Iron
with Dextran. Iron Dextran is injected into most pigs at birth as a treatment
for anemia.
B. Regulation and Usage
--------------------
Sales presently are being made by the Registrant in the following
countries, which have approved the use of Iron Dextran for animals or which
require no approval or accept the Canadian registration: Canada (registration
number R625), Denmark, France, Switzerland, Hong Kong, Germany, the Netherlands,
Finland, Ecuador, Thailand, Hungary, Malaysia, the Philippines, Japan, Brazil,
Korea, Spain, Sweden, Israel, New Zealand, Mexico, Costa Rica, and Australia. In
the United States, sale for veterinary use requires the approval of the U.S.
Food and Drug Administration (the "FDA"). Chemdex has FDA approval for
veterinary use of Iron Dextran in the United States. For classification
purposes, the Registrant treats these sales of the Iron Dextran raw materials as
sales of Iron Dextran.
Dextran Sulphate
- ----------------
A. Description
-----------
Dextran Sulphate is a specialty chemical which finds use in research
applications of the pharmaceutical industry and other centers of chemical
research.
B. Regulation and Usage
--------------------
The Dextran Sulphate manufactured by the Registrant is sold in
Australia, Switzerland, France, the Netherlands, New Zealand and the United
States, where it is used in limited quantities in the manufacture of film, as
well as analytical chemical applications. This usage requires no regulatory
approval.
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Veterinary Products
- -------------------
A. Description
-----------
The Registrant manufactures tablets and boluses, internal and external
solutions, ointments, powders and sterile injectable products.
B. Regulation and Usage
--------------------
The products are sold in the United States and are used by large animal
veterinarians and by farmers for the treatment of various diseases and
conditions that affect farm animals. The Vet Labs facility is regulated and
inspected by the FDA and the U.S. Drug Enforcement Agency.
Sales, Distribution and Reliance Upon Foreign Countries
- -------------------------------------------------------
Iron Dextran and Dextran Sulphate
- ---------------------------------
The Registrant sells Iron Dextran and Dextran Sulphate throughout the
world on a non-exclusive basis. For the fiscal year ended January 31, 1997,
approximately 12% of the total sales of Iron Dextran were to one customer. No
other customer accounted for 10% or more of total sales. This customer is a
supply house, and management believes that the loss of this customer would not
have a material adverse effect upon Dextran Products' results of operations,
since management believes that customers of the supply house would either do
business with the Registrant through another distributor or supply house, or
directly.
The Registrant has not changed its mode of distribution of Iron Dextran
or Dextran Sulphate during the past eleven fiscal years. The Registrant
distributes its product through sales agents, operating on an exclusive and
non-exclusive basis, throughout the world. These agents are paid a sales
commission, usually 3%. Orders are forwarded to the Registrant's manufacturing
facilities in Scarborough, Ontario, Canada where they are processed and shipped.
The Canadian Embassies and Consulates in various countries also assist the
Registrant by making available information regarding the Registrant and its
products.
Veterinary Products
- -------------------
All of the sales of Vet Labs for the fiscal year ended January 31, 1997
were within the United States. Distribution is achieved through private label
buying groups who then distribute to their own distributors and through full
service independent distributors who purchase products under Vet Labs' house
labels. Private label products accounted for approximately 80% of sales, with
house label sales contributing approximately 18%. In addition, Vet Labs also
does "contract filling" for other industry companies. Four customers (all
private label buying
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groups) accounted for 55% of sales at Vet Labs, with individual customer shares
ranging from 12% to 16%. The loss of any one or more of these customers could
have a material adverse effect upon Vet Labs' results of operations.
Working Capital Requirements
- ----------------------------
There are no special inventory requirements or credit terms extended to
customers that would have a material adverse effect on the Registrant's working
capital.
Patents, Trademarks and Licenses
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Iron Dextran
- ------------
Effective February 1, 1995, the Registrant entered into an agreement
with Novadex Inc., an affiliated company, whereby Novadex Inc. granted the
Registrant the exclusive worldwide license to use a certain process developed by
Novadex Inc. for producing Iron Dextran. This process allows the Registrant to
produce Iron Dextran at a lower cost than would otherwise be possible. The term
of the license agreement is 10 years. The Registrant pays a license fee based on
production volumes.
The technology in the field of Dextran and its derivatives is
undergoing continuous expansion and development. The manufacture of Dextran and
its derivatives may be achieved by different processes and variations (including
glycoside, which is in the public domain). Therefore, the Registrant does not
believe that this license gives it any substantial competitive advantage.
Dextran Sulphate
- ----------------
This material was patented under U.S. patent number 4,855,410 in
August, 1989 and has been tested with other drugs for efficacy in controlling
the HIV virus. At this time research has been halted so that the Registrant can
focus its resources on cystic fibrosis and Cellulose Sulphate. Once these
projects have been completed, the Registrant expects to return its attention to
Dextran Sulphate.
Veterinary Products
- -------------------
Vet Labs holds a New Animal Drug Application from the FDA for the
production of both 10% Bulk Iron Hydrogenated Dextran and 10% Injectable Iron
Hydrogenated Dextran.
Elastin and Collagen
- --------------------
These materials were patented under U.S. patent numbers 4,659,740 and
4,784,986 on April 21, 1987 and November 15, 1988, respectively. The patents
cover a process whereby the materials are modified in such a way as to penetrate
the skin and act as a hydrating agent.
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Cellulose Sulphate
- ------------------
During the fiscal year ended January 31, 1996, a patent for a new
method of manufacture of Cellulose Sulphate was purchased for $1 million. The
process was patented under U.S. patent number 5,378,828 in June of 1995. Prior
to development of the patented process, the manufacture of the compound
required the use of dangerous and environmentally sensitive chemicals. The new
method is safer, and appears to produce a more consistent product. Cellulose
Sulphate appears to have applications in film manufacture and capsule
production and is presently being investigated in conjunction with the Rush
Institute of the University of Chicago as a potential contraceptive which also
has antiviral capabilities. With regard to the latter application, the
Registrant is looking to perform human clinical trials and to this end most of
the animal toxicology work necessary for the filing of an Investigation New
Drug (IND) has been completed. The IND will be filed when all of such work is
complete.
Cystic Fibrosis
- ---------------
Effective April 1, 1994, the Registrant entered into a Research
Agreement (the "UBC Research Agreement") with an affiliated company and the
University of British Columbia ("UBC"). On April 1, 1996, the UBC Research
Agreement was amended and expanded to include a number of Canadian hospitals.
Under the terms of the UBC Research Agreement, the Registrant has agreed to
provide equipment and funding in return for continuing research on cystic
fibrosis to be carried out in connection with two patents issued in 1996. U.S.
patent number 5,441,938 is held jointly by UBC and the Registrant, whereas U.S.
patent number 5,514,665 is held by UBC and licensed to the Registrant. In
conjunction with the UBC Research Agreement, UBC granted the Registrant, through
a sub-licensing agreement with an affiliated company, an exclusive worldwide
license to manufacture, distribute and sell products derived or developed from
the research performed. The Registrant will pay a quarterly royalty, based on
sales.
Status of New Products or Industry Segments
- -------------------------------------------
There has been no public announcement of, and no information otherwise
has been made public about, a new product or industry segment that would require
the investment of a material amount of the assets of the Registrant or that
otherwise is material.
Suppliers and Sales
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Iron Dextran and Dextran Sulphate
- --------------------------------
With regard to its basic raw materials, the Registrant utilizes one
basic supplier for its sugar requirements and one basic supplier for its Iron.
Both of these materials, as well as others used by the Registrant, are readily
available from numerous suppliers at competitive prices in the market. The
Registrant has no long-term contracts with any of its suppliers.
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The Registrant is dependent upon a single source for a certain raw
material used in the production of Dextran Sulphate. Such supply was adequate in
fiscal 1997 and no shortages are anticipated in the near term. However, any
curtailment in availability of such raw material could be accompanied by
production or other delays as well as increased raw material costs, with
consequent adverse effect on the Registrant's results of operations.
Veterinary Products
- -------------------
Raw materials are readily available from a variety of suppliers at
competitive prices in the market. The Registrant has no long-term contracts with
any of its suppliers.
Backlog and Seasonality
- -----------------------
The Registrant's backlog as at January 31, 1997 was approximately
$700,000, whereas backlog as at January 31, 1996 was approximately $800,000. All
of these orders are expected to be filled within the current fiscal year.
The Registrant's business is not seasonal to any material extent.
Competition
- -----------
The Registrant is the only Canadian manufacturer of Iron Dextran and,
as a result of its acquisition of Vet Labs, the Registrant is also the only
manufacturer in the United States. There exist several European sources of Iron
Dextran. However, the only other major supplier of Iron Dextran is located in
Denmark. Dextran Sulphate is also manufactured by several manufacturers in the
U.S. and Europe. With regard to Iron Dextran and Dextran Sulphate, the
Registrant competes on the basis of quality, service and price.
The Registrant currently produces approximately 50 veterinary products
including analgesics, anti-diarrheals, topical antiseptics, nutritional
supplements, local and general anesthesia agents and euthanizing agents. Primary
market segments include beef and dairy cattle, swine, equine and to a small
extent, companion animals (dogs and cats). With the exception of Iron Dextran,
the product offering is generic or non-licensed (non NADA). As such, all
products are subject to numerous competitors. In addition to competing on the
basis of quality, service and price, the Registrant differentiates itself from
its competitors through its ability to supply multiple product dosage forms
(i.e., injectables, boluses, tablets, liquids and powders) and provide customers
with technical and regulatory support and assistance from in-house quality
control and regulatory departments.
Research and Development
- ------------------------
During the fiscal years ended January 31, 1997, 1996, and 1995, the
Registrant expended $92,063, $314,149, and $270,488,
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respectively, on research and development relating primarily to cystic fibrosis
and Cellulose Sulphate.
Environmental Compliance
- ------------------------
The Registrant believes that it is in substantial compliance with all
existing applicable foreign, federal, state and local environmental laws and
does not anticipate that such compliance will have a material effect on its
future capital expenditures, earnings or competitive position.
Governmental Contracts
- ----------------------
No portion of the Registrant's business is subject to renegotiation of
profits or termination of contract or subcontracts at the election of the U.S.
Government.
Employees
- ---------
As of March 31, 1997, the Registrant employed 79 employees, of whom 64
were engaged in production, 2 in research and development, 9 in administration
and 4 in marketing and sales activities. Of such employees, 53 were employed by
Vet Labs and 26 by Dextran Products. None of the Registrant's employees are
covered by collective bargaining agreements. Management considers its relations
with employees to be good.
Recent Developments -- New Products
- -----------------------------------
Activated Collagen and Elastin
- ------------------------------
Collodex, a modified collagen, has been formulated by the Registrant as
a principal ingredient of a cosmetic skin cream. During fiscal 1997, the
Registrant engaged several marketing companies for the promotion of this
product, however, efforts by these companies met with limited success. At the
present time, minor sales are being made to cosmetic manufacturers in the
Pacific Rim with the potential for increased sales in the future. In addition,
two U.S. marketing companies have expressed an interest in promoting the product
and the Registrant expects that one of these companies will start advertising
the product on the Internet shortly.
Elastin, a material with similar applications, has been developed by
the Registrant. It has not been commercialized, however, pending the launch of
Collodex and no sales are expected to occur in the current fiscal year.
Cystic Fibrosis
- ---------------
Cystic fibrosis is a genetic disease which causes a cascade of effects,
the most severe being a build up of mucus in the lungs. This mucus is difficult
to remove and also permits the colonization of bacteria which then cause
secondary infections
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and often death. Recent research has shown that a special form of Dextran is
effective in preventing the colonization of bacteria in the mouth and in
stimulating the macrophages in the lungs to remove the bacteria present and
lessen secondary infections. This research is being done by the Registrant in
collaboration with the University of British Columbia, where in vitro studies
are being performed. Further animal work is being planned prior to
the commencement of human clinical trials.
Cellulose Sulphate
- ------------------
Production of this product was halted in 1989 when the customer found a
substitute. However, interest in the industrial use of Cellulose Sulphate has
been revived and samples have been supplied, but it is difficult to predict if
sales will occur this year. Research is also underway in the United States to
evaluate the use of this material as a contraceptive gel with antiviral
capabilities. The Registrant is in preliminary discussions with certain
companies to fund the further research necessary to commercialize this Cellulose
Sulphate product, however, the results of their discussions are indeterminable
at this time.
The Registrant cannot predict which, if any, of these new products
might generate revenues for the Registrant, or when any such revenues might
occur, if at all.
Segmented Information
- ---------------------
The information regarding the geographic distribution of revenue,
operating results and assets set forth in Note 14 to the Registrant's
Consolidated Financial Statements included in the Registrant's Annual Report to
Shareholders for the fiscal year ended January 31, 1997 is incorporated herein
by reference.
ITEM 2. PROPERTIES
----------
The Registrant's wholly-owned subsidiary, Polydex Chemicals (Canada)
Limited, maintains its executive and sales offices and its manufacturing plant
of approximately 30,000 square feet in Scarborough, Ontario, Canada.
The Registrant operates a fermentation plant in Scarborough, Ontario,
Canada, having the capacity to produce both 10% and 20% Iron Dextran at the rate
of up to 10,000 litres a week (there are 1.057 quarts in one litre). Present
production is approximately 8,000 litres a week. Complexing of the Iron Dextran
takes place in Scarborough, Ontario, Canada.
Dextran Sulphate presently is manufactured at the Registrant's plant in
Scarborough, Ontario, Canada where reactors and spray drying equipment are
available. The Registrant presently manufactures approximately 500 kilos of
Dextran Sulphate per quarter (there are 2.2 pounds in one kilo), and has the
capacity to manufacture 500 kilos per month simultaneously with the 10,000
litres per week of Iron Dextran.
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Through its subsidiary Vet Labs, the Registrant manufactures tablets
and boluses, internal and external solutions, ointments, powders and injectable
products. The manufacturing facility is located on 8 acres of land in Lenexa,
Kansas. The plant is 55,000 square feet with separate production areas for each
of the above product groups. The plant has the capacity to manufacture 200,000
boluses per day, 4,000 gallons of liquids per day, 1,500 pounds of powder per
day and 1,000 gallons of injectable products per day. The facility is currently
running at approximately 50% of capacity.
Each of the properties described above is owned by the Registrant.
Management believes that the Registrant's facilities are adequate for its
present requirements. These facilities have additional capacity for expansion of
production of existing and new products. The Registrant considers its current
equipment to be in good condition and suitable for the operations involved.
ITEM 3. LEGAL PROCEEDINGS
-----------------
On May 23, 1996, FMMG, Inc. ("FMMG") filed suit against the Registrant
in the United States District Court for the Southern District of Florida seeking
damages for the alleged breach of an option given by the Registrant in favor of
FMMG and another company with respect to 160,000 shares of common stock in
Novatek International, Inc. previously held by the Registrant. The Registrant
has challenged the jurisdiction of the U.S. District Court by a motion to
dismiss. Should the motion to dismiss be denied, the Registrant intends to
vigorously defend the action. Discovery on the merits has been stayed pending
resolution of the motion to dismiss; accordingly, it is not possible at this
point in time to accurately predict the likelihood of an unfavorable outcome or
the magnitude of any potential damages.
On November 19, 1992, Joseph Valaderes filed suit against the
Government of Canada and the Canadian Broadcasting Corporation in the Ontario
Court (General Division) seeking Canadian $2,900,000 in the aggregate, plus pre
and post judgment interest and costs, in connection with a television broadcast
in 1989. On July 21, 1995, Mr. Valaderes filed an amended claim to include
Dextran Products as a defendant. The Registrant intends to vigorously defend
the action, however, the ultimate outcome at this stage of the proceedings is
not determinable at this time.
There are no other material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which the Registrant
or any of its subsidiaries is a party, or to which any of the their property is
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
----------------------------------------------------
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the Registrant's fourth quarter
ended January 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The information contained under the caption "Market for the Company's
Common Stock and Related Security Holder Matters" in the Registrant's Annual
Report to Shareholders for the fiscal year ended January 31, 1997 is
incorporated herein by reference.
The following information is provided in addition to the information
incorporated by reference as mentioned above.
There are no governmental laws, decrees or regulations in the
Commonwealth of the Bahamas applicable to the Registrant that restrict the
export or import of capital, including foreign exchange controls, or that affect
the remittance of dividends or other payments to nonresident holders of the
Registrant's Common Shares. Also, U.S. holders of the Registrant's Common Shares
are not subject to taxes under Bahamian law.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
The information required under this item is included under the caption
"Financial Highlights" in the Registrant's Annual Report to Shareholders for the
fiscal year ended January 31, 1997 and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS
-------------
The information required under this item is included under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Registrant's Annual Report to Shareholders for the fiscal
year ended January 31, 1997 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The Registrant's Consolidated Financial Statements are included in the
Registrant's Annual Report to Shareholders for the fiscal year ended January 31,
1997 and are incorporated herein by reference. Supplementary financial
information is not required.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The information required under this item is incorporated herein by
reference from the material contained under the captions "Board of Directors",
"Proposals","Executive Officers" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Registrant's definitive proxy statement to be filed
with the Securities and Exchange Commission pursuant to Regulation 14A, not
later than 120 days after the end of the fiscal year.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The information required under this item is incorporated herein by
reference from the material contained under the captions "Board of Directors",
"Board Meetings and Committees", "Compensation of Executive Officers" and
"Company Stock Performance" in the Registrant's definitive proxy statement to be
filed with the Securities and Exchange Commission pursuant to Regulation 14A,
not later than 120 days after the end of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Ownership of Voting
Securities" in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information required under this item is incorporated herein by
reference from the material contained under the caption "Transactions With the
Company" in the Registrant's definitive proxy statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A, not later than
120 days after the end of the fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a) The following documents are filed as a part of this
Annual Report on Form 10-K:
(1) Financial Statements included in the Registrant's
Annual Report to Shareholders for the fiscal year
ended January 31, 1997 and incorporated by reference
from Exhibit 13 filed herewith
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Auditors' Report to the Shareholders -- Ernst &
Young LLP
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Auditors' Report to Shareholders - KPMG Peat
Marwick Thorne
All other schedules for which provision is made in
the applicable accounting regulation of the Securities and
Exchange Commission are not required under the related
instructions or are inapplicable, and therefore, have been
omitted.
(3) Exhibits
3.1 Memorandum of Association of Polydex
Pharmaceuticals Limited, as amended
3.2 Articles of Association of Polydex
Pharmaceuticals Limited, as amended
10.1 Employment Agreement between Polydex
Pharmaceuticals Limited and Thomas C. Usher,
dated December 22, 1993
10.2 Employment Agreement between Polydex
Pharmaceuticals Limited and George G. Usher,
dated December 22, 1993
10.3 Employment Agreement between Polydex
Pharmaceuticals Limited and Natu Patel,
dated February 12, 1990
10.4 Research Agreement among Dextran Products
Limited, Canadian Microbiology Consortium,
British Columbia's Children's Hospital and
the University of British Columbia, dated
April 1, 1996
10.5 Joint Venture Agreement among Chemdex, Inc.,
Veterinary Laboratories Inc. and Sparhawk
Laboratories, Inc., dated December 1, 1992
10.6 Manufacturing Agreement among Sparhawk
Laboratories, Inc., Agri-Laboratories, Ltd.
and Veterinary Laboratories Inc., dated
September 23, 1996
10.7 Marketing Proposal between Polydex
Pharmaceuticals Limited and Trident Group,
dated March 1, 1997
10.8 Stock Sale and Purchase Agreement among
Polydex Pharmaceuticals Limited, Chemdex,
Inc. and Continental Grain Company, dated
October 30, 1992, as amended on November
22, 1996
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13 Annual Report to Shareholders for the fiscal
year ended January 31, 1997 (only those
portions incorporated herein by reference)
21 Subsidiaries of Polydex Pharmaceuticals
Limited
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
No current reports on Form 8-K were filed by the Registrant
during the fourth quarter ended January 31, 1997.
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SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized.
Date: April 30, 1997
POLYDEX PHARMACEUTICALS LIMITED
By: /s/ George G. Usher
-----------------------------------
George G. Usher, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Date: April 30, 1997 /s/ George G. Usher
--------------------------------------
George G. Usher, Director, President
and Chief Executive Officer
(Principal Executive Officer)
Date: April 30, 1997 /s/ Sharon Wardlaw
--------------------------------------
Sharon Wardlaw, Treasurer, Secretary
and Chief Financial and Accounting
Officer (Principal Financial and
Accounting Officer)
Date: April 30, 1997 /s/ Joseph Buchman
--------------------------------------
Joseph Buchman, Director
Date: April 30, 1997 /s/ Alec Keith
--------------------------------------
Alec Keith, Director
Date: April 30, 1997 /s/ Natu Patel
--------------------------------------
Natu Patel, Director
Date: April 30, 1997 /s/ Ruth L. Usher
--------------------------------------
Ruth L. Usher, Director
Date: April 30, 1997 /s/ Thomas C. Usher
--------------------------------------
Thomas C. Usher, Director
<PAGE> 16
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the consolidated balance sheets of Polydex Pharmaceuticals
Limited as at January 31, 1996 and 1995 and the related consolidated statements
of operations, shareholders' equity and cash flows for each of the years in the
three-year period ended January 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free to 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 31, 1996
and 1995, and the results of its operations and the changes in its financial
position for each of the years in the three-year period ended January 31, 1996,
in accordance with accounting principles generally accepted in the United States
of America.
KPMG
Chartered Accountants
Toronto, Canada
April 30, 1996
<PAGE> 17
EXHIBIT INDEX
-------------
Exhibit Number Exhibit Description
- -------------- -------------------
3.1 Memorandum of Association of Polydex
Pharmaceuticals Limited, as amended
3.2 Articles of Association of Polydex
Pharmaceuticals Limited, as amended
10.1 Employment Agreement between Polydex
Pharmaceuticals Limited and Thomas C. Usher,
dated December 22, 1993
10.2 Employment Agreement between Polydex
Pharmaceuticals Limited and George G. Usher,
dated December 22, 1993
10.3 Employment Agreement between Polydex
Pharmaceuticals Limited and Natu Patel, dated
February 12, 1990
10.4 Research Agreement among Dextran Products
Limited, Canadian Microbiology Consortium,
British Columbia's Children's Hospital and
the University of British Columbia, dated
April 1, 1996
10.5 Joint Venture Agreement among Chemdex, Inc.,
Veterinary Laboratories Inc. and Sparhawk
Laboratories, Inc., dated December 1, 1992
10.6 Manufacturing Agreement among Sparhawk
Laboratories, Inc., Agri-Laboratories, Ltd. and
Veterinary Laboratories Inc., dated
September 23, 1996
10.7 Marketing Proposal between Polydex
Pharmaceuticals Limited and Trident Group,
dated March 1, 1997
10.8 Stock Sale and Purchase Agreement among
Polydex Pharmaceuticals Limited, Chemdex, Inc. and
Continental Grain Company, dated October 30, 1992,
as amended on November 22, 1996
13 Annual Report to Shareholders for the fiscal
year ended January 31, 1997 (only those
portions incorporated herein by reference)
21 Subsidiaries of Polydex Pharmaceuticals Limited
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
<PAGE> 1
Exhibit 3.1
COMMONWEALTH OF THE BAHAMAS
--------------
The Companies Act
COMPANY LIMITED BY GUARANTEE AND HAVING A
CAPITAL DIVIDED INTO SHARES
--------------
MEMORANDUM OF ASSOCIATION
OF
POLYDEX CHEMICALS LIMITED
1. The name of the Company is POLYDEX CHEMICALS LIMITED.
2. The registered office of the Company will be situate in the Island of
New Providence, one of the islands of the Commonwealth of the Bahamas.
3. The objects for which the Company is established are:
(1) to carry on the manufacture and sale of patent medicines,
medicinal and pharmaceutical preparations, and generally to
carry on the business of manufacturers, buyers and sellers, at
wholesale and at retail, of all kinds of preparations and
chemicals whatsoever; to carry on all or any of the businesses
of chemists, chemical manufacturers, exporters and importers,
at wholesale or at retail or on a commission basis; to buy and
acquire from any person, firm or corporation any recipes,
formulae or other information, whether patented or not, for
the manufacture and preparation of any pharmaceutical articles
or specialties;
<PAGE> 2
and as wholesalers only and not as retailers, to carry on the
business of manufacturers of drugs and medicines;
(2) To purchase or otherwise acquire, on such terms and in such
manner as the regulations of the Company from time to time
provide any shares or interests in the Company.
(3) to engage in and carry on research of all kinds including,
without limiting the generality of the foregoing, chemical,
mechanical and industrial research, and to enter into
contracts for or otherwise undertake research of all kinds on
behalf of other persons, firms or corporations;
(4) to promote, institute, enter into, carry on, assist or
participate in any and every description of financial,
commercial, mercantile, industrial, manufacturing, mining and
agency business, works, contracts, undertakings and operations
of all kinds;
(5) to carry on a general financial agency, investment,
underwriting and brokerage business, and to act as agents and
brokers for the purchase, sale, improvement and management of
any property, business or undertaking;
(6) to subscribe for, underwrite, and acquire by purchase,
exchange or other legal title, and hold either absolutely, or
as holder by way of collateral security, or otherwise, and to
sell with or without guarantee, assign, transfer and otherwise
dispose of and deal in the stocks, bonds, debentures, shares,
scrip and securities of any government, any municipal and
school corporation, any banking, public utility, commercial
and industrial company or corporation;
(7) to carry on the business of capitalists and financiers in all
its branches;
2
<PAGE> 3
(8) to undertake the office of receiver, treasurer, registrar or
auditor, and to keep for any company, government authority, or
body, any register relating to any stocks, funds, shares or
securities, or to undertake any duties, in relation to the
registration of transfers, the issue of certificates or
otherwise;
(9) to carry on the business of an investment company in all its
branches and, in particular (but without limitation to the
generality of the foregoing words), to acquire and hold
shares, stocks, debentures, debenture stock, bonds, notes,
obligations and securities whether or not involving unlimited
liability, of or issued or guaranteed by any company or
corporation constituted or carrying on business in any part of
the world and whether public or private, and also to acquire
and hold debentures, debenture stock, bonds, notes,
obligations and securities, not involving unlimited liability,
of or issued or guaranteed by any government, sovereign ruler,
commissioners, public body or authority, national, municipal,
local or otherwise, or any agency of any such authority, or
any international body or authority whatsoever;
(10) to apply for purchase or otherwise acquire, and to protect and
renew in any part of the world any patents, patent rights,
brevets d'invention, trade marks, designs, licences,
concessions, and the like, conferring any exclusive or
non-exclusive or limited right to their use, or any secret or
other information as to any invention, which may seem capable
of being used for any of the purposes of the Company, or the
acquisition of which may seem calculated directly or
indirectly to benefit the Company, and to use, exercise,
develop or grant licences and charge royalties in respect of,
or otherwise turn to account the property, rights or
information so
3
<PAGE> 4
acquired and to expend money in experimenting upon, testing or
improving any such patents, inventions or rights;
(11) to act as managers for and to render services to other
persons, firms, companies and corporations in connection with
any property or business of any nature and generally to carry
on the business of a management company in all its branches;
(12) to produce, manufacture, adapt, prepare, distribute, buy,
sell, rent, lease, let on hire, import, export and otherwise
deal in, either as principal or as agent and either at
wholesale or at retail, goods, wares, products, materials,
articles and merchandise of every nature and kind whatsoever,
(13) to do a general commission merchant's and selling agent's
business; to buy, sell, and otherwise dispose of, hold, own,
manufacture, produce, export and import, and deal in, either
as principal or agent, and upon commission or otherwise, all
kinds of personal property whatsoever, without limit as to
amount; to make and enter into all manner and kinds of
contracts, agreements, and obligations by or with any person
or persons, company or companies, for the purchasing,
acquiring, manufacturing, repairing, selling, and dealing in
any article of personal property of any kind or nature
whatsoever, and generally with full power to perform any and
all acts connected with the same or arising therefrom or
incidental thereto, and all acts proper or necessary for the
purpose of the business, or conducive to its best interests;
(14) to purchase, take on lease or in exchange, or otherwise
acquire and hold any lands in The Commonwealth of the Bahamas,
or elsewhere, and any estate or interest therein, and any
rights over or connected with any such lands, and to pay for
the
4
<PAGE> 5
same in cash, or in the shares or other securities of the
Company or otherwise as the Company may see fit;
(15) to purchase for investment or resale, and to deal in land and
other property of any tenure and any interest therein, and to
make advances upon the security of land or other property, or
interest therein, and to deal in, traffic by way of sale,
mortgage, lease, exchange or otherwise with land and house
property and any other property whether real or personal and
generally to carry on the business of real estate agents and
dealers in all its branches;
(16) to lay out land for building purposes, and in connection
therewith to grade, fill, develop and to subdivide the same
into residential or business lots, or partly residential and
partly business lots; to sell such lots, and/or to build on,
improve, let on building leases, advance money to persons
building on, and otherwise develop the same, in such manner as
may seem expedient to advance the Company's interests; to
construct roads, streets, avenues, or highways, upon or
through its lands; to extend, continue, or connect such roads,
streets, avenues, or highways upon or through other real
property to be acquired; to lay out and establish such roads,
streets, avenues or highways and the extensions,
continuations, or connections thereof; and to construct drains
or sewers and such bridges or culverts as may be necessary to
maintain the grades of, or for the extension, continuation, or
connection of the roads, streets, avenues, or highways so laid
out, and to provide and maintain water, electrical and all
other utility services;
5
<PAGE> 6
(17) to appropriate any part or parts of the Company's property for
the purpose of and to build or let shops, offices, and other
places of business and to use or lease any part of the
property of the Company not required for the purposes
aforesaid for any purpose for which it may be conveniently
used or let;
(18) to carry on the business of a storekeeper in all its branches,
and in particular to buy, sell, manufacture, and deal in
goods, stores, consumable articles, chattels and effects of
all kinds, both wholesale and retail, and to transact every
kind of agency business, and generally to engage in any
business or transactions which may seem capable of being
profitably dealt with in connection with any of the said
businesses;
(19) to buy, sell, manufacture, alter, repair, improve, import,
exchange, hire, let on hire, manipulate, treat, prepare for
market, export and generally deal in plant, machinery,
apparatus, tools, utensils, commodities, products, materials,
merchandise, articles, and things whatsoever which may be
found convenient in carrying out any of the objects of the
Company, and generally to carry on business as merchants,
commission merchants, agents, importers, and exporters;
(20) to invest, re-invest and deal with the moneys and funds of the
Company not immediately required upon such securities and in
such manner as may from time to time be determined;
(21) to remunerate any person or company for services rendered, or
to be rendered, in or about the formation or promotion of the
Company or the conduct of its business;
6
<PAGE> 7
(22) to draw, make, accept, endorse, discount, execute and issue
promissory notes, bills of exchange, bills of landing,
warrants, debentures, and other negotiable or transferable
instruments;
(23) to sell, lease or otherwise dispose of the assets, property
and undertaking of the Company or any part thereof for such
consideration of the Company may think fit, and in particular
for shares, debentures, bonds, mortgages or other securities
of any other company;
(24) to lend and advance money or give credit to such persons and
on such terms as may seem expedient, and in particular to
shareholders, directors or officers of the Company, customers
and others having dealings with the Company, and to give
guarantees or become security for any such persons;
(25) to carry on any other business (whether manufacturing or
otherwise) which may seem to the Company capable of being
conveniently carried on in connection with the above, or
calculated directly or indirectly to enhance the value of or
render profitable any of the Company's property or rights;
(26) to acquire and undertake the whole or any part of the
business, property and liabilities of any person or company
carrying on any business which this Company is authorized to
carry on, or possessed of property suitable for the purpose of
this Company;
(27) to enter into partnership or any arrangement for sharing
profits, union of interests, cooperation, joint adventure,
reciprocal concession, or otherwise, with any person or
company carrying on or engaged in, or about to carry on or
engage in, any business or transaction which the Company is
authorized to carry on or engage in,
7
<PAGE> 8
or any business or transaction capable of being conducted so
as directly or indirectly to benefit the Company; and to lend
money to, guarantee the contracts of, or otherwise assist any
such person or company and to take or otherwise acquire shares
and securities of any such company, and to sell, hold,
re-issue, with or without guarantee, or otherwise deal with
the same;
(28) to enter into any arrangement with any governments or
authorities, supreme, municipal, local or otherwise, that may
seem conducive to the Company's objects, or any of them, and
to obtain from any such government or authority any rights,
privileges and concessions which the Company may think it
desirable to obtain and carry out, exercise and comply with
any such arrangements, rights, privileges and concessions;
(29) to conduct its business in foreign countries, and to have one
office, or more than one office, and to keep the books of the
Company outside of the Bahamas, except as otherwise may be
provided by law;
(30) (i) to procure the Company to be registered or
recognized in any part of the world outside of The
Commonwealth of the Bahamas;
(ii) to procure for the Company incorporation, or
constitution of a like nature, or as a Societe'
Anonyme in any foreign country or to procure
continuance of the Company under any Canadian or
other foreign law.
(31) from time to time to provide for the management of the affairs
of the Company abroad in such manner as the Company may think
fit, and in particular to appoint any person or persons to be
the Attorney or Attorneys or Agent or Agents of the
8
<PAGE> 9
Company with such powers (including power to sub-delegate) and
upon such terms as may be thought fit;
(32) to construct, maintain, and alter any buildings, or works,
necessary or convenient for the purposes of the Company;
(33) to borrow or raise or secure the payment of money, in such
other manner as the Company shall think fit, and, in
particular, by the issue of debentures or debenture stock
perpetual or otherwise, bonds, mortgages or other securities,
charged upon all or any of the Company's property (both
present and future), including its uncalled capital, and to
purchase, redeem or pay off any such securities;
(34) to obtain any provisional order or Act of the Legislature for
enabling the Company to carry any of its objects into effect,
or for effecting any modifications of the Company's
constitution, or for any other purposes which may seem
expedient, and to oppose any proceedings or applications which
may seem calculated directly or indirectly to prejudice the
Company's interests;
(35) to sell, improve, manage, develop, exchange, lease, mortgage,
dispose of, turn to account, or otherwise deal with all or any
part of the property and rights of the Company;
(36) to distribute in specie by way of dividend or otherwise, among
the shareholders, customers, or employees of the Company, any
shares or securities, belonging to the Company or any property
or assets of the Company;
(37) to amalgamate with any other company having objects altogether
or in part similar to those of this Company;
9
<PAGE> 10
(38) to invest the capital of the Company, accretions to capital
and the income of the Company or such part thereof as the
directors of the Company may determine in real estate,
mortgages, bonds, stocks, shares and other securities, and
from time to time to change said investment by sale, exchange
or otherwise, and to invest the proceeds of any sale or sales
in other investments of a like nature, and to lend money on
any personal property;
(39) to acquire any such investments as aforesaid by purchase,
original subscription, tender, participation in syndicates or
otherwise, and whether or not fully paid up, and to make
payments thereof as called up or in advance of calls or
otherwise, and to underwrite subscriptions for the same,
conditionally or otherwise;
(40) to issue paid up shares, debenture stock, debentures, bonds or
other securities of the Company in payment or part payment of
any property, shares, stocks, debentures, debenture stock,
bonds, obligations or other securities, rights and easements
which may be acquired by the Company and with the approval of
the shareholders or their duly appointed attorney or agent for
any services rendered to and work done for the Company and in
or towards the payment or satisfaction of debts and
liabilities owing by the Company;
(41) to advance money and to guarantee any obligations and
contracts of or otherwise assist and aid in any way any
company or corporation any of whose shares, stocks,
debentures, debenture stock, bonds, obligations or other
securities are held by the Company;
(42) to adopt such means of making known the products and business
of the Company as may seem expedient, and in particular by
advertising in the press, over the
10
<PAGE> 11
radio, by circulars, by purchase and exhibition of works of
art or interest, by publication of books and periodicals, and
by granting prizes, rewards and donations;
(43) to do all or any of the above acts and things and to have and
exercise all or any of the above powers in the same manner and
with the same force and effect as if the Company were an
individual or as principals, agents, attorneys, contractors,
trustees or otherwise and either alone or in conjunction with
others; and
(44) generally to do all such other things as are incidental or
conducive to the attainment of the above objects or any of
them.
None of the above sub-clauses or the objects therein specified or the
powers thereby conferred, shall be deemed subsidiary or auxiliary merely to the
objects mentioned in the first sub-clause or any subsequent sub-clause of this
clause, but the Company shall have full power to exercise all or any of the
powers conferred by any part of this clause in any part of the world, and
notwithstanding that the business, undertaking, property, or acts proposed to be
transacted, acquired, dealt with or performed do not fall within the objects of
the first sub-clause or any subsequent sub-clause of this clause.
4. Each member of the Company undertakes to contribute to the assets of
the Company in the event of the same bing wound up during the time that
he is a member, or within one year afterwards, for payment of the debts
and liabilities of the Company contracted before the time at which he
ceases to be a member, and of the costs, charges and expenses of
winding up the Company, and for the adjustment of the rights of the
contributories amongst themselves, such amount as may be required not
exceeding ten cents.
11
<PAGE> 12
WE, the several persons whose names and addresses are
subscribed, are desirous of being formed into a Company in pursuance of this
Memorandum of Association.
NAMES, ADDRESSES AND DESCRIPTIONS NO. OF SHARES TAKEN
OF SUBSCRIBERS BY EACH SUBSCRIBER
Carey Leonard
Attorney at Law
Nassau, Bahamas
Carol Ann Weatherford
Secretary
Nassau, Bahamas
Joan Mackey
Secretary
Nassau, Bahamas
Cypriana Burrows
Secretary
Nassau, Bahamas
Donna Wright
Secretary
Nassau, Bahamas
DATED this 12th day of June, 1979.
Witness to the above Signatures -
/s/ Sean McWeeney
12
<PAGE> 13
COMMONWEALTH OF THE BAHAMAS
New Providence
I, Sean McWeeney
of Nassau, Bahamas
make oath and say that I was present and saw:
Carey Leonard
Carol Ann Weatherford
Joan Mackey
Cypriana Burrows
Donna Wright
all of the said Island of New Providence sign and as and for their Act execute
the foregoing Memorandum of Association dated the 12th day of June A.D. 1979 for
the purposes therein mentioned; and that I subscribed my name as the witness to
the due execution thereof.
SWORN to this 13th
day of June
A.D. 1979
/s/ Sean McWeeney
Before me,
NOTARY PUBLIC.
13
<PAGE> 14
MINUTES of an extraordinary meeting of the shareholders of POLYDEX
CHEMICALS LIMITED (the "Corporation") held at the offices of the Corporation,
284 Bay Street, Nassau, Bahamas, on the 30th day of December, 1983, at the hour
of 1:30 o'clock in the afternoon (Nassau time).
The Chairman of the Board of directors, Mr. Thomas C. Usher, took the
chair and, with the consent of the meeting, U.S. counsel to the Company, Mr.
Mark Gasarch, acted as Secretary of the meeting.
With the consent of the meeting, Mr. Mark Gasarch also acted as
Scrutineer.
The Chairman stated that the notice calling the meeting and the
accompanying proxy statement and form of proxy had been mailed to all
shareholders of the Corporation and that additional copies of such material were
available at the meeting. With the consent of the meeting, the reading of the
notice of the meeting was dispensed with. The Chairman further stated that there
had been filed with him by the Secretary of the meeting proof of service of such
notice, proxy statement and form of proxy. A copy of such notice, proxy
statement and form of proxy with proof of service was directed to be annexed as
Schedule A to these minutes.
The Scrutineer then reported that there was a quorum of shareholders
present and the report of the Scrutineeer setting form the number of shares
represented in person or by proxy at the said meeting was directed to be annexed
as Schedule B to these minutes. The Chairman declared that the requisite quorum
of shareholders was present at the meeting and declared the meeting to be
properly constituted.
1
<PAGE> 15
CHANGE OF NAME
--------------
The Chairman then stated that the meeting has been called for the
purpose, among others, of considering and, if approved, confirming as a special
resolution the resolution passed at the Extraordinary General Meeting of the
shareholders held on the 15th day of December, 1983 to change the name of the
Corporation to Polydex Pharmaceuticals Limited.
On motion duly made and seconded the following resolution was placed
before the meeting:
BE IT RESOLVED that the name of the Corporation be changed to POLYDEX
PHARMACEUTICALS LIMITED.
A vote having been taken on the foregoing resolution on a show of
hands, the Chairman signed a ballot and declared that the resolution had been
confirmed by at lease a majority of the votes cast at the meeting and
accordingly declared that the resolution respecting the change in the name of
the Corporation to Polydex Pharmaceuticals Limited had been passed as a special
resolution of the Corporation.
AMENDMENT TO THE ARTICLES OF THE CORPORATION
TO UNPAIR ITS COMMON SHARES FROM THE
PREFERENCE SHARES OF POLYDEX CHEMICALS (CANADA) LIMITED
-------------------------------------------------------
The Chairman then stated that the meeting had been called also for the
purpose of considering and, if approved, confirming as a special resolution the
resolution passed at the Extraordinary General Meeting of the shareholders held
on the 15th day of December, 1983 authorizing an certain amendments to the
Articles of the Corporation to unpair its common shares from the preference
shares of Polydex Chemicals (Canada) Limited.
2
<PAGE> 16
On motion duly made and seconded the following resolution was placed
before the meeting:
BE IT RESOLVED
(a) that the Articles of Association be amended by the deletion
therefrom of the following:
1. From Article 7, beginning in the third line thereof,
of the words: "... and may be printed or reproduced
on the reverse side of the share certificate for the
Class A Preference Shares of Polydex Chemicals
(Canada) Limited."
2. Article 12(b) in its entirety.
(b) that all certificates issued in respect of the shares of the
Corporation be cancelled and that there be issued in lieu
thereof to the holders thereof new Certificates in a form to
be approved by the Directors.
A vote having been taken on the foregoing resolution on a show of
hands, the Chairman signed a ballot and declared that the resolution had been
confirmed by at least a majority of the votes cast as the meeting and
accordingly declared that the resolution respecting the amendment to the
Articles of the Corporation to unpair its common shares from the preference
shares of Polydex Chemicals (Canada) Limited had been passed as a special
resolution of the Corporation.
As a final matter, the Chairman informed the meeting that Polydex
Chemicals (Canada) Limited had on the 12th of December, 1983 approved the
unpairing and their shareholders had given their authorization for the amendment
of that Company's articles. The Chairman stated that accordingly the matters
resolved at the Corporation's meeting on the 15th of December, 1983 and at this
meeting would be effectuated as soon as the Board of the Corporation issued or
3
<PAGE> 17
caused the issue of the appropriate certificates in respect of such matters and
the Chairman indicated it was expected that the Board would issue such
certificates so that the matters would or could become effective on the 2nd of
April, 1984.
There being no further business, on motion duly made, seconded and
carried, the meeting then terminated.
/s/ T. C. Usher /s/ M. Gasarch
- -------------------------- -------------------------------
Chairman of the meeting Secretary of the meeting
4
<PAGE> 18
MINUTES of an extraordinary meeting of the shareholders of POLYDEX
CHEMICALS LIMITED (the "Corporation") held at the offices of the Corporation,
284 Bay Street, Nassau, Bahamas, on the 15th day of December, 1983, at the hour
of 4:00 o'clock in the afternoon (Nassau time).
The Chairman of the Board of directors, Mr. Thomas C. Usher, took the
chair and, with the consent of the meeting, U.S. counsel to the Company, Mr.
Mark Gasarch, acted as Secretary of the meeting.
With the consent of the meeting, Mr. Mark Gasarch also acted as
Scrutineer.
The Chairman stated that the notice calling the meeting and the
accompanying proxy statement and form of proxy had been mailed to all
shareholders of the Corporation and that additional copies of such material were
available at the meeting. With the consent of the meeting, the reading of the
notice of the meeting was dispensed with. The Chairman further stated that there
had been filed with him by the Secretary of the meeting proof of service of such
notice, proxy statement and form of proxy. A copy of such notice, proxy
statement and form of proxy with proof of service was directed to be annexed as
Schedule A to these minutes.
The Scrutineer then reported that there was a quorum of shareholders
present and the report of the Scrutineeer setting form the number of shares
represented in person or by proxy at the said meeting was directed to be annexed
as Schedule B to these minutes. The Chairman declared that the requisite quorum
of shareholders was present at the meeting and declared the meeting to be
properly constituted.
1
<PAGE> 19
CHANGE OF NAME
--------------
The Chairman then stated that the meeting had been called for the
purpose, among others, of considering and, if approved, passing a special
resolution authorizing a change in the name of the Corporation to Polydex
Pharmaceuticals Limited. The Chairman further stated that a copy of the proposed
special resolution was annexed as Schedule A to the notice calling this meeting.
On motion duly proposed as a special resolution and seconded the
following resolution was placed before the meeting:
WHEREAS it is considered to be in the best interests of the Corporation
to change its name as herein provided;
NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION AS
FOLLOWS:
(a) that the name of the Corporation be changed to POLYDEX
PHARMACEUTICALS LIMITED,
(b) that the change of name shall take effect only if:
1. All three resolutions substantially in the form set
forth in the proxy materials of the Corporation dated
October 31, 1983 are properly approved and, where
necessary, confirmed by the members of the
Corporation,
2. The shareholders of Polydex Chemicals (Canada)
Limited approve the unpairing of the Preference
Shares of Polydex Chemicals (Canada) Limited from the
Common Shares of the Corporation, and
3. The shareholders of Polydex Chemicals (Canada)
Limited authorize an amendment to the Articles of
that Corporation to reduce the appraised amount of
all of the Preference Shares to U.S. $0.24, and
(c) that any one director or officer of the Corporation be and he
is hereby authorized and directed to execute under the seal if
required and deliver, for and on behalf of the Corporation,
all documents and to do all things necessary or desirable to
effect the implementation of the change of name and verify or
certify that the conditions have been satisfied and that the
resolution for the change of name has been effectuated.
2
<PAGE> 20
A vote having been taken on the foregoing resolution on a show of
hands, the Chairman signed a ballot and declared that the resolution had been
passed by at least three-fourths (3/4 of the votes cast at the meeting.
INCREASE IN THE NUMBER OF DIRECTORS
-----------------------------------
The Chairman then stated that the meeting had been called also for the
purpose, among others, of considering and, if approved, passing an ordinary
resolution authorizing an increase in the maximum number of directors of the
Corporation from six to fifteen. The Chairman further stated that a copy of the
proposed resolution was annexed as Schedule A to the notice calling this
meeting.
On motion duly made and seconded the following resolution was placed
before the meeting:
WHEREAS it is considered to be in the best interests of the Corporation
to increase the maximum number of Directors as herein provided;
NOW THEREFORE BE IT RESOLVED AS AN ORDINARY RESOLUTION AS FOLLOWS:
(a) that the maximum number of directors permitted by Article 53
of the Articles of Association be increased from six to
fifteen,
(b) that the increase in numbers shall take effect only if:
1. All three resolutions substantially in the form set
forth in the proxy materials of the Corporation dated
October 31, 1983 are properly approved and, where
necessary, confirmed by the members of the
Corporation,
2. The shareholders of Polydex Chemicals (Canada)
Limited approve the unpairing of the Preference
Shares of Polydex Chemicals (Canada) Limited from the
Common Shares of the Corporation, and
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3. The shareholders of Polydex Chemicals (Canada)
Limited authorize an amendment to the Articles of
that Corporation to reduce the appraised amount of
all of the Preference Shares to U.S. $0.24, and
(c) that any one director or officer of the Corporation be and he
is hereby authorized and directed to execute and deliver, for
and on behalf of the Corporation, all documents and to do all
things necessary or desirable to effect the implementation of
the increase in maximum of Directors, and verify or certify
that the conditions have been satisfied and that the
resolution for the increase in number has been effectuated.
A vote having been taken on the foregoing resolution on a show of
hands, the Chairman signed a ballot and declared that the resolution had been
passed by at least a majority of the votes cast at the meeting and accordingly
declared that the resolution respecting the increase in the maximum number of
directors of the Corporation from six to fifteen had been passed as an ordinary
resolution of the Corporation.
AMENDMENT TO THE ARTICLES OF THE CORPORATION
TO UNPAIR ITS COMMON SHARES FROM THE
PREFERENCE SHARES OF POLYDEX CHEMICALS (CANADA) LIMITED
-------------------------------------------------------
The Chairman then stated that the meeting had been called for the
further purpose, among others, of considering and, if approved, passing a
special resolution authorizing an amendment to the Articles of the Corporation
to unpair its common shares from the preference shares of Polydex Chemicals
(Canada) Limited. The Chairman further stated that a copy of the proposed
special resolution was annexed as Schedule A to the notice calling this meeting.
On motion duly proposed as a special resolution and seconded the
following resolution was placed before the meeting;
WHEREAS it is considered to be in the best interests of the Corporation
to amend its Articles as herein provided;
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<PAGE> 22
NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION AS FOLLOWS:
(a) that the Articles of Association be amended by the deletion
therefrom of the following:
1. From Article 7, beginning in the third line thereof,
of the words:
".... and may be printed or reproduced on the reverse
side of the share certificate for the Class A
Preference Shares of Polydex Chemicals (Canada)
Limited."
2. Article 12(b) in its entirety.
(b) that all certificates issued in respect of the shares of the
Corporation be cancelled and that there be issued in lieu
thereof to the holders thereof new Certificates in a form to
be approved by the Directors.
(c) that the amendmend to the Articles and the cancellation and
issue of certificates shall take effect only if:
1. All three resolutions substantially in the form set
forth in the proxy materials of the Corporation dated
October 31, 1983 are properly approved and, where
necessary, confirmed by the members of the
Corporation,
2. The shareholders of Polydex Chemicals (Canada)
Limited approve the unpairing of the Preference
Shares of Polydex Chemicals (Canada) Limited from the
Common Shares of the Corporation, and
3. The shareholders of Polydex Chemicals (Canada)
Limited authorize an amendment to the Articles of
that Corporation to reduce the appraised amount of
all of the Preference Shares to U.S. $0.24, and
(d) That any one director or officer of the Corporation be and he
is hereby authorized and directed to execute under the seal if
required and deliver, for and on behalf of the Corporation all
documents and to do all things necessary or desirable to
effect the amendment to the Articles of Association of the
Corporation as described herein, including the execution and
delivery of a Certificate in prescribed form to the
appropriate regulatory authorities in the Bahamas, and
otherwise to effect the implementation of these resolutions
and to unpair the transfer of shares of the Corporation.
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<PAGE> 23
A vote having been taken on the foregoing resolution on a show of
hands, the Chairman signed a ballot and declared that the resolution had been
passed by at least three-fourths (3/4) of the votes cast as the meeting.
There being no further business, on motion duly made, seconded and
carried, the meeting then terminated.
/s/ T. C. Usher /s/ M. Gasarch
- --------------------------- ------------------------------
Chairman of the meeting Secretary of the meeting
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<PAGE> 1
Exhibit 3.2
CERTIFIED COPY OF CORPORATE RESOLUTION
OF
POLYDEX PHARMACEUTICALS LIMITED
Registration No.: 24,178
I, Sarah M. Lobosky, Assistant Secretary of Polydex Pharmaceuticals Limited, DO
HEREBY CERTIFY that the following is a true and correct copy of resolutions
passed by a majority vote of the Shareholders of Polydex Pharmaceuticals Limited
(the "Company") at a meeting held on the Twenty-ninth day of September, A.D.,
1995;
RESOLVED:
1. That the authorized share capital of the Company be increased from
US$81,650.00 divided into 40,000,000 Common Shares of $0.0016 (the 6 recurring)
par value each, 1,000,000 "A" Preferred Shares of $0.01 par value each and
2,994,000 "B" Preferred Shares of $0.0016 (the 6 recurring) par value each to
US$91,650.00 divided into 40,000,000 Common Shares of $0.0016 (the 6 recurring)
par value each, 1,000,000 "A" Preferred Shares of $0.01 par value each and
8,994,000 "B" Preferred Shares of $0.0016 (the recurring) par value each.
2. That the Articles of Association of the Company be amended by the deletion of
the first paragraph of Article 2(a) in its entirety and the substitution
therefor of the following new first paragraph of Article 2(a):
SHARE CAPITAL
2 (a) The Capital of the Company is $91,650.00 in the currency of the United
States of America divided into 1,000,000 "A" Preferred Shares of $0.01 par value
each, 8.994,000 "B" Preferred Shares of $0.0016 (the 6 recurring) par value each
and 40,000,000 Common Shares of $0.0016 (the 6 recurring) par value each and
such A Preferred Shares shall confer upon their holders the following rights,
that is:
Dated the 27th, day of February A.D., 1996.
POLYDEX PHARMACEUTICALS LIMITED
By: Sarah M. Lobosky
Assistant Secretary
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<PAGE> 2
CERTIFIED COPY OF CORPORATE RESOLUTION
OF
POLYDEX PHARMACEUTICALS LIMITED
Registration No.: 24,178
I, Sarah M. Lobosky, Assistant Secretary of Polydex Pharmaceuticals Limited, DO
HEREBY CERTIFY that the following is a true and correct copy of a resolution
passed by a majority vote of the Shareholders of Polydex Pharmaceuticals Limited
(the "Company") at a meeting held on Twentieth day of July, A.D., 1994:
RESOLVED THAT the Articles of Association of the Company be amended in the
following respects:
1 (a) That the following words be inserted at the end of Article 54 which shall
continue:
"...and may determine in what rotation such increased or reduced number is to go
out of office."
(b) That Article 66 be re-designed as Article 66A.
(c) That the following new Articles 66B and 66C be inserted after Article 66A:
66B. At the Annual General Meeting to be held in 1994, the Members shall
appoint up to one-third of the complement of the Board for one year term, up to
one-third of the complement of the Board for a two year term and up to
one-third of the complement of the Board for a three year term to the intent
that there shall be rotation of the Directors on a three year cycle.
Consequently, at the Annual General Meeting to be held in 1995, the Directors
appointed in 1994 for one year shall retire and they or their successors shall
be reappointed or appointed and the case may be for a three year term; at the
annual General Meeting to be held in 1996 the Directors appointed in 1994 for a
two year term shall retire and they or their successors shall be reappointed or
appointed as the case may be for a three year term; and at the Annual General
Meeting to be held in 1997 and in each subsequent year the Director (or
Directors, up to one-third of the complement of the Board) who have been
longest in office (being those then completing their three year term) shall
retire.
66C. Notwithstanding the provisions of Article 66A, a retiring Director shall
hold office until the dissolution or adjournment of the meeting at which his
successor is elected.
(d) That the following words be inserted at the end of Article 68 which shall
continue:
"........and so that where an appointment is made to a casual vacancy the term
of the appointment shall not exceed the term for which the predecessor would
have held office if he had continued for his full term."
2. That any one director or officer of the Company be and he is hereby
authorized and directed to execute and deliver, for and on behalf of the
Company, all documents and to do all things necessary or desirable to effect the
amendment to the Articles of Association of the Company as described herein,
including the execution and delivery of Articles of Amendment in prescribed form
to the appropriate regulatory authorities in The Bahamas, and otherwise to
effect the implementation of this resolution.
Given under the Common Seal of the
Company of this 26 day of
August 1994;
/s/ Sarah Lobosky
Assistant Secretary
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<PAGE> 3
CERTIFIED COPY OF CORPORATE RESOLUTION
OF
POLYDEX PHARMACEUTICALS LIMITED
Registration No.: 24,178
I, Sarah M. Lobosky, Assistant Secretary of Polydex Pharmaceuticals Limited, DO
HEREBY CERTIFY that the following is true and correct of resolutions passed by a
majority vote of the Shareholders of Polydex Pharmaceuticals Limited (the
"Company") at a meeting held on the Thirteenth day of October, A.D. 1993:
RESOLVED:
1. That the capital of the Company be increased from US$64,990.00 divided into
30,000,000 Ordinary shares of $0.0016 each (the 6 recurring), 1,000,000 A
preferred shares of $0.001 each and 2,994,000 B preferred shares of $0.0016 each
(the 6 recurring) to US$81,650.00 divided into 40,000,000 Ordinary shares of
$0.0016 each (the 6 recurring), 1,000,000 A preferred shares of $0.01 each and
2,994,000 B preferred shares of $0.0016 each (the 6 recurring).
2. That the Articles of Association of the Company be amended by the deletion of
the first paragraph or Article 2(a) in its entirety and the substitution
therefor of the following new first paragraph of Article 2(a):
SHARE CAPITAL
2(a) The Capital of the Company is $81,650.00 in the currency of the United
States of America divided into 1,000,000 A Preferred Shares of $0.01 each,
2,994,000 B Preferred Shares of $0.0016 (the 6 recurring) each and 40,000,000
Ordinary Shares of $0.0016 (the 6 recurring) each and such A Preferred Shares
shall confer upon their holders the following rights, that is:
Dated the Seventh day of December, A.D., 1993.
POLYDEX PHARMACEUTICALS LIMITED
By: Sarah M. Lobosky,
Assistant Secretary
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<PAGE> 4
CERTIFIED COPY OF CORPORATE RESOLUTION
OF
POLYDEX PHARMACEUTICALS LIMITED
Frank J. Cooney, Secretary of Polydex Pharmaceuticals Limited, does hereby
certify that the following is a true and correct copy of a resolution passed by
a majority vote of the Shareholders of Polydex Pharmaceuticals Limited (the
"Corporation") at a meeting held on August 20, 1990:
BE IT RESOLVED THAT the capital of the Company be increased from US $49,990.00
divided into 21,000,000 Ordinary shares of $0.0016 each (the 6 recurring),
1,000,000 A preferred shares of $0.01 each and 2,994,000 B preferred shares of
$0.0016 each (the 6 recurring) to US $64,990.00 divided into 30,000,000 Ordinary
shares of $0.0016 each (the 6 recurring), 1,000,000 A preferred shares of $0.01
each and 2,994,000 B preferred shares of $0.0016 each (the 6 recurring).
POLYDEX PHARMACEUTICALS LIMITED
By, Frank J. Cooney, Secretary
(Corporate Seal)
Boynton Beach, Florida
July 22, 1991
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<PAGE> 5
THE COMPANIES ACT
COMPANY LIMITED BY GUARANTEE AND
HAVING A CAPITAL DIVIDED INTO SHARES
SPECIAL RESOLUTIONS
OF
POLYDEX PHARMACEUTICALS LIMITED
At the Annual General Meeting of the Members of the Company duly convened and
held at the offices of the Company, Second Floor, 284 Bay Street, Nassau,
Bahamas on the 14th day of September, 1987 the following Resolution was duly
passed as a Special Resolution:-
RESOLUTION
The Special Resolution attached hereto
as Schedule A was passed,
At an Extraordinary General Meeting of the Members of the Company duly convened
and held at the same place on the 30th day of September, 1987 the following
Resolution was duly passed as an Ordinary Resolution:-
RESOLUTION
The Special Resolution attached hereto
as Schedule A, previously passed, was
confirmed.
Dated the 30th day of September, A.D. 1987.
Secretary
SCHEDULE A
Special Resolution Reclassifying the Capital of the Company into Ordinary
(Common) and Preferred Shares.
RESOLVED:
1. That the authorized capital of the Company of US$49,990.00 presently divided
into 29,994,000 shares of $0.0016 (the 6 recurring) be restructured to comprise
more than one class,
2. That the shares in the capital of the Company which are presently issued and
outstanding being 14,294,603 in number be classified as Ordinary shares.
3. That the shares in the capital of the Company which are presently unissued
being 15,699,397 in number be classified as follows: -
(1) 6,705,397 shares thereof as Ordinary Shares;
(2) 6,000,000 shares thereof as A Preferred Shares; and
(3) 2,994,000 shares thereof as B Preferred Shares.
4. That pursuant to the provisions of Article 18 (b) of the Articles of
Association of the Company the said 6,000,000 shares of par value $0.0016 (the 6
recurring) each presently unissued, now classified as A Preferred Shares, be
consolidated such that for every 6 shares thereof 1 share of par value $0.01 be
obtained,
5. That the Articles of Association of the Company be amended by the deletion of
Article 2 in its entirety and the substitution therefor of the following new
Article.
SHARE CAPITAL
2 (a) The capital of the Company is $49,990.00 in the Currency of the United
States of America divided into 1,000,000 A Preferred Shares of $0.01 each,
2,994,000 B Preferred Shares of $0.0016 (the 6 recurring) each and 21,000,000
Ordinary Shares of $0.0016 (the 6 recurring) each and such A Preferred Shares
shall confer upon their holders the following rights, that is;
1. the right out of the profits of the Company resolved under the Articles of
Association to be distributed to a fixed cumulative preferential dividend at the
percentage rate per annum on the capital for the time being paid up thereon as
shall be determined by resolution of the Board of Directors prior to the issue
thereof;
2. the right of ranking in a winding up as regards return of capital and payment
of arrears of dividend down to the commencement of the winding up (whether
earned or declared or not) in priority to the Ordinary Shares but shall not
confer the right to any further participation in profits or assets; and
3. the right, upon terms and conditions to be fixed by the Company's Board of
Directors, to convert all or part of their A Preferred Shares into Ordinary
Shares of the Company.
And the holder thereof shall be subject to the following, that is
(i) the right of the Company to require the holder to convert part or the whole
of A Preferred Shares held by him into Ordinary Shares in accordance with the
provisions of the next following paragraph (b) of this Article; and
(ii) the right of the Company to redeem part or the whole of the A Preferred
Shares held by him on the terms set out in the next following paragraph (c) of
this Article.
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<PAGE> 6
(b) The Company shall be entitled from time to time and at any time prior to
the commencement of the winding-up of the Company to convert part or the whole
of the A Preferred Shares into Ordinary Shares by notice to the holders thereof
stating that it thereby converts the number of shares specified in the said
notice. The notice shall take effect ten (10) days after same being sent
certified mail, return receipt requested, postage prepaid to all holders
thereof and thereupon the A Preferred Shares comprised in the notice shall be
automatically converted into and thenceforth be called and known as Ordinary
Shares which will rank pad passu in all respects with the remaining Ordinary
Shares. All rights to the accruing preference dividend on such shares shall be
extinguished and the shares shall participate in full in all dividends declared
on the Ordinary Shares thereafter except in respect of the financial year
immediately preceding the financial year in which the conversion was effected
and on the footing that the shares had at all times from and including the
commencement of the financial year in which the same were converted Into
Ordinary Shares. Forthwith upon any such conversion the Company shall issue to
the holder a new certificate for the Shares so converted as Ordinary Shares
comprised in the the Certificates required by the notice to be deposited at the
office of the Company.
(c) The Company shall be entitled from time to time and at any time prior to
the commencement of the winding up of the Company to redeem part or the whole of
the A Preferred Shares by notice the holders thereof and on such terms as shall
be determined by resolution of the Board of Directors prior to the issue
thereof.
(d) Upon any increase of capital the Company is at liberty to issue any new
shares with any preferential deferred qualified or special rights, privileges or
conditions attached thereto.
(e) the whole of the unissued Shares of the Company for the time being shall be
under the control of the Directors who may allot or otherwise dispose of the
same to such persons on such terms and conditions and at such times as the
Directors think fit and by resolution prior to their issue shall determine
provided that no share shall be issued until it is fully paid.
6. That any one director or officer of the Company be and he is hereby
authorized and directed to execute and deliver, for and on behalf of the
Company, all documents and to do all things necessary or desirable to effect the
amendment to the Articles of Association of the Company as described herein,
including the execution and delivery of Articles of Association in prescribed
form to the appropriate regulatory authorities in the Bahamas, and otherwise to
effect the implementation of this resolution.
6
<PAGE> 7
The Companies Act
COMPANY LIMITED BY GUARANTEE AND HAVING A
CAPITAL DIVIDEND INTO SHARES
ARTICLES OF ASSOCIATION
of
POLYDEX CHEMICALS LIMITED
1. In the interpretation of these presents, unless there be something in the
subject or context inconsistent therewith:
"The Act: or "the Statute" means The Companies Act of The Bahamas as amended
from time to time;
"Special Resolution: and "Extraordinary Resolution" have the meanings assigned
thereto respectively by the Act;
"the Directors" means the Directors for the time being;
"the Office" means the registered office for the time being of the Company;
"the Register" means the register of members to be kept pursuant to The
Companies Act;
"month" means calendar month;
" in writing" and "written" include printing, lithography and other modes of
representing or reproducing words in a visible form. Words importing the
singular number only include the plural number and vice versa;
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<PAGE> 8
"Secretary" shall include any person appointed by the Directors to perform any
of the duties of the Secretary, and where any person is appointed to act as an
Assistant Secretary, shall include such person;
"member" and "shareholder" means a registered holder for the time being of an
issued share of the Company and any person, firm or corporation who presents a
transfer of shares to the Company for registration or on whose behalf such a
transfer is so presented shall be deemed to have agreed to become a member of
the Company;
"Treasurer" shall mean any person appointed by the Directors to perform any of
the duties of the Treasurer, and where any person is appointed to act as an
Assistant Treasurer, shall include such person. Words importing persons include
corporations.
SHARE CAPITAL
2. (a) the capital of the Company is fifty thousand dollars ($50,000.00) in the
currency of the United States of America divided into five million (5,000,000)
shares of a par value of one dollar ($0.01) each, with power to divide the
shares in the capital for for the time being into several classes, and to attach
thereto respectively any preferential, deferred, qualified or special rights,
privileges or conditions, whether as to voting or otherwise;
and
(b) the whole of the unissued shares of the Company for the time being shall
consist of one class of shares and shall be under the control of the Directors
who may allot or otherwise dispose of the same to such persons on such terms and
conditions and at such times as the Directors think fit provided that no share
shall be issued until it is fully paid.
SHAREHOLDERS
3. Save as herein otherwise provided, the Company shall be entitled to treat the
registered holder of any share as the absolute owner thereof and accordingly
shall not, except as ordered by a Court of competent jurisdiction or as by the
Act required, be bound to recognize any equitable or other claim to or interest
in such share on the part of any other person and the Company shall not be bound
to see the execution of any trust whether express or implied or constructive
in respect of any share.
4. If several persons are registered as joint holders of any shares the first
named upon the Register shall, as regards service of notices, be deemed the
sole owner thereof. Any of such persons may give effectual receipt for
dividends.
5. For the purposes of the quorum, joint holders of any voting shares shall be
considered as one number.
SHARE CERTIFICATES
6. Every registered holder of any share shall be entitled without payment to
receive within two months after allotment or registration of transfer one
certificate for all shares of any one class held by such person, or several
certificates each for one or more of his shares of any one class. Where a member
transfers part only of the shares comprised in the certificate shall be
cancelled and a new certificate for the balance of such shares issued in lieu
thereof without charge.
7. Share certificates (and the form of share transfer thereon) shall be in such
form as the Directors may from time to time approve and may be printed or
reproduced on the reverse side of the share certificates for the Class A
preference shares of Polydex Chemicals (Canada) Limited. Every certificate shall
be issued under the seal of the Company which may be a facsimile and shall be
signed by the Chairman of the Board (if any), the Vice-Chairman (if any), the
President or a Vice-President and the Secretary or an Assistant Secretary (if
any) holding office at the time of signing and notwithstanding any change in the
persons holding such offices between the time of actual signing and the issuance
of any certificate and notwithstanding that the Chairman of the Board, the
Vice-Chairman, the President or Vice-President or Secretary or
Assistant-Secretary signing may not have held office at the date of the issuance
of such certificate, any such certificate so signed and sealed shall be valid
and binding upon the Company. Every certificate shall specify the number of
shares to which it relates and shall state that such shares are fully paid. The
Company
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<PAGE> 9
shall not be bound to register more than three persons as the joint holders of
any shares (except in the case of executors or trustees or a deceased member)
and the Company shall not be bound to issue more than one certificate for a
share held jointly by several persons and delivery of a certificate to one joint
holder shall be sufficient delivery to all.
8. Notwithstanding the provisions of clause 7 hereof, the signature of the
Chairman of the Board, the Vice-Chairman, the President or Vice-President may be
printed, engraved, lithographed or otherwise mechanically reproduced upon
certificates for shares in the capital of the Company and certificates so signed
shall be deemed to have been manually signed by the Chairman of the Board, the
Vice-Chairman, the President or Vice-President whose signature is so printed,
engraved, lithographed or otherwise mechanically reproduced thereon and shall be
as valid to all intents and purposes as if they had been signed manually.
Where the Company has appointed a transfer agent, the signature of the Secretary
or Assistant-Secretary may also be printed, engraved, lithographed or otherwise
mechanically reproduced and when countersigned by or on behalf of a transfer
agent or branch transfer agent, share certificates so signed shall be as valid
to all intents and purposes as if they had been signed manually.
9. In case of the defacement, destruction, theft or loss of a certificate for
shares held by any shareholder, the fact of such defacement, destruction, theft
or loss shall be reported to the Company or to a transfer agent or branch
transfer agent of the Company, if any, with a statement verified by oath or
statutory declaration as to the defacement, destruction, theft or loss and the
circumstances concerning the same and with the request for the issuance of a new
certificate to replace the one so defaced, destroyed, stolen or lost. Upon
giving to the Company, (or if there be a transfer agent and/or branch transfer
agent or agent and/or registrar and/or branch registrar or registrars,
hereinafter in this paragraph collectively referred to as the "Company's
transfer agents and registrars", then to the Company and the Company's transfer
agents and registrars) of a bond of a surety company or other security approved
by the Directors and in such form as is approved by the Directors or by the
Secretary or the Treasurer of the Company indemnifying the Company and the
Company's transfer agents and registrars, if any, against all loss, damage or
expense to which the Company and/or the Company's transfer agents and
registrars, may be put or be liable to by reason of the issuance of a new
certificate to such shareholder, a new certificate may be issued in replacement
of the one defaced, destroyed, stolen or lost if such issuance is order and
authorized by the Chairman of the Board of Directors (if any) or the President
or the Secretary or the Treasurer of the Company or by resolution of the
Directors.
10. All transfers of shares may be effected by transfer in such form as the
Directors may approve.
11. The instrument of transfer of a share shall be executed by the transferor or
by the transferor's attorney duly authorized and, if required by the
Directors, the transferee, and the transferor shall be deemed to remain the
holder of the share until the name of the transferee is entered in the Register
in respect thereof.
12. The Directors shall refuse to permit the registration of a transfer of fully
paid shares into the name of a transferee where the necessary Exchange Control
approval has not been obtained. The Directors may also refuse to permit the
registration of a transfer of fully paid shares registered in the name of a
member who is indebted to the Company provided that such shares are not at
such time listed on a stock exchange located any where in North America and
recognized by the law of the country of location.
b) The transfer of shares of the Company shall be restricted in that until
Polydex Chemicals (Canada) Limited, a corporation continued under the Canada
Business Corporations Act by articles of continuance redeems or purchases for
cancellation all the issued and outstanding 8% non-cumulative, redeemable
non-voting Class A preference shares without nominal or par value in the capital
stock of the said corporation, no transfer or other disposition of any common
share of a par value of U.S. $.01 the Company shall be effective unless a
simultaneous transfer or disposition is made by the same transferor's to the
same transferee of an equal number of Class A preference shares of Polydex
Chemicals (Canada) Limited.
13. The Directors may decline to recognize any instrument of transfer, unless
the instrument of transfer is deposited at the Office or if there be a transfer
agent and/or a branch transfer agent or agents and/or registrar and/or branch
registrar or registrars at any of the offices thereof or at such other place
or places as the Directors may appoint, accompa-
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<PAGE> 10
nied by the certificate for the shares to which the instrument of transfer
relates and such other evidence as the Directors may reasonably require to show
the right of the transferor's to make the transfer and, if the instrument of
transfer is executed by an attorney on the transferor's behalf, the authority of
the attorney so to do. All instruments of transfer may be retained by the
Company following registration.
14. The Directors may by resolution close the Register and the branch register
or registers, if any, for a period of time not exceeding forty-eight hours,
exclusive of Saturdays and holidays, immediately preceding any meeting of the
members.
TRANSMISSION OF SHARES
15. In case of the death of a shareholder, the survivors or survivor where the
deceased was a joint holder, and the executors or administrators of the estate
of the deceased where he was a sole or only surviving holder, shall be the only
person recognized by the Company as having any title to his interest in the
shares.
16. Any person becoming entitled to a share in consequence of the death or
bankruptcy of a member (upon supplying to the Company such evidence as the
Directors may reasonably require to show his title to the share) may, subject as
hereinafter provided, either be registered himself as holder of the share upon
giving notice to the Company of his desire to be so registered, or transfer such
share to some other person. All the limitations, restrictions and provisions
contained herein relating to the right to transfer and the registration of
transfers of shares shall be applicable to any such notice or transfer as
aforesaid as if the death or bankruptcy of the member had not occurred and the
notice or transfer were a transfer executed by such member.
17. Save as otherwise provided herein, a person becoming entitled to a share in
consequence of the death or bankruptcy of a member (upon supplying to the
Company such evidence as the Directors may reasonably require to show his title
to the share) shall be entitled to the same dividends and other advantages to
which he would be entitled if he were the registered holder of the share except
that he shall not be entitled in respect thereof to exercise any right conferred
by membership in relation to meeting of the Company until he shall have been
registered as a member in respect of the share.
ALTERATION OF CAPITAL
18. The members may by Ordinary Resolution:
a) increase the authorized capital of the Company by the creation of new
shares of such amount as may be deemed expedient; all new shares shall be
subject to the provisions contained herein with reference to allotment, lien,
transfer, transmission and otherwise;
b) consolidate and divide all or any of the share capital into shares of larger
amount than its existing share;
c) convert all or any of the paid-up shares into stock and re-convert that stock
into paid-up shares of any denomination;
d) subdivide the shares or any of them into shares of smaller amount than is
fixed by these Articles of Association, so however that in the subdivision the
proportion between the amount paid and the amount (if any) unpaid on each
reduced share shall be the same as it was in the case of the share from which
the reduced share is derived; or
e) cancel any shares belonging to the company (including shares which at the
date of the passing of the resolution in that behalf have not been taken or
agreed to be taken by any person) and diminish the amount of its share capital
by the amount of the shares so cancelled;
f) reduce the shares or the share capital of the Company.
19. When authorized by the Directors, the Company may:
a) accept from any shareholder a donation of his shares without any
repayment of capital in respect thereof;
and
b) notwithstanding subclause 18 (f), purchase or otherwise acquire shares
issued by it, provided that the Company shall not make any payment to or
otherwise acquire shares issued by it if there are reasonable grounds for
believing that:
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<PAGE> 11
(i) the company is, or would after the payment be, unable to pay its
liabilities as they become due; or
(ii) the realizable value of the Company's assets would after the
payment be less than the aggregate of its liabilities and paid-up capital of
all classes.
c) Notwithstanding subclause 18(f) and subclause 19(b) the Company may
purchase or otherwise acquire shares issued by it to
(i) settle or compromise a debt or claim asserted by or against the
Company;
(ii) eliminate fractional shares; or
(iii) fulfill the terms of a non-assignable agreement under which the
corporation has a option or is obliged to purchase shares owned be a director,
an officer or an employee of the Company provided that the Company shall not
make any payment to purchase or acquire under this subclause shares issued by
it if there are reasonable grounds for believing that
(iv) the Company is, or would after the payment, be unable to pay its
liabilities as they become due; or
(v) the realizable value of the Company's assets would, after the
payment, be less than the aggregate of its liabilities and the amounts required
for payment on a redemption or in a liquidation of all shares the holders of
which have a right to be paid prior to the holders of the shares to be
purchased or acquired.
Where the Company accepts from any shareholder a donation of his shares without
any repayment of capital in respect thereof or purchases or otherwise acquires
any of the Company's shares in accordance with subclauses 19 (b) or 19 (c)
above, the Directors may:
(i) cancel the shares at such time as they determine, in which case the
authorized and issued capital of the Company are thereby decreased and these
Articles of Association are amended accordingly; or
(ii) resell the shares at such time and price and on such terms as they
determine.
20. The Directors may from time to time at their discretion, raise or borrow or
secure the payment of any sum or sums of money on the credit of the Company for
the purposes of the Company.
21. The Directors may raise or secure the payment or repayment of such money in
such manner and upon such terms and conditions in all respects as they think fit
and in particular by the issue of bonds, mortgages, debentures or debenture
stock perpetual of otherwise, notes or other obligations of the Company charged
upon all or any part of the property of the Company (both present and future).
22. Debentures, debenture stock and other securities may be made assignable,
free from any equities, between the Company and the person to whom the same may
be issued.
23. The Directors may from time to time authorize one or more directors,
officers or employees of the company or other persons, whether connected with
the the Company or not, to sign, execute and give on behalf of the Company all
documents, agreements and promises necessary or desirable for the purposes set
out in sections 20, 21 and 22 and to draw, make, accept, endorse, execute and
issue cheques, promissory notes, bills of exchange, bills of lading and other
negotiable or transferable instruments and the same and all renewals thereof or
substitution therefor so signed shall be binding upon the Company.
GENERAL MEETINGS OF MEMBERS
24. The first annual general meeting of members shall be held at such time (not
being more than twelve months) after the registration of the Company as the
subscribers to the Memorandum of Association may determine in the City of Nassau
in the Island of New Providence or at such other place as may be prescribed by
the subscribers to the Company's Memorandum of Association.
25. Subsequent annual general meetings of the members shall be held in each and
every year at such time (within a period of not more than eighteen months after
the holding of the last preceding annual general meeting) at the Office of the
Company or at such other place as may be prescribed by the Directors.
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<PAGE> 12
26. All other general meetings of the members of the Company are sometimes
herein referred to as extraordinary general meetings.
27. The Directors may whenever they think fit, and shall on requisition in
accordance with the provisions of the next succeeding paragraph hereof, proceed
to convene an extraordinary general meeting.
28. The holders of not less than 5% of the issued shares of the Company that
carry the right to vote at a meeting sought to be held may in writing signed by
the addressed to the Secretary and sent by registered post to or left at the
Office requisition an extraordinary general meeting of the Company and shall
specify a resolution or resolutions to be proposed at such extraordinary general
meeting as a special resolution or otherwise and may require that a memorandum
not exceeding 200 words in length and approved by the requisitions be prepared
at the Company's expense and enclosed with each notice of extraordinary general
meeting so convened. Upon receipt of the requisition, the Directors shall
forthwith call an extraordinary general meeting of the members for the
transaction of the business stated in the requisition. If the Directors do no
within twenty-one days from the date of the receipt of the requisition call and
hold such meeting, any of the requisitionists may call such meeting which shall
be held within sixty days from the date of the deposit of the requisition. Any
reasonable expenses incurred by the requisitionists by reason of the failure of
the Directors to call such meeting shall be paid to the requisitions by the
Company.
29. Twenty-one days' notice at the least (exclusive of the day on which it is
given and inclusive of the day for which it is given) of all general meetings of
members specifying the place, the day and the hour of meeting and in case of
special business the general nature of such business shall be given to the
members in manner hereinafter mentioned or in such manner, if any, as may be
prescribed by the members in general meeting; but the non-receipt of such notice
by any member shall not invalidate the proceedings at any meeting.
30. (a) Every notice calling a general meeting shall specify the place and the
day and the hour of the meeting and other shall appear with reasonable
prominence in every such notice a statement that a member entitled to attend and
vote is entitled to appoint a proxy to attend and vote instead of him and that a
proxy need not be a member of the Company.
(b) In the case of an annual general meeting, the notice shall also specify the
meeting as such.
(c) In the case of any annual general meeting at which business other than
routine business is to be transacted, the notice shall specify the general
nature of such business and in the case of any extraordinary general meeting the
notice shall specify the general nature of all of the business to be transacted;
and in each case, if any resolution is to be proposed as a Special Resolution,
the notice shall contain a statement to the effect.
(d) General meetings of members may be held without previous notice if all
members entitled to be present are present in person or by proxy or waive
notice of such meeting in writing. Any member may waive notice of a general
meeting by an instrument in writing signed by him or by telegram, cable or telex
before, at or after such meeting.
31. Routine business shall mean and include only business transacted at an
annual general meeting of the following general nature, that is to say:
(a) receiving and considering the financial statements and the report of the
auditors thereof;
(b) appointing the auditors and fixing the remuneration for the auditors or
determining the manner in which such remuneration is to be fixed;
(c) electing or appointing directors.
32. When all members entitled to be present and vote sign either personally or
by proxy the minutes of an annual general or an extraordinary general meeting,
the same shall be deemed to have been duly held notwithstanding that
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<PAGE> 13
members have not actually come together or that there may have been technical
defects in the proceedings and a resolution in writing signed by all the members
aforesaid shall be as valid and effectual as if it had been passed at a meeting
of the members duly called and constituted.
PROCEEDINGS AT GENERAL MEETINGS
33. No business shall be transacted at any general meeting of the members unless
a quorum is present. Except as otherwise required by law, a quorum for the
transaction of business shall be two persons present and holding or repre-
senting by proxy not less than one share each.
34. The Chairman of the Board of Directors, failing whom the Vice-Chairman of
the Board of Directors, failing whom the President, failing whom a
Vice-President of the Company, shall preside as Chairman at a general meeting.
If there be no such Chairman of the Board, Vice-Chairman of the Board, President
or Vice-President present at any meeting within fifteen minutes after the time
appointed for holding the meeting who is willing to act, the Directors present
shall choose one of their number (or, if no Director be present or if all the
Directors present decline to take the chair, the members present shall choose
one their number) to be Chairman of the meeting.
35. The Chairman may, with the consent of the meeting, adjourn any meeting from
time to time and from place to place but no business be transacted at any
adjourned meeting other than the business left unfinished at the meeting from
which the adjournment took place.
36. When a meeting is adjourned for thirty days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. Save as aforesaid,
it shall not be necessary to give any notice of an adjournment or of the busi-
ness to be transacted at an adjourned meeting.
37. At any general meeting a resolution put to the vote of the meeting shall be
decided on a show of hands unless a poll is (before or on the declaration of the
result of the show of hands) demanded by either the Chairman of the meeting or
any member present in person or by proxy and entitled to vote. A demand for a
poll may be withdrawn. Unless a poll be so demanded (and the demand be not
withdrawn) a declaration by the Chairman of the meeting that a resolution has
been carried, or carried unanimously, or by a particular majority, or lost, and
an entry to that effect in the minute book, shall be conclusive evidence of the
fact without proof of the number or proportion of the votes recorded for or
against such resolution.
38. If a poll is duly demanded and the demand is not withdrawn, the poll shall
be taken in such manner as the Chairman of the meeting may direct, and the
result of the poll shall be deemed to be the resolution of the meeting at which
the poll was demanded. The Chairman of the Meeting may (and if so directed by
the meeting shall) appoint scrutineers and may adjourn the meeting to some place
and time fixed by him for the purpose of declaring the result of the poll.
39. In the case of an equality of votes, whether on a show of hands or on a
poll, the Chairman of the Meeting at which the show of hands takes place or at
which the poll is demanded shall be entitled to a casting vote.
40. Upon a poll being demanded on any question, the same shall be taken
forthwith.
VOTES OF MEMBERS
41. Subject to any special rights or restrictions as to voting attached by or in
accordance with these Articles to any class of shares, on a show of hands every
member who is present in person shall have one vote and on a poll every member
who is present in person or by proxy shall have one vote for every share of
which he is the holders.
42. Where there are joint registered holders of any share, any one of such
persons may vote at any meeting of members, either personally or by proxy, in
respect of such share as if he were soley entitled thereto; and if more than one
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<PAGE> 14
of such joint holders be present at any such meeting personally or by proxy,
that one of the said persons so present whose name stands first on the register
in respect of such shares shall alone be entitled to vote in respect thereof.
Several executors or administrators of a deceased member in whose sole name any
shares stand shall for the purposes of this Article be deemed joint holders
thereof.
43. A member of unsound mind, or in respect of whom an order has been made by
any court having jurisdiction in lunacy, may vote, whether a show of hands or on
a poll by his committee, curator bonis or other person in the nature of a
committee or curator bonis appointed by such court, provided that such evidence
as the Directors may require of the authority of the person claiming to vote
shall have been deposited at the Office not less than forty-eight hours before
the time appointed for holding the meeting or adjourned meeting.
44. No objection shall be raised as to the admissibility of any vote except at
the meeting or adjourned meeting at which the vote objected to is or may be
given or tendered, and every vote not disallowed at such meeting shall be valid
for all purposes. Any such objection shall be referred to the Chairman of the
meeting whose decision shall be final and conclusive.
45.On a poll votes may be given either personally or by proxy, and a person
entitled to more than one vote need not use all his votes or cast all the votes
he uses in the same way.
46. A proxy need not be a member of the Company.
47. Any instrument appointing a proxy shall be in the following form with such
variations (if any) as circumstances may require or the Directors may approve:-
"POLYDEX CHEMICALS LIMITED"
"I/We,
"of
"
"a member of the above-named Company, hereby
"appoint
"of
"as my/our proxy to act and vote for me/us on
"my/our behalf at the (Ordinary, Extraordinary or
"adjourned, as the case may be) Meeting of the
"Company to be held on the day of
"and at every adjournment thereof.
"As witness may hand this day of, 19 ."
48. A instrument appointing a proxy must be produced at the meeting or must be
left at the office or such other place, if any, as is specified for that purpose
in the notice convening the meeting.
49. An instrument appointing a proxy shall be deemed to include the right to
demand or join in demanding a poll and shall, unless the contrary is stated
thereon, be valid as well for any adjournment of the meeting as for the meeting
to which it relates.
50. A vote given in accordance with the terms of an instrument of proxy or of a
power of attorney shall not be valid if the appointor shall be present at the
meeting but shall be valid notwithstanding the previous death or incapacity of
the transfer of the share in the Company in respect of which the vote is given,
provided that no intimation in writing of the death, revocation or transfer
shall have been received at the office before the meeting.
51. Any corporation which is a member of the Company may by resolution of its
Directors or other governing body
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<PAGE> 15
authorize such person as it thinks fit to act as its representative at any
meeting of the Company or any class of members of the Company, and the person
so authorized shall be entitled to exercise the same powers on behalf of such
corporation as the corporation could exercise if it were an individual member of
the Company.
VARIATION OF RIGHTS
52. Whenever the capital of the Company is divided into different classes of
shares, the special rights attached to any class may, subject to the provisions
of the Act, be varied or abrogated, either with the consent in writing of the
holders of three-fourths of the issued shares of the class, or with the
sanction of an Extraordinary Resolution passed at a separate general meeting of
such holders (but not otherwise), and may be so varied or abrogated whilst the
Company is a going concern or in contemplation of a winding-up. To every such
separate general meeting all the provisions of these Articles relating to
general meetings of the Company, or to the proceedings thereat, shall apply
mutatis mutandis. The necessary quorum shall be two persons holding or
representing by proxy at least one share of the class outstanding each. If at
any such separate general meeting a quorum is not present within half an hour of
the time appointed the meeting shall stand adjourned until the same day in the
next week at the same time and place or to such other day, time and place as the
Directors may determine, and at such adjourned meeting of such holders a
quorum shall be two persons present holding or representing by proxy at least
one share of the class outstanding each. The special rights conferred upon the
holders of any shares or class of shares shall not, unless otherwise expressly
provided by the terms of issue, be deemed to be modified by the creation or
issue of further shares ranking pari passu therewith.
DIRECTORS
53. Subject as hereinafter provided the Directors shall not be less than three
nor more than six in number. The first Directors shall be appointed at the first
general meeting of the members and their number shall be within the limits
above-mentioned. The Company may by ordinary resolution from time to time
increase or reduce the maximum or minimum number of Directors.
54. The ordinary remuneration of the Directors shall from time to time be
determined by the Directors.
55. The Directors may repay to any Director all such reasonable expenses as he
may incur in attending and returning from meetings of the Directors, or of any
committee of the Directors, or general meetings, or otherwise in or about the
business of the Company.
56. Any Director who is appointed to any office or to any executive office
including the office of President or Vice-President or who serves on any
committee or who otherwise performs services which in the opinion of the
Directors are outside the scope of the ordinary duties of a Director, may be
paid such extra remuneration by way of salary or otherwise as the Directors may
determine.
57. The Directors shall have power and be deemed always to have had power to pay
and agree to pay pensions or other retirement, superannuation, death or
disability benefits to or to any person in respect of any Director or
ex-Director who may hold or have held any executive office or any office of
profit under the Company and for the purpose of providing any such pensions or
other benefits to contribute to any scheme or fund or to pay premiums.
58. A Director of the Company who is in any way directly or indirectly
interested in a contract or transaction or a proposed contract or transaction
with the Company shall disclose the nature and extent of his interest at a
meeting of the Directors of the Company. In the case of a proposed contract or
transaction, the declaration shall be made at the meeting of the Directors at
which the question of entering into the contract or transaction is first taken
into consideration or, if the Director is not at the date of that meeting
interested in the proposed contract or transaction, at the next meeting of the
Directors held after he becomes so interested. In a case where the Director
becomes interested in a contract or transaction after it is made, the
declaration should be made a the first meeting of the Directors held after he
becomes so interested. A general notice given to the Directors of the Company by
a director to the effect that he
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<PAGE> 16
is a shareholder or member of or otherwise interested in any other company or is
a member of a specified firm and is to be regarded as interested in any contract
or transaction made with such other company or firm, shall be deemed to be a
sufficient declaration of interest in relation to a contract or transaction so
made, but no such notice is effective unless it is given at a meeting of the
Directors, or the Director takes reasonable steps to make sure that it is
brought up at the next meeting of the Directors after it is given. If a director
has made a declaration of his interest in a contract or transaction or
proposed contract or transaction in compliance with this paragraph and has not
voted in respect thereof, and if he is acting honestly and in good faith, he is
not accountable to the Company or to any of its members or creditors for any
profit realized from the contract or transaction, and the contract or
transaction, if it is in the best interest of the Company, is not voidable only
by reason of holding that office or of the fiduciary relationship established
thereby. Notwithstanding anything in this paragraph, a director is not
accountable to the Company or to any of its members or creditors for any profit
realized from such contract or transaction and the contract or transaction if
it is in the best interests of the Company, is not by reason only of his
interest therein voidable, if it is confirmed by an Ordinary Resolution of the
members duly called for that purpose and if his interest in the contract or
transaction is declared in reasonable detail in the notice calling the meeting.
OFFICERS AND EXECUTIVE DIRECTORS
59. The officers of the Company shall consist of a President and Secretary (or
one or more Assistant Secretaries) and may also comprise a Chairman of the
Board, a Vice-Chairman of the Board, one or more Vice-Presidents, a Treasurer
(or one or more Assistant Treasurers) or any combination of the aforesaid
offices and such other officers as the Directors may determine. The officers
shall be appointed by the Directors and shall hold office at the will of the
Directors who may remove an officer at any time. The Directors shall have power
from time to time to appoint an officer or officers to fill an office becoming
vacant or to appoint an additional officer to a new office.
60. None of the officers (except the Chairman of the Board who must be a
Director) need be a member or Director.
61. Any person may hold more than one such office.
62. (a) The officers shall perform such duties as may from time to time be
prescribed by the Directors.
(b) The Chairman of the Board, whom failing the Vice-Chairman of the Board, whom
failing the President, shall be the chief executive officer of the Company,
responsible for carrying out the policy decisions made by the Directors. He
shall not originate policy and his powers of executing decisions of the Board
shall be collateral with and not to the exclusion of the powers of the
Directors.
(c) The Secretary shall convene meetings of the members and Directors and shall
attend the meetings and keep minutes thereof. He shall keep the corporate
records.
63. (a) The Director may from time to time appoint one or more of their body to
be holder of any executive office, including the office of Managing or Joint
Managing Director, on such terms and for such period as they may determine.
(b) The appointment of any Director to the office of Managing or Joint Managing
Director shall be subject to termination if he ceases from any cause to be a
Director, but without prejudice to any claim he may have for damages for breach
of any contract of service between him and the Company.
64. The Directors may entrust to and confer upon the Managing Director any of
the powers exercisable by them as Directors upon such terms and conditions and
with such restrictions as they think fit, and either collaterally with or to the
exclusion of their own powers, and may from time to time revoke, withdraw, alter
or vary all or any of such powers.
APPOINTMENT AND RETIREMENT OF DIRECTORS
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<PAGE> 17
65. The office of a Director shall be vacated in any of the following events,
namely:
(a) If he becomes prohibited by law from acting as a Director.
(b) If he resigns by writing under his hand left at the Office.
(c) If he becomes bankrupt or has an adjudication order made against him or
compounds with his creditors generally.
(d) If he becomes of unsound mind.
66. The members in annual general meeting shall elect directors to serve on the
board of directors until their successors are elected and qualified or until
their earlier removal or retirement.
67. The Company may by Ordinary Resolution remove any Director before the
expiration of his period of office, notwithstanding any provision of these
Articles or any agreement between the Company and such Director, but without
prejudice to any claim he may have for damages for breach of any such agreement.
The Company may by a like resolution appoint another person in place of a
Director so removed from office. In default of such appointment the vacancy so
arising may be filled by the Directors as a casual vacancy.
68. The Directors shall have power at any time and from time to time to appoint
any person to be a Director either to fill a casual vacancy or as an additional
Director, but so that the total number of Directors shall not at any time exceed
the maximum number fixed by or in accordance with these Articles.
PROCEEDINGS OF DIRECTORS
69. The Directors may meet together for the dispatch of business, adjourn and
otherwise regulate their meetings as they think fit. Meetings of the Directors
may be held anywhere in the world. Questions arising at any meeting shall be
determined by a majority of votes. In case of an equality of votes the Chairman
shall not have a second or casting vote. A Director may, and the Secretary on
the requisition of a Director shall, at any time summon a meeting of the
Directors. It shall be necessary to give two days' notice (exclusive of the day
on which it is served or deemed to be served and inclusive of the day for which
it is given) of a meeting of Directors to every Director but such notice may be
waived by any Director by an instrument in writing signed by him or by telegram,
cable or telex before, at or after such meeting.
70. The quorum necessary for the transaction of the business of the Directors
may be fixed by the Directors, and unless so fixed at any other number shall be
two. A meeting of the Directors at which a quorum is present shall be competent
to exercise all powers and discretions for the time being exercisable by the
Directors.
71. The continuing Directors may act notwithstanding any vacancies, but if and
so long as the number of Directors is reduced below the minimum number fixed by
or in accordance with these Articles the continuing Directors or Director may
act for the purpose of filling up such vacancies or a summoning general meetings
of the Company, but not for any other purpose. If there be no Directors or
Director able or willing to act, then any two members may summon a general
meeting for the purpose of appointing Directors.
72. The Directors may choose one of their number to be Chairman of the Board who
shall preside at their meetings. In the absence of the Chairman of the Board, if
any, the Vice-Chairman of the Board, if any (if he shall be a Director), or in
his absence, the President (if he shall be a Director) shall preside at meetings
of Directors provided always that nothing shall prevent the Vice-Chairman of the
Board or President from being chosen Chairman of the Board. If at any meeting
there is no Chairman of the Board or Vice-Chairman of the Board in existence, or
if neither the Chairman of the Board nor the Vice-Chairman of the Board nor the
President be present within fifteen minutes after the time appointed for the
holding the same, the Directors present may choose one of their number to be
Chairman
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<PAGE> 18
of the meeting.
73. A resolution in writing signed by all the Directors shall be as effective as
a resolution passed at a meeting of the Directors duly convened and held, and
may consist of several documents in the like form, each signed by one more of
the Directors.
74. All acts done by any meeting of Directors, or by any person acting as a
Director, shall as regards all persons dealing in good faith with the Company,
notwithstanding that there was some defect in the appointment or continuance in
office of any such Director, or person acting aforesaid, or that they or any of
them were disqualified or had vacated office, or were not entitled to vote, be
as valid as if every such person had been duly appointed and was qualified and
had continued to be a Director and had been entitled to vote.
BORROWING POWERS
75. The Directors may;
(a) borrow money on the credit of the Company;
(b) issue, sell or pledge debt obligations of the Company; or
(c) charge, mortgage, hypothecate or pledge all or any currently owned or
subsequently acquired real or personal, moveable or immovable property of the
Company, including book debts, rights, powers, franchises and undertaking, to
secure any debt obligations or any money borrowed, or other debt or liability of
the Company.
GENERAL POWERS OF DIRECTORS
76. The business of the Company shall be managed by the Directors, who may pay
all expenses incurred in forming and registering the Company, and may exercise
all such powers of the Company as are not by the Statute or by these Articles
required to be exercised by the Company in general meeting, subject nevertheless
to any regulations of these Articles, to the provisions of the Statue, and such
regulations, being not consistent with the aforesaid regulation or provisions,
as may be prescribed by Special Resolution of the Company, but no regulation so
made by the Company shall invalidate any prior act of the Directors which would
have been valid if such regulation had not been made. The general powers given
by this Article shall not be limited or restricted by any special authority or
power given to the Directors by any other Article.
77. The Directors may from time to time and at any time by power of attorney
under the seal appoint any company, firm or person or any fluctuating body of
persons, whether nominated directly or indirectly by the Directors, to be the
Attorney of Attorneys of the Company for such purposes and with such powers,
authorities and discretions (not exceeding those vested in or exercisable by the
Directors under these Articles) and for such period and subject to such
conditions as they may think fit, and any such power of attorney may contain
such provisions for the protection and convenience of persons dealing with any
such Attorney as the Directors may think fit, and may also authorize any such
Attorney to subdelegate all or any of the powers, authorities and discretions
vested in him.
78. All cheques, promissory notes, drafts, bills of exchange, and other
negotiable or transferable instruments, and all receipts for moneys paid to the
Company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as
the case may be, in such manner as the Directors shall from time to time by
resolution determine.
79. Contracts, documents or instruments in writing requiring the signature of
the Company may be signed by the Chairman of the Board, Vice-Chairman of the
Board, the President or a Vice-President or a Director and by the Secretary or
another Director and all contracts, documents or instruments in writing so
signed shall be binding upon the Company without further authorization or
formality. The Directors are authorized from time to time by resolution to
appoint any officer or officers or any other person or persons on behalf of the
Company either to sign contracts,
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<PAGE> 19
documents or instruments in writing. The term "contracts, documents or
instruments in writing" as used in this Article shall include deeds, mortgages,
hypothecs, charges, conveyances, transfers and assignments of property, real or
personal, immovable or movable, agreements, releases, receipts and discharges
for the payment of money or other obligations, conveyances, transfers and
assignments of shares, warrants, bonds, debentures or other securities and all
paper writings.
In particular, without limiting the generality of the foregoing, the Chairman
of the Board, Vice-Chairman of the Board, the President or a Vice-President or
a Director together with the Secretary or another Director are authorized to
sell, assign, transfer, exchange, convert or convey all shares, bonds,
debentures, rights, warrants or other securities owned by or registered in the
name of the Company and to sign and execute (under the seal of the Company or
otherwise) all assignments, transfers, conveyances, powers of attorney and
other instruments that may be necessary for the purpose of selling, assigning,
transferring, exchanging, converting or conveying any such shares, bonds,
debentures, rights, warrants or other securities.
SEAL
80. The Directors shall provide for the safe custody of the seal, which shall
only be used by the authority of the Directors or of a committee of the
Directors authorized by the Directors in that behalf, and every instrument to
which the seal shall be signed by the Chairman of the Board, Vice-Chairman of
the Board, President or a Vice-President or a Director and shall be
countersigned by the Secretary or another Director.
81. The Company may exercise the powers conferred by the Companies Seals Act
(Bahama Islands).
AUTHENTICATION OF DOCUMENTS
82. Any Director or the Secretary or any person appointed by the Directors for
the purpose shall have power to authentic ate any documents affecting the
constitution of the Company and any resolutions passed by the Company or the
Directors, and any books, records, documents and accounts relating to the
business of the Company, and to certify copies thereof or extracts therefrom
as true copies or extracts; and where any books, records, documents and accounts
are elsewhere than at the Office the local manager or other officers of the
Company having the custody thereof shall be deemed to be a person appointed by
the Directors as aforesaid.
83. A document purporting to be a copy of a resolution of the Directors or an
extract from the minutes of a meeting of the Directors which is certified as
such in accordance with the provisions of the last preceding Article shall be
conclusive evidence in favour of all persons dealing with the Company upon the
faith thereof that such resolution has been duly passed or, as the case may be,
that such extract is a true and accurate record of a duly constituted meeting of
the Directors. Where a resolution purports to have been signed by all of the
Directors or by all of the members, as the case may be, the signatures to such
resolution are admissible in evidence as prima facie proof of the signatures of
such Directors or members, as the case may be, that they purport to represent
and are admissible in evidence as a prima facie proof that the signatures to the
resolution were of all the Directors or all of the members entitled to vote at
meetings of the Directors or members, as the case may be, at the date that the
resolution purports to have been signed. Where minutes of all proceedings at a
meeting of Directors or shareholders purport to have been signed by the Chairman
of the meeting at which the proceedings where had or by the Chairman of the next
succeeding meeting, such minutes are admissible in evidence as prima facie
proof of the proceedings.
CUSTODY OF SECURITIES
84. All securities owned by the Company shall be lodged (in the name of the
Company) with a bank or trust company or in a safety deposit box or, if so
authorized by a resolution of the Directors, with such other depositaries or in
such other manner as may be determined from time to time by the Directors. All
securities belonging to the Company may be issued and held in the name of a
nominee or nominees of the Company (and if issued or held in the names of more
than one nominee shall be held in the name of the nominees jointly with right to
survivorship) and shall be endorsed in blank with endorsement guaranteed in
order to enable transfer thereof to be completed and registration
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<PAGE> 20
thereof to be effected.
DIVIDENDS
85. The Directors may by resolution declare dividends either out of the capital
or the profits of the Company.
86. If and so far as in the opinion of the Directors the profits of the Company
justify such payments, the Directors may pay the fixed dividends on any class of
shares carrying a fixed dividend expressed to be payable on fixed dates on the
half-yearly or other dates prescribed for the payment thereof and may also from
time to time pay interim dividends of such amounts and on such dates as they
think fit.
87. Subject to the provisions of the Statute, where any asset, business or
property is bought by the Company as from a past date whether such date be
before or after the incorporation of the Company upon the terms that the Company
shall as from that date take the profits and bear and losses thereof, such
profits or losses may, at the discretion of the Directors, in whole or in part
be carried to revenue account and treated for all purposes as profits or losses
of the Company. Subject as aforesaid, if any shares or securities are purchased
cum dividend or interest, such dividend or interest may at the discretion of the
Directors be treated as revenue, and it shall not be obligatory to capitalize
the same or any part thereof.
88. No dividend or other moneys payable on or in respect of a share shall bear
interest as against the Company.
89. The Directors may retain the dividends payable upon shares in respect of
which any person is under the provisions as to transmission of shares
hereinbefore contained entitled to become a member, or which any person is under
those provisions entitled to transfer, until such person shall become a member
in respect of such shares or shall transfer the same.
90. The payment by the Directors of any unclaimed dividend or other moneys
payable on or in respect of a share into a separate account shall not constitute
the Company a trustee in respect thereof and any dividend unclaimed after a
period of six years from the date of declaration of such dividend shall be
forfeited and shall revert to the Company.
91. The Directors may be resolution declare and pay a dividend in whole or in
part by the distribution of specific assets, and in particular of paid-up shares
or debentures of any other company or in any one or more such ways; and the
Directors may fix the value for distribution of such specific assets or any part
thereof and may determine that cash payments shall be made to any members upon
the footing of the value so fixed in order to adjust the rights of all parties
and may vest any such specific assets in trustees as may seem expedient to the
Directors.
92. Any dividend or other moneys payable in cash on or in respect of a share may
be paid by cheque or warrant sent through the post to the registered address of
the member or person entitled thereto, or, if two or more persons are registered
as joint holders of the share or are entitled thereto in consequence of the
death or bankruptcy of the holder, to any one such persons or to such person
at such address as such person or persons may by writing direct. Every such
cheque or warrant shall be made payable to the order of the person whom it is
sent or to such person as the holder or joint holders or person or persons
entitled to the share in consequence of the death or bankruptcy of the holder
may direct and payment of the cheque if purporting to be paid by the bank on
which it is drawn shall be a good discharge to the Company. Every such cheque or
warrant shall be sent at the risk of the person entitled to the money
represented thereby.
93. If two or more persons are registered as joint holders of any share, or are
entitled jointly to a share in consequence of the death or bankruptcy of the
holder, any one of them any give effectual receipts for any dividend or other
moneys payable on or in respect of the share.
RESERVE
20
<PAGE> 21
94. The Directors may from time to time set aside out of the profits of the
Company and carry to reserve such sums as they think proper which, at the
discretion of the Directors shall be applicable for any purpose to which the
profits of the Company may properly be applied, and pending such application may
either be employed in the business of the Company or be invested. The Directors
may divide the reserve into such special funds as they think fit, and may
consolidate into one fund any special funds or parts of any special funds into
which the reserve may have been divided. The Directors may also without placing
the same to reserve carry forward any profits.
MINUTES AND BOOKS
95. The Directors shall cause minutes to be made and kept in books to be
provided for the purpose:
(a) of all appointments of officers made by the Directors;
(b) of the names of the Directors present at each meeting of Directors and of
any committee of Directors;
(c) of all resolutions and proceedings at all meetings of the Company and of any
class of members of the Company and of the Directors and of committees of
Directors.
96. The Directors shall duly comply with the provisions of the Statute and in
particular the provisions in regard to keeping a Register of Directors and
Managers, a Register of Members, and a Register of mortgages and charges, and in
regard to the production and furnishing of copies of such Registers and of any
Register of holders of debentures of the Company.
97. Any Register, index, minute book, book of account or other book required by
these Articles or the Statutes to be kept by or on behalf of the Company unless
required by the Statutes to be kept at the Office may be kept at such place or
places as the Directors may from time to time determine and may be kept either
by making entries in bound books or by recording them in any other manner. In
any case in which bound books are not used, the Directors shall take adequate
precautions for guarding against falsification and for facilitating it
discovery.
ACCOUNTS
98. (a) The Directors shall cause to be kept proper books of account in which
are set out all financial and other transactions of the Company including,
without limiting the generality of the foregoing, with respect to:
(i) all sums of money received and expended by the Company and the matters in
respect of which the receipt and expenditure takes place;
(ii) all sales and purchases by the Company;
(iii) the assets and liabilities of the Company;
(iv) all other transactions affecting the financial position of the Company.
(b) For the purposes of the foregoing, proper books of accounts shall not be
deemed to be kept with respect to the matters aforesaid if there are not kept
such books as are necessary to give a true and fair view of state of the
Company's affairs and to explain its transactions.
99. The books of account shall be kept at the Office, or at such other place as
the Directors think fit, and shall always be open to the inspection of the
Directors. No member (other than a Director) shall have any right of inspecting
any account or book or document of the Company, except as conferred by statute
or authorized by the Directors.
100. The Directors shall at some date not later than eighteen months after the
incorporation of the Company and
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<PAGE> 22
subsequently once at least in every year lay before the Company in general
meeting:
(a) financial statements relating to the period covered by the latest completed
financial year, and made up of a statement of profit and loss, a statement of
surplus and a statement of source and application of funds, made up to a date
not earlier than the date of the meeting by more than six months;
(b) a balance sheet as at the end of such period;
and
(c) the report of the auditor to the shareholders. Every statement of profit and
loss to be laid before the Company in general meeting shall be drawn up so as to
present fairly the results of the operation of the Company for the period
covered by the statement. Every statement of surplus to be laid before the
Company in general meeting shall be drawn up so as to present fairly the
transactions reflected in statement. The statement of source and application of
funds to be laid before the Company in general meeting shall be drawn up so as
to present fairly the information shown therein for the period. The balance
sheet to be laid before the Company in general meeting shall be drawn up so as
to present fairly the financial position of the Company as at the date to which
it is made up.
101. The Company shall, twenty-one days or more before the date of the general
meeting at which the financial statements are to be laid before the Company,
send by prepaid mail to each member at his latest address as shown on the
Register, a copy of the financial statements and a copy of the auditor's report.
AUDITORS
102. The Company may at each annual general meeting appoint an Auditor or
Auditors to hold office from the conclusion of that, until the conclusion of
the next annual general meeting. At any annual general meeting a retiring
Auditor, however appointed, shall be re-appointed without any resolution being
passed unless:
(a) he is not qualified for re-appointment;
or
(b) a resolution has been passed at that meeting appointing somebody instead of
him or providing expressly that he shall not be re-appointed; or
(c) he has given the Company notice in writing of his unwillingness to be
re-appointed.
103. The Auditor shall make a report to the members on the accounts examined by
him, on every balance sheet and on every statement of profit and loss, statement
of surplus and statement of source and application of funds to be laid before
the Company in general meeting during his tenure of office, and his report,
which shall be open to inspection by any member shall contain statements as to
whether in his opinion the financial statements referred to therein present
fairly the financial position of the Company and the results of its operations
for the period under review in accordance with generally accepted accounting
principles applied on a basis consistent with that of the preceding period, and
shall also contain such statements as he considers necessary:
(a) if he has not obtained all the information and explanations which to the
best of his knowledge and belief were necessary for the purpose of his audit;
(b) if in his opinion, proper books of account have not been kept by the
Company, so far as appears from his examination of their books, and proper
returns adequate for the purpose of his audit have not been received from
branches not visited by him;
22
<PAGE> 23
(c) (i) if the Company's balance sheet and statements of profit and loss,
surplus and source and application of funds dealt with by the report are not in
agreement with the books of accounts and returns;
(ii) if in his opinion and to the best of his information and according to the
explanations given to him, the said accounts do not give the information
re-required by these presents in the manner so required and do not give a true
and fair view, in the case of the balance sheet, of the state of the Company's
affairs as at the date thereof, and in the case of the statements of profit and
loss, surplus and source and application of funds, of the information shown
therein of the Company for the period dealt with therein.
104. All acts done by any person acting as an Auditor shall as regards all
persons dealing in good faith with the Company, be valid, notwithstanding that
there was some defect in his appointment or that he was at the time of his
appointment not qualified for appointment.
105. The Auditor shall be entitled to attend any general meeting and receive all
notices of and other communications relating to any general meeting which any
member is entitled to receive, and to be heard at any general meeting on any
part of the business of the meeting which concerns him as Auditor.
NOTICES
106. Any notice or document may be sent to or served on any member or Director
either personally or by sending it through the post in a prepaid letter or by
telegram, cable or, telex addressed to such member or Director at his
registered address, or to the address, if any, supplied by him to the Company
as his address for the service of notices. Where a notice or other document is
served by post, service shall be deemed to be effected at the time when the
letter containing the same is posted, and where severed by telegram, cable or
telex, when the same is transmitted and in proving such service it shall be
sufficient to prove that such notice was properly addressed, and posted or
transmitted as the case may be. Provided that, for the purpose of serving
notice of any meeting of members of the Company on any member whose address as
aforesaid is outside the Bahama Islands, such method of posting is adopted as
would in the ordinary course result in such member receiving such notice at
such address not less than fourteen days in advance of the date fixed for the
meeting but the Company shall not be accountable for any accidental omission by
any such member to receive any such notice.
107. In respect of joint holdings all notices shall be given to that one of the
joint holders whose name stands first in the Register, and notice so given shall
be sufficient notice to all the joint holders.
108. A person entitled to a share in consequence of the death or bankruptcy of a
member, upon supplying to the Company such evidence as the Directors may
reasonably require to show his title to the share, and upon supplying also an
address for the service of notices, shall be entitled to have served upon him at
such address any notice or document to which the member but for his death or
bankruptcy would be entitled, and such service shall for all purposes be deemed
a sufficient service of such notice or document on all persons interested
(whether jointly with or as claiming through or under him) in the share. Save
as aforesaid, any notice or document delivered or sent by post to, or left at
the registered address of any member in pursuance of these Articles shall,
notwithstanding that such member be then dead or bankrupt and where or not the
Company has notice of his death or bankruptcy, be deemed to have been duly
served in respect to any share registered in the name of such member as sole or
joint holder.
109. A member who has not supplied to the Company a registered address or an
address for the service of notices shall not be entitled to receive notices from
the Company.
WINDING UP
110. If the Company shall be wound up (whether the liquidation is voluntary,
under supervision, or by the Court) the Liquidator may, with the authority of a
Special Resolution, divide among the members in specie or kind the whole or any
part of the assets of the Company and whether or not the assets shall consist
of property of one kind or shall con-
23
<PAGE> 24
sist of properties of different kinds, and may for such purpose set such value
as he deems fair upon any one or more class or classes of property and may
determine, how such division shall be carried out as between the members or
different classes of members. The Liquidator may, with the like authority, vest
any part of the assets in trustees upon such trusts for the benefit of members
as the Liquidator with the like authority shall think fit, and the liquidation
of the Company may be closed and the Company dissolved.
INDEMNITY
111. Subject to the provisions of the Statute, every Director or officer of the
Company or other person who has undertaken or is about to undertake any
liability on behalf of the Company or any company controlled by it and their
heirs, executors and administrators and estate and effects, respectively, shall
from time to time and at all times be indemnified and saved harmless out of the
funds of the Company, from and against:
(a) all costs, charges and expenses whatsoever which such Director, officer or
other person sustains or incurs in or about any action, suit or proceeding which
is brought, commenced or prosecuted against him, for or in respect of any act,
deed, matter or thing whatsoever, made, done or permitted by him in or about the
execution of the duties of his office or in respect of any such liability;
(b) all other costs, charges and expenses which he sustains or incurs in or
about or in relation to the affairs thereof, except such costs, charges or
expenses as are occasioned by his own wilfulness, neglect or default. The amount
for which such indemnity is provided shall immediately attach as a lien on the
property of the Company and shall have priority over any claims of the Company
or any member.
112. No Director or officer shall be liable for the acts, receipts, neglects, or
defaults of any other Director or officer, or for joining in any receipt or
other act for conformity, or for any loss or expense incurred by the Company as
a result of insufficiency or deficiency of title to any property acquired by
order of the Directors for or on behalf of the Company, or for the insufficiency
or deficiency of any security in or upon which any of the moneys of the Company
shall be advanced or invested, or for any loss or damage arising out of the
bankruptcy, insolvency or tortious or criminal act or omission of any person
with whom any moneys, securities or effects shall be deposited, or for any loss
occasioned by an error of judgment, omission, default, or oversight on his
part, or for any other loss, damage or misfortune whatever which shall happen in
the execution of his office or in relation thereto, except the same shall happen
through his own dishonesty.
IN WITNESS WHEREOF we, the Subscribers to the Articles of Association have
hereunto subscribed our names this 12th day of June A.D. 1979.
Carey Leonard
Carol Ann Weatherford
Joan Mackey
Cypriana Burrows
Donna Wright
Signed by the Subscribers to the Articles of Association in the presence of:
/s/ Sean McWeeney
COMMONWEALTH OF THE BAHAMAS
New Providence
I, Sean McWeeney
of Nassau, Bahamas
make oath and say that I was present and saw:
Carey Leonard
Carol Ann Weatherford
Joan Mackey
Cypriana Burrows
Donna Wright
all of the said Island of New Providence sign and as and for their Act execute
the foregoing Articles of Association dated the 12th day of June A.D. 1979 for
the purposes therein mentioned; and that I subscribed my name as the witness
to the due execution thereof.
SWORN to this 13th
day of June
A.D. 1979
Before me,
R.D. Seligman
NOTARY PUBLIC
24
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this 22nd day
of December, 1993 between POLYDEX PHARMACEUTICALS LIMITED, a Bahamas corporation
(the "Employer") and THOMAS C. USHER (the Employee").
R E C I T A L S
A. The Employer presently is engaged in the business of the research,
development, manufacture and sale of dextran and certain of its derivatives and
various specialty chemicals (the "Business").
B. The Employee has certain unique skills and business experience which he
wishes to continue to devote to the Employer.
C. The Employee has heretofore served the Employer as its Chairman and Chief
Executive Officer, but without written employment agreement.
D. The Employer desires to employ the Employee pursuant to a written employment
agreement and the Employee desires to be so employed by the Employer.
E. This Agreement, after careful review and consideration, has been approved by
the Employer's board of directors (the "Board").
NOW THERFORE, in consideration of the premises together with other good and
valuable consideration, the receipt of which is hereby acknowledged, it is
agreed as follows:
1. Recitals and Effective Date: The foregoing recitals are true and correct, and
are incorporated herein by reference. The effective date of this Agreement shall
be December 22, 1993 (the "Effective Date").
2. Employment of the Employee: Subject to the terms and conditions contained
herein, and unless sooner terminated as hereinafter provided, the Employer
agrees to employ Employee, and Employee agrees to serve as an employee of the
Employer, for a term of employment commencing on February 1, 1994 (the
"Commencement Date") and ending five years from that date, (the "Term"). This
Agreement shall renew thereafter for similar terms of five (5) years each unless
either party gives the other one year's prior written notice of intent not to
renew prior to the expiration of the then current term.
3. Duties of the Employee: During the Term, the Employee shall have the
following powers and duties:
3.1 Employee will have the powers and duties of the Chairman of the Board and
Chief Executive Officer of the Employer, as set forth in the Employer's by-laws,
as amended (subject to the direction of the Board, which direction shall be
pursuant to reasonable policies adopted by the Board from time to time and
communicated by written notice to Employee). Employee shall principally be
responsible for assisting the Board in the development of long-term goals and
strategic planning, a marketing plan and new research, product development and
venture opportunities, and shall coordinate and supervise the implementation of
these goals, policies and activities. As Chairman of the Board, Employee also
shall serve as Chairman, ex officio, of all committees of the Board.
3.2 During the Term, Employee shall devote most of his business time, attention,
effort and skill to the business affairs and interests of the Employer. It is
furthermore understood and agreed that Employee may serve or continue to serve
on the boards of directors of and hold any other offices or positions in
companies or organizations as Employee may desire, provided such position will
not present any significant con-
<PAGE> 2
flict of interest with the Employer or materially affect the performance of
Employee's duties pursuant to this Agreement. If any potential conflict of
interest arises, Employee shall present the position and circumstances to a
meeting of the Board, which shall determine if a conflict exists. Nothing
contained herein shall prohibit Employee from managing his personal, financial,
and less active business affairs to the extent such affairs do not contravene
any of the foregoing provisions.
Notwithstanding anything to the contrary contained herein, the Employee shall
the right and the authority to delegate responsibility to one or more personnel
if he deems such delegation appropriate, and is hereby authorized to hire, on
behalf of Employer, additional agents, employees and other representatives who
are in his opinion necessary to handle the Employer's affairs.
3.3 During the Term, the Employer agrees to cause Employee to be elected as the
Chief Executive Officer and Chairman of the Board of the Employer, and as a
director on the Board.
4. Compensation: During the Term, as compensation for the services to be
rendered by Employee, the Employer shall pay Employee the following amounts:
4.1 Base Salary: Each twelve month fiscal period commencing February 1st of one
year, and ending January 31st of the next, is called herein a "Fiscal Year".
During the Fiscal Year beginning on the Commencement Date and ending January 31,
1995, Employee shall be paid at the annual rate of $120,000.00 (U.S. Funds),
payable in equal monthly installments (the "Base Salary").
4.2 Increase in Base Salary: During the balance of the Term, and for each
renewal Term, the Employee shall be entitled to increase in the Consumer Price
Index for all Urban Consumers and Urban Wage Earners U.S. City Average issued by
the United States Department of Labor Bureau of Labor Statistics, or its
successor index ("CPI") over the preceding calendar year.
5. Fringe Benefits: During the Term, Employee shall be entitled to:
5.1 Business Expenses: Employee is authorized to incur reasonable expenses to
execute and/or promote the Business of the Employer, including but not limited
to expenses for entertainment, travel and similar items. Employer will reimburse
Employee for all such expenses incurred on behalf of Employer.
5.2 Automobile: Employer shall furnish the Employee with Six Hundred ($600)
Dollar (U.S. Funds) per month automobile allowance with which Employee shall pay
the costs and expenses (inclusive of liability and casualty insurance) of an
automobile to be used by Employee in the performance of his duties as are or may
be customary for executives in the community who perform similar duties.
Provided, however, that in lieu of the automobile allowance Employer may provide
Employee with an appropriate automobile satisfactory to Employee for his use in
discharging his duties hereunder.
5.3 Health, Medical, and Dental Insurance: Employee shall be provided with
hospital, major medical, and dental insurance reasonably satisfactory to the
Employee and his family dependents with full medical and dental coverage. Said
policy shall be chosen by the Employee. Employee may request that Employer
satisfy this paragraph 5.3 by reimbursing Employee for payments made by Employee
under the existing plans which presently cover Employee.
5.4 Vacation: The Employee shall be entitled to four weeks paid vacation
annually.
5.5. Employer Benefit Plans: Employee shall be entitled to participate in any
and all plans, arrangements or distributions maintained by the Employer
pertaining to or in connection with any pension, profit sharing, stock options
and/or similar benefits for its regular employees and/or for its executives, as
determined by the Board or committees thereof pursuant to the governing
instruments which establish and/or determine
2
<PAGE> 3
eligibility and other rights of the participants and beneficiaries under such
plans or other benefits programs.
6. Rights of Indemnification:
(a) Subject to the provisions of the Employer's Certificate of Incorporation and
Bylaws, each as amended from time to time, the Employer shall indemnify the
Employee to the fullest extent permitted by The Companies Act of the
Commonwealth of the Bahamas, as amended from time to time, for all amounts
(including without limitation, judgments, fines, settlement payments, expenses
and attorney's fees) incurred or paid by the Employee in connection with any
action, suit, investigation or proceeding arising out of or relating to the
performance by the Employee of services for, or the acting by the Employee as a
director, officer or employee of the Employer, or any other person or enterprise
at the Employer's request. Upon request of the Employee, all costs and expenses
of indemnification required hereunder shall be paid in advance.
(b) The Employer shall use its best efforts to obtain and maintain in full force
and effect during the Term directors' and officers' liability insurance policies
providing full and adequate protection to the Employee for is capacities,
provided that the Board of Directors of the Employer shall have no obligation to
purchase such insurance if, in its opinion, coverage is available only on
unreasonable terms.
7. Stock Options: The Employer hereby grants to the Employee options (the "Stock
Options") to purchase 2,500,000 shares of the common stock of the Employer (the
"Options Shares") exercisable over a six-year period regardless of whether the
Employee is working for, or employed by the Employer. Said Stock Options shall
be assignable and transferrable without any limitations whatsoever. The Employer
and Employee hereby agree that as of the date of this Agreement, all 2,500,000
shares shall be and are hereby declared to be vested and immediately
exercisable. The exercise price (the "Option Price") for the Option Shares shall
be Two Dollars and Twenty-Five ($2.25) cents (U.S. Funds) per share, which
Option Price is the closing price of the Employer's common stock as of the date
of this Agreement, and is the fair market value of the Option Shares. Stock
Options are cumulative. The Stock Options shall be exercisable from time to time
in whole or in part without affecting the remainder of the Stock Options during
the term of the exercisability and any renewal or extension thereof and for six
years from the date of this Agreement.
7.1 Exercise of Stock Options: Stock Options may be exercised by written notice
directed to the Employer or such other person as may be designated by the
Employer accompanied by a check payable to the Employer in payment of the option
price for the option shares. The Employer shall make immediate delivery of the
purchased option shares, fully paid and nonassessable, registered in the name of
the Employer subject to a restrictive legend set forth on the purchased Option
Shares certificate as follows:
The shares of stock represented by this Certificate have not been registered
under the Securities Act of 1993, as amended ("Act"), or the securities laws of
any other jurisdiction and may not be sold, transferred, pledged, hypothecated
or otherwise disposed of in any manner unless they are registered under such Act
and the securities laws of any applicable jurisdictions or unless pursuant to an
exemption therefrom.
7.2 Reclassification, Consolidation or Merger: If and to the extent that the
number of issued and outstanding shares of common stock of the Employer shall be
increased or reduced by a change of par value, split-up, reclassification,
distribution of a dividend payable in stock, issuance of convertible
debentures,warrants or similar transactions, the number of shares subject to the
Stock Options and the Option Price per share shall be proportionately adjusted
to protect the Employee from dilution. If the Employer is reorganized or
consolidated or merged with another corporation, the Employee shall be entitled
to receive options covering shares of such reorganized, consolidated, or merged
company in the same proportion, at an equivalent price, and subject to the same
conditions. For purposes of the preceding sentence, the excess of the aggregate
fair market value of the shares subject to the option immediately after the
reorganization, consol-
3
<PAGE> 4
idation or merger over the aggregate option price of such shares shall not be
more than the excess of the aggregate fair market value of all shares subject to
the Stock Options immediately before such reorganization, consolidation or
merger over the aggregate option price of such shares, and the new option or
assumption of the old Stock Options shall not give Employee additional benefits
which he did not have under the old Stock Options, or deprive him of benefits
which he had under the old Stock Options. If there is a purchase of stock of the
Employer by a party who is not an affiliate of the Employer that causes a change
in control of the Employer (as defined hereinafter), the Employer or purchasing
entity shall purchase the Options Shares which have not been registered on the
same basis as all other shares.
8. Death During Employment: If Employee dies during the Term of the Agreement,
the Employer will pay to the Employee's surviving spouse, for the balance of her
life, an amount equal to two-thirds (2/3) of the Base Salary which would
otherwise be payable to the Employee. Furthermore, the Employee's surviving
spouse or the Employee's estate, if otherwise provided, shall obtain all rights
in vested stock options plus the right to exercise the stock options on 100% of
the non-vested stock options, together with the sales rights of such stocks
and/or stock options that have been granted to the Employee hereunder.
9. Disability: If Employee suffers from a disability as hereinafter defined, his
employment hereunder may, after notice is hereinafter provided , at the option
of the Employer, be deemed terminated. In such event, the Employer will pay the
Employee the Base Salary, Bonus, and all fringe benefits otherwise payable to
him for a period of one year after the date upon which the Board deems the
Employee to be disabled hereunder (the "Disability Wage"). The Employer shall
have the right, however, to set off against the amount of the Disability Wage
payable to the Employee all amounts which may be received by Employee during
such one-year period pursuant any disability insurance which the Employee may
have. The Employer shall have no further wage obligations to the Employee or his
estate except as otherwise provided in this Agreement. For this purpose, the
terms "disability" and "disabled" are defined as Employee's inability for a
period of 180 days in a 360 day period to perform his duties under this
Agreement. If there is a dispute as to the existence of the Employee's
disability, then said dispute shall be submitted to binding arbitration as
provided hereafter.
10. Termination of Employment:
10.1 Termination by the Employee: Employee my voluntarily resign at any time
upon 60 days prior written notice to the Employer. In such event, and not
including circumstances described in Paragraph 12 below, Employee shall be
entitled solely to the amounts specified in Section 11.1 of this Agreement.
10.2 Termination by the Employer: Employee's employment may be terminated by the
Employer at any time, upon notice to Employee for "Cause". For this purpose, the
term "Cause" is defined as:
a. Breach. A material violations by Employee of his duties as an employee of the
Employer which are demonstrably willful and deliberate on his part and which are
not remedied in a reasonable period of time (not to exceed 30 days) after
receipt of written notice from the Employer;
b. Conviction: A conviction of Employee for a felony crime involving baseness,
vileness, depravity or moral turpitude that would negatively impact on the
Employer and/or the Employee's performance hereunder;
c. Fraud. The commission or participation of Employee in an act or acts of
personal dishonesty intended to result in his personal enrichment at the expense
of the Employer which is not remedied in a reasonable period of time after
receipt of written notice from the Employer; and
d. Chemical Dependency: Dependence by Employee upon an illegal substance,
including but not limited to, marijuana, cocaine, heroin, and all other illegal
substances and/or dependence by Employee upon the use
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of alcohol, which, in any case, in the opinion of both Employee's family
physician and a physician chosen by the Employer, materially impairs Employee's
ability to perform his duties hereunder, which dependence is not cured or
rehabilitated within six months of receipt of written notice from the Employer
to the Employee.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than three
quarters (3/4) of the entire membership of the Board (which Board must consist
of at least four members at such time, including the Employee), at a meeting of
the Board held for the purpose (after at least seven days prior written notice
to the Employee and an opportunity for him, together with his counsel, to be
heard before said Board), finding that in the good faith opinion of said Board
the Employee was guilty of conduct set forth above in subsections (a), (b), (c)
or (d) above and specifying the particulars thereof in detail. In the event that
the Board shall consist of less than four members, the affirmative vote of at
least two-thirds of the entire membership of the Board will be required for
purposes of this Section.
10.3 Notice of Termination: Any termination by the Employer pursuant to Section
9 (Disability) or 10.2 (Cause), or by the Employee pursuant to Section 12 (Good
Reason), shall be communicated by written Notice of Termination to the other
party or parties hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
employment of the Employee under the provision so indicated.
10.4 Date of Termination: For purposes of this Agreement, "Date of Termination"
shall mean:
(i) if this Agreement is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that the Employee shall not have
returned to the performance of his duties on a full-time basis during such
thirty (30) day period);
(ii) if the Employee's employment is terminated under Section 12 (Good Reason)
below, the date specified in the Notice of Termination; and
(iii) if the Employee's employment is terminated for any other reason, the date
of which a Notice of Termination is given; provided that if within thirty (30)
days after any Notice of Termination is given the party or parties receiving
such Notice of Termination notifies the other party or parties that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined by a binding and final arbitration award
or by a final judgment, order or decree of a court of competent jurisdiction
(the time for appeal therefrom having expired and no appeal having been
perfected); provided, however, that the Employee's action is finally adjudicated
or arbitrated in his favor and against the Employer or that the Employee's
action is settled by written agreement of the parties in the Employee's favor.
11. Payments Upon Termination:
11.1 Termination by the Employer for Cause, Resignation or by Mutual Agreement.
If Employee and the Employer mutually agree to the termination of this
Agreement, if Employee voluntarily resigns, except as provided in Paragraph 12
below, or if Employee is terminated by the Employer for Cause, then Employee
shall be entitled only to a pro rata portion of the Base Salary together with
accrued vacation to such date, all Stock Options available under this Agreement,
and all applicable reimbursements from the Employer due under Paragraph 5
hereof.
11.2 Termination for Reasons other than Termination by the Employer for Cause,
Resignation, Mutual Agreement, Death or Disability. For any form of termination
other than that described in the preceding sec-
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<PAGE> 6
tion or in sections 8 or 9, including if the Employee shall terminate his
employment for Good Reason, as herein defined, or if the Employer shall
terminate the Employee without Cause, but only if the Employee as a Director of
the Employer, shall have voted to oppose the termination, then the Employer
shall pay the Employee the following amounts:
(i) The Employee's full Base Salary (and any annual increases) through the Date
of Termination at the rate in effect at the time Notice of Termination is given.
(ii) A lump sum payment of Five Hundred Thousand ($500,000) Dollars.
(iii) All Option Shares shall be exercisable for a period of five years from the
Date of Termination.
(iv) The Employer shall also pay all indemnity payments and all legal fees and
expenses incurred by the Employee as a result of such termination (including all
such fees and expenses, if any incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement).
The Employee shall not be required to mitigate the amount of any payment
provided for in this section 11.2 by seeking other employment or otherwise.
12. Good Reason. The Employee may terminate his employment for Good Reason. For
purposes of this Agreement "Good Reason" shall mean:
(i) without the express written consent of Employee, the assignment to him or
any duties grossly inconsistent with his positions, duties, responsibilities and
status with the Employer, or a change in his reporting responsibilities, titles,
or offices, or any removal of him from or any failure to re-elect him to any of
such positions, except because of the termination of his employment for Cause,
Disability or Death;
(ii) a reduction by the Employer in his Base Salary as in effect on the date
hereof, or as the same my be increased from time to time; or the failure by the
Employer to increase such Base Salary each year as provided for in this
Agreement;
(ii) the failure by the Employer to continue in effect any Employer-sponsored
benefit or compensation plan, pension plan, life insurance plan, medical and
dental plan, personal accident plan or disability plan in which the Employee is
participating (or plans providing him with substantially similar benefits), the
taking of any action by the Employer which would adversely affect his
participation in or materially reduce his benefits under any of such plans or
deprive him of any material fringe benefit enjoyed by him, or the failure by the
Employer to make any of the payments called for in Section 5 hereof;
(iv) the failure of the Employer to obtain the assumption of an agreement to
perform this Agreement by any successor as contemplated in Section 17 below;
(v) a "Change in Control" of the Employer as defined in Section 13 below; or
(vi) the purported termination of the Employee's employment which is not
effected pursuant to a Notice of Termination satisfying the requirements
subparagraph (f) below, and for purposes of this Agreement, no such purported
termination shall be effective.
13. Change in Control
(a) For purposed of this Agreement, a "change in control of the Employer" shall
mean a change in control of the nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation
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14A promulgated under the Securities Exchange Act of 1934, as amended
("Exchange Act"); provided that, without limitation, such a change of control
also be deemed to have occurred;
(i) if any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the
Exchange Act) is or become the beneficial owner, directly or indirectly by
acquisition, or otherwise, or securities of the Employer representing
twenty-five (25%) percent or more of the combined voting power of the Employer's
then outstanding securities; or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Employer cease
for any reason to constitute at least a majority thereof, unless the election or
the nomination for election by the Employer's shareholders, or each new
director, was approved by a vote of at least three-fourths (3/4) of the
directors then still in office who were directors at the beginning of the
period.
(b) If any of the events described in this Section 13 hereof constituting a
change in control of the Employer shall have occurred, the Employee shall be
entitled to the benefits provided in Section 11.2.
14. Reporting Obligation: The Employer and the Employee hereby agree that the
Employee shall only be responsible to, and shall be required to report only to
the Employer's Board.
15. Restrictive Covenant: As a inducement for the Employer to enter into this
Agreement and provided that the Employer is in good standing under the terms of
this Agreement, Employee agrees that for the longer of the period of Employee's
employment with the Employer or the period that Employee serves as a director on
the Board of the Employer and for a period of one year thereafter, Employee
shall not either directly as an owner, partner, shareholder, agent, director,
employee, independent contractor, representative, consultant or otherwise within
the States of Florida or Kansas or the Canadian provinces of Ontario or British
Columbia or in other areas where the Employer then carries on its business
either (1) engage in any business which competes with the existing business of
the Employer or any of its affiliates or (2) solicit employees of the Employer
to perform services for another business. Notwithstanding the foregoing
provisions of this Agreement, Employee may own shares of common stock of the
Employer; or own shares of stock in any corporation whose shares of stock are
registered under Section 12 of the Securities Exchange Act of 1934 as amended,
and which is engaged in the business which is in competition with the business
then engaged by the Employer and its affiliates, provided that the acquisition
of said shares of stock is for investment purposes only, and that Employee shall
not own, directly or indirectly, 5% or more of the issued and outstanding shares
of any class of stock or such corporation.
16. Notices: Any notice, request, demand, offer, payment or communication
required or permitted to be given by any provision of this Agreement shall be
deemed to have been delivered and given for all purposes if written, and (1) if
delivered personally or by courier or delivery service to the address set forth
below at the time of such delivery, (b) if sent by registered or certified
United States mail, postage and charges prepaid, addressed to the intended
recipient, at the address specified below, effective upon receipt or refusal.
If to the Employer: Polydex Pharmaceuticals Limited
421 Comstock Road,
Scarborough,Ontario
CANADA MIL 2H5
with a copy to: Peter Higgs, Esq.
Higgs & Johnson
Sandringham House
83 Shirley Street
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<PAGE> 8
Nassau, Bahamas
If to the Employee: Thomas C. Usher
Kwan-Yin Club
Nassau, Bahamas
with a copy to: Thomas C. Usher
14125 30th Avenue
South Surrey, British Columbia
CANADA V4P 2J4
Any party may change the address to which notices are to be mailed by giving
five (5) days prior notice as provided herein to all other parties. Commencing
on the day after the receipt or refusal of such notice, such newly designated
address shall be such person's address for purposes of all notices or other
communications required or permitted to be given pursuant to this Agreement.
17 . Successors:
(a) The Employer will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Employer, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Employer would be
required to perform it if no such succession had taken place. Failure to obtain
such agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Employee to compensation from the
Employer in the same amount and on the same terms as he would be entitled
hereunder if the Employee had terminated his employment for Good Reason, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this section, "Employer" shall mean the Employer as hereinbefore defined, and
any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 17 or which otherwise
becomes bound by all the terms and provisions of the Agreement by operation of
law.
18. Construction of Agreement:
18.1 Bahamas Law. This Agreement shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of the Bahamas, and all of its
provisions shall be administered according to and it validity shall be
determined under the laws of the Commonwealth of the Bahamas without reference
to Bahamian law provisions regarding conflicts of law.
18.2 Gender and Number. Whenever appropriate, references in this Agreement in
any gender shall be construed to include all other genders, references in the
singular shall be construed to include the plural, and references in the plural
shall be construed to include the singular, unless the context clearly indicates
to the contrary.
18.3 Certain Words. The words "hereof", "herein", "hereunder", and other similar
compounds of the word "here" shall mean and refer to the entire Agreement and
not to any particular article, provision or paragraph unless so required by this
Agreement.
18.4 Captions. Section and paragraph headings, titles or captions contained in
this Agreement are inserted only as a matter of convenience and/or reference,
and they shall in no way be construed as limiting,
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<PAGE> 9
extending, defining or describing either the scope or intent of this Agreement
or any provision hereof.
18.5 Counterparts. This Agreement may be executed in one or more counterparts,
and any such counterpart shall, for all purposes, be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
18.6 Severability. The invalidity of unenforceability of any provision hereunder
(or any portion of such a provision) shall not affect the validity or
enforcability of the remaining provisions (or remaining portions of such
provisions) of this Agreement.
19. Miscellaneous;
19.1 Entire Agreement. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof, and supersedes and revokes any
and all prior existing agreements, written or oral, relating to the subject
matter hereof, and this Agreement shall be solely determinative of the matters
addressed herein.
19.2 Waiver. Either the Employer or Employee may, at any time or times, waive
(in whole or in part) any rights or privileges to which he or it may be entitled
hereunder. However, no waiver by any party of any condition or of the breach of
any term, covenant, representation or warranty contained in this Agreement, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach in other instances, or as a
waiver of any other condition or of any breach of any other terms, covenants,
representations of warranties contained in this Agreement, and no waiver shall
be effective unless it is in writing and signed by the waiving party.
19.3 Attorney's Fees. If either party shall be required to retain the services
of an attorney to enforce any of his or its rights hereunder, the prevailing
party shall be entitled to receive from the other party all costs and expenses
including (but not limited to) court costs and attorney's fees (whether in a
court of original jurisdiction or one or more courts of appellate jurisdiction),
incurred by him or it in connection therewith.
19.4 Venue. Any litigation arising hereunder shall be instituted only in Palm
Beach County, Florida, the place where this Agreement was executed, and all
parties hereto agree that venue shall be proper in said county for all such
legal or equitable proceedings.
19.5 Assignment. The rights and obligations of the parties under this Agreement
shall inure to the benefit of and shall be binding upon their successors,
assigns, and/or other legal representatives. This Agreement shall not be
assignable by the Employer, except as provided herein by Employee. The services
of Employee are personal and his obligations may not be delegated by him except
as otherwise provided herein.
19.6 Amendment. This Agreement may not be amended, modified, superseded or
canceled, and any of the matters, covenants, representation, warranties or
conditions hereof may not be waived, except by a written instrument executed by
the Employer and Employee or, in the case of a waiver, by the party to be
charged with such waiver.
19.7 Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
with the American Arbitration Association, Boynton Beach, Florida, and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction over the parties. The dispute will be resolved by a panel of three
arbitrators if the dollar amount in question that is being arbitrated exceeds
$100,000.00.
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<PAGE> 10
IN WITNESS WHEREOF, the Employer and Employee have caused this Agreement to be
executed on the day and year first above written.
WITNESS: "Employer"
/s/ Sharon Wardlaw POLYDEX PHARMACEUTICALS LIMITED
a Bahamas corporation
/s/ George Usher
/s/ Larry Schaun By: George Usher, President
"Employee"
/s/ Thomas C. Usher
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this 22nd day
of December, 1993 between POLYDEX PHARMACEUTICALS LIMITED, a Bahamas corporation
(the "Employer") and GEORGE USHER (the Employee").
R E C I T A L S
A. The Employer presently is engaged in the business of the research,
development, manufacture and sale of dextran and certain of its derivatives and
various specialty chemicals (the "Business").
B. The Employee has certain unique skills and business experience which he
wishes to continue to devote to the Employer.
C. The Employee has heretofore served the Employer as its President and Chief
Operating Officer, but without written employment agreement.
D. The Employer desires to employ the Employee pursuant to a written employment
agreement and the Employee desires to be so employed by the Employer.
E. This Agreement, after careful review and consideration, has been approved by
the Employer's board of directors (the "Board").
NOW THERFORE, in consideration of the premises together with other good and
valuable consideration, the receipt of which is hereby acknowledged, it is
agreed as follows:
1. Recitals and Effective Date: The foregoing recitals are true and correct, and
are incorporated herein by reference. The effective date of this Agreement shall
be December 22, 1993 (the "Effective Date").
2. Employment of the Employee: Subject to the terms and conditions contained
herein, and unless sooner terminated as hereinafter provided, the Employer
agrees to employ Employee, and Employee agrees to serve as an employee of the
Employer, for a term of employment commencing on February 1, 1994 (the
"Commencement Date") and ending five years from that date, (the "Term"). This
Agreement shall renew thereafter for similar terms of five (5) years each unless
either party gives the other one year's prior written notice of intent not to
renew prior to the expiration of the then current term.
3. Duties of the Employee: During the Term, the Employee shall have the
following powers and duties:
3.1 Employee will have the powers and duties of the President and Chief
Operating Officer of the Employer, as set forth in the Employer's by-laws, as
amended (subject to the direction of the Board, which direction shall be
pursuant to reasonable policies adopted by the Board from time to time and
communicated by written notice to the Employee). Employee shall principally be
responsible for the daily operations of all aspects of the Employer and of all
of its subsidiaries. Employee shall also serve as a Director of the Employer.
3.2 During the Term, Employee shall devote most of his business time, attention,
effort and skill to the business affairs and interests of the Employer. It is
furthermore understood and agreed that Employee may serve or continue to serve
on the boards of directors of and hold any other offices or positions in
companies or organizations as Employee may desire, provided such position will
not present any significant conflict of interest with the Employer or materially
affect the performance of Employee's duties pursuant to this Agreement. If any
potential conflict of interest arises, Employee shall present the position and
circumstances to a meeting of the Board, which shall determine if a conflict
exists. Nothing contained herein shall prohibit Employee from managing his
personal, financial, and less active business affairs to the extent such
<PAGE> 2
affairs do not contravene any of the foregoing provisions.
Notwithstanding anything to the contrary contained herein, the Employee shall
the right and the authority to delegate responsibility to one or more personnel
if he deems such delegation appropriate, and is hereby authorized to hire, on
behalf of Employer, additional agents, employees and other representatives who
are in his opinion necessary to handle the Employer's affairs.
3.3 During the Term, the Employer agrees to cause Employee to be elected as the
Chief Operating Officer and President of the Employer, and as a director on the
Board.
4. Compensation: During the Term, as compensation for the services to be
rendered by Employee, the Employer shall pay Employee the following amounts:
4.1 Base Salary: Each twelve month fiscal period commencing February 1st of one
year, and ending January 31st of the next, is called herein a "Fiscal Year".
During the Fiscal Year beginning on the Commencement Date and ending January 31,
1995, Employee shall be paid at the annual rate of $65,000.00 (U.S. Funds),
payable in equal monthly installments (the "Base Salary").
4.2 Increase in Base Salary: During the balance of the Term, and for each
renewal Term, the Employee shall be entitled to increase in the Consumer Price
Index for all Urban Consumers and Urban Wage Earners U.S. City Average issued by
the United States Department of Labor Bureau of Labor Statistics, or its
successor index ("CPI") over the preceding calendar year.
5. Fringe Benefits: During the Term, Employee shall be entitled to:
5.1 Business Expenses: Employee is authorized to incur reasonable expenses to
execute and/or promote the Business of the Employer, including but not limited
to expenses for entertainment, travel and similar items. Employer will reimburse
Employee for all such expenses incurred on behalf of Employer.
5.2 Automobile: Employer shall furnish the Employee with Six Hundred ($600)
Dollar (U.S. Funds) per month automobile allowance with which Employee shall pay
the costs and expenses (inclusive of liability and casualty insurance) of an
automobile to be used by Employee in the performance of his duties as are or may
be customary for executives in the community who perform similar duties.
Provided, however, that in lieu of the automobile allowance Employer may provide
Employee with an appropriate automobile satisfactory to Employee for his use in
discharging his duties hereunder.
5.3 Health, Medical, and Dental Insurance: Employee shall be provided with
hospital, major medical, and dental insurance reasonably satisfactory to the
Employee and his family dependents with full medical and dental coverage. Said
policy shall be chosen by the Employee. Employee may request that Employer
satisfy this paragraph 5.3 by reimbursing Employee for payments made by Employee
under the existing plans which presently cover Employee.
5.4 Vacation: The Employee shall be entitled to four weeks paid vacation
annually.
5.5. Employer Benefit Plans: Employee shall be entitled to participate in any
and all plans, arrangements or distributions maintained by the Employer
pertaining to or in connection with any pension, profit sharing, stock options
and/or similar benefits for its regular employees and/or for its executives, as
determined by the Board or committees thereof pursuant to the governing
instruments which establish and/or determine eligibility and other rights of the
participants and beneficiaries under such plans or other benefits programs.
6. Rights of Indemnification:
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<PAGE> 3
(a) Subject to the provisions of the Employer's Certificate of Incorporation and
Bylaws, each as amended from time to time, the Employer shall indemnify the
Employee to the fullest extent permitted by The Companies Act of the
Commonwealth of the Bahamas, as amended from time to time, for all amounts
(including without limitation, judgments, fines, settlement payments, expenses
and attorney's fees) incurred or paid by the Employee in connection with any
action, suit, investigation or proceeding arising out of or relating to the
performance by the Employee of services for, or the acting by the Employee as a
director, officer or employee of the Employer, or any other person or enterprise
at the Employer's request. Upon request of the Employee, all costs and expenses
of indemnification required hereunder shall be paid in advance.
(b) The Employer shall use its best efforts to obtain and maintain in full force
and effect during the Term directors' and officers' liability insurance policies
providing full and adequate protection to the Employee for is capacities,
provided that the Board of Directors of the Employer shall have no obligation to
purchase such insurance if, in its opinion, coverage is available only on
unreasonable terms.
7. Stock Options: The Employer hereby grants to the Employee options (the "Stock
Options") to purchase 2,500,000 shares of the common stock of the Employer (the
"Options Shares") exercisable over a six-year period regardless of whether the
Employee is working for, or employed by the Employer. Said Stock Options shall
be assignable and transferrable without any limitations whatsoever. The Employer
and Employee hereby agree that as of the date of this Agreement, all 2,500,000
shares shall be and are hereby declared to be vested and immediately
exercisable. The exercise price (the "Option Price") for the Option Shares shall
be Two Dollars and Twenty-Five ($2.25) cents (U.S. Funds) per share, which
Option Price is the closing price of the Employer's common stock as of the date
of this Agreement, and is the fair market value of the Option Shares. Stock
Options are cumulative. The Stock Options shall be exercisable from time to time
in whole or in part without affecting the remainder of the Stock Options during
the term of the exercisability and any renewal or extension thereof and for six
years from the date of this Agreement.
7.1 Exercise of Stock Options: Stock Options may be exercised by written notice
directed to the Employer or such other person as may be designated by the
Employer accompanied by a check payable to the Employer in payment of the option
price for the option shares. The Employer shall make immediate delivery of the
purchased option shares, fully paid and nonassessable, registered in the name of
the Employer subject to a restrictive legend set forth on the purchased Option
Shares certificate as follows:
The shares of stock represented by this Certificate have not been registered
under the Securities Act of 1993, as amended ("Act"), or the securities laws of
any other jurisdiction and may not be sold, transferred, pledged, hypothecated
or otherwise disposed of in any manner unless they are registered under such Act
and the securities laws of any applicable jurisdictions or unless pursuant to an
exemption therefrom.
7.2 Reclassification, Consolidation or Merger: If and to the extent that the
number of issued and outstanding shares of common stock of the Employer shall be
increased or reduced by a change of par value, split-up, reclassification,
distribution of a dividend payable in stock, issuance of convertible
debentures, warrants or similar transactions, the number of shares subject to
the Stock Options and the Option Price per share shall be proportionately
adjusted to protect the Employee from dilution. If the Employer is reorganized
or consolidated or merged with another corporation, the Employee shall be
entitled to receive options covering shares of such reorganized, consolidated,
or merged company in the same proportion, at an equivalent price, and subject
to the same conditions. For purposes of the preceding sentence, the excess of
the aggregate fair market value of the shares subject to the option immediately
after the reorganization, consolidation or merger over the aggregate option
price of such shares shall not be more than the excess of the aggregate fair
market value of all shares subject to the Stock Options immediately before such
reorganization, consolidation or merger over the aggregate option price of such
shares, and the new option or assumption of the old Stock Options shall not
give Employee additional benefits which he did not have
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<PAGE> 4
under the old Stock Options, or deprive him of benefits which he had under the
old Stock Options. If there is a purchase of stock of the Employer by a party
who is not an affiliate of the Employer that causes a change in control of the
Employer (as defined hereinafter), the Employer or purchasing entity shall
purchase the Options Shares which have not been registered on the same basis as
all other shares.
8. Death During Employment: If Employee dies during the Term of this Agreement,
the Employer will pay to the Employee's surviving spouse the Base Salary which
would otherwise be payable to the Employee for a period of not less than six
months after the date in which Employee's death occurred. Furthermore, the
Employee's surviving spouse or the Employee's estate, if otherwise provided,
shall obtain all rights in vested stock options plus the right to exercise the
stock options on 100% of the non-vested stock options, together with the sales
rights of such stocks and/or stock options that have been granted to the
Employee hereunder.
9. Disability: If Employee suffers from a disability as hereinafter defined, his
employment hereunder may, after notice is hereinafter provided, at the option of
the Employer, be deemed terminated. In such event, the Employer will pay the
Employee the Base Salary, Bonus, and all fringe benefits otherwise payable to
him for a period of one year after the date upon which the Board deems the
Employee to be disabled hereunder (the "Disability Wage"). The Employer shall
have the right, however, to set off against the amount of the Disability Wage
payable to the Employee all amounts which may be received by Employee during
such one-year period pursuant any disability insurance which the Employee may
have. The Employer shall have no further wage obligations to the Employee or his
estate except as otherwise provided in this Agreement. For this purpose, the
terms "disability" and "disabled" are defined as Employee's inability for a
period of 180 days in a 360 day period to perform his duties under this
Agreement. If there is a dispute as to the existence of the Employee's
disability, then said dispute shall be submitted to binding arbitration as
provided hereafter.
10. Termination of Employment:
10.1 Termination by the Employee: Employee my voluntarily resign at any time
upon 60 days prior written notice to the Employer. In such event, and not
including circumstances described in Paragraph 12 below, Employee shall be
entitled solely to the amounts specified in Section 11.1 of this Agreement.
10.2 Termination by the Employer: Employee's employment may be terminated by the
Employer at any time, upon notice to Employee for "Cause". For this purpose, the
term "Cause" is defined as:
a. Breach. A material violations by Employee of his duties as an employee of the
Employer which are demonstrably willful and deliberate on his part and which are
not remedied in a reasonable period of time (not to exceed 30 days) after
receipt of written notice from the Employer;
b. Conviction: A conviction of Employee for a felony crime involving baseness,
vileness, depravity or moral turpitude that would negatively impact on the
Employer and/or the Employee's performance hereunder;
c. Fraud. The commission or participation of Employee in an act or acts of
personal dishonesty intended to result in his personal enrichment at the expense
of the Employer which is not remedied in a reasonable period of time after
receipt of written notice from the Employer; and
d. Chemical Dependency: Dependence by Employee upon an illegal substance,
including but not limited to, marijuana, cocaine, heroin, and all other illegal
substances and/or dependence by Employee upon the use of alcohol, which, in any
case, in the opinion of both Employee's family physician and a physician chosen
by the Employer, materially impairs Employee's ability to perform his duties
hereunder, which dependence is not cured or rehabilitated within six months of
receipt of written notice from the Employer to the
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Employee.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than three
quarters (3/4) of the entire membership of the Board (which Board must consist
of at least four members at such time, including the Employee), at a meeting of
the Board held for the purpose (after at least seven days prior written notice
to the Employee and an opportunity for him, together with his counsel, to be
heard before said Board), finding that in the good faith opinion of said Board
the Employee was guilty of conduct set forth above in subsections (a), (b), (c)
or (d) above and specifying the particulars thereof in detail. In the event that
the Board shall consist of less than four members, the affirmative vote of at
least two-thirds of the entire membership of the Board will be required for
purposes of this Section.
10.3 Notice of Termination: Any termination by the Employer pursuant to Section
9 (Disability) or 10.2 (Cause), or by the Employee pursuant to Section 12 (Good
Reason), shall be communicated by written Notice of Termination to the other
party or parties hereto. For purposes of this Agreement, a "Notice of
Termination" shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of the
employment of the Employee under the provision so indicated.
10.4 Date of Termination: For purposes of this Agreement, "Date of Termination"
shall mean:
(i) if this Agreement is terminated for Disability, thirty (30) days after
Notice of Termination is given (provided that the Employee shall not have
returned to the performance of his duties on a full-time basis during such
thirty (30) day period);
(ii) if the Employee's employment is terminated under Section 12 (Good Reason)
below, the date specified in the Notice of Termination; and
(iii) if the Employee's employment is terminated for any other reason, the date
of which a Notice of Termination is given; provided that if within thirty (30)
days after any Notice of Termination is given the party or parties receiving
such Notice of Termination notifies the other party or parties that a dispute
exists concerning the termination, the Date of Termination shall be the date on
which the dispute is finally determined by a binding and final arbitration award
or by a final judgment, order or decree of a court of competent jurisdiction
(the time for appeal therefrom having expired and no appeal having been
perfected); provided, however, that the Employee's action is finally adjudicated
or arbitrated in his favor and against the Employer or that the Employee's
action is settled by written agreement of the parties in the Employee's favor.
11. Payments Upon Termination:
11.1 Termination by the Employer for Cause, Resignation or by Mutual Agreement.
If Employee and the Employer mutually agree to the termination of this
Agreement, if Employee voluntarily resigns, except as provided in Paragraph 12
below, or if Employee is terminated by the Employer for Cause, then Employee
shall be entitled only to a pro rata portion of the Base Salary together with
accrued vacation to such date, all Stock Options available under this Agreement,
and all applicable reimbursements from the Employer due under Paragraph 5
hereof.
11.2 Termination for Reasons other than Termination by the Employer for Cause,
Resignation, Mutual Agreement, Death or Disability. For any form of termination
other than that described in the preceding section or in sections 8 or 9,
including if the Employee shall terminate his employment for Good Reason, as
herein defined, or if the Employer shall terminate the Employee without Cause,
but only if the Employee as a Director of the Employer, shall have voted to
oppose the termination, then the Employer shall pay the
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Employee the following amounts:
(i) The Employee's full Base Salary (and any annual increases) through the Date
of Termination at the rate in effect at the time Notice of Termination is given.
(ii) A lump sum payment of Five Hundred Thousand ($500,000) Dollars.
(iii) All Option Shares shall be exercisable for a period of five years from the
Date of Termination.
(iv) The Employer shall also pay all indemnity payments and all legal fees and
expenses incurred by the Employee as a result of such termination (including all
such fees and expenses, if any incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement).
The Employee shall not be required to mitigate the amount of any payment
provided for in this section 11.2 by seeking other employment or otherwise.
12. Good Reason. The Employee may terminate his employment for Good Reason. For
purposes of this Agreement "Good Reason" shall mean:
(i) without the express written consent of Employee, the assignment to him or
any duties grossly inconsistent with his positions, duties, responsibilities and
status with the Employer, or a change in his reporting responsibilities, titles,
or offices, or any removal of him from or any failure to re-elect him to any of
such positions, except because of the termination of his employment for Cause,
Disability or Death;
(ii) a reduction by the Employer in his Base Salary as in effect on the date
hereof, or as the same my be increased from time to time; or the failure by the
Employer to increase such Base Salary each year as provided for in this
Agreement;
(ii) the failure by the Employer to continue in effect any Employer-sponsored
benefit or compensation plan, pension plan, life insurance plan, medical and
dental plan, personal accident plan or disability plan in which the Employee is
participating (or plans providing him with substantially similar benefits), the
taking of any action by the Employer which would adversely affect his
participation in or materially reduce his benefits under any of such plans or
deprive him of any material fringe benefit enjoyed by him, or the failure by the
Employer to make any of the payments called for in Section 5 hereof;
(iv) the failure of the Employer to obtain the assumption of an agreement to
perform this Agreement by any successor as contemplated in Section 17 below;
(v) a "Change in Control" of the Employer as defined in Section 13 below; or
(vi) the purported termination of the Employee's employment which is not
effected pursuant to a Notice of Termination satisfying the requirements
subparagraph (f) below, and for purposes of this Agreement, no such purported
termination shall be effective.
13. Change in Control
(a) For purposed of this Agreement, a "change in control of the Employer" shall
mean a change in control of the nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that,
without limitation, such a change of control also be deemed to have occurred;
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(i) if any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or become the beneficial owner, directly or indirectly by
acquisition, or otherwise, or securities of the Employer representing
twenty-five (25%) percent or more of the combined voting power of the Employer's
then outstanding securities; or
(ii) during any period of two consecutive years, individuals who at the
beginning of such period constitute the Board of Directors of the Employer cease
for any reason to constitute at least a majority thereof, unless the election or
the nomination for election by the Employer's shareholders, or each new
director, was approved by a vote of at least three-fourths (3/4) of the
directors then still in office who were directors at the beginning of the
period.
(b) If any of the events described in this Section 13 hereof constituting a
change in control of the Employer shall have occurred, the Employee shall be
entitled to the benefits provided in Section 11.2.
14. Reporting Obligation: The Employer and the Employee hereby agree that the
Employee shall only be responsible to, and shall be required to report only to
the Employer's Board.
15. Restrictive Covenant: As a inducement for the Employer to enter into this
Agreement and provided that the Employer is in good standing under the terms of
this Agreement, Employee agrees that for the longer of the period of Employee's
employment with the Employer or the period that Employee serves as a director on
the Board of the Employer and for a period of one year thereafter, Employee
shall not either directly as an owner, partner, shareholder, agent, director,
employee, independent contractor, representative, consultant or otherwise within
the States of Florida or Kansas or the Canadian provinces of Ontario or British
Columbia or in other areas where the Employer then carries on its business
either (1) engage in any business which competes with the existing business of
the Employer or any of its affiliates or (2) solicit employees of the Employer
to perform services for another business. Notwithstanding the foregoing
provisions of this Agreement, Employee may own shares of common stock of the
Employer; or own shares of stock in any corporation whose shares of stock are
registered under Section 12 of the Securities Exchange Act of 1934 as amended,
and which is engaged in the business which is in competition with the business
then engaged by the Employer and its affiliates, provided that the acquisition
of said shares of stock is for investment purposes only, and that Employee shall
not own, directly or indirectly, 5% or more of the issued and outstanding shares
of any class of stock or such corporation.
16. Notices: Any notice, request, demand, offer, payment or communication
required or permitted to be given by any provision of this Agreement shall be
deemed to have been delivered and given for all purposes if written, and (1) if
delivered personally or by courier or delivery service to the address set forth
below at the time of such delivery, (b) if sent by registered or certified
United States mail, postage and charges prepaid, addressed to the intended
recipient, at the address specified below, effective upon receipt or refusal.
If to the Employer: Polydex Pharmaceuticals Limited
421 Comstock Road,
Scarborough,Ontario
CANADA MIL 2H5
with a copy to: Peter Higgs, Esq.
Higgs & Johnson
Sandringham House
83 Shirley Street
Nassau, Bahamas
If to the Employee: George Usher
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RR 3,
King, Ontario
CANADA L0G 1K0
Any party may change the address to which notices are to be mailed by giving
five (5) days prior notice as provided herein to all other parties. Commencing
on the day after the receipt or refusal of such notice, such newly designated
address shall be such person's address for purposes of all notices or other
communications required or permitted to be given pursuant to this Agreement.
17 . Successors:
(a) The Employer will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Employer, by agreement in form and substance
satisfactory to the Employee, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Employer would be
required to perform it if no such succession had taken place. Failure to obtain
such agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle the Employee to compensation from the
Employer in the same amount and on the same terms as he would be entitled
hereunder if the Employee had terminated his employment for Good Reason, except
that for purposes of implementing the foregoing, the date on which any such
succession becomes effective shall be deemed the Date of Termination. As used in
this section, "Employer" shall mean the Employer as hereinbefore defined, and
any successor to its business and/or assets as aforesaid which executes and
delivers the agreement provided for in this Section 17 or which otherwise
becomes bound by all the terms and provisions of the Agreement by operation of
law.
18. Construction of Agreement:
18.1 Bahamas Law. This Agreement shall be governed by and construed and enforced
in accordance with the laws of the Commonwealth of the Bahamas, and all of its
provisions shall be administered according to and it validity shall be
determined under the laws of the Commonwealth of the Bahamas without reference
to Bahamian law provisions regarding conflicts of law.
18.2 Gender and Number. Whenever appropriate, references in this Agreement in
any gender shall be construed to include all other genders, references in the
singular shall be construed to include the plural, and references in the plural
shall be construed to include the singular, unless the context clearly indicates
to the contrary.
18.3 Certain Words. The words "hereof", "herein", "hereunder", and other similar
compounds of the word "here" shall mean and refer to the entire Agreement and
not to any particular article, provision or paragraph unless so required by this
Agreement.
18.4 Captions. Section and paragraph headings, titles or captions contained in
this Agreement are inserted only as a matter of convenience and/or reference,
and they shall in no way be construed as limiting, extending, defining or
describing either the scope or intent of this Agreement or any provision hereof.
18.5 Counterparts. This Agreement may be executed in one or more counterparts,
and any such counterpart shall, for all purposes, be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
18.6 Severability. The invalidity of unenforceability of any provision hereunder
(or any portion of such a provision) shall not affect the validity or
enforceability of the remaining provisions (or remaining portions of
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such provisions) of this Agreement.
19. Miscellaneous;
19.1 Entire Agreement. This Agreement constitutes the entire agreement among the
parties pertaining to the subject matter hereof, and supersedes and revokes any
and all prior existing agreements, written or oral, relating to the subject
matter hereof, and this Agreement shall be solely determinative of the matters
addressed herein.
19.2 Waiver. Either the Employer or Employee may, at any time or times, waive
(in whole or in part) any rights or privileges to which he or it may be entitled
hereunder. However, no waiver by any party of any condition or of the breach of
any term, covenant, representation or warranty contained in this Agreement, in
any one or more instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach in other instances, or as a
waiver of any other condition or of any breach of any other terms, covenants,
representations of warranties contained in this Agreement, and no waiver shall
be effective unless it is in writing and signed by the waiving party.
19.3 Attorney's Fees. If either party shall be required to retain the services
of an attorney to enforce any of his or its rights hereunder, the prevailing
party shall be entitled to receive from the other party all costs and expenses
including (but not limited to) court costs and attorney's fees (whether in a
court of original jurisdiction or one or more courts of appellate jurisdiction),
incurred by him or it in connection therewith.
19.4 Venue. Any litigation arising hereunder shall be instituted only in Palm
Beach County, Florida, the place where this Agreement was executed, and all
parties hereto agree that venue shall be proper in said county for all such
legal or equitable proceedings.
19.5 Assignment. The rights and obligations of the parties under this Agreement
shall inure to the benefit of and shall be binding upon their successors,
assigns, and/or other legal representatives. This Agreement shall not be
assignable by the Employer, except as provided herein by Employee. The services
of Employee are personal and his obligations may not be delegated by him except
as otherwise provided herein.
19.6 Amendment. This Agreement may not be amended, modified, superseded or
canceled, and any of the matters, covenants, representation, warranties or
conditions hereof may not be waived, except by a written instrument executed by
the Employer and Employee or, in the case of a waiver, by the party to be
charged with such waiver.
19.7 Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules of the American Arbitration Association
with the American Arbitration Association, Boynton Beach, Florida, and judgment
upon the award rendered by the arbitrators may be entered in any court having
jurisdiction over the parties. The dispute will be resolved by a panel of three
arbitrators if the dollar amount in question that is being arbitrated exceeds
$100,000.00.
IN WITNESS WHEREOF, the Employer and Employee have caused this Agreement to be
executed on the day and year first above written.
WITNESS: "Employer"
POLYDEX PHARMACEUTICALS LIMITED
a Bahamas corporation
/s/ Thomas Usher
By: Thomas C. Usher, Chairman
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"Employee"
/s/ GEORGE USHER
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Exhibit 10.3
MEMORANDUM OF AGREEMENT made between:
NATU PATEL
9767 Sun Pointe Drive
Boynton Beach, Florida 33437
(hereinafter called the "Executive")
and
POLYDEX PHARMACEUTICALS LIMITED
a Bahamian Corporation
(hereinafter called "POLYDEX" while Polydex
and all of its Affiliates, as that term is
defined in the Federal Securities Laws, are
herein after called the "COMPANY")
NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the foregoing,
the mutual covenants and agreements herein contained and for other good and
valuable consideration, it is hereby agreed as follows:
1. The Executive will serve Polydex in the capacity of Vice President of Polydex
and shall perform such duties and exercise such powers as may from time to time
be determined by its President.
2. The Executive shall also serve as an officer of any Affiliate of Polydex, if
required by its President.
3. The employment of the Executive hereunder shall be for a period of five (5)
years commencing January 1, 1990 and continuing through December 31, 1994 and
thereafter from year to year unless and until terminated as hereafter provided.
4. The employment of the Executive hereunder may be terminated as follows:
(a) Notwithstanding anything herein to the contrary, Polydex may terminate
Employee's employment hereunder upon the occurrence of any of the following:
i) The conviction of Employee of a crime involving fraud, larceny or
misappropriation funds;
ii) After 60 days' written notice to the Employee, upon a material breach by
Employee of any of the terms and conditions of this Agreement which breach
remains unremedied by Employee during such 60 day notice period and provided
however, that such written notice by Polydex describes in reasonable detail the
facts constituting the aforesaid breach;
(b) by six month's notice in writing given by either party to the other, which
notice in writing may be given at any time after June 30, 1994. This contract is
deemed to continue beyond the termination date unless otherwise terminated as
herein provided or renewed. The provision for notice of termination contained in
this subparagraph shall apply only at the end of the original term of this
agreement or during any continuation thereafter due to failure to terminate
pursuant to this provision;
(c) if the Executive shall by reason of illness or mental or physical disability
fail for any three consecutive calendar months in any 12 month period of for
four months in aggregate in any 12 month period to perform his duties hereunder,
then by three month's notice in writing from the Company to the Executive.
Provided, however, that if Executive shall have resumed his duties hereunder on
a full time basis prior to the expiration of said three month period this
Agreement shall remain in full force and effect.
<PAGE> 2
5. Upon any notice being given pursuant to Clause (a) of Paragraph 4 or upon the
expiration of the said period of six months referred to in Clause (b) of
Paragraph 4 or upon the expiration of the said period of three months referred
to in Clause (c) of Paragraph 4, as the case may be, this Agreement and the
employment of the Executive hereunder shall be wholly terminated, except
Paragraph 10 which shall continue in full force and effect.
6. (a) The Executive shall devote a substantial portion of his time, attention
and ability to the business and affairs of the Company.
(b) The Executive shall well and faithfully serve the Company during the
continuance of his employment hereunder and use, his best efforts to promote the
interests of the Company.
(c) The Executive agrees that he will during the term of his employment
hereunder, so long as the Board of Directors of Polydex may so desire, serve
Polydex as a Director without additional remuneration other than the general
director's fee (if any) payable by virtue of holding the office of director.
7. The basic remuneration of the Executive for his services hereunder shall be
at the rate of $93,000.00 U.S. per year payable in biweeky installments for the
year ending December 31, 1990. Polydex and the Executive agree to renegotiate
Executive's salary at the end of each calendar year thereafter. Should Polydex
and Executive not agree to a new salary, the salary shall automatically increase
by the increase in the Consumer Price Index for the calendar year at a minimum.
8. The Executive shall be reimbursed for all reasonable traveling and other
reasonable out-of-pocket expenses actually and properly incurred by him in
connection with his duties hereunder provided that for all such reasonable
expenses the Executive shall furnish to Polydex statements and vouchers on a
monthly basis. Polydex shall during the term of the employment of the Executive
hereunder provide the Executive an automobile allowance or car of a reasonable
value to be agreed between Executive and Polydex.
9. (a) During the employment of the Executive hereunder the Executive shall from
time to time be entitled to vacations of 4 weeks in each calendar year. Such
vacations shall be taken at such times as the President may from time to time
determine having regard to the operations of the Company.
(b) Executive and his family shall be included in a group insurance policy of
the form carried by Company as a whole.
10. (a) The Executive acknowledges that in the course of carrying out,
performing and fulfilling his responsibilities to the Company hereunder he will
have access to and will be entrusted with detailed confidential information and
trade secrets relating to the present and contemplated services, techniques and
modes of merchandising, marketing techniques, manufacturing procedures,
industrial designs, tools, dies, inventions and routines concerning the
customers of the Company, their names, addresses, tastes and preferences, the
cyclical and other particular business requirements, the disclosure of any which
confidential information and trade secrets to competitors of the Company or to
the general public would be highly detrimental to the best interests of the
Company. The Executive further acknowledges that in the course of performing his
obligations to the company hereunder he will be the principal representative of
the Company to many of the customers of the Company as as such will be
significantly responsible for maintaining or enhancing the goodwill of the
Company with such customers. The Executive acknowledges and agrees that the
right to maintain the confidentiality of such confidential information and trade
secrets, and the right to preserve its goodwill, constitute proprietary rights
which the Company is entitled to protect.
(b) Accordingly, the Executive covenants and agrees with the Company that:
(i) he will not, either during the term of his employment by the Company or at
any time thereafter, disclose
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any of such detailed confidential information and trade secrets to any person
nor shall he use the same for any purpose other than the purpose other than
those of the Company the private affairs of the Company or any other information
which he may acquire during the course of his employment hereunder with relation
to the business and affairs of the Company; and
(ii) he will not, except as an officer and/or executive of the Company, at any
time within the period of two years following the termination of his employment
hereunder, either individually or in partnership or jointly or in conjunction
with any person or persons, firm, associations, syndicate, company or
corporation, as principal agent, shareholder, or in any other manner whatsoever,
carry on or be engaged in or concerned with or interested in, or advise, lend
money to, guarantee the debts or obligations of, or permit his name or any part
thereof to be used or employed by or associated with, any person or persons,
firm, association, syndicate, company or corporation engaged in or concerned
with or interested in, any business of the character described in the first
sentence of Clause (a) of the paragraph or any other business now or at any time
during the course of the employment of the Executive hereunder carried on by the
Company:
(A) within any municipality, district, county, province, state or other
jurisdiction within which customers of the Company (with respect to which the
Executive has acquired detailed confidential information and trade secrets of
the character described above or to whom the Executive has been the principal
representative of the Company at any time) carry on business; or
(B) within Canada, or
(C) within Canada and the United States of America.
(c) If any covenant or provision of this Clause is determined to be void or
unenforceable in whole or in part, it shall not be deemed to affect or impair
the validity of any other covenant or provision and Sections (A), (B), and (C)
of the Sub-Clause (ii) of the Paragraph are hereby declared to be separate and
distinct covenants.
11. Polydex hereby agrees to grant to the Executive the option to purchase
50,000 common shares without par value (hereinafter referred to as the "Polydex
Stock") at a purchase price of US $0.75 per share as follows:
(i) No more than 25,000 shares of the Polydex Stock may be purchased in the
first twelve month period and no more than 40,000 shares may be purchased in the
first twenty-four month period of this Agreement; and
(ii) All options unexercised expire automatically at the earlier of (a) the
termination of the Executive's employment with Polydex or (b) the fifth
anniversary date of the commencement date of this Agreement.
The aforesaid shares of the Polydex Stock shall be issued against payment
therefore, by cash as certified check in U.S. funds.
12. Any notice in writing required or permitted to be given to the Executive
hereunder shall be sufficiently given if delivered to the Executive personally
or mailed registered mail, postage prepaid, addressed to the Executive at 9767
Sun Pointe Drive, Boynton Beach, Florida 33437. Any such notice mailed as
aforesaid shall be deemed to have been received by the Executive on the third
business day following the date of mailing. Any notice in writing required or
permitted to be given to Polydex or to the Company hereunder shall be given by
registered mail, postage prepaid, addressed to the Company at 1401 Neptune
Drive, Boynton Beach, Florida 33426. Any such notice mailed as aforesaid shall
be deemed to have been received by Polydex and/or the Company on the third
business day following the date of mailing. Any such address for the giving of
notices hereunder may be changed by notice in writing given hereunder.
13. Any and all previous agreements, written or oral, between the parties hereto
or on their behalf relating to the employment of the Executive by Polydex are
hereby terminated and cancelled and each of the parties hereto hereby releases
and forever discharges the other of and from all manner of actions, causes of
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action, claims and demands whatsoever under or in respect of all such
agreements, except that unexpired options to purchase common shares of Polydex
previously granted by Polydex to the Executive shall remain in full force and
effect.
14. Except as otherwise provided in Paragraph 11, the (b) As used herein,
"Pre-Tax Net Income shall mean the annual net operating income of Chemdex,
before all extraordinary items and before deduction of or allowance for federal,
state or local income taxes or any other tax measured by the income of Chemdex
and without giving effect to any accrual for bonuses. Pre-Tax Net Income shall
be determined in accordance with generally accepted accounting principles
consistently applied, subject to and in accordance with the following: (i) all
gains or losses realized on the sale or other disposition of any capital assets
shall be excluded; (ii) interest or investment income shall be excluded; and
(iii) fees payable by Polydex on behalf of Chemdex for allocable audit, legal
and other expenses for the benefit of Chemdex shall not be excluded.
(c) Within 60 days after the end of each fiscal year during the term, Chemdex
shall prepare a draft statement of the bonus, if any, due Employee hereunder for
such year, including a calculation, in summary form, of Pre-Tax Net Income for
such year, and shall deliver copies of the same to Employee and to the
independent public accountants regularly retained by Chemdex. Within 30 days
after his receipt of the statement, Employee shall notify Chemdex and such
accountants in writing of any disputed items or adjustments in such bonus
statement, and the basis therefor. Any such dispute shall be resolved by such
accountants not later than 90 days after the end of such fiscal year, and
Chemdex shall pay Employee the amount of such bonus within ten days following
the final determination thereof hereunder by Employee, or by such accountants,
as the case by be. Any such determination of bonus amounts made in accordance
with this paragraph (b), absent manifest error, shall be final and binding upon
Chemdex and Employee.
5. This agreement shall terminate at such time as the employment agreement
between Employee and Polydex shall terminate as hereinbefore described.
IN WITNESS WHEREOF, this agreement is executed and accepted this 12th day of
February, 1990 to be effective January 1, 1990.
/s/ Brigitte U. Cooney
/s/ Natu Patel
POLYDEX PHARMACEUTICALS LIMITED
By: /s/ T.C. Usher
CHEMDEX INCORPORATED
By: /s/ T.C.Usher
ASSIGNMENT OF SERVICES
THIS AGREEMENT made as of the 1st day of January, 1990, by and between NATU
PATEL, hereinafter called "Employee", POLYDEX PHARMACEUTICALS LIMITED, a
Bahamian Corporation, hereinafter called "Polydex", and CHEMDEX, INC., a Kansas
Corporation authorized to do business in the State of Florida, hereinafter
called "Chemdex".
WHEREAS, Polydex has entered into an Employment Agreement with Natu Patel
effective January 1, 1990; and
WHEREAS, Chemdex desires to have Natu Patel provide certain services to Chemdex
and Polydex desires to assign to Chemdex the services of Natu Patel as needed;
and
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WHEREAS, Employee desires to assist in the assignment of services with certain
additions; and
WHEREAS, the parties wish to formalize the agreement for assignment of services
by the execution of this Assignment.
NOW, THEREFORE, the parties hereto agree that in consideration of the foregoing,
the mutual covenants and agreements herein contained and for other good and
valuable consideration;
1. Polydex does hereby assign the services of Employee to Chemdex, those
services under agreement between Natu Patel and Polydex dated February 12, 1990.
2. Chemdex does hereby accept the assignment of services of Employee and does
further agree to reimburse Polydex for Employee's salary based on the amount of
Employee's time that he spends on behalf of Chemdex. Should there be a dispute
as to the amount of time that Employee spends on matters relating to Chemdex,
Chemdex shall be and does hereby agree to be solely liable for Employee's
compensation.
3. Chemdex and Polydex agree that this is not an assignment of exclusive
services and that Employee may still provide services to Polydex and its
Affiliates, as that term is defined in the Federal Securities Laws, as Polydex
shall determine necessary.
4. Chemdex does hereby agree that part and parcel of the compensation to
Employee and an inducement to Employee will be an incentive bonus to be given to
Employee on the following terms and conditions:
(a) Employee shall be entitled to receive an annual bonus, for each full fiscal
year of Chemdex during the term that Employee is assigned to Chemdex, in an
amount equal to ten percent (10%) of the Pre-Tax Net Income (as hereinafter
defined) of Chemdex for such year.
Provisions of this Agreement shall inure to the benefit of and be binding upon
the heirs, executors, administrators and legal personal representatives of the
Executive and the successors and assigns of the Company, respectively.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto this
12th day of February 1990, to be effective January 1, 1990.
/s/ Brigitte U. Cooney
/s/ Natu Patel
POLYDEX PHARMACEUTICALS LIMITED
By: /s/ Thomas C. Usher, Chairman
5
<PAGE> 1
Exhibit 10.4
RESEARCH AGREEMENT
THIS AGREEMENT effective this 1st day of April 1996.
BY AND BETWEEN
DEXTRAN PRODUCTS LTD.
415 Comstock Road,
Scarborough, Ontario
M1L 2H4
(hereinafter referred to as "Dextran")
AND
CANADIAN MICROBIOLOGY CONSORTIUM INC.
University of Calgary Health Sciences Centre
Room 282 - Heritage Medical Research Building
3330 Hospital Drive NW
Calgary, Alberta
T2N 4N1
(hereinafter referred to as "CMCI")
AND
BRITISH COLUMBIA'S CHILDREN'S HOSPITAL
a public hospital having its administrative offices at 4480 Oak
Street, in the City of Vancouver, in the Province of
British Columbia, V6H 3V4
(hereinafter referred to as "BCCH")
AND
THE UNIVERSITY OF BRITISH COLUMBIA
University-Industry Liaison Office
IRC 331 - 2194 Health Sciences Mall
Vancouver, BC
V6T 1Z3
(hereinafter referred to as "UBC")
WITNESSETH:
WHEREAS, CMCI is a non-profit society funded through the Canada's federal
Network of Centres of Excellence Program which provides administrative and
technical support for the Canadian Bacterial Diseases Network, a network of
researchers at various Canadian institutions including, inter alia, UBC;
WHEREAS, CMCI provided partial funding to support the macrophage antibacterial
research program of Dr David Speert, a UBC researcher, through which research
program Dr. Speert discovered the use of Dextran Sulphate as a potential
prevention and treatment of Pseudomonas aeruginosa infections in patients with
cystic fibrosis;
<PAGE> 2
WHEREAS, UBC filed a U.S. patent application serial no. 07/887,496 on May 26,
1992 relating to the regulation of macrophage antibacterial activity (UILO
Disclosure 92-034), and UBC and Novadex jointly filed a patent application in
the United States on December 30, 1993 relating to the use of Dextran Sulphate
to prevent Pseudomonas aeruginosa infections in vivo (UILO Disclosure 93-078)
(hereinafter referred to collectively as the "Technology");
WHEREAS, UBC licensed the Technology to Novadex under two separate agreements
both dated January 28, 1994 and both subsequently amended November 3, 1994;
WHEREAS, a condition of such licensing of the Technology to Novadex was that
Novadex enter into one or more written agreements with UBC whereby Novadex
and/or its sublicensees would fund continued research at UBC in the uses of
Dextran Sulphate;
WHEREAS, UBC and Dextran Products Limited, a sublicensee of Novadex, entered
into a research agreement Dextran Products Limited would fund research at UBC
but the parties thereto terminated said agreement effective March 31, 1996, and
UBC and Novadex wish to replace it, effective April 1, 1996 with this new
agreement to which UBC, Dextran, CMCI and BCCH shall be parties and pursuant to
which research will be conducted by Dr. Speert at BCCH with funding provided
jointly by Dextran and CMCI;
WHEREAS, the research program contemplated by this Agreement is of mutual
interest and benefit to UBC, BCCH, CMCI, and Dextran, will further the
instructional and research objectives of UBC in a manner consistent with its
status as non-profit , tax-exempt, educational institution, and may derive
benefits for the parties through inventions, improvements, and/or discoveries;
NOW THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto agree to the following:
Article 1 - Definitions
As used herein, the following terms shall have the following meanings:
1.1 "Principal Investigator" shall mean Dr. David Speert of UBC's Department
of Paediatrics.
1.2 "Project" shall mean the description of the project as described in
Appendix "A" hereof, which shall be carried out under the direction of the
Principal Investigator.
1.3 "Contract Period" is April 1, 1996 through March 31, 1998.
1.4 "UBC Intellectual Property" shall mean individually and collectively all
inventions, improvements, discoveries, knowledge, know-how, techniques, and/or
data which are conceived and/or made (i) solely by one or more employees of UBC,
or (ii) jointly by one or more employees of UBC and by one or more employees of
any of the other parties hereto in performance of the Project, and which do not
form part of the Technology (as defined in the license agreements dated January
28, 1994 and subsequently amended November 3, 1994). For greater certainty, UBC
Intellectual Property does not include inventions, improvements, discoveries,
knowledge, know-how, techniques, and/or data which are conceived and/or made by
Dr. Donald Woods and/or Dr. Warren Finlay.
2
<PAGE> 3
Article 2 - Research Work
2.1 UBC shall commence the performance of the Project promptly after the
effective date of this Agreement and shall use reasonable efforts to perform the
Project substantially in accordance with the terms and conditions of this
Agreement. BCCH agrees to make its facilities available to the Principal
Investigator for the purposes of the Project. Notwithstanding anything to the
contrary in this Agreement, Dextran, CMCI, BCCH, and UBC may at any time amend
the Project by mutual written agreement.
2.2 In the event that the Principal Investigator becomes unable or unwilling to
continue Project, and a mutually acceptable substitute is not available, the
parties to this Agreement shall each have the option to terminate said Project.
In the event of termination pursuant to this Article 2.2, Dextran shall have the
right to exercise its rights under Article 7 of this Agreement with respect to
UBC Intellectual Property.
Article 3 - Reports and Conferences
3.1 Written project reports shall be provided by UBC to Dextran every 3 months
and a final report shall be submitted by UBC to Dextran with 60 days of the
conclusion of the Contract Period or early termination of this Agreement, as the
case may be.
3.2 During the term of this Agreement, representatives of UBC and CMCI will meet
with representatives of Dextran at times and places mutually agreed upon to
discuss the progress and results, as well as ongoing plans, or changes therein,
of the Project.
Article 4 - Costs, Billings, and Other Support
4.1 It is agreed to and understood by all parties that the cost to Dextran for
the Contract Period is $198,720. Payment shall be made by Dextran to UBC
according to the following schedule:
(1) $24,840 upon execution of this Agreement
(2) $24,840 on 1 July, 1996
(3) $24,840 on 1 October, 1996
(4) $24,840 on 1 January, 1997
(5) $24,840 on 1 April, 1997
(6) $24,840 on 1 July, 1997
(7) $24,840 on 1 October, 1997
(8) $24,840 on 1 January, 1998
UBC reserves the right to discontinue the work if Dextran fails to make any of
the aforementioned payments within 30 days of the dates herein specified.
4.2 Except as may otherwise be agreed to in writing, UBC shall retain title to
any equipment purchased with funds provided by Dextran under this Agreement.
4.3 Notwithstanding anything to the contrary herein, in the event of early
termination of this Agreement by Dextran for any reason whatsoever or in the
event of early termination of this Agreement by any other party hereto as a
result of a breach of this Agreement by Dextran pursuant to Article 9 hereof,
Dextran shall pay all costs accrued by UBC as of the date of termination,
including non-cancellable obligations, which shall include all non-cancellable
contracts, incurred prior to the effective date of termination.
3
<PAGE> 4
Article 5 - Publicity
5.1 Dextran will not use the name of UBC, BCCH, or CMCI, nor of any member of
UBC's, BCCH's, or CMCI's Project staff, in any publicity, advertising, or news
release without the prior written approval of an authorized representative of
UBC, BCCH, or CMCI, as the case may be. UBC, BCCH, and CHMI will not use the
name of Dextran, nor of any employee of Dextran, in any publicity without the
prior written approval of Dextran. In each case above, consent shall not be
unreasonably withheld.
Article 6 - Publications
6.1 Dextran recognizes that under UBC policy, the results of the Project must be
publishable and agrees that researchers engaged in the Project shall not be
restricted from presenting at symposia, national, or regional professional
meetings, or from publishing in journals, theses, or dissertations, or otherwise
of their own choosing, methods and results of the Project, provided however that
Dextran and CMCI shall have been furnished copies of any proposed publication or
presentation at least 3 months in advance of such proposed publication or
presentation to a journal, editor, or other third party. Dextran and CHMI shall
have 60 days after receipt of said copies within which to notify UBC that such
proposed presentation or proposed publication should be delayed because it
contains subject matter that should be patented in accordance with Article 7.3
hereof. In the event that Dextran or CMCI notifies UBC within the aforementioned
time period, UBC and its researchers shall refrain from making such publication
or presentation until UBC has filed a patent application pursuant to Article 7.3
hereof directed to the patentable subject matter contained in the proposed
publication or presentation, or until 6 months have elapsed from the date of
such notification, whichever is sooner.
Article 7 - Intellectual Property
7.1 All rights and title to UBC Intellectual Property under Project shall belong
to UBC and shall be subject to the terms and conditions of this agreement.
7.2 Rights to inventions, improvements and/or discoveries, whether patentable or
copyrightable or not, relating to Project made solely by employees of Dextran
shall belong to Dextran. Such inventions, improvements, and/or discoveries shall
not be subject to the terms and conditions of this Agreement.
7.3 UBC will promptly notify Dextran and CMCI of any UBC Intellectual Property
conceived and/or made during the Contract Period under Project. If Dextran
directs that a patent application or application for other intellectual property
protection be filed, UBC shall promptly prepare, file, and prosecute such
Canadian and foreign application(s) in UBC's name. Dextran shall bear all costs
incurred in connection with such preparation, filing, prosecution, and
maintenance of Canadian and foreign applications(s) directed to said UBC
Intellectual Property. Dextran and CMCI shall cooperate with UBC to assure that
such application(s) will cover, to the best of Dextran's and CMCI's knowledge,
all items of commercial interest and importance. While University shall be
responsible for making decisions regarding scope and content of application(s)
to be filed and prosecution thereof, Dextran and CMCI shall be given an
opportunity to review and provide input thereto. UBC shall keep Dextran and CMCI
advised to all developments with respect to such application(s) and shall
promptly supply to Dextran and CMCI copies of all papers received and filed in
connection with the prosecution thereof in sufficient time for Dextran and CMCI
to comment thereon.
4
<PAGE> 5
7.4 If Dextran chooses not to financially support the filing, prosecution, or
maintenance of patent protection as set for in Article 7.3, or if Dextran
decides to discontinue the financial support of the filing, prosecution, or
maintenance of said protection, the rights granted pursuant to Article 8.1
hereof shall not apply to those patents obtained after Dextran elects not to or
decides to discontinue the financial support of same. In such event, UBC shall
be free to file or continue prosecution or maintain any such application(s), and
to maintain any protection issuing thereon in Canada and in any foreign country
at UBC's sole expense.
Article 8 - Grant or Rights
8.1 UBC grants to Dextran the first option, at Dextran's sole selection, for
either a non-exclusive, royalty-free license to the UBC Intellectual Property
or, for consideration, an exclusive license to the UBC Intellectual Property
with a right to sublicense on terms and conditions to be mutually agreed upon.
Said option shall extend for a time period of one year from the date of
termination of this Agreement.
Article 9 - Term and Termination
9.1 This Agreement shall become effective upon the date first hereinabove
written and shall continue in effect for the full duration of the Contract
Period unless soon terminated in accordance with the provisions of the Article.
The parties hereto may extend the term of this Agreement for additional periods
as desired under mutually agreeable terms and conditions which the parties
reduce to writing and sign. Any party hereto may terminate this agreement upon
ninety (90) days prior written notice to the others.
9.2 In the event that any party hereto shall commit any breach of or default in
any of the terms or conditions of this Agreement, and also shall fail to remedy
such default or breach within thirty (30) days after receipt of written notice
thereof from the one or more of the other parties hereto, the party giving
notice may, at its option and in addition to any other remedies which it may
have at law or in equity, terminate this Agreement by sending notice of
termination in writing to the defaulting party to such effect and such
termination shall be effective as of the date of receipt of such notice of
termination.
9.3 Subject to Article 8, termination of this Agreement by either party for any
reason shall not affect the rights and obligations of the parties accrued prior
to the effective date of termination of this Agreement. No termination of this
Agreement, however effectuated, shall affect the Dextran's or CMCI's rights and
duties under Article 7 hereof, or release the parties hereto from their rights
and obligations under Articles, 4, 5 , 6, 8, and 10.
Article 10 - Independent Contractor
10.1 In the performance of all services hereunder:
(a) UBC shall not be deemed to be and shall be an independent contractor and, as
such, UBC shall not be entitled to any benefits applicable to employees of
Dextran;
(b) Neither party is authorized or empowered to act as agent for the other for
any purpose and shall not on behalf of the other enter into any contract,
warranty, or representation as to any matter. Neither shall be bound by the acts
or conduct of the other.
5
<PAGE> 6
Article 11 - Insurance
11.1 The parties acknowledge that UBC has liability insurance applicable to
officers, employees, and agents while acting within the scope of their
employment by UBC, and that UBC has no liability insurance policy as such that
can extend protection to any other person.
11.2 Each party hereby assumes any risks of personal injury and property damage
attributable to the negligent acts or omissions of that party and officers,
employees, and agents thereof.
Article 12 - Governing Law
12.1 This Agreement shall be governed and construed in accordance with the laws
of the Province of British Columbia.
Article 13 - Arbitration
13.1 In the event of any dispute arising between the parties concerning this
Agreement or its enforceability, the same shall be settled by a single
arbitrator pursuant to the provisions of the COMMERCIAL ARBITRATION ACT of
British Columbia or any successor legislation then in force.
Article 14 - Assignment
14.1 Subject to Article 14.2 hereof, this Agreement shall not be assigned by any
party without the prior written consent of the other parties hereto, such
consent not to be unreasonably withheld.
14.2 This Agreement is assignable to any division of Dextran, any majority
stockholder of Dextran, and/or any subsidiary in which 51 percent or more of the
outstanding stock is owned by Dextran.
Article 15 - Agreement Modification
15.1 Any agreement to change the terms of this Agreement in any way shall be
valid only if the change is made in writing and approved by mutual agreement of
authorized representatives of the parties hereto.
Article 16 - Notices
16.1 Notices, invoices, communications, and payments hereunder shall be deemed
made if given by registered or certified envelope, postage prepaid, and
addressed to the party to receive such notice, invoice, or communication at the
address given below, or such other address as may hereafter be designated by
notice in writing:
Dextran: Mr. George Usher, President
Dextran Products Ltd.
415 Comstock Road,
Scarborough, Ontario
M1L 2H4
6
<PAGE> 7
BCCH: Dr. A.J. Tingle, Director of Research
B.C. Research Institute for Child and Family Health
950 West 28th Avenue
Vancouver, British Columbia
V5Z 4H4
Phone: (604) 875-3194
Fax: (604) 875-2496
CMCI: Ms. Karen Corraini, Business Director
Canadian Microbiology Corporation Inc.
University of Calgary Health Sciences Centre
Room 282 - Heritage Medical Research Building
3330 Hospital Drive NW
Calgary, Alberta
T2N 4N1
Phone: (403) 220-2562
Fax: (403) 283-5241
UBC: Mr. W.N. Palm, Director
University-Industry Liaison Office
I.R.C. Room 331
University of British Columbia
Vancouver, B.C.
V6T 1Z3
Phone: (604) 822-8580
Fax: (604) 822-8569
Principal Investigator: Dr. David Speert, Professor
Division of Infectious and Immunological Diseases
Department of Department of Paediatrics
The University of British Columbia
Research Centre,
950 West 28th Avenue
Vancouver, BC
V5Z 4H4
Phone: (604) 875-2438
Fax: (604) 875-2226
IN WITNESS WHEREOF, the parties have caused these presents to be executed in
duplicate as of the day and year first above written.
Dextran Products Ltd. The University of British Columbia
By: G. Usher By: W.N. Palm
Title: President Title: Director, UILO
Date: October 31, 1996 Date: October 3, 1996
Witness: Sharon Wardlaw Witness: Hubert Lai
Date: October 31, 1996 October 3, 1996
7
<PAGE> 8
Canadian Microbiology Consoritium Inc. British Columbia Children's Hospital
By: K. Corraini By : A.J. Tingle
Title: Business Manager Title: Director of Research
Date: Date:
Witness: Witness:
Date: Date:
Read and understood:
By: David Speert, M.D.
Principal Investigator
Date:
8
<PAGE> 9
Appendix A
Role of Dextran Sulphate and Glycoconjugaes in the Prevention and Therapy of
Pseudomonas aeruginosa Infections in Patients with Cystic Fibrosis - Contract
between Novadex Pharmaceuticals, UBC, BC Children's Hospital, and CMCI.
Workplan and Budget
Prepared by Dr. David Speert
May 1, 1996
Workplan (April 1, 1996 to March 31, 1998)
Dextran Antiadhesive Project
April 1, 1996-June 30, 1996: In vitro mechanism of antiadhesive action; neonatal
mouse studies (a)
July 1, 1996-September 30, 1996: In vitro mechanism of antiadhesive action;
neonatal mouse studies
October 1, 1996-December 31, 1996:neonatal mouse studies
January 1, 1997-March 31, 1997: neonatal mouse studies; rat lung distribution
studies (b)
April 1, 1997 -June 30, 1997: rat lung distribution studies; aerosol
modelling (c)
July 1, 1997-September 30, 1997: rat lung distribution studies: aerosol
modelling
October 1, 1997-December 31, 1997:Phase I clinical trial
January 1, 1998-March 31, 1998: Phase I clinical trial
Macrophage Phagocytosis Enhancement Project
April 1, 1996-June 30, 1996:Evaluation of liposomal delivery of glucose in vitro
July 1, 1996-September 30, 1996: Evaluation of liposomal delivery of glucose in
vitro
October 1, 1996-December 31, 1996: Evaluation of liposomal delivery of glucose
in vitro
January 1, 1997-March 31, 1997: Evaluation of liposomes in neonatal mouse model
April 1, 1997-June 30, 1997: Evaluation of liposomes in neonatal mouse model
July 1, 1997-September 30, 1997: Evaluation of liposomes in neonatal mouse
model
October 1, 1997-December 31, 1997: Evaluation of lipsome distribution in rat
lung; aerosol modelling
January 1, 1998-March 31, 1998:Evaluation of liposome distribution in rat lung;
aerosol modelling
(a) to be done in collaboration with Dr. Alice Prince (Columbia University); no
funds requested
(b) to be done in collaboration with Dr. Donald Woods (Univ. of Calgary); no
funds requested
(c) to be done in collaboration with Dr. Warren Finlay (Univ. of Alberta); no
funds requested
9
<PAGE> 10
Budget
<TABLE>
<CAPTION>
Novadex Portion Year 1 Year 2
<S> <C> <C>
Personnel
Dr. Simon Wong (Research Associate) 42,000 42,000
Dr. David Speert (Principal Investigator) 25,000 25,000
overhead @ 38% 25,460 25,460
Supplies
Plasticware, culture media and chemicals 5,000 5,000
overhead @ 38% 1,900 1,900
subtotals $99,360 99,360
TOTAL 198,720
Other Sources of Funding
Canadian CF Foundation, SPARx Project Budgetted 63,000 to be determined
for the project
MRC-UI Programme 11,371 4,738
Canadian Bacterial Diseases Network 65,268 65,268
12,866
subtotals 152,505 70,006
TOTAL 222,511
GRAND TOTAL $421,231
</TABLE>
10
<PAGE> 1
Exhibit 10.5
AGREEMENT FOR THE OPERATION OF VETERINARY
LABORATORIES, INC.'S LENEXA FACILITY AND SPARHAWK LAB OF K.C.
AS A JOINT VENTURE
THIS AGREEMENT is made this 1 day of December, 1992, by and between CHEMDEX,
INC., a Kansas Corporation, (hereinafter "Chemdex"), VETERINARY LABORATORIES,
INC., a Kansas Corporation, (hereinafter "Vet Labs"), and SPARHAWK LABORATORIES,
INC., a Missouri Corporation, (HEREINAFTER SPARHAWK"), for the purpose of
forming and operating a Joint Venture between Vet Labs and Sparhawk and
authorizing the Joint Venture to Operate the Vet Labs' Lenexa facility and
Sparhawk Laboratories facilities.
WITNESSETH;
In consideration of the terms, conditions, and covenants hereinafter set forth,
the parties hereto mutually agree as follows:
1. Name. The veterinary pharmaceutical manufacturing facility presently located
at 12340 Santa Fe Drive, Lenexa, Kansas, will continue to operate under the name
of Veterinary Laboratories, Inc. (hereinafter "Vet Labs").
2. Separate Legal Entity.
(A) Vet Labs will remain a separate and distinct legal entity from Sparhawk and
Vet Labs shall retain ownership of all licensing agreements for NADA and DEA
products, as well as all lands, buildings, fixtures, equipment and all personal
property presently located at 12340 Santa Fe Drive, Lenexa, Kansas, and all
other assets of Vet Labs existing prior to the formation of the Joint Venture
whether situated thereon or otherwise situated (hereinafter "Vets Labs'
Facility" and/or "Vet Labs' Assets"), subject to the more specific terms of this
Agreement.
(B) Sparhawk will remain a separate and distinct legal entity from Vet Labs and
Sparhawk shall retain ownership of all licensing agreements as well as all
lands, building, fixtures, equipment and all personal property presently located
at 22 N. 6th St., Kansas City, Kansas and all other assets of Sparhawk existing
prior to the formation of the Joint Venture whether situated thereon or
otherwise situated (hereinafter Sparhawk facility and/or Sparhawk assets),
subject to the more specific terms of this Agreement.
(C) As Vet Labs, Sparhawk and the joint venture are each separate legal
entities, it is critical that the accounting system and records be maintained
separately.
3. Joint Venture. The parties hereby form a Joint Venture (the "Joint Venture")
to be governed by the terms and conditions set forth in this Agreement.
4. Name. The Joint Venture shall hereafter use the name "Vet/Sparhawk" or such
other names as the Joint Venturers shall determine.
5. Purpose. The purpose of the Joint Venture is to manage the Vet Labs' Facility
and Sparhawk Facility as a Joint Venture, with the Joint Venture providing day
to day management, and personnel as set forth herein and Vet Labs contributing
the use of the Vet Labs' Facility and Sparhawk contributing the use of the
Sparhawk Facility. Vet Labs and Sparhawk hereby transfer unto the Joint Venture
those current assets and liabilities set forth on Exhibit "A", a copy of which
is attached hereto and made a part hereof by reference.
6. Management of Joint Venture. The Joint Venture shall be managed by a Policy
Committee containing five(5) members, two (2) of which will be chosen by
Sparhawk and three (3) of which will be chosen by the
<PAGE> 2
Board of Directors of Vet Labs.
7. Officers of Vet Labs. Bert Hughes shall serve as President of Vet Labs And
John Bascom shall serve as Vice President of Vet Labs, subject at all time to
the control, discretion and supervision of the Board of Directors of Vet Labs,
or until removal or resignation.
8. Day to Day Operation. Bert Hughes shall be designated as the person who has
the daily management responsibilities of the Joint Venture, but subject to the
direction, control and at the discretion of the Policy Committee of the Joint
Venture or until removal or resignation. John Bascom shall assist Bert Hughes
and work under his direction but also subject to the direction, control, and at
the discretion of the Policy Committee, or until removal or resignation.
9. Authority to Conduct Business of Joint Venture. The Joint Venture as hereby
authorized to make all purchases, sales and maintain all inventories and other
accounts for the joint venture under the Sparhawk Labs and Vet Labs name. As
hereinafter directed, only for the purpose of operating the Vet Labs' Facility
and Sparhawk's Facilities. All operating cash accounts should be established by
the joint venture and all costs of the joint venture should be disbursed from
these accounts. Management of Sparhawk will coordinate the filing of all legal
documents and forms necessary for the joint venture to operate.
10. Management of Vet Labs' Facility.
a. The Joint Venture shall manage and conduct, subject to the general policy and
supervision of the Policy Committee, the affairs of the Vet Labs' Facility,
Sparhawk's Facilities and the Joint Venture (excluding general policy decisions,
new investments, corporate reorganization, borrowing, corporate refinancing and
the like, except as may be specifically authorized from time to time by the
Board or Directors of respective entities and the Joint Venture Policy
Committee) in accordance with the usual practice of trade and as further herein
provided.
b. Sparhawk shall have the right to determine and control all day-to-day
management decisions relating to personnel at Joint Venture Sparhawk and the Vet
Labs' Facility, including all hiring and termination of employees. All employees
at the Vet Labs' Facility will accountable to and will report directly to Bert
Hughes and/or John Bascom. Bert Hughes will be accountable to the Board of
Directors and will report directly to the Board of Directors and/or its
Representative. Sparhawk will hire and pay, on behalf of the Joint Venture and
maintain responsibility for the supervision and direction of all employees.
Joint will reimburse only direct labor expenses to Sparhawk. No override or
other administrative costs may be charged by Sparhawk. All employees at the Vet
Labs' Facility shall be considered employees of Sparhawk and Sparhawk will
maintain all health insurance, pay workmen's compensation and payroll taxes, and
charges associated with the Joint Venture. Sparhawk should set up a payroll
account and all payroll and payroll related costs should be disbursed from this
account. Sparhawk will then invoice and be reimbursed by the joint venture. The
invoice should reflect a breakout of period and product cost.
c. It is hereby acknowledged that Vet Labs is a wholly owned subsidiary on
Chemdex. Joint Venture will counsel with Chemdex on any major issue and keep
Chemdex informed of any regulatory or economic issue pertaining to Vet Labs, the
Vet Labs' Facility or Sparhawk.
d. All checks, notes and contracts, either issued by or binding the Joint
Venture or Vet Labs, will require two (2) signatures, one from the designated
signatory of Vet Labs (hereinafter "Vet Labs' Signatory") and the second from
Sparhawk.
e. At Sparhawk's option, the logo of Sparhawk may be printed on all paperwork
together with the logo of Vet Labs.
2
<PAGE> 3
f. All invoices and other paperwork must be addressed under Vet Labs' name only.
The telephone will be answered as Vet Labs or such name as determine by a
representative of the Policy Committee.
g. Depreciation of plant equipment is calculated in accordance with Generally
Accepted Accounting Principals and will be billed to the joint venture on a rate
equal to the depreciation expense recorded in Sparhawk and Vet Labs.
11. Inspection and Audit.
All documents pertaining in any way to the operation or finances of Vet Labs,
Joint Venture, or Sparhawk, including, but not limited to, accounts payable,
accounts receivable, and bank reconciliations and statements may be inspected
and/or audited by the authorized representative of Chemdex (hereinafter
"Chemdex' Representative") at any time.
12. Access/Concurrent Use.
Chemdex or the Chemdex Representative shall have access to and use of Vet Labs'
facilities as long as such use does not violate regulatory compliance guidelines
and/or disturb normal production.
13. Production.
a. All products manufactured at Vet Labs' or Sparhawk facilities will be labeled
under the Vet Lab/Sparhawk private label or other private label, at the
discretion of the Policy Committee.
b. At its discretion, the Joint Venture will use its best efforts to manufacture
all products currently or previous marketed, except for parenterals. Joint
Venture shall commence production in an expeditious manner, subject to
regulatory compliance. Sparhawk will use its best efforts to see that production
is in strict compliance with regulatory guidelines.
c. Joint Venture shall manufacture all products at either the Vet Labs facility,
or Sparhawk's Kansas facilities currently in operation. No other production
facilities shall be used without prior written consent of both Sparhawk and Vet
Labs. All such products manufactured for the Joint Venture (at both locations)
will be invoiced through Joint Venture only. A representative of Chemdex will be
allowed to review such invoices, at the Joint Ventures facility and the Sparhawk
facilities. d. When calculating profits of the Joint Venture, Sparhawk will not
deduct any payments made to a Sparhawk shareholder as a dividend.
e. Joint Venture agrees to manufacture Bulk Iron to meet the requirements of
Chemdex, with no labor or other charge to Chemdex, except for costs of raw
materials and packaging costs, freight in brokerage fees for the production of
the Bulk Iron, which Chemdex shall pay. A separate contract to this effect will
be executed by Chemdex and the Joint Venture.
f. Sparhawk agrees to use its best efforts to validate the manufacture of 100
ml. glass or other injectable production upon completion of all process
validations and other injectable production upon completion of all process
validations and other regulator compliance.
14. Profit and Cost Participation.
a. Pre-tax net profits or losses generated from the production of non-sterile
products will allocated seventy percent (70%) to Sparhawk and thirty
percent(30%) to Vet Lab.
b. Vet Labs and Sparhawk shall share equally all pre-tax profits or losses for
the sale of non-sterile and injectable (once sales of injectables has
commenced). In this case, the above paragraph 14(a) shall not apply.
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c. All tax profits generated from all Bulk Iron sales will be allocated to
Chemdex. Bulk Iron sales and related raw material costs will be accounted for
separately under Chemdex.
d. Chemdex will supply all raw material for the production of Bulk Iron at its
cost.
e. Chemdex will sell Bulk Iron to the joint venture at the some price as other
commercial account.
f. Sparhawk management shall use its best effort to maintain adequate financing
and positive cash flow in all operations.
g. Sparhawk agrees not to charge Vet Labs or joint venture a management fee of
any kind, but Bert Hughes and John Bascom will each be allowed to draw Forty
Five Thousand Dollars ($45,000) per annum as their salaries from joint venture
on a biweekly pay period. Salaries will not be raised without prior approval of
Chemdex. Such approval shall not be unreasonably withheld.
h. Vet Labs will not receive any supplement payment from the Joint Venture for
the use of the Vet Labs' Facility until a total of Twenty Thousand Dollars
($20,000) net profit are generated per month. After monthly net profit
(calculated prior to the profit (loss) participation at Section 14a and b) has
attained Twenty Thousand Dollars ($20,000.00) supplemental bonus shall be
charged in the following monthly amount thereafter:
1) Ten percent (10%) of profit between Twenty Thousand Dollars ($20,000.00) to
Twenty Five Thousand Dollars ($25,000.00);
2) Fifteen percent (15%) of profit between Twenty Five Thousand One Dollars
($25,001.00) to Thirty Thousand Dollars ($30,000.00);
3)Twenty percent (20%) of profit between Thirty Thousand One Dollars
($30,001.00) to Thirty Five Thousand Dollars ($35,00.00);
4) Twenty five percent (25%) of profit between Thirty Five Thousand One Dollars
($35,001.00) to Forty Thousand Dollars ($40,000.00); and
5) Thirty percent (30%) of profit above Forty Thousand One Dollars($40,001.00).
In any case, the maximum rent shall be Fifteen Thousand Dollars ($15,000.00) per
month.
15. Option to Purchase.
Vet Labs hereby grants unto Sparhawk the option to purchase forty percent (40%)
of the assets held by Vet Labs. This option shall come into existence on the
third (3rd) anniversary of the execution of this Agreement and shall remain in
force through the Tenth (10th) anniversary of the execution of this Agreement at
which time the option to purchase is terminated. The purchase price shall be
determined to be the fair market value of the Vet Labs and Building and
Equipment, plus the sum of One Million Dollars ($1,000,000.00) which shall be
paid for goodwill and the acquisition of NANA's and licenses held by Vet Labs.
The fair market value of the Vet Labs' Assets shall be calculated by a
disinterested third (3rd) party or entity mutually acceptable to Vet Labs and
Sparhawk.
16. Term.
This Joint Venture shall continue for a period of ten (10) years from the date
of this Agreement and thereafter until terminated by this Agreement. Upon
termination, all rights to license agreements NADA and DEA products, and all
other proprietary rights of Vet Labs, and Sparhawk including the Vet Labs and
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Sparhawk Facility and Vet Labs, Sparhawk Assets, shall be retained by Vet Labs,
and Sparhawk except as otherwise set forth herein.
17. Joint Venturer's Interest in Property.
a. A Joint Venturer's "interest in the Joint Venture" includes its interest in
the Joint Venture's capital, profits, losses and distributions, as well as its
rights in specific Joint Venture property.
b. The term "Joint Venturer" refers to each of Sparhawk and Vet Labs.
18. Principal Place of Business.
The Joint Venture's principal place of business initially shall be at 12340
Santa Fe Drive, Lenexa, Kansas.
19. Capital Contributions. On or before closing, the Joint Venturers shall make
initial capital contributions as follows: All accounts receivable, inventory,
and cash according to the attached Exhibit "B".
20. Capital Accounts. A separate capital account shall be maintained to each
joint venture. No joint venture shall be entitled to receive interest on its
capital account balance. Each joint venturer's and transferee's allocated share
of Joint Venture profits and losses shall be credited or debited to its capital
account. All Joint Venture distributions of cash or property to any joint
venturer or transferee shall be debited to the distributee's capital account,
except distributions in repayment of loans made to the Joint Venture, salary
payments, expense reimbursements and any other distributions which the joint
venturers shall determine are not in reduction of the distributee's capital
account. Capital accounts shall be maintained in the same proportion as the
joint venture share in profit and losses.
21. Distributions. It is anticipated that the Joint Venture will retain earnings
& cash. If from time to time the joint venturers shall determine that the Joint
Venture has cash in excess of its needs, such excess cash shall be distributed
to portion of capital accounts.
22. Additional Capital Contributions. Additional capital funded by Joint Venture
shall be in the ratio of their respective capital accounts.
23. Profit and Loss Determination. Joint Venture profits and losses shall be
determined at the end of each fiscal year by the use of generally accepted
accounting principles. For the purpose of Joint Venture accounting and income
tax reporting, the Joint Venture shall operate on a January 31 fiscal year.
24. Accounting Records and Bank Accounts. The Joint Venture shall maintain
complete and accurate books and records of all Joint Venture transactions. Such
books and records shall be open at any time for inspection by any Joint Venturer
or Chemdex or its agent at such parties' expense. The Joint Venture shall
prepare monthly a statement showing the financial condition of the Joint Venture
and its profits and losses from operation. Copies of such statement shall be
promptly furnished to each joint venturer and Chemdex.
25. Transfer or Joint Venturer's Interest.
a. No Joint Venturer or transferee shall voluntarily or involuntarily transfer
all or any portion of its interest in the Joint Venture without the prior
consent of all of the Joint Venturers, and any act in violation of this
restriction shall be null and void, except as otherwise provided by law.
b. Upon dissolution or other cessation to exist as a legal entity of a Joint
Venturer (but not upon a statutory merger or consolidation), or upon the
bankruptcy or insolvency of a Joint Venturer, or upon any other involuntary
transfer by operation of law or otherwise of all or any portion of a Joint
Venturer's or transferee's interest in the Joint Venture, or if all or any
portion of a Joint Venturer's or transferee's interest in Joint Venture, is
deemed by law to have been transferred, the Joint Venture shall not be
terminated and its tax year shall not close; rather, the trustee, receiver,
court, agency, person, or other successor interest (a
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<PAGE> 6
"Transferee") of such Joint Venturer's or transferee shall succeed to such Joint
Venturer's or transferee's interest in the Joint Venture's profits to the extent
so transferred; provided such transferee shall be a mere transferee (and not a
Joint Venturer) with respect to the interest so transferred.
c. Any person who acquires by a transfer of all or any part of a Joint
Venturer's or transferee's interest in the Joint Venture shall be subject to and
bound by this Agreement as if it were an original party hereto; and no such
person shall become an additional or substituted Joint Venturer.
26. Joint Venturer's Meetings; Policy Committee's Meetings.
A meeting of the Joint Venturers may be called at any time by a Joint Venturer
by giving each and every Joint Venturer written notice of the time and place of
such meeting, which notice must be given to all Joint Venturers at least ten
(10) days before the date of such meeting. Any such notice may be waived by the
Joint Venturers entitled thereof by signing a written waiver of notice, either
before or after the time of such meeting, and such waiver shall be deemed the
equivalent of such Joint Venturer's receipt of timely formal notice of the
meeting. A Joint Venturer's attendance in person or by representative at a
meeting shall constitute such Joint Venturer's waiver of notice thereof unless
the meeting is attended for the express purpose, stated at the opening of the
meeting, or objecting to the transaction of any business because the meeting is
not lawfully called. Each meeting of the Joint Venturers shall be held in
Lenexa, Kansas, unless the Joint Venturers agree otherwise and at a reasonably
convenient time and place.
27. Representations and Warranties of Sparhawk. Sparhawk represents and warrants
to Vet Labs and Chemdex and to the Joint Venture as of the date hereof, and also
as of the Closing, as follows:
a. Sparhawk is a corporation duly organized and validly existing under the laws
of the State of Missouri. Sparhawk has the full legal right, power and authority
to enter into this Agreement and to perform its obligations hereunder.
All actions necessary to authorize Sparhawk to enter into this Agreement to
undertake its duties hereunder have been duly and properly taken. This Agreement
is the legal, valid and binding obligation of Sparhawk, enforceable in
accordance with its terms.
b. The execution and delivery of this Agreement by Sparhawk and the performance
of its obligations hereunder will not contravene or conflict with any law,
order, rule or regulation presently in effect and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of Sparhawk pursuant to the terms
of, any agreement or instrument to which Sparhawk is a party or by which it is
bound or to which any of its property or assets are subject. Subject performance
by Sparhawk will not violate any provision of its charter or bylaws.
c. There are not actions, suits, claims, proceedings or investigations pending
or threatened with respect to the business or properties of Sparhawk.
d. Sparhawk has complied in all material respects with all laws, ordinances,
licensing requirements, regulations and orders applicable to the business being
conducted by it and has filed with the proper authorities all other required
statements, returns and reports.
28. Chemdex and Vet Labs Representations and Warranties.
Chemdex and Vet Labs represent and warrant to Sparhawk and the Joint Venture as
follows:
a. Vet Labs and Chemdex are corporations duly organized and validly existing
under the laws of the State
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of Kansas. Vet Labs and Chemdex have the corporate power to own and lease its
properties and carry on its business as and where now presently being conducted.
Vet Labs and Chemdex have the full legal right, power and authority to enter
into this Agreement and to perform its obligations hereunder. All actions
necessary to authorize Vet Labs and Chemdex to enter into this Agreement to
undertake its duties hereunder have been duly and properly taken. This Agreement
is the legal, valid and binding obligation of Vet Labs and Chemdex, enforceable
in accordance with its terms.
b. The execution and delivery of this Agreement by Vet Labs and Chemdex and the
performance of its obligations hereunder will not contravene or conflict with
any law, order, rule or regulation presently in effect and will not conflict
with or result in a breach of any of the terms of provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of Vet Labs pursuant to the terms
of, any agreement or instrument to which Vet Labs is a party or by which it is
bound or to which any of its property or assets are subject. Such performance by
Vet Labs and Chemdex will not violate any provisions of its charter or bylaws.
c. There are no actions, suits, claims, proceedings or investigations pending or
threatened with respect to the business or properties of Vet Labs and Chemdex
which would affect their performance of their obligations under this Agreement.
d. Vet Labs has complied in all material respects with all laws, ordinances,
licensing requirements, regulations and orders applicable to the business being
conducted by it and has filed with the proper authorities all other required
statements, returns and reports.
29. Survival of Representations and Warranties. The statement, representation
and warranties of the parties contained herein and in any exhibit attached
hereto shall be deemed material and to have been relied upon by the parties
hereto, notwithstanding any investigation made by the parties. All such
statements, representations and warranties and the agreements of the parties
contained herein shall continue in effect after execution of this Agreement and
in the formation of the Joint Venture contemplated hereby at the Closing. The
waiver of any misrepresentation or breach of any warranty shall not constitute a
waiver of any other misrepresentation or a breach of warranty hereunder.
Termination and Liquidation.
a. The Joint Venture shall be terminated ten (10) years from the date of this
Agreement, or upon the prior happening of any one of the following events:
(1) The Joint Venture or the last remaining Joint Venturer becomes insolvent or
generally fails to pay, or admits in writing its inability to pay, debts as they
become due, or applies for, consents to or acquiesces in the appointment of a
trustee, receiver, or other custodian for it or any of its property, or makes a
general assignment for the benefit of creditors; or, in the absence of such
application, consent or acquiescence, a trustee, receiver or other custodian is
appointed for it or for a substantial part of its property and is not discharged
within sixty (60) days; or any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding, is commenced in respect of the Joint
Venture or the last remaining Joint Venturer, and if such case or proceeding is
not commenced by the Joint Venture or such Joint Venturer, it is consented to or
acquiesced in by the Joint Venture or such Joint Venturer, or remains for sixty
(60) days undismissed; or the Joint Venture or the last remaining Joint Venturer
takes any corporate action to authorize, or in furtherance of, any of the
foregoing; or,
(2) the determination of the Joint Venturers to terminate and liquidate the
Joint Venture; or
(3) the death, withdrawal or cessation to exist as a legal entity of the sole
remaining Joint Venturer; or,
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(4) the termination of the Joint Venture by operation of law or by judicial
decree.
b. Upon termination of the Joint Venture, the last remaining Joint Venturer (or,
if no Joint Venturer is then remaining, the successor-in-interest of the last
remaining Joint Venturer) shall make full account of the Joint Venture's
property and liabilities, and shall commence to wind up the Joint Venture's
affairs. The Joint Venture's property may be liquidated and its property or the
proceeds thereof shall be applied and distributed, to the extent sufficient, as
follows:
First, all debts and liabilities of the Joint Venture and the expenses of
liquidation shall be paid, except debts and liabilities owed to Joint Venturers
(in their capacities such);
Second, the person required by law to wind up the Joint Venture's affairs shall
set up such reserves as such person may reasonably deem necessary for any
contingent liabilities or obligations of the Joint Venture, provided that any
such reserve shall be paid over by such person to an independent escrow agent,
to be held by the agent or its successors for such period as such person shall
deem advisable for the purpose of applying the reserves to the payment of the
liabilities or obligations, and at the expiration of the period, the balance of
such reserves, if any, shall be distributed as set out in the following clauses;
Third, all debts and liabilities of the Joint Venture owed to the Joint
Venturers or transferees (in their capacities as such) shall be paid.
Fourth, the balance, if any shall be distributed to and among the Joint
Venturers in accordance with the cash distribution percentages as provided
herein.
31. Joint Venture Property. All property, real, personal, or mixed, from time to
time owned by Joint Venturers shall determine that, for convenience, legal title
to any such property shall be held in the name of one or more Joint Venturers;
provided, all Joint Venture property held in the name of one or more Joint
Venturers during the term of the Joint Venture shall be equitable land
beneficially owned by the Joint Venture until termination and such nominee and
trustee of the recorded legal title to such property for the Joint Venture's
sole benefit, subject to the provisions of paragraph--.
32. Binding Effect. This Agreement shall be binding upon and enure to the
benefit of the parties, their respective successors and assigns.
33. Amendment. This Agreement may be modified, amended, changed or canceled, nor
any of its provisions waived, except by instrument in writing signed by all of
the parties or except otherwise specifically agreed herein.
34. Law as to Construction. This Agreement shall be governed by and construed in
accordance with the laws of the State of Kansas.
35. Notices. Any notices or other communication by either party shall be deemed
to have been sufficiently given, for all purposes, if given by being deposited,
postage prepaid, by certified mail, at a post office or letter box addressed as
follows:
a. To Vet Labs and Chemdex
Attn: Natu Patel
1401 Neptune Drive
Boynton Beach, FL 33426
b. To Sparhawk
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Attn: Bert Hughes
22 North 6th Street
Kansas City, KS
66101
IN WITNESS WHEREOF, the parties above have caused this agreement to be signed
and acknowledged by duly authorized officers on the day and year first above
written.
CHEMDEX, INC.
By: /s/ Natu Patel
Its:
Attest:
CHEMDEX, INC.
BY: /s/ Bascom
Its
VETERINARY LABORATORIES, INC.
By: /s/ Natu Patel
Its:
Attest:
VETERINARY LABORATORIES, INC.
By: /s/ Bascom
Its:
SPARHAWK LABORATORIES, INC.
By: /s/ Bert Hughes
Its:
ATTEST:
SPARHAWK LABORATORIES, INC.
By: /s/ Bascom
Its:
STATE OF MISSOURI )
) ss.
COUNTY OF PLATTE )
BE IT REMEMBERED, that on this 1st day of December, 1992 before me, the
undersigned, a Notary Public in and for the County and State aforesaid,
personally appears Natu Patel and , and of CHEMDEX, INC., who are known to me to
be the persons who executed the above and foregoing instrument and acknowledge
the execution of the same on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official seal on
the day and year last above written.
Cheryl Bascom
NOTARY PUBLIC
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CHERYL A. BASCOM
Notary Public-State of Missouri
Commissioned in Platte County
My Commission Expires June 26, 1993
STATE OF MISSOURI )
)ss.
COUNTY OF PLATTE )
BE IT REMEMBERED, that on this 1st day of December, 1992, before me, the
undersigned, a Notary Public in and for the county and State asforesaid,
personally appears Natu Patel and, and of, VETERINARY LABORATORIES, INC., A who
are known to me to be persons who executed the above and foregoing instrument
and acknowledged the execution of the same on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on
the day and year last above written.
/s/ Cheryl Bascom
NOTARY PUBLIC
CHERYL A. BASCOM
Notary Public - State of Missouri
Commissioned in Platte County
My Commission Expires June 26, 1993
STATE OF MISSOURI )
COUNTY OF PLATTE )
BE IT REMEMBERED, that on this 1st day of December, 1992, before me, the
undersigned, a Notary Public in and for the County and State aforesaid,
personally appears Bert Hughes and, and of SPARHAWK LABORATORIES, INC., who are
known to me to be the persons who executed the above and foregoing instrument
and acknowledged the execution of the same on behalf of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on
the day and year last above written.
/s/ Cheryl A. Bascom
NOTARY PUBLIC
CHERYL A. BASCOM
Notary Public - State of Missouri
Commissioned in Platte County
My Commission Expires June 26, 1993
natu2
EXHIBIT "A"
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(Current Assets and Liabilities of Vet Labs)
EXHIBIT "B"
(Capital Contributions)
11
<PAGE> 1
Exhibit 10.6
MANUFACTURING AGREEMENT
THIS AGREEMENT is entered into this 23 day of September, 1996 by and between
AGRI-LABORATORIES, LTD, a Delaware corporation (the "Company") and "SPARHAWK
LABORATORIES, INC., a Missouri corporation ("SLI") and VETERINARY LABORATORIES,
INC., a Kansas corporation ("VLI") (SLI and VLI shall jointly be referred to as
the "Manufacturer").
WHEREAS, the Company is engaged in the wholesale distribution and resale of
animal pharmaceuticals and other animal health products; and
WHEREAS, Company is in the process of filing Applications for approval of New
Animal Drugs ("NADA's") and Abbreviated Applications for the Approval of New
Animal Drugs ("ANADA's") with the Food and Drug Administration (jointly the
"Applications" or individually the "Application") under statutes regulating the
production of animal drugs, approval of which will allow the Company to
manufacture and distribute certain pharmaceutical products; and
WHEREAS, the Company and the Manufacturer agree to enter into this Agreement to
provide for the non-exclusive manufacture and supply by Manufacturer of Product
(as defined herein) as set forth herein.
NOW, THEREFORE, in consideration of the promises and covenants contained herein,
and good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. DEFINITIONS
1.1 Products. "Product" shall mean the products listed on Exhibit "A" attached
hereto and incorporated herein. Exhibit "A" may be revised, from time to time,
by mutual written agreement of the parties.
1.2 Application. "Application" shall mean a NADA or an ANADA submitted to the
Food & Drug Administration ("FDA") which application requests approval of
Product as safe and effective by the FDA.
1.3 Approval. "Approval" shall mean approval of an Application by the FDA.
2. THE APPLICATION
2.1 Owner. The parties agree and acknowledge that Company is the owner of all
Applications submitted for Product and is the owner of all Approvals received
from the FDA. In no event is Manufacturer granted a license or proprietary
rights to Product by this agreement.
2.2 Application Contents. Manufacturer agrees that Company may list the
Manufacturer as manufacturer of a Product on the Company Applications and
Manufacturer will furnish a full description of its facilities, controls and
methods for manufacturing Product for inclusion on the Application. If
requested, Manufacturer agrees to provide the Company written authorization to
reference Manufacturer's master file.
2.3 Best Efforts. Each party agrees that it will use its best efforts to
complete and submit an Application for Product on a timely basis following
execution of this Agreement.
3. MANUFACTURING AGREEMENT
<PAGE> 2
3.1 Engagement. As provided herein, Company hereby appoints and engages
Manufacturer to manufacture the Product on a non-exclusive basis. Manufacturer
agrees that the manufacture of Product shall be for the exclusive benefit of
Company and agrees further that it shall not sell Product to any other purchaser
without the Company's advance written consent.
3.2 Price. Company agrees to pay to Manufacturer for the manufacture of Product
such amounts as are listed on Exhibit "B" attached hereto and made a part
hereof. Exhibit "B" may be revised, form time to time, by mutual written
agreement of the parties.
3.3 Trade Terms. Company agrees to pay all Manufacturer's invoices on a timely
basis. A timely basis shall be deemed to be thirty (30) days after date of
invoice provided invoices are received within five (5) days of date of invoice.
If invoices are not received by Company within five (5) days of date of invoice,
a timely basis for payment shall be deemed to be twenty-five (25) days after
receipt by Company of each invoice. Manufacturer agrees that Company shall
receive a discount of two percent (2%) of net invoice price if payment is made
by the Company within ten (10) days of date of invoice.
3.4 Registration. Manufacturer shall provide necessary information to the
Company to allow the Company to register Manufacturer's facility with the FDA as
a manufacturer of Product and shall provide the Company all information
necessary to comply with all reporting requirements of such a registered
manufacturer. Manufacturer shall make its premises available for inspection as
required by applicable statutes.
3.5 Quality Standards. All Product manufactured pursuant to this Agreement shall
be manufactured in compliance with the Application and shall be in compliance
with any and all requirements, ordinances and specifications of the FDA, the
Department of Agriculture, and/or any state, federal or the appropriate
government regulatory agency which shall, from time to time, regulate the
Product, The quality of the Product shall also be in compliance with general
industry standards regarding content, purity, shape, appearance, potency, shelf
life and shall comply with Company' quality standards. The Product shall also
comply with the chemical and other specifications established and/or identified
by Company as set forth on Exhibit C hereto.
3.6 Delivery. Manufacturer shall deliver Product to Company within thirty (30)
days (the "Lead Time") from Manufacturer's receipt of Company's purchase order,
provided that said purchase has been forecast pursuant to Article 8 hereof.
Manufacturer shall be responsible and pay for packaging and delivery of the
Product and for all other steps needed to transport the Product to Company.
Provided, however, the foregoing shall not restrict Manufacturer from shipping
Product to Company earlier that such Lead Time if the Product is available for
shipment and Company requests shipment prior to the Lead Time date established
herein.
3.7 Nonperformance. In the event Company's purchase order has been forecast
pursuant to Article 8 hereof and Manufacturer fails to deliver Product to
Company within the Lead Time, the product fails to comply with the terms of this
Agreement, or there has been breach of another provision of this Agreement, in
addition to other remedies,Company shall have the right to cancel outstanding
purchase orders with or without terminating this Agreement.
4. TERM OF AGREEMENT
4.1 Term of Agreement. The application of this Agreement to each particular
Product listed on
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<PAGE> 3
Exhibit A shall terminate five (5) years after the particular Product has
received Approval. The application of this Agreement with respect to each
individual Product shall automatically renew for an additional five (5) year
term unless either party shall have served written notice of non-renewal to the
other party not less than ninety (90) days before the termination of the initial
five (5) year period. Notwithstanding the above, in addition to all other
remedies, either party may terminate its obligations under this Agreement by
twenty (20) day advance written notice in the event of a material breach of the
terms of this Agreement, if such breach is not cured within said period.
5. RISK OF LOSS AND INSURANCE
5.1. Risk of Loss. Unless Company elects to pick up Product from Manufacturer's
dock, Manufacturer shall bear all risk of loss or damage to the Product in
shipment to Company. Company shall bear all risk of loss of unloading, storage
and handling of Product.
5.2 Insurance. Manufacturer shall carry product liability insurance on the
Product in the amount of not less than $1,000,000.00 which insurance shall name
the Company as an additional insured and/or co-insured. Company shall be given
thirty (30) days advance written notice of any termination or cancellation of
said insurance. Manufacturer shall provide proof of insurance within ten (10)
days of the commencement of the term of this Agreement and at any time during
the term of this Agreement upon request.
6. LABELING AND PACKAGING RESPONSIBILITY
6.1 Labeling Responsibility. All labels (including private labels, i.e. those
labels containing names other than the Company's name) as specified by the
Company will be purchased and applied to all Product by Manufacturer at
Manufacturer's cost; provided that, with respect to private labels, the volume
of each private label meets minimum private label quantities as jointly
determined by Manufacturer and the Company for a twelve (12) month period. In
the event the volume of Products using private labels does not meet the
established minimum volume requirements, Manufacturer reserves the right to
invoice the Company for the cost of purchasing the private labels.
6.2 Packaging. Manufacturer shall be required to deliver the Product in finished
form, ready for sale by Company and packaged according to the Company's
specifications which are listed on Exhibit "D" attached hereto and made a part
hereof. Exhibit "D" may be revised, from time to time, by written notice from
Company, provided that such notice does not materially increase the cost of such
packaging.
7. ACCEPTANCE
7.1 Acceptance. The Product shall be received subject to Company's inspection
during a thirty (30) day period after receipt. The Product may be returned to
Manufacturer if found not to comply with the quality standards set forth in
Article 3.5 hereof. In the event that the defect is not readily ascertainable by
inspection, such Product may nonetheless be rejected by Company not later than
ten (10) day after Company has discovered the defect. All claims for defect
shall be reported in writing to Manufacturer as soon as possible. At the request
of Manufacturer, Company shall provide Manufacturer with samples of the
allegedly defective product.
8. PURCHASE FORECASTS
8.1 Annual Forecasts. Prior to the beginning of each calendar year, Company
agrees to provide
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Manufacturer with an annual forecast of Product purchases by quarter.
8.2 Quarterly Forecast. Company agrees that, at least once each ninety (90)
days, it shall provide forecasts of the quantity of Product which it anticipates
it will purchase from Manufacturer for the (90) day period thereafter.
8.3 Noncompliance with Estimates. The parties agree that Company's estimates are
only estimates. All estimates shall be made in good faith in order to facilitate
Manufacturer's manufacture and shipment of Product in compliance with this
Agreement.
8.4 Minimum Purchase. Notwithstanding Paragraph 7.3 above, Company agrees that
it will purchase the minimum of Product as set forth on Exhibit A.
9. BEST EFFORTS OF COMPANY
9.1 Marketing of Product. Company shall exert its best efforts to sell and
achieve a market for the Product.
10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION
10.1 Non-Disclosure. Unless granted written permission by Company, Manufacturer
agrees not to directly or indirectly use or disclose Confidential Information
(as hereinafter defined) obtained from Company or otherwise through the
manufacturer of the Product for so long as said information retains the
characteristics of Confidential Information as defined herein.
10.2 Confidential Information. Confidential Information means any information or
compilations of information that derives independent economic value from not
being generally known or readily ascertainable by proper means. Confidential
Information includes, but is not limited to trade secrets, customer lists,
manufacturing processes and Product ingredients, formulations, specifications,
results of research and development whether complete or in process and other
information which the Company deems as confidential. However, Manufacturer is
not precluded from independently developing and marketing a particular Product
if Company fails to purchase any of such Product within two (2) years following
Approval of the Application for that Product and the listing and approval of
Manufacturer under Company's ANADA or NADA.
10.3 Documents and Tangible Items. All documents and tangible items which
contain or deal in any manner with Confidential Information are the property of
Company and shall remain the exclusive property of Company along with all
copies, records, abstracts, notes or reproductions of any kind made from or
about the documents and tangible items or the information they contain.
10.4 Account for Profits. Manufacturer agrees that if it shall violate any of
the covenants and agreements under this Article 10, Company shall be entitled to
an accounting and repayment of all profits, compensation, commissions,
remuneration or other benefit which Manufacturer has either directly or
indirectly realized on its behalf or on behalf of another and/or may realize as
a result of, growing out of or in connection with such violation. Such remedies
shall be in addition to and not in limitation of any injunctive relief or any
other remedies or rights to which Company is or may be entitled to at law or in
equity or under this Agreement.
10.5 Reasonableness of Restrictions. Each party agrees that considering their
relationship and the degree of their mutual reliance, and given the other terms
of this Agreement that the restrictions set
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<PAGE> 5
forth in this Article are reasonable. Notwithstanding the foregoing, if any of
the covenants set forth in this Article shall be held to be invalid or
unenforceable, the remaining parts thereof shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable parts have not been
included herein.
11. WARRANTIES
11.1 General. Manufacturer warrants that the Product will be of merchantable
quality, free from defects in material, formulation and manufacture, fit for the
purposes for which it is produced, in compliance with Company's packaging
standards, in compliance with industry quality standards, in compliance with the
quality standards set forth in Section 3.5 hereof and in compliance with the
terms of this Agreement. Notwithstanding the foregoing. Manufacturer shall not
be responsible for recommendations for use of the Product made by Company nor
shall Manufacturer make any representation or warranty with regard to the
results to be obtained by the Product. Company assumes all risks and liability
associated with storage and handling of Product which complies at the time of
delivery to Company with the quality standards identified herein.
11.2 Investigation. Manufacturer shall promptly investigate any and all Product
complaints relating to quality, manufacture, defects in materials and
workmanship, formulations, and/or packaging for the Product. Manufacturer shall
immediately notify Company, in writing, of any Product complaints Manufacture
has knowledge of or receives. The Company shall promptly investigate any and all
complaints regarding storage and handling of the Product, and/or recommended
uses of the Product.
12 INDEMNITY
12.1 Indemnity. Manufacturer agrees to indemnify and hold harmless Company, its
officers, directors, employees, agents, members, distributors and
representatives from all actions, claims, losses, damages or expenses allegedly
arising out of any injury to person or property allegedly suffered as a
consequence of the Product's manufacture.
12.2 Company's Inspection. Manufacturer shall, from time to time, during regular
business hours, in a manner not to interfere with Manufacturer's business, grant
permission and arrange for Company to enter the premises and plants of
Manufacturer that manufacture the Product, for the purpose of inspecting such
plants, equipment and operations to assure compliance with this Agreement.
13. MISCELLANEOUS
13.1 Entire Agreement. This Agreement constitutes the entire understanding
between the parties hereto with respect to the subject matter hereof, and any
modification of this Agreement shall be in writing and shall be signed by a duly
authorized representative of each party.
13.2 Supersedes Prior Understandings. This Agreement shall be deemed to
supersede any agreement heretofore entered into by and between Manufacturer and
Company.
13.3 Governing Law. This Agreement shall be interpreted and construed, and the
legal relationships created hereby shall be construed in accordance with the
laws of the State of Missouri.
13.4. Default. No failure or omission by either of the parties hereto in
performance of any non-monetary obligation contained in this Agreement shall be
deemed a breach hereof if the same shall arise
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<PAGE> 6
from any causes beyond the control, and without fault or negligence of, such
party, including, but not restricted to acts of God, acts of federal, state,
local or foreign government or any agency thereof, request of any governmental
authority or any officer, department, agency or instrumentality thereof,
shortages of supply of Product or components to manufacture product, plant shut
down by acts of any government, fire, storm, flood, earthquake, explosion,
accident, acts of the public enemy, war, rebellion, insurrection, riot,
sabotage, epidemic, quarantine, restrictions, strike, lockout, dispute with
workmen, labor shortages, transportation embargoes or failures or delays in
transportation, or exhaustion or unavailability or delays in the delivery of any
transportation facility, product or material necessary to the performance
hereof, except that all actions of Manufacturer's employees and agents are
hereby deemed to be within Manufacturer's control. In the event of breach of
this Agreement by either party, such party shall be liable for actual damages,
but shall have no liability for incidental or consequential damages.
13.5 Successors and Assigns. The Agreement shall inure to the benefit of and be
binding upon the permitted successors and permitted assigns of the parties
hereto, but is shall not be assigned in whole or in part by either party without
prior written consent of the other. Any purported assignment of this Agreement
or any interest therein without the written consent of the other shall be void.
Notwithstanding the aforementioned, Company may assign its rights and
obligations herein to any affiliate or subsidiary in which Company owns a
controlling interest.
13.6 Notices. All notices provided for by this Agreement shall be considered to
have been received if sent by certified mail, return receipt requested,
addressed as provided for herein.
COMPANY: Agri-Laboratories Ltd.
P.O. Box 3103,
St. Joseph, Missouri 64503
WITH COPY TO: Leon I. Steinberg Esq.
Maslon Edelman Borman & Brand
a Professional Limited Liability Partnership
3300 South 7th Street
Minneapolis, MN 55402
MANUFACTURER: Sparhawk Laboratories, Inc. and
Veterinary Laboratories, Inc.
12340 Santa Fe Trail Drive
Lenexa, KS 66215
Attn: Everett B. Hughes, President
13.7 Injunctive Relief. The parties agree that their respective obligations are
unique and that monetary damages may not be sufficient to compensate for an
alleged breach of this Agreement. The parties agree that each shall have the
right to injunctive relief to enjoin or enforce the provisions of this
Agreement. The right to injunctive relief and/or specific performance shall be
cumulative and shall be in addition to all other rights and remedies at law or
in equity.
13.8 Severability. If any portion or provision of this agreement shall be held
unenforceable or illegal, the illegal or unenforceable provision shall be
inoperable and the remaining provision of this Agreement shall be effective as
if such unenforceable or illegal provision were not a part hereof.
IN WITNESS WHEREOF, the parties execute this Agreement as of the date and year
first above
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written.
AGRI-LABORATORIES, LTD.
By: /s/ Dennis Feary
Its President
VETERINARY LABORATORIES, INC.
By: /s/ Everett B. Hughes
Its President
SPARHAWK LABORATORIES, INC.
By: /s/ Everett B. Hughes
Its President
7
<PAGE> 1
Exhibit 10.7
PROPOSAL
The Trident Group is pleased to submit the following proposal to Polydex:
BACKGROUND
Polydex has developed an iron/dextran product which they believe can
significantly reduce the toxicity of iron found in current marketed products.
Since there are some 50-60 deaths from iron poisoning each year Polydex believes
that the iron/dextran product has at least one significant advantage.
Since Polydex has limited experience in the OTC market they have requested that
Trident act as their new product development team to prepare the product for
launch, and possibly to support the subsequent marketing.
PROPOSAL
Trident will provide and outsource as necessary all resources to develop an
iron/dextran product for market. Trident will evaluate the market, develop
concepts and names, source packaging and advertising agencies, and in general
act as the marketing group for Polydex to insure a timely launch.
In addition, we will develop launch plans and source distribution partners for
the product. At Polydex's discretion Trident will continue to act as the
marketing team during the marketing phase of the product.
COST
$20,000.00 per month plus 10% royalty on net sales. In addition, Polydex will
pay for all agreed upon out of pocket expenses.
TIMING
Minimum of 12 months with an option to renew to manage the marketing phase. The
project will begin on March 1, 1997.
TERMS
First payment due on March 1, 1997 with subsequent payments due the first day of
each of the following months.
/s/ Raymond C. Freisheim /s/ Alec D. Keith, Ph.D
Director Chairman
Trident Group Polydex Pharmaceuticals, Ltd.
<PAGE> 1
Exhibit 10.8
STOCK SALE AND PURCHASE AGREEMENT
Agreement, made this Thirtieth day of October, 1992 between Continental Grain
Company, a corporation duly organized and validly existing under the laws of the
State of Delaware, (hereinafter referred to as the "Seller"), with offices at
277 Park Avenue, New York, NY 10072, and Polydex Pharmaceutical, Limited a
corporation duly organized and validly existing under the laws of Bahamas
(hereinafter referred to as "Buyer") with offices at 415 Comstock Road,
Scarborough, Ontario Canada, and Chemdex, Incorporated, a Kansas Corporation,
("Chemdex").
WHEREAS, Seller owns all the issued and outstanding shares ("Company Shares") of
Veterinary Laboratories, Inc., a corporation organized under the laws of Kansas,
engaged primarily in the manufacture and distribution of veterinary
pharmaceutical (hereinafter referred to as "Company"); and
WHEREAS, the Parties have reach an understanding with respect to the sale by
Seller and purchase by Buyer of the Company Shares upon the terms and conditions
hereafter set forth;
NOW, THEREFORE, the parties agree as follows:
1. PURCHASE
1.1. Subject to the terms and conditions hereof, Seller shall sell to Buyer and
Buyer shall purchase the Company Shares from the Seller for the purchase price
provided in Section 2 hereof, Buyer has designated that its subsidiary, Chemdex
Incorporated to take ownership of the Company Shares.
2. PURCHASE PRICE
2.1 The purchase price for the Company Shares shall be Three Million and Fifty
thousand Dollars ($3,050,000.00) plus the cost of the working capital on hand at
the Closing.
"Working capital"is defined as current assets less current liabilities. Exhibit
1 lists specific accounts receivable and reserves to be excluded from the
accounts receivable of the Company at the Closing Date and transferred to the
Seller.
2.2 The purchase price shall be paid by Buyer at closing in the form of common
stock of Buyer ("Buyer Shares") based on a stipulated market value of Two
Dollars ($2.00) per share. Buyer and its primary shareholder shall provide
Seller guaranties that Seller receive no less than Two Dollars ($2.00) per Buyer
Share during an orderly disposition of such stock as more fully set forth
hereinafter.
3. REPRESENTATIONS AND WARRANTIES OF SELLERS
3.1 As of the date hereof and as the date of closing (hereinafter called
"Closing Date"), the Seller represents and warrants to Buyer, its successors and
assigns as follows:
3.1.1. Seller has been duly incorporated and is validly existing and in good
standing under the laws of the State of Delaware.
3.1.2 Seller is the sole, legal and beneficial owner of the Company Shares.
3.1.3 Seller has, without exception, good and marketable title to the Company
Shares, free and clear
<PAGE> 2
of all restrictions, liens, pledges, encumbrances, equities, options, calls and
claims whatsoever, other than such claims as Buyer may assert hereunder.
3.1.4 Seller has the corporate power and all authorization and approval required
by law to sell and transfer the Company Shares in the manner herein provided.
3.1.5 The execution and delivery of this Agreement by Seller, and the
performance by it of the transactions contemplated hereby, have been duly and
validly authorized by the Board of Directors of Seller, and this Agreement, in
accordance with its terms, is binding on and enforceable against Seller except
to the extent that enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws of general application
relating to or affecting the rights of creditors or by principles of equity
(regardless of whether such enforcement is in a proceeding or equity or law).
3.1.6 The execution, delivery and performance of this Agreement does not and
shall not at the time of Closing constitute a violation of, or a default by
Seller under any mortgage, note, bond, indenture, trust agreement, certificate
of incorporation or by-laws, license, permit, franchise, or other agreement,
instrument or obligation to which the Seller, Company, or any of their
respective subsidiaries or affiliates is a party or by which any of the Seller,
Company, or any of their respective subsidiaries or affiliates is bound.
3.2 Company has been duly incorporated and is validly existing and in good
standing under the laws of the State of Kansas with full power and authority to
own or lease its properties and to conduct its business in each jurisdiction
where such properties are located or such business is conducted, except for
jurisdiction where individually, or in the aggregate, the failure to be
qualified to transact business would not have a material effect on the Company.
3.2.1 The authorized capital stock of Company consists of One Hundred Thousand
(100,000) shares of common stock, One Dollar par value, of which One Hundred
Eleven (111) shares have been validly issued and fully paid. There are no other
shares of Capital Stock issued by Company and no outstanding subscriptions,
warrants, options, calls, rights, commitments, convertible securities, joint
ventures, partnerships of other agreements to which Company is a party or by
which it is bound, calling for the issuance of any capital stock or convertible
securities of Company.
3.2.2 Company (a) is current in the filing of all requisite income, payroll,
excise, sales, and other tax reports or returns required to be filed by or with
respect to Company (which returns and reports correctly and adequately stated
any type of information required to be reflected in such returns and reports;
(b) has paid or caused to be paid, contested in good faith or adequately
provided for in reserves shown on the books of account of Company, all taxes and
assessments (including interest or penalties) due or to become due for any
period before the Closing Date to any taxing authority; (c) has made all
deposits required by law to be made by Company with respect to employees'
withholding taxes, social security taxes and; (d) there are no outstanding
deficencies or other assessments of tax, interest, or penalties have been made
or to the knowledge of Seller, proposed, except as described in Exhibit 2.
Company shall have an adequate reserve to cover real estate taxes, ad valorem
taxes and sales taxes prorated to the Closing.
3.2.3 Company has good and marketable title to all its assets and properties,
including those reflected on the Proforma Balance Sheet, attached hereto as
Exhibit 3, and in each case such assets and properties are free and clear of all
mortgages, liens (including any liens for delinquent taxes), security interests,
options and encumbrances of any material nature.
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<PAGE> 3
3.2.4 Seller and Company have delivered to Buyer true and complete copies of all
leases of real or personal property, contracts, agreements, franchises, and
permits (collectively, the "Contracts") to which Company is a party or subject,
all of which are in full force and effect and all of which are listed on Exhibit
4 hereof. (Such leases, contracts, et al valued at less than $5,000 annually
need not be delivered and listed, provided such unlisted leases, contracts, et
al do not aggregate in excess of $20,000 annually.) Company is not in default
under any of the Contracts, nor has any other party to such Contracts committed
a default as of the date hereof that is known to Seller.
3.2.5 Company is not a party to any agency, employment, or consulting agreement,
union contract, pension, profit sharing, retirement, deferred compensation,
bonus, stock purchase, hospitalization, insurance, or other plan, agreement, or
arrangement. All insurance and pension policies comply with all ERISA and
Department of Labor regulations. All of the individuals currently working at
Company are employees of Seller, and not of the Company.
3.2.6 All inventories of the Company, including but not limited to raw
materials, finished goods, and work in process, are consistently valued at the
lower of cost (applied on a first in/first out basis) or market, are good and
merchantable quality for the purposes for which intended, and usable or saleable
in the ordinary course of business. Not withstanding the aforesaid, those
inventories listed on Exhibit 5 shall be valued at one half cost.
3.2.7 There are not actions, suits, claims, labor grievances (whether or not
arising under a collective bargaining agreement) or legal, administrative, or
arbitration proceedings or investigations in which service of any pleading has
been made upon Company, or, to the knowledge or Seller, threatened against,
Company or any of its properties or assets, and there are no outstanding orders,
writs, injunctions, or decrees of any court, governmental agency, or tribunal
against, Company, except as scheduled on Exhibit 6.
3.2.8 Seller and Company have delivered to Buyer copies of all FDA 483 reports
issued to Company in the last eighteen (18) months and have provided Buyer
access to all of its FDA records.
3.2.9 Attached as Exhibit 7 hereto is a schedule of all material licenses,
trademarks, NADA registration of the Company. Unless otherwise indicated on
Exhibit 7, none of such licenses, Trademark and registrations have lapsed and
none are subject to royalty payments to third parties, except for payment due
Chemdex relating to iron dextran.
3.2.10. To the best of Seller's and Company's Knowledge, the operations of the
Company during the period owned by Seller are in material compliance with all
material Federal, State, and local laws and regulations, provided that Seller
and Company make no representation or warranty with regard to FDA compliance
issues.
4. REPRESENTATIONS AND WARRANTIES OF BUYER
4.1 Buyer represents and warrants to the Sellers with respect to itself as
follows:
4.1.1. Buyer has been duly incorporated and is validly existing and in good
standing under the laws of the Bahamas and has the corporate power to carry on
its business as now conducted or as proposed to be conducted following the
Closing Date.
4.1.2. Buyer has full legal right and power and all authorization and approval
required by law to enter into this Agreement and to carry out its obligation in
the manner herein provided.
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<PAGE> 4
4.1.3. The execution and delivery of this Agreement by Buyer, and the
performance by it of the transactions contemplated hereby, have been duly and
validly authorized by the Board of Directors of Buyer, and this Agreement, in
accordance with its terms, is binding on and enforceable against Buyer, except
to the extent that enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws of general application
relating to or affecting the rights of creditors or by principles of equity
(regardless of whether such enforcement is in a proceeding or equity or law).
4.1.4 The execution, delivery and performance of this Agreement does not and
shall not at the time of Closing constitute a violation of, or a default under,
the articles of incorporation or other charter document or by laws of Buyer,
license, permit, franchise, or other agreement, instrument or obligation to
which Buyer or any of its subsidiaries or affiliates is a party or by which any
of Buyer or its subsidiaries or affiliates is bound.
4.1.5. The authorized capital stock of Buyer consists of 1,000,000 A preferred
shares, $.01 par value, of which no shares are issued and outstanding; 2,994,000
B preferred shares, $.0016 par value, of which no shares are issued and
outstanding; and 30,000,000 common shares, $.00167 par value, of which
23,262,981 are issued and outstanding and 92,400 are held in treasury. All of
the issued and outstanding shares of capital stock of Buyer are, and the Buyer
Shares to be issued to Seller pursuant to this Agreement (whether in payment of
the purchase price at the Closing or subsequently thereto to guaranty the
stipulated market value of Two Dollars ($2.00) per share) will be,duly
authorized, validly issued, fully paid and nonassessable and approved for
listing on the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ") and on the Boston Stock Exchange, subject only to
official notice of issuance.
4.2. Chemdex represents and warrants to the Seller with respect to itself as
follows:
4.2.1. Chemdex will be duly incorporated and will be validly existing and in
good standing under the laws of the Kansas and has the corporate power to carry
on its business as now conducted or as proposed to be conducted following the
Closing Date.
4.2.2. Chemdex will have full legal right and power and all authorization and
approval required by law to enter into this Agreement and to carry out its
obligations in the manner herein provided.
4.2.3. The execution and delivery of this Agreement by Chemdex, and the
performance by it of the transactions contemplated hereby, will be duly and
validly authorized by the Board of Directors of Chemdex, and this Agreement, in
accordance with its terms, is binding on and enforceable against Chemdex, except
to the extent that enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws of general applications
relating to or affecting the rights of creditors or by principles of equity
(regardless of whether such enforcement is in a proceeding or equity or law).
4.2.4. The execution, delivery and performance of this Agreement does not and
shall not at the time of Closing constitute a violation of, or a default under,
the articles of incorporation or other charter document or by-laws of Chemdex,
License, permit, franchise,, or other agreement, instrument or obligation to
which Chemdex or any of its subsidiaries or affiliates is a party or by which
any of Chemdex or its subsidiaries or affiliates is bound.
4.3. Chemdex is acquiring the Company Shares solely for the purpose of
investment and not with a
4
<PAGE> 5
view to, or for sale in connection with, any distribution thereof. Buyer
acknowledges that the Company Shares are not registered under the Securities Act
or 1933 as amended (the "Securities Act") and that the Company Shares may not be
transferred or sold except pursuant to the registration provisions of the
Securities Act or pursuant to an applicable exemption therefrom and pursuant to
state securities or blue sky laws and regulations as applicable.
5. THE CLOSING AND SUBSEQUENT EVENTS
5.1. The closing of the transactions under this Agreement (the "Closing") shall
occur at the offices of Seller on or before November 30, 1992 or at such time
and place as the parties mutually agree upon.
5.2. In the event of a breach of any representation or warranty which becomes
known to Seller or to Buyer prior to the Closing Date, or if prior to the
Closing Date it becomes known to Seller or to Buyer that any of such
representations or warranties will not be true and correct as of the Closing
Date, the party discovering the same shall give written notice thereof to the
other party and that party shall have sixty (60) days following the date of such
notice to cure the same. If defaulting party fails or refuses to cure such
default within such sixty (60) day period to the other party's satisfaction, and
unless such breach shall have been caused by defaulting party's fraud, willful
misconduct, or by action taken in bad faith, the the sole remedy shall be to
terminate this Agreement.
6. COVENANTS
6.1 Seller agrees that Buyer may, prior to the Closing Date, through Buyer's own
representatives and in consultation with independence auditors, make such
investigation of the properties and assets of Company and of the financial
condition of Company as it deems necessary or advisable to familiarize itself
with such properties, assets and other matters, and to satisfy itself that there
has been no impairment in the fixed assets of the business. Buyer agrees to
promptly notify Seller of the discovery of any breach of a representation of
warranty made by Seller herein as a result of such investigation. Buyer shall,
from and after the date hereof, have full access to the properties and the books
and records of every kind of Company, and Seller and the officers of Company
will furnish Buyer with such financial and operating data and other information
as to the business and properties of Company as Buyer shall from time to time
reasonably request; and the Seller will cause Company, its officers and
employees to comply with all of the conditions of this Agreement relating to
Company.
6.2. Seller shall use its best efforts to cause the Company to be operated in
the ordinary course consistent with past practices. Seller shall allow a
representative of Buyer to be present and observe all operations of Company
prior to Closing, and Seller agrees to obtain the consent of Buyer prior to
entering into any material contracts. Buyer desires that the Company solicit
additional orders for those products listed on Exhibit 8. Buyer will be
responsible for all such product orders to be manufactured or delivered after
the Closing Date even if closing does no occur.
6.3. On or Before Closing , Seller shall have terminated any employee of Seller
working at the Company and Buyer shall have the option, but not the obligation,
to have the Company offer employment to such terminated employees upon such
terms and conditions as Buyer shall choose. Seller shall be responsible for all
costs and expenses, including accrued vacation, severance and ERISA liabilities
for the terminated employees of Seller.
6.4. Prior to or on the Closing Date, Buyer shall authorize the issuance to
Seller of such number of
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<PAGE> 6
common shares, $.00167 par value, of Buyer as shall be sufficient to satisfy the
purchase price, based on the stipulated market value of Two Dollars ($2.00) per
share. Buyer will agree to maintain such additional number or Buyer Shares as
may be required to issue to Seller to guaranty Seller the stipulated market
value of Two Dollars ($2.00) per share.
6.5. Within twenty (20) days after delivery by Seller of Company's audited
financial statements as required by the Securities and Exchange Commission,
Buyer shall take the actions set forth below with respect to that number of
Buyer Shares referred to in Section 6.3:
6.5.1. Buyer shall prepare and file with the Securities and Exchange
Commission a registration statement under the Securities Act with respect to
the Buyer Shares and use its best efforts to cause such registration statement
to become effective (provided that before filing a registration statement or
prospectus or any amendments or supplements thereto, Buyer shall furnish to
Seller copies of all such documents proposed to be filed and shall provide
Seller's counsel the opportunity to Participate in the preparation of such
documents.
6.5.2 Buyer shall prepare and file with the Securities and Exchange Commission
such amendments and supplements to such registration statement and the
prospectus used in connection therewith as may necessary to keep such
registration statement effective, current and in compliance with the provisions
of the Securities Act to permit the disposition of all the Buyer Shares thereby
to be sold by Seller on a time-to-time basis as set forth in such registration
statement.
6.5.3. Buyer shall furnish to Seller such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary and supplemental
prospectus) and such other documents as Seller may reasonably request in order
to facilitate the disposition of the Buyer Shares owned by Seller.
6.5.4 Buyer shall use its best efforts to register or qualify the Buyer Shares
under the securities or blue sky laws of such jurisdictions within the United
States as Seller reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable Seller to consummate
the disposition in such jurisdictions of the Buyer Shares (provided that Buyer
will not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subsection,
(ii) subject itself to taxation in any such jurisdiction or(iii) consent to
general service of process in any such jurisdiction).
6.5.5. Buyer shall notify Seller (during the period when a prospectus relating
to the Buyer Shares is required to be delivered under the Securities Act) of the
happening of any event as a result of which the prospectus included in such
registration statement contains an untrue statement of a material fact or omits
any fact necessary to make the statements therein not misleading, and, at the
request of Seller, Buyer shall promptly prepare a supplement of amendment to
such prospectus so that, as thereafter delivered to the prospective purchasers
of the Buyer Shares, such prospectus will not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements therein
not misleading.
6.5.6. Buyer shall cause the Buyer Shares to be listed on NASDAQ (on the
National Market System if Buyer so qualifies), on the Boston Stock Exchange and
on each other securities exchange on which similar securities issued by Buyer
are then listed.
6.5.7. Buyer shall otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as soon as
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<PAGE> 7
reasonably practicable, an earnings statement covering the period of at least
twelve month beginning with the first day of Buyer's first full calender quarter
after the effective date of the registration statement, which earnings statement
and the delivery thereof shall satisfy the provisions of Section 11(a) of the
Securities Act as further defined in Rule 158 thereunder.
6.5.8. Buyer shall, in the event of the issuance of any stop order suspending
the effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any of the Buyer Shares for sale in any jurisdiction, use its reasonable best
efforts promptly to obtain the withdrawal of such order.
6.5.10. Buyer shall obtain a cold comfort letter, dated the effective date of
such registration statement, from Buyer's independent certified public
accountants in customary from and cover in such matter of the type customarily
covered by cold comfort letters.
6.5.11. Buyer shall provide a legal opinion of Buyer's outside counsel with
respect to the registration statement, each amendment and supplement thereto,
the prospectus included therein (including the preliminary prospectus) and such
other documents relating thereto in customary form and covering such matters of
the type customarily covered by such legal opinions.
6.5.12. All expenses incident to the Buyer's performance of or compliance with
this Section 6.4, including all registration and filing fees, fees and expenses
associated with filings required to be made to lias the Buyer Shares on NASDAQ,
the Boston Stock Exchange and on each other securities exchange on which similar
securities issued by Buyer are then listed, fees and expenses to comply with
state securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of all independent certified public
accountants engaged by Buyers counsel for Buyer and any other persons retained
by Buyer, shall be paid by Buyer.
6.5.1. In connection with the registration statements filed pursuant to this
Section, Buyer agrees to indemnify, to the extent permitted by law, Seller, its
officers and directors and each person who controls Seller (within the meaning
of Section 15 of the Securities Act) against all losses, claims, damages,
liabilities and expenses (including reasonable attorneys' fees and other costs
and expenses incident to any claim,suit, action or proceeding) which arise out
of or are based upon any untrue or alleged untrue statement of a material fact
contained in any registration statement, preliminary or final prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same arise out of or are based
upon information furnished in writing to Buyer by Seller expressly for use
therein.
6.5.2. In connection with the registration statement filed pursuant to this
Section 6, Seller agrees to indemnify, to the extent permitted by law, each of
Buyer's officers who shall have such registration statement, Buyer's directors
and each person who controls the Buyer (within the meaning of Section 15 of the
Securities Act) against all losses, claims, damages, liabilities and expenses
(including reasonable attorney's fees and other costs and expenses incident too
any claim , suit, action or proceeding) which arise out of or are based upon any
untrue or alleged untrue statement of a material fact contained in the
registration statement, preliminary or final prospectus or any amendment thereof
or supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission is
contained in information furnished in writing to Buyer by Seller expressly for
use therein.
7
<PAGE> 8
6.5.3 Any person entitled to indemnification hereunder will (i) give prompt
written notice to the indemnifying party of any claim with respect to which it
seeks indemnification (but any failure to so notify the indemnifying party shall
not relieve it of any liability which it may otherwise have to any indemnified
party unless such failure shall materially adversely affect the defense of such
claim) and (ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
with respect to such claims, permit such indemnifying part to assume the defense
of such claim with counsel reasonably satisfactory to the indemnified party. If
such defense is assumed, the indemnifying party will not be subject to any
liability for any settlement made by the indemnified party without the consent
of the indemnifying party (but such consent will not be unreasonably withheld).
An indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel for the indemnified party with respect to such claim.
6.5.4 The indemnification provided for under this Section 6.5 will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling person of such
indemnified party and will survive the transfer of the Buyer Shares.
6.6. At all times after Buyer has filed a registration statement with the
Securities and Exchange Commission pursuant to the requirements of either the
Securities Act or the Securities Exchange Act of 1934, as amended (the Exchange
Act), Buyer will use its reasonable best efforts to file all reports required to
be filed by it under the Securities Act and the Exchange Act rules and
regulations of the Securities Exchange Commission thereunder, and will take such
further action as Seller may reasonably request, all to the extent required to
enable Seller to sell the Buyer Shares pursuant to Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act (as such rule may be
amended from time to time) or any similar rule or regulation hereafter adopted
by the Securities and Exchange Commission.
7. CONDITIONS
7.1 The obligation of Buyer to consummate the transactions contemplated by this
Agreement is subject, at Buyer's option, to the fulfillment prior to or on the
Closing Date of each of the following conditions, any one or more of which may
be waived by Buyer:
7.1.1 All the representations and warranties of Seller to Buyer contained in
this Agreement shall be true and correct in all material respects on the Closing
Date as if made on and as of the Closing Date and Seller shall have furnished to
Buyer a certificate signed by a Vice President of Seller to that effect.
7.1.2 Seller shall have performed and complied with all covenants, agreements
and conditions required in this Agreement to be performed or complied with by it
prior to or on the Closing Date;
7.1.3 Buyer shall have received from Seller, at Seller's expense, ALTA Form -
Title Commitment showing that the real property is vested in fee simple in the
Company subject only to:
(i) such minor encumbrances or imperfections, if any, which are not substantial
in nature or amount and which do not detract from the value of such real estate
as presently used or which do not impair the operations of the Company as they
are conducted on the Closing Date;
(ii) liens of current state and local property taxes, not delinquent or subject
to penalty; and
(iii) the standard exceptions and exclusions as would be provided on a standard
title commitment of
8
<PAGE> 9
Ticor Title Company.
7.1.4 Sellers shall have delivered to Buyer, on or prior to the Closing Date,
signed, undated resignations of the officers and directors of Company as of the
Closing Date.
7.1.5 All Seller's employees working at Company shall be terminated by Seller,
unless Buyer has indicated that such employee will not be offered employment by
Buyer or Company post Closing.
7.1.6 Buyer and Sellers shall have completed a satisfactory physical count of
inventory.
7.1.7 Sellers shall have delivered to Buyer stock certificates representing all
of the Company Shares, which certificates shall be endorsed in blank.
7.1.8 Buyer shall have received the minute books of Company, which shall contain
the Articles of Incorporation and all available minutes of meetings (or consents
of actions in lieu thereof) of the directors and shareholders of Company, to the
effect that, to the best of Sellers' knowledge, there are no other minutes of
meetings (or consents in lieu thereof) of the directors and shareholders of the
Company in existence.
7.1.9 Seller shall have provided to Buyer written confirmation in a form
reasonably satisfactory to Buyer, that Seller will make best efforts to provide
audited financial statements of the Company, which will be subject to a going
concern qualification, for at least a two year period prior to October 31, 1992.
7.2 The obligation of Seller to consummate the transactions contemplated by this
Agreement is subject, at its option, to the fulfillment prior to or on the
Closing Date of each of the following conditions, any one of more of which may
be waived by Seller:
7.2.1 All the representations and warranties of Buyer to Sellers contained in
this Agreement shall be true and correct in all material respects as of the
Closing Date as if made on and as of the Closing Date and Buyer shall have
furnished to Seller a Certificate, signed by a Vice President of Buyer, to that
effect.
7.2.2 Buyer shall have performed and complied in all material respects with all
covenants, agreements and conditions required in this Agreement to be performed
or complied with by it prior to or on the Closing Date and Buyer shall have
furnished to Seller a Certificate, signed by a Vice President of Buyer, to that
effect.
7.2.3 Seller shall have received, from T.C. Usher, the guarantee referred to in
Section 8 hereof, in a form reasonably satisfactory to Seller.
7.2.4 Buyer shall have delivered to Seller sufficient Buyer Shares in Seller's
name to satisfy purchase price set forth in Section 2.
8. Post Closing Covenants and Guarantees
8.1. In order to reduce the market impact which could be caused by Seller's sale
of large quantities of Buyer's shares at one time, Seller agrees that it will
not sell more than an average of 50,000 shares per month in any given six month
period.
9
<PAGE> 10
8.2 Buyer and its principal shareholder, T.C. Usher, guarantee that Seller will
be able to sell Buyer Shares at an average price of $2.00 per share.
8.2.1 At the end of each six month period following the Closing, if Seller has
not been able to sell an average of 50,000 Buyer Shares per month at a price
average of $2.00 per share or greater, Buyer will issue to Seller additional
shares of Buyer's stock, (such additional shares hereinafter referred to as
"Issue B Shares"), to compensate Seller for the deficiency below the $2.00 per
share guarantee. Buyer shall issue sufficient number of Issue B Shares in such
that the proceeds of Buyer Shares sold by Seller during such six month period
plus the market value of additional Issue B Shares will leave the Buyer in the
same position as if it had sold Buyer Shares at an average price of $2.00 per
share during such a six month period.
8.2.2 Buyer and Seller agree to review Seller's sale of Buyer Shares at the end
of each six month period thereafter with the intent of issuing additional Issue
B Shares as needed to preserve Seller's minimum sale price of $2.00 per share
during the term of the agreement. If Seller's average price for Buyer Shares
during such a six month period exceeds $2.00 per share, Seller agrees to return
to Buyer sufficient Issue B Shares to reduce the average price to $2.00 per
share. This obligation of Seller to return Issue B Shares shall only apply to
the extent Seller has Issue B Shares, and shall not extend to other Buyer Shares
held by Seller.
8.2.3 If after four years from the date of Closing, or such other period which
is mutually agreed upon between Buyer and Seller, Seller has not been able to
liquidate Buyer's shares and Issue B Shares at sufficient price to equal the
amount of the original purchase price set forth in Section 2, T.C. Usher agrees
to buy the remaining Buyer shares held by Seller at such price which will bring
the total proceeds received by Seller from the sale of Buyer Shares an amount
equal to the purchase price set forth in Section 2 hereof. If Seller does not
exercise its option for sale of such shares to T.C. Usher pursuant to this
provision within sixty days of such four year anniversary or such other mutually
agreed upon date, both Buyer's and T.C. Usher's obligation to guarantee price
shall cease.
8.3 Buyer agrees not to encumber, pledge or dispose of the assets of the
Company, except for sales of inventory and product in the ordinary course of
business, without the prior consent of Seller. Seller shall allow Buyer to
pledge sufficient assets of the Company to secure a working capital loan not to
exceed the sum of $500,000. In the event Buyer or T.C. Usher defaults on any of
its obligations hereunder of if Seller has reasonable cause to believe that
Buyer will not be able to reasonably fulfill its obligations hereunder, Seller
shall be granted an immediate first security interest on all assets of the
Company. At the Closing, Buyer shall provide Seller with fully execute security
documents to be held by Seller in trust pursuant to this provision.
8.4 Seller shall file a short period federal and state income tax return for the
period ending November 30, 1992, and Buyer shall file any necessary returns
thereafter.
8.5 For a period of two (2) years from the Closing, Seller agrees that neither
it nor its subsidiary companies shall engage in the United States in the
manufacture, processing or marketing of iron dextran or other products
manufactured or sold by the Company as set forth in Exhibit 8, except to the
extent such products are marketed within the Seller's Wayne Feeds and Conti Vet
distribution channels.
9. Indemnification
9.1 In addition to the indemnification set forth in Section 6.5.2, Seller hereby
agrees to indemnify,
10
<PAGE> 11
defend and hold harmless Buyer and its successors and assigns from and against
any and all loss, liability, damage, deficiency or tax (including interest,
penalties and reasonable attorneys' fees and disbursements) arising out of or
due to a breach of any of the representations, warranties, agreements or
undertakings of Seller which are contained in this Agreement, arising from a
claim of defective product or a recall of products produced by the Company
during the period owned by Seller, or otherwise arising as a result of the
operation of the Company during the period it was owned by Seller or in any
other document delivered pursuant to this Agreement.
9.2 In addition to the indemnification set forth in Section 6.5.1, Buyer agrees
to indemnify, defend and hold harmless Seller and it successors and assigns from
and against any and all loss, liability, damage deficiency (including interest,
penalties and reasonable attorneys' fees and disbursements) arising out of or
due to a breach of any of the representations, warranties, agreements or
undertakings of Buyer which are contained in this Agreement or in any other
document delivered pursuant to this Agreement or arising out of Buyer's
operation of the Company post closing.
9.3 Promptly after the receipt by any party hereto of notice of any claim or the
commencement of any action or proceeding, such party shall, if a claim with
respect thereto is to be made against any party obligated to provide
indemnification ("Indemnifying Party") pursuant thereto, give such Indemnifying
Party written notice of such claim or the commencement of such action or
proceedings. Such notice shall be a condition precedent to any liability of the
Indemnifying of the Indemnifying Party under the Indemnifying Agreement
contained herein. Such Indemnifying Party shall have the right, at its option,
to compromise or defend, at its own expense and by its own counsel, any such
matter involving the asserted liability of the party seeking indemnification.
If any Indemnifying Party shall undertake to compromise or defend any such
asserted liability, it shall promptly notify the party seeking indemnification
of its intention to do so, or defense against, any such asserted liability. In
any event, the indemnified party shall have the right to participate in the
defense of such asserted liability.
9.4 The aggregate liability of Seller for indemnification shall not exceed Three
MIllion Fifty Thousand Dollars ($3,050,000.00), and Seller shall have the right
to satisfy its indemnification obligations by payment in the form of Buyer
Shares.
9.5 The indemnification provided for in section 9.1 shall be subject to the
following limitations:
(i) Buyer shall not be entitled to receive any indemnification payments for any
loss of less than $5,000;
(ii) Buyer shall not be entitled to receive any indemnification payments for any
losses until the aggregate amount of all losses (excluding those referred to in
clause (i) above) equals $50,000 whereupon Buyer shall be entitled to receive
indemnification for the aggregate amount of losses.
10. Jurisdiction
10.1 Each of Seller and Buyer, and their respective successors and assigns,
without regard to domicile, citizenship or residence, hereby expressly and
irrevocably subjects itself and its property to the non-exclusive jurisdiction
of the United Stated District Court for Kansas in respect of any matter arising
under or in connection with this Agreement, or to the jurisdiction of the courts
of the State of Kansas if the United States District Court for Kansas lacks
jurisdiction over such matter; service of process of the courts of the State of
Kansas and any demand or notice may be made upon Seller, the Buyer, their
respective successors and assigns by personal service upon them at any place
where they may be found or by mailing copies of the same to each of them
enclosed in registered or
11
<PAGE> 12
certified mail cover addressed as set forth in Section 12 hereof.
11. Access to Records
Buyer covenants that it will give Seller or its representatives, reasonable
access to Company books and records for the purpose of responding and defending
any tax audits or claims or for other similar reasons which are not detrimental
to the Buyer.
Publicity
Neither Buyer nor Seller shall issue public releases or public announcements of
any of the transactions contemplated by this Agreement except as may be mutually
agreed to in writing in both Buyer and Seller, or as required in order to comply
with applicable law or stock exchange rules and regulations, listing or similar
agreements.
12. Notices
Except as otherwise provided herein, any notices or other communications
required or permitted hereunder shall be sufficiently given if delivered or if
sent by registered or certified mail, postage prepaid, or by fax, and if to
Buyer, addressed to as follows:
Polydex Pharmaceuticals Limited
1401 Neptune Drive
Boynton Beach, FL 33426
with copies to:
Thomas C. Usher
c/o Dextran Products
415 Comstock Road
Scarborough, Ontario Canada M1L 2H4
Mark Gasarch
1285 Avenue of Americas, 3rd Floor
New York, NY 10019
Fax#: 212-956-7216
Evans & Mullinix
1530 W. 87th, Suite 220
Lenexa, KS 66219
Fax #: 913-541-1010
or if to Seller, addressed as follows:
Continental Grain Company
277 Park Avenue
New York, NY 10172
ATTN:President, Milling Group
Fax #: 212-207-2932
with a copy to:
12
<PAGE> 13
Continental Grain Company
10 South Riverside Plaza
Chicago, Illinois 60606
Attention: Gerard J. Schult Esq.
Assistant General Counsel
Fax#: 312-466-6574
or such other address as Sellers or Buyer shall have provided in writing to the
other from time to time in accordance with this Section 11.2 . No change in such
address shall be effective, insofar as any service of process is concerned,
unless receipt of notice of such change shall have been acknowledged in writing
by a duly authorized official of the other party hereto. Each such notice shall
be deemed to have been given as of the date delivered or mailed, provided that
in the case of facsimile notice, written conformation thereof is sent the same
day.
13. Expenses
The parties hereto shall each pay their own expenses incurred in connection with
the authorization, preparation, execution and performance of the Agreement,
including, without limitation, all fees and expenses of agents, representatives,
counsel and accountants.
14. Governing Law
This Agreement and the agreements delivered pursuant hereto shall be governed by
and construed in accordance with the laws of the State of Kansas applicable to
agreements made and to be performed entirely within such State.
15. Binding Effect; Amendment
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, legal representatives, successors and
assigns. Neither Seller nor Buyer may assign, transfer, create or divide any
rights or obligations hereunder without the prior written consent of the other
party. This Agreement shall not be amended, supplemented, or modified except by
written instrument signed by the parties hereto.
16. Severability
In case any one or more of the provisions contained in this Agreement shall for
any reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Agreement, but this Agreement shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein.
17. Counterparts
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original, but all which together shall constitute one and the same
instrument.
18. Descriptive Headings
The descriptive headings the several paragraphs of this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
19. Entire Agreement
This Agreement, together with the other written documents entered into by the
parties on the date hereof, embodies all the terms and conditions agreed upon
between the parties hereto as to the subject matter of this Agreement and
supersedes and cancels in all respects all previous letters and
13
<PAGE> 14
correspondence, understandings, agreements and undertakings (if any) between the
parties hereto with respect to the subject matter hereof, whether such be
written oral.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as the day
and year first above written.
ATTEST CONTINENTAL GRAIN COMPANY
/s/ Gerry Shultie /s/ Arthur Johansen
ATTEST POLYDEX PHARMACEUTICALS LIMITED
/s/ Natu Patel /s/ T. C. Usher
ATTEST: CHEMDEX Incorporated
/s/ Natu Patel /s/ T.C. Usher
14
<PAGE> 15
Continental Grain Company
Legal Department
222 S. Riverside Plaza, Chicago IL 60606
Telephone: (312) 466-6570
Fax: (312) 466-6574
Gerard J. Schulte
Assistant General Counsel
November 22, 1996
Mr. George Usher
Polydex Pharmaceuticals Limited
415-421 Comstock Road
Scarborough, Ontario
Canada M1L 2H5
Dear George:
This letter shall serve as an Amendment to the Stock Sale and Purchase Agreement
dated October 13, 1992 ("Agreement") between Continental Grain Company
("Continental") and Polydex Pharmaceuticals Limited ("Polydex") and Chemdex
Incorporated ("Chemdex"). Pursuant to Section 8.2.3, T. C. Usher is required to
buy the remaining Polydex shares owned by Continental at such price which will
bring the total proceeds received by Continental from the sale of Polydex shares
to an amount equal to the purchase price under the Agreement. Continental has
currently received approximately eight hundred twenty thousand dollars
($820,000) on the sale of four hundred forty-eight thousand five hundred
(448,500) shares of Polydex, which would make T.C.Usher's buy-back obligation
equal to three million seventy-four thousand eight hundred fourteen U.S. Dollars
($3,074,814). Polydex and T.C. Usher have asked for an extension of their
obligations pursuant to the Agreement, as well as the Guarantee of T.C. Usher to
Continental dated November 30, 1992 ("Guarantee"), and Continental, Polydex,
Chemdex and T.C. Usher have agreed to amend the Agreement and Guarantee as
follows:
1. Polydex will fully cooperate with Continental in filing the necessary
documents with the United States Internal Revenue Service to reattribute
pursuant to or in accordance with Reg. 1.1502-20(g)(1) to Continental those net
operating loss carry forward which existed in Veterinary Laboratories, Inc.
("Vet Labs") at the time Vet Labs was sold to Polydex pursuant to the Agreement.
2. Continental has provided to Polydex a copy of the statement filed with its
amended U.S. Federal Income Tax return for its year ended March 31, 1993,
Pursuant to Income Tax Regulation 1.1502-20(g)(5)(i), a copy of which attached
hereto, and Polydex agrees to file its copy of this statement with the Internal
Revenue Service before December 31, 1996, pursuant to Income Tax Regulation
1.1502-20(g)(5)(ii).
3. The maximum obligation of Polydex and/or T.C. Usher to repurchase Polydex
shares form Continental pursuant to Section 8.2.3 of the Agreement is reduced
form three million one hundred thousand dollars ($3,100,000) to the sum of two
million dollars ($2,000,000), Consistent with the Agreement, the net proceeds of
any sales by Continental of Polydex shares will reduce such maximum repurchase
obligation.
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<PAGE> 16
4. Continental hereby releases T.C. Usher from the personal obligations under
his Guarantee and Polydex hereby undertakes and shall be fully responsible for
the repurchase obligations of T.C. Usher as set forth in Section 8.2.3 of the
Agreement, as amended herein. Subsequent to Polydex providing evidence of its
required filing pursuant to paragraph 2 above, Continental shall supply T.C.
Usher such further evidence of such release as he shall reasonably request.
5. Continental and Polydex agree to extend the deadline for Continental to
exercise its option for sale of such shares under Section 8.2.3 of the Agreement
to March 15, 1999. If Continental does not exercise such option by May 30, 1999
or such other mutually agreed date, Polydex obligation to repurchase such shares
pursuant to paragraph 4 above shall cease.
6. Continental agrees to continue to exercise caution in the sale of the Polydex
shares consistent with the understanding set forth in Section 8.1 of the
Agreement.
7. Pursuant to Section 8.3 of the Agreement, Polydex agreed that it would limit
any working capital loan secured by assets of Vet Labs to the sum of five
hundred thousand dollars ($500,000). Continental has subsequently agreed to
raise this limit to eight hundred thousand dollars ($800,000). Continental
hereby agrees to extend such limit from eight hundred thousand dollars
($800,000), to one million two hundred thousand dollars ($1,200,000).
8. If Polydex does not cooperate and file the statement in accordance with
paragraphs 1 and 2 of this Letter of Amendment by January 3, 1997 and provide
Continental a copy of the filing with th Internal Revenue Service, this
Agreement shall be void and Continental shall be deemed to have exercised its
option for the sale of the Polydex shares to T.C. Usher pursuant to Section
8.2.3 of the Agreement.
9. Except as expressly amended hereby, the Agreement remains in full force and
effect.
If this Letter of Agreement meets with your approval, please sign and return the
enclosed duplicate copy acknowledging your acceptance of the terms.
Very truly yours,
Gerard J. Schulte
Assistant General Counsel
Agreed and Accepted this 26th day of November, 1996:
Polydex,Pharmaceuticals, Ltd.
Attest: /s/ Natu Patel /s/ George Usher
Chemdex, Incorporated
Attest: /s/ George Usher /s/ Natu Patel
Its: Chairman
16
<PAGE> 17
STATEMENT ATTACHED TO
CONTINENTAL GRAIN COMPANY & SUBSIDIARIES
AMENDED FEDERAL TAX RETURN FOR YEAR ENDED 3/31/93
This is an election under Section 1.1502-20(g)(1) to reattribute losses of
Veterinary Laboratories, Inc. ("Vet Labs") E.I.N. 36-3550074 to Continental
Grain Company ("CGC") E.I.N. 36-0947870
(A) Amount and year of Net Operating Loss Carryforward to be reattributed to
Continental Grain Company, the common parent:
<TABLE>
<CAPTION>
Tax Reattributed Reattributed
Year NOL SRLY NOL
- ------------- ---------------- --------------------
<S> <C> <C>
4/06/90 $1,188,560
3/31/92 $3,069,466
3/31/93 -$159,747
</TABLE>
(B) Chemdex, Inc. (E.I.N. 59-1297596) acquired Vet Labs. This acquisition caused
Vet Labs to cease being a member of the CGC consolidated group.
Continental Grain Company
/s/ Marc Halbreich - Assistant Vice President
Veterinary Laboratories, Inc.
/s/ Gerald Frenchman
(Former) Vice President - Taxes
Note: Continental Grain Company, "the common parent" did not make a proper
computation under Regulation 1.1502-20 upon disposition of the stock of its
subsidiary. Vet Labs on November 30, 1992. Correction is being made on this
amended filing (Form 1120X) to reflect the loss disallowance resulting form a
"Duplicated Loss" determined under Regulation 1.1520-20(c)(2)(vi), and pursuant
to Regulation 1.1520-20(g)(i), the election to reattribute the subsidiary's
losses to the common parent is being made, on a timely basis, since the amended
filing is the first tax return filed wherein the disallowed loss is reflected.
copy to: Veterinary Laboratories, Inc.
c/o Chemdex, Inc.
12340 Sante Fe Drive
Lenexa, Kansas 66215
17
<PAGE> 1
EXHIBIT 13
STOCKHOLDER INFORMATION
Market for the Company's Common Stock and Related Security Holder Matters.
The Company's shares are listed for trading on NASDAQ under the symbol
POLXF, and on the Boston Stock Exchange under the symbol PXL.
The reported high and low bid prices of the common shares on the
over-the-counter market for the past two calendar years were as follows (similar
prices were quoted on the Boston Stock Exchange):
<TABLE>
<CAPTION>
Stock Price (Low and High bid)
- -------------------------------------------------------------------------------
Quarter Ended 1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
March 31 5/8-15/16 19/32-1 1/4 1/2 - 31/32
June 30 25/32 - 1 5/16 15/32 - 25/32
September 30 5/8 - 1 3/32 7/16 - 1 3/8
December 31 11/16 - 1 1/2 - 31/32
</TABLE>
The quotations set out above represent prices between dealers and do not
include retail mark-up, mark-down or commission. They do not represent actual
transactions. These quotations have been supplied by the National Association
of Securities Dealers, Inc.
As at March 31, 1997, there were approximately 906 holders of record
of the Company's Common Shares.
The Company has paid no dividends in the past and does not consider likely
the payment of any dividends in the foreseeable future.
FORM 10-K AND FURTHER INFORMATION
The Company's annual report to the Securities and Exchange Commission, Form
10-K, is available free of charge. This information is provided by contacting
Polydex Pharmaceuticals Limited.
Polydex will be pleased to respond to all inquiries not involving
proprietary or confidential information. All inquiries and contacts from
investors, securities analysts, other members of the financial community and
the news media should be directed to:
Debbie MacAskill
Dextran Products Limited
421 Comstock Road
Scarborough, Ontario, Canada M1L 2H5
Tel: 416-755-2231 Fax: 416-755-0334
The following are abbreviations used in this and future reports from the
Company.
ANDA Abbreviated New Drug Application
cGMP Current Good Manufacturing Practices
HIV Human Immunodeficiency Virus
IDA Iron Deficiency Anemia
Inc. Incorporated, as in an Incorporated company
IND Investigations New Drug
Ltd. Limited, as in a Limited liability company
NDA New Drug Application
STD Sexually Transmitted Diseases:
for example AIDS, Herpes
<PAGE> 2
FINANCIAL HIGHLIGHTS
For the fiscal years ended January 31 (Expressed in U.S. dollars)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES FROM CONTINUING OPERATIONS $ 9,344,089 $ 8,459,563 $ 7,254,913 $ 6,970,405 $ 4,418,842 $ 3,462,867
COMPONENTS OF NET INCOME (LOSS):
From continuing operations 122,390 (1,165,534) (1,034,622) (1,275,371) (353,922) (500,062)
From discontinued operations -- -- -- -- -- (256,468)
Extraordinary items -- -- -- -- 136,000 117,000
Net income (loss) for the year 122,390 (1,165,534) (1,034,622) (1,275,371) (217,922) (639,530)
INCOME (LOSS) PER COMMON SHARE:
From continuing operations before
extraordinary items 0.00 (0.04) (0.04) (0.05) (0.02) (0.02)
From continuing operations after
extraordinary items 0.00 (0.04) (0.04) (0.05) (0.01) (0.02)
Income (loss) for the year 0.00 (0.04) (0.04) (0.05) (0.01) (0.03)
TOTAL ASSETS 8,627,517 8,064,990 8,412,596 8,182,257 7,542,589 3,708,387
LONG-TERM BORROWINGS 1,555,551 1,633,041 821,179 905,728 456,434 703,294
</TABLE>
2
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The Company's fiscal year ends on January 31st therefore fiscal year 1997 refers
to the year ended January 31, 1997.
1997 compared to 1996
Sales increased 10% or $884,526 to $9,344,089 in fiscal 1997 from $8,459,563 in
fiscal 1996. The growth in sales was primarily due to a greater volume at
Dextran Products Limited ("Dextran Products"), where sales rose by 29% or
$952,523 to $4,201,555 in fiscal 1997 from $3,249,032 in fiscal 1996 and
accounted for 45% and 38% of the Company's sales in fiscal 1997 and 1996
respectively. This increase was primarily attributable to increased sales of
Iron Dextran 20% and Dextran Sulphate and a new application for Iron Dextran in
the feed supplement industry. Half way through the year Dextran Products raised
prices 7% to cover increased raw material prices over the last three years, and
so a small portion of this increase in sales can be attributed to the new
prices.
Management expects this sales trend to continue although perhaps not at the same
rate, due to continued increased market penetration in the Pacific Rim and the
activities of new customers in Europe.
Sales at Veterinary Laboratories Inc. ("Vet Labs") decreased slightly by 1% or
$67,997 to $5,142,534 in fiscal 1997 from $5,210,531 in fiscal 1996, and
accounted for 55% and 62% of the Company's sales in fiscal 1997 and 1996
respectively. The decrease was primarily attributable to a $713,000 reduction in
sales following Vet Labs' cancellation of a manufacturing agreement with one
customer which generated very low margins. This decrease in sales was nearly
offset by the increased sales volume of injectables at much larger margins.
Management expects to continue its effort to streamline the product line by
discontinuing low margin items and replacing them with products that generate
larger margins.
The Company's gross profit increased 60% or $920,773 to $2,454,030 in fiscal
1997 from $1,533,257 in fiscal 1996. As a percentage of sales, gross profit
increased to 26% from 18% in fiscal 1996. This was mainly due to the performance
of Dextran Products as explained below.
Dextran Products' gross profit increased 69% or $762,057 to $1,873,511 in fiscal
1997 from $1,111,454 in fiscal 1996. As a percentage of sales, gross profit
increased to 45% from 34% in fiscal 1996. The primary reason for the increase
was that Dextran Products reorganized its operating process to increase volume
without affecting fixed costs. Also late in fiscal 1996 Dextran Products
purchased its building in Toronto and consolidated its operations from two
buildings into one resulting in a reduction in fixed overhead costs. Rent paid
in fiscal 1996 amounted to $116,592. Depreciation and interest relating to the
building are not included in the cost of sales, thus increasing the margin
relative to the prior years. The yearly mortgage interest for fiscal 1997 was
$20,690 and annual building depreciation was $3,471, and in fiscal 1998 these
numbers are expected to be $12,635 and $30,785 respectively. The rise in margins
was also partly due to the effect of exchange rates because Dextran Products
costs are incurred in Canadian dollars, but the majority of its sales are in US
dollars. Therefore if the Canadian dollar drops in relation to the US dollar,
margins increase and in fiscal 1997 this resulted in a 2% increase in margins.
Dextran Products also increased its prices midway through the year by 7%, and so
this benefited margins for part of the year. Certain equipment was purchased
during the year which increased batch sizes without increasing fixed costs and
so improved margins. Management does not believe there will be a similar
increase in margins for fiscal 1998, but does believe the margins will remain
steady at this level.
3
<PAGE> 4
Vet Labs' gross profit increased 38% or $158,716 to $580,519 in fiscal 1997 from
$421,803 in fiscal 1996. As a percentage of sales, gross profit increased to 11%
from 8% in fiscal 1996. This rise was primarily attributable to the
discontinuance of certain low margin products and the cancellation of a
manufacturing contract with one customer where the work generated significant
sales but extremely low margins. Management expects to continue its efforts to
streamline the product line by discontinuing low margin products and replacing
them with products that generate greater margins and management believes that
for fiscal 1998 margins will continue to improve.
Selling, promotion, general and administrative expenses increased by 13% to
$1,501,581 in fiscal 1997 from $1,331,101 in fiscal 1996 due in part to variable
expenses associated with the higher sales volume. As a percentage of sales,
selling, promotion, general, and administrative expenses were 16% in fiscal 1997
and 1996.
Research and development expenses decreased by 71% or $222,086 to $92,063 in
fiscal 1997 from $314,149 in fiscal 1996. The Company conducts its research
through collaborations with the Rush Institute and the University of British
Columbia. These institutes received additional funding from government sources
during fiscal 1997 reducing the Company's cash requirements. Although continued
government funding is never certain, the Company expects that this funding
should continue due to the success of the work to date.
Interest expense increased by 15% or $20,204 to $151,463 in fiscal 1997 from
$131,259 in fiscal 1996. This increase resulted primarily from Dextran Products
obtaining a mortgage for the purchase of its Toronto facilities. Interest and
other non-operating income decreased by 26% or $19,609 to $56,629 in fiscal 1997
from $76,238 in fiscal 1996. This decrease was primarily attributable to an
officer, director and major shareholder of the Company (the "Major Shareholder")
repaying his loan due to the Company.
The Company's effective tax rate was 9.3% and 0.58% for fiscal 1997 and 1996
respectively, due to the utilization of previously unrecognized tax losses.
As a result of the foregoing, the Company recorded net income of $122,390 in
fiscal 1997 as compared to a net loss of $1,165,534 in fiscal 1996.
1996 compared to 1995
Sales increased 17% or $1,204,650 to $8,459,563 in fiscal 1996 from $7,254,913
in fiscal 1995. The growth in sales was primarily due to a greater volume at Vet
Labs where sales rose by 20% or $854,087 to $5,210,531 in fiscal 1996 from
$4,356,444 in fiscal 1995 and accounted for 62% and 60% of the Company's sales
in fiscal 1996 and 1995 respectively. This increase was mainly in injectable
sales since Vet Labs received U.S. Food and Drug Administration approval to
produce sterile injectable products in October of 1995.
Sales at Dextran Products increased by 12% or $350,563 to $3,249,032 in fiscal
1996 from $2,898,469 in fiscal 1995 and accounted for 38% and 40% of the
Company's sales in fiscal 1996 and 1995 respectively. The increase was primarily
due to increased Iron Dextran sales due to greater market penetration by
distributors.
The Company's gross profit increased 31% or $364,387 to $1,533,257 in fiscal
1996 from $1,168,870 in fiscal 1995. As a percentage of sales, gross profit
increased to 18% from 16% in fiscal
4
<PAGE> 5
1996. This was mainly due to the performance of Vet Labs as explained below.
Dextran Products' gross profit decreased 12% or $150,550 to $1,111,454 in fiscal
1996 from $1,262,004 in fiscal 1995. As a percentage of sales, gross profit
decreased to 34% from 44% in fiscal 1995. The primary reason for the decrease
was that Dextran Products purchased its building in Toronto in late fiscal 1996
and consolidated its operations from two buildings into one resulting in the
occurrence of one time expenses. Rent paid in fiscal 1996 amounted to $116,592.
The yearly mortgage interest for fiscal 1996 was $7,399 and annual building
depreciation was $3,490.
Vet Labs' gross profit increased by $514,937 to $421,803 in fiscal 1996 from a
gross loss of $93,134 in fiscal 1995. As a percentage of sales, gross profit
increased to 8% from -2%. This rise was primarily attributable to the
commencement of sales of sterile injectable products which generate
significantly higher margins than the other products.
Selling, promotion, general and administrative expenses decreased by 4% to
$1,331,101 in fiscal 1996 from $1,390,694 in fiscal 1995 due in part to the
Company's cost cutting efforts. As a percentage of sales, selling, promotion,
general, and administrative expenses were 16% in fiscal 1996 and 19% in fiscal
1995.
Research and development expenses increased by 16% or $43,661 to $314,149 in
fiscal 1996 from $270,488 in fiscal 1995 due to the cancellation of the
Company's research agreement with Novadex Inc., a company controlled by the
Major Shareholder, in fiscal 1995. In March 1991, the Company entered into an
agreement with Novadex Inc., whereby Novadex agreed to perform certain research
and development in the Company's facilities, but otherwise at its own cost, in
exchange for a royalty on the sale of certain of the Company's products. Novadex
performed substantially all of the Company's research and development during the
term of the agreement, and thus the Company was able to maintain its commitment
to research without incurring considerable expense. Although the contract has
been canceled, the Company continues to benefit from a process to produce a
major product at a lower cost than was previously possible. After the Company
assumed the research activities from Novadex, the primary research was conducted
through a collaboration with the University of British Columbia investigating
the use of a special form of Dextran in the treatment of secondary infections in
patients with cystic fibrosis.
Interest expense increased by 79% or $57,881 to $131,259 in fiscal 1996 from
$73,378 in fiscal 1995. This increase was primarily attributable to interest
expense relating to a loan made by the Major Shareholder to the Company in
fiscal 1996.
During fiscal 1996 the Company wrote off $400,000 in long-term investments.
The Company's effective tax rate was 0.58% and 0% for fiscal 1996 and 1995
respectively, due to the utilization of previously unrecognized tax losses.
As a result of the foregoing, the Company recorded a net loss of $1,165,534 in
fiscal 1996 as compared to a net loss of $1,034,622 in fiscal 1995.
Liquidity and Capital Resources
For fiscal 1997 the Company generated cash of $202,404 from its operating
activities compared to $48,207 for fiscal 1996. This was primarily attributable
to the operations of Dextran Products. The Company maintained $1,482,029 of
working capital and a current ratio of 1.94:1 as of January 31,
5
<PAGE> 6
1997 compared to $243,508 of working capital and a current ratio of 1.12:1 as of
January 31, 1996.
At January 31, 1997, the Company had accounts receivable of $1,107,829 and
$1,279,280 in inventory compared to $727,135 and $1,407,955 respectively at
January 31, 1996. The increase in accounts receivable was due to an increase in
sales overall but especially in December and January resulting in certain
receivables being collected after year end. This also contributed to the
inventory decrease.
Property, plant and equipment increased from $3,503,060 at January 31, 1996 to
$3,857,302 at January 31, 1997 primarily due to the construction of new
laboratories in the Toronto facilities and purchase of equipment.
Dextran Products has a $75,000 line of credit of which there were no outstanding
borrowings as of January 31, 1997. Vet Labs has a $400,000 line of credit. At
January 31, 1997 there were outstanding borrowings of $377,062 under this line
of credit and the interest rate was 10.5%. Vet Labs also has a loan commitment
for $300,000 to be used for the construction of a 12,000 square foot production
and warehouse addition. Management has decided to delay construction until
further growth warrants additional space.
The sale of the Company's investment in Novatek International Inc. during fiscal
1997 resulted in proceeds to the Company of $1,176,564. From the proceeds,
$553,069 remains in short term investments. This transaction is the subject of
litigation and until the likelihood of the outcome of the lawsuit is
determinable, the gain has been deferred.
The Company anticipates that it can satisfy its fiscal 1998 operating
requirements from cash generated from operating activities. If it cannot, the
Company expects that, as in prior years, it will be able to meet its operating
requirements through additional loans from and/or private sales of its common
stock to principal shareholders or entities controlled by them or to unrelated
parties. The Company, at present, does not have any material commitments for
capital expenditures.
Dextran Products has ongoing research commitments with the University of British
Columbia to investigate the use of a special form of Dextran to combat the
effects of cystic fibrosis. The Company is in preliminary discussions with
certain companies about further financing or forming an alliance to further this
research through clinical trials and to market.
The Company is in preliminary discussions with certain companies to fund the
further research necessary to commercialize the Cellulose Sulphate product but
the results of these discussions are indeterminable at this time.
No changes in accounting principles of their applications have been implemented
in the reporting period that would have a material effect on reported income.
Changes in the relative values of the Canadian dollar and the U.S. dollar occur
from time to time and may, in certain instances, materially affect the Company's
results of operations.
The Company does not believe that the impact of inflation and changing prices on
its operations are material.
6
<PAGE> 7
AUDITORS' REPORT
To the Shareholders of Polydex Pharmaceuticals Limited
We have audited the consolidated balance sheet of Polydex Pharmaceuticals
Limited as at January 31, 1997 and the related consolidated statements of
shareholders' equity, operations and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Polydex
Pharmaceuticals Limited as at January 31, 1997 and the consolidated results of
its operations and the changes in its financial position for the year then ended
in accordance with accounting principles generally accepted in the United
States.
The consolidated financial statements as at January 31, 1996 and for each
of the years in the two-year period ended January 31, 1996 were audited by other
auditors who expressed an opinion without reservation on those statements in
their report dated April 30, 1996.
Ernst & Young LLP
Chartered Accountants
Toronto, Canada
March 14, 1997
7
<PAGE> 8
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
As at January 31 (Expressed in U.S. dollars)
1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT
Cash $ 603,491 $ 12,321
Trade accounts receivable 1,107,829 727,135
Inventories [note 2] 1,279,280 1,407,955
Prepaid expenses and other current assets 63,312 64,394
- ----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 3,053,912 2,211,805
Property, plant and equipment, net [note 3] 3,857,302 3,503,060
Patents and animal drug applications, net [notes 4 and 5] 877,311 991,731
Investment in Novatek International Inc. [note 7] -- 400,000
Due from Novadex Inc. [note 5] 765,209 838,911
Other assets 73,783 119,483
- ----------------------------------------------------------------------------------------
8,627,517 8,064,990
- ----------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT
Accounts payable and accrued liabilities 1,511,698 1,880,200
Loan payable -- 10,000
Current portion of long-term debt [note 6] 60,185 78,097
- ----------------------------------------------------------------------------------------
Total current liabilities 1,571,883 1,968,297
- ----------------------------------------------------------------------------------------
Long-term debt [note 6] 524,656 558,829
Due to shareholders [note 5] 605,475 648,792
Due to affiliated companies [note 5] 425,420 425,420
Deferred gain [note 7] 776,564 --
Minority interest 22,791 22,935
- ----------------------------------------------------------------------------------------
TOTAL LIABILITIES 3,926,789 3,624,273
- ----------------------------------------------------------------------------------------
Related party transactions [notes 5 and 10]
Commitments and contingencies [notes 7 and 9]
SHAREHOLDERS' EQUITY
Capital stock [note 8]
Authorized
1,000,000 A preferred shares of $0.01 each
8,994,000 B preferred shares of $0.00167 each
40,000,000 common shares of $0.00167 each
Issued and outstanding
8,994,000 B preferred shares 15,010 15,010
28,252,182 common shares [1996 - 28,052,182] 46,959 46,625
Contributed surplus 22,733,319 22,583,653
Deficit (17,559,330) (17,681,720)
Currency translation adjustments (535,230) (522,851)
- ----------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 4,700,728 4,440,717
- ----------------------------------------------------------------------------------------
$ 8,627,517 $ 8,064,990
========================================================================================
</TABLE>
See accompanying notes
8
<PAGE> 9
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Years ended January 31, 1997, 1996 and 1995 (Expressed in U.S. dollars)
<TABLE>
<CAPTION>
Currency Total
Preferred Common Contributed translation shareholders'
shares shares surplus Deficit adjustments equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1994 $ 4,990 $ 44,104 $ 21,456,174 $(15,481,564) $ (239,498) $ 5,784,206
Common shares issued for
cash through
private placement -- 2,505 1,117,495 -- -- 1,120,000
Net loss for the year -- -- -- (1,034,622) -- (1,034,622)
Currency translation
adjustment -- -- -- -- (224,191) (224,191)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1995 4,990 46,609 22,573,669 (16,516,186) (463,689) 5,645,393
Common shares issued for
services provided -- 16 9,984 -- -- 10,000
Preferred shares issued to
repay shareholder loan 10,020 -- -- -- -- 10,020
Net loss for the year -- -- -- (1,165,534) -- (1,165,534)
Currency translation
adjustment -- -- -- -- (59,162) (59,162)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1996 15,010 46,625 22,583,653 (17,681,720) (522,851) 4,440,717
Exercise of options -- 334 149,666 -- -- 150,000
Net income for the year -- -- -- 122,390 -- 122,390
Currency translation
adjustment -- -- -- -- (12,379) (12,379)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1997 $ 15,010 $ 46,959 $ 22,733,319 $(17,559,330) $ (535,230) $ 4,700,728
===================================================================================================================================
</TABLE>
See accompanying notes
9
<PAGE> 10
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended January 31 (Expressed in U.S. dollars)
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES $ 9,344,089 $ 8,459,563 $ 7,254,913
Cost of goods sold 6,890,059 6,926,306 6,086,043
- -----------------------------------------------------------------------------------------------------------------
GROSS MARGIN 2,454,030 1,533,257 1,168,870
- -----------------------------------------------------------------------------------------------------------------
EXPENSES
Selling and promotion 159,694 143,072 173,801
General and administrative 1,341,887 1,188,029 1,216,893
Depreciation and amortization 630,825 551,306 553,445
Interest 151,463 131,259 73,378
Research and development [note 10] 92,063 314,149 270,488
Write-down of property, plant and equipment and patents -- 40,000 --
- -----------------------------------------------------------------------------------------------------------------
2,375,932 2,367,815 2,288,005
- -----------------------------------------------------------------------------------------------------------------
Income (loss) from operations 78,098 (834,558) (1,119,135)
- -----------------------------------------------------------------------------------------------------------------
Other income (expenses)
Write-down of long-term investments [note 11] -- (400,000) --
Gain (loss) on sale of equipment -- (2,529) 6,456
Interest and other 56,629 76,238 78,057
- -----------------------------------------------------------------------------------------------------------------
56,629 (326,291) 84,513
- -----------------------------------------------------------------------------------------------------------------
Income (loss) before the undernoted 134,727 (1,160,849) (1,034,622)
Provision for income taxes [note 12] (12,481) (6,750) --
Minority interest in loss 144 2,065 --
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FOR THE YEAR $ 122,390 $ (1,165,534) $ (1,034,622)
- -----------------------------------------------------------------------------------------------------------------
PER SHARE INFORMATION
Loss per common share for the year $ 0.00 $ (0.04) $ (0.04)
- -----------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding for the year 28,319,384 28,047,182 27,750,515
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
10
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended January 31 (Expressed in U.S. dollars)
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) for the year $ 122,390 $(1,165,534) $(1,034,622)
Add (deduct) items not affecting cash
Depreciation and amortization 630,825 551,306 553,445
Write-down of property, plant and equipment and patents -- 40,000 --
Write-down of long-term investments -- 400,000 --
Loss (gain) on sale of equipment -- 2,529 (6,456)
Minority interest (144) (2,065) --
Expenses paid by issuance of common shares -- 10,000 --
Net change in non-cash working capital
balances related to operations [note 13] (550,667) 211,971 183,943
- ------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 202,404 48,207 (303,690)
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale of investment in Novatek International Inc. 1,176,564 -- --
Additions to property, plant and equipment (838,960) (568,678) (307,519)
Additions to patents and animal drug applications (4,187) (8,207) (37,164)
Proceeds from sale of equipment -- 5,087 6,456
Cash acquired on acquisition of Novadex International Inc. -- 250,000 --
Investment in Personal Blood Storage of South Florida, Inc. -- -- (200,000)
- ------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 333,417 (321,798) (538,227)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayment of loan payable (10,000) -- (37,125)
Repayment of long-term debt (52,085) (36,226) (54,747)
Proceeds from long-term debt -- 213,968 109,917
Advances from (repayment to) shareholders 106,683 120,958 (522,000)
Advances from (repayment to) Novadex Inc. 73,702 (40,913) (376,359)
Private placement of common shares -- -- 1,120,000
- ------------------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities 118,300 257,787 239,686
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (62,951) (107,070) (192,750)
- ------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH DURING THE YEAR 591,170 (122,874) (794,981)
CASH, BEGINNING OF YEAR 12,321 135,195 930,176
- ------------------------------------------------------------------------------------------------------------------------
Cash, End of Year $ 603,491 $ 12,321 $ 135,195
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes
11
<PAGE> 12
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 31, 1997, 1996 and 1995 (Expressed in U.S. dollars)
GENERAL
Polydex Pharmaceuticals Limited [the "Company"] is incorporated in the
Commonwealth of the Bahamas and its principal business activities, carried on
through subsidiaries, include the manufacture and sale of chemical products.
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All inter-company accounts and transactions have been
eliminated on consolidation.
The investment in Novatek International Inc. ["Novatek"] was accounted for
by the cost method.
Research and Development
Research and development costs are expensed as incurred and are stated net of
research and development grants received.
Inventories
Inventories are stated at the lower of cost and net realizable value, cost being
determined on a first-in, first-out basis.
Depreciation and Amortization
Depreciation on property, plant and equipment is provided on a straight-line
basis over the estimated useful lives of the assets as follows:
Buildings 15 years
Machinery and equipment 3 to 10 years
Patents and animal drug applications are amortized using the straight-line
method over their estimated useful lives, which range from ten to twenty years.
Revenue Recognition
Revenue from sales of manufactured products is recognized upon shipment to
customers.
Foreign Currency Translation
The functional currency of the Company's Canadian operations has been determined
to be Canadian dollars. All asset and liability accounts of these companies have
been translated using the current exchange rates at the balance sheet dates.
Income statement amounts have been translated using the average exchange rates
for the year. The gains and losses resulting from the change in exchange rates
from the beginning to the end of the year have been reported separately as a
component of shareholders' equity.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ["APB 25"] and related
Interpretations in accounting for its employee stock options rather than the
alternative fair value accounting provided for under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ["SFAS
123"]. Under APB 25, because the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles ["GAAP"] 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Finished goods $ 656,039 $ 802,812
Work-in-process 89,640 98,281
Raw materials 533,601 506,862
- ----------------------------------------------------------------
$ 1,279,280 $ 1,407,955
- ----------------------------------------------------------------
</TABLE>
12
<PAGE> 13
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
Accumulated Net Accumulated Net
depreciation/ book depreciation/ book
Cost amortization value Cost amortization value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Land and buildings $ 2,796,935 $ 239,817 $ 2,557,118 $ 2,320,588 $ 130,784 $ 2,189,804
Machinery and equipment 5,077,720 3,777,536 1,300,184 4,689,083 3,375,827 1,313,256
- -----------------------------------------------------------------------------------------------------------------------------
$ 7,874,655 $ 4,017,353 $ 3,857,302 $ 7,009,671 $ 3,506,611 $ 3,503,060
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
4. PATENTS AND ANIMAL DRUG APPLICATIONS
Patents and animal drug applications consist of the following:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Cost $ 1,184,555 $ 1,180,368
Less accumulated amortization 307,244 188,637
- ----------------------------------------------------------------
$ 877,311 $ 991,731
- ----------------------------------------------------------------
</TABLE>
The Company's patents and animal drug applications relate to products and
potential products for which there is significant competition. Although
management expects that these costs will be recovered through net future
revenues, it is reasonably possible that a write-down might be required due to
changes in the competitive market.
5. RELATED PARTY TRANSACTIONS
[a] Amounts Due From and To Related Parties
Amounts due from and due to related parties consist of the following:
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Amounts due from Novadex
Inc. [i] [note 10] $ 765,209 $ 838,911
- -------------------------------------------------------------------------------
Amounts due to
Usher Insurance
Company Ltd. [ii] 138,635 138,635
Lincoln Underwriting
Management Inc. [ii] 286,785 286,785
- -------------------------------------------------------------------------------
425,420 425,420
- -------------------------------------------------------------------------------
Amounts due to
shareholders [iii] $ 605,475 $ 648,792
- -------------------------------------------------------------------------------
</TABLE>
Novadex Inc., Usher Insurance Company Ltd. and Lincoln Underwriting Management
Inc. are each controlled by an officer, director and major shareholder of the
Company [the "Major Shareholder"]. Amounts due from Novadex Inc. are
collateralized by a guarantee of the Major Shareholder.
[i] The amount due from Novadex Inc. has no fixed terms of repayment, except
that amounts may not be called prior to February 1, 1998. This balance is
non-interest bearing, except that an amount of $217,109 included in the balance
bears interest at U.S. prime [8.25% at January 31, 1997; 8.5% at January 31,
1996].
[ii] The amounts due to Usher Insurance Company Ltd. and Lincoln Underwriting
Management Inc. have no fixed terms of repayment, except that amounts may not be
called prior to February 1, 1998, and are non-interest bearing.
[iii] Amounts due to shareholders bear interest at U.S. prime plus 1.5% [9.75%
at January 31, 1997; 10% at January 31, 1996] and have no fixed terms of
repayment except that the amounts may not be called prior to February 1, 1998.
Interest recorded with respect to amounts due to and from related parties
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Interest income $ 17,670 $ 58,612 $ 45,176
- ----------------------------------------------------------------
Interest expense $ 65,520 $ 66,487 $ 42,821
- ----------------------------------------------------------------
</TABLE>
[b] Acquisition of Novadex International Inc.
During the year ended January 31, 1996, the Company acquired a 90% interest in
Novadex International Inc. from the Major Shareholder for an ascribed value of
$1,000,000 which was applied to the due from shareholder account. The principal
asset of Novadex International Inc. is a patent, developed by the Major
Shareholder, for the use of Cellulose Sulphate in a number of applications
including the development of a new contraceptive gel and use in the commercial
production of photographic film. The acquisition by the Company of its interest
in Novadex International Inc. has been accounted for by the purchase method, and
consolidated from the acquisition date of May 9, 1995.
The allocation of the purchase price of the assets and liabilities acquired
was as follows:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 250,000
Patents 775,000
Minority interest (25,000)
- ----------------------------------------------------------------
$ 1,000,000
- ----------------------------------------------------------------
</TABLE>
13
<PAGE> 14
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage payable in monthly instalments of principal and interest
of $3,409, interest rate 8.5%, which matures January, 2002 $167,001 $ 185,609
Note payable to bank, matures January 1, 2000, interest rate 10.5%,
collateralized by assignments of land, building and certain accounts
receivable inventories and equipment 377,062 407,329
Note payable due December 31, 1996 - 36,927
Equipment under capital lease 40,778 7,061
- --------------------------------------------------------------------------------------------------------
584,841 636,926
Less current portion 60,185 78,097
- --------------------------------------------------------------------------------------------------------
$ 524,656 $ 558,829
- --------------------------------------------------------------------------------------------------------
</TABLE>
The aggregate maturities of long-term debt for each of the years subsequent to
January 31, 1997 are as follows:
<TABLE>
<CAPTION>
<C> <C>
1998 $ 60,185
1999 57,403
2000 383,514
2001 44,915
2002 38,824
- ----------------------------------------------------------------
$ 584,841
- ----------------------------------------------------------------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
[a] Investment in Novatek International Inc.
The investment in Novatek consisted of 160,000 common shares representing
approximately 6% of the issued and outstanding share capital as at January 31,
1996. During the year ended January 31, 1997, the Company sold its shares in
Novatek for a gain of $878,412. Prior to April 28, 1996, these shares were
subject to options held by unrelated parties. After April 28, 1996, these
options expired and the Company sold the shares in the open market realizing the
gain. Subsequently, the former option holders have filed a lawsuit against the
Company for unspecified damages alleging that the Company denied them the
opportunity to exercise their option. The Company intends to vigorously defend
the action, however, because the proceedings are in the preliminary stages, the
ultimate outcome is not determinable. Accordingly, the Company has deferred the
gain on this transaction until the likelihood of the outcome of the lawsuit is
determinable. The reported gain has been reduced by legal fees incurred to date.
[b] Other Legal Proceedings
The Company has been named along with the Government of Canada and the Canadian
Broadcasting Corporation in a legal action seeking Canadian $2,900,000 in the
aggregate, plus pre- and post-judgment interest and costs, in connection with a
television broadcast in 1989. The Company intends to vigorously defend the
action, however, the ultimate outcome at this stage of the proceedings is not
determinable and accordingly no provision for loss has been made in these
consolidated financial statements.
[c] Operating Commitments
The Company has obligations under non-cancellable operating leases of $20,000
annually to the year 2001. Rental expense for the year totalled $23,000 [1996 -
$195,000; 1995 - $199,000].
8. CAPITAL STOCK
[a] Share Capital Issued and Outstanding
[i] Common shares
During the year ended January 31, 1997, the Major Shareholder exercised options
for 200,000 common shares valued at $150,000. These shares were issued in
exchange for partial settlement of the Major Shareholder's loan account with the
Company.
During the year ended January 31, 1996, the Company issued 10,000
common shares valued at $10,000 under a private placement as payment for
services rendered to the Company.
During the year ended January 31, 1995, the Company issued 1,500,000 common
shares in private placements for net cash proceeds of $1,120,000. Of the common
shares issued during the year, 1,000,000 shares were originally issued for a
$750,000 promissory note. During January 1995, $500,000 was accepted by the
Company as payment in full satisfaction for the purchase of these shares. These
consolidated financial statements, therefore, reflect the shares issued at
$500,000.
14
<PAGE> 15
[ii] A preferred shares
The A preferred shares will carry dividends, be convertible into common shares
of the Company and will be redeemable, all at rates as shall be determined by
resolution of the Board of Directors. No A preferred shares have been issued to
date.
[iii] B preferred shares
During the year ended January 31, 1996, the Company issued 6,000,000 B preferred
shares under a private placement to the Major Shareholder of the Company for
$10,020 as partial settlement of the Major Shareholder's loan account with the
Company.
The B preferred shares carry no dividends, are non-convertible and entitle
the holder to one vote per share. The Company, at its option, may redeem these
shares for $15,010.
[b] Share Option Plan
[i] Options outstanding
The Company maintains an incentive stock option plan to grant options to
purchase common stock to management personnel and contractors. Options granted
have terms ranging from one to four years and vest immediately. At January 31,
1997, the Company has 3,170,766 options outstanding at exercise prices ranging
from $0.75 to $1.25, and a weighted average price of $0.90. The options which
are all exercisable and expire on dates between June 30, 1997 and December 31,
2000, entitle the holder to acquire 1 common share of the Company.
Details of the outstanding options are as follows:
<TABLE>
<CAPTION>
Share options Average option price per share
------------------------------------ --------------------------------
1997 1996 1995 1997 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 2,955,766 1,585,766 6,545,766 $ 0.93 $ 0.84 $ 1.96
Granted 565,000 1,765,000 40,000 0.80 0.98 .06
Exercised (200,000) -- -- 0.75 -- --
Cancelled or expired (150,000) (395,000) (5,000,000) 0.87 0.78 2.25
- ------------------------------------------------------------------------------------------------
OPTIONS OUTSTANDING,
END OF YEAR 3,170,766 2,955,766 1,585,766 $ 0.91 $ 0.93 $ 0.84
- ------------------------------------------------------------------------------------------------
</TABLE>
[ii] Pro forma earnings
Adopting SFAS 123 would require the Company to estimate the fair value of any
options issued and to reflect these amounts as compensation expense in
determining net income for each year. In order to estimate the fair value of its
options, the Company may use option pricing models which were developed for use
in estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. Because the Company's employee stock
options have characteristics significantly different from those related options
and changes in subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
However, as required by SFAS 123, pro forma information regarding net
income and earnings per share has been determined as if the Company had
accounted for its employee stock options under the fair value method. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1997:
risk-free interest rates of 5.48%; dividend yields of nil; volatility factors of
the expected market price of the Company's common stock of 1.001, and a
weighted-average expected life of the option ranging from one to four years. For
purposes of pro forma disclosures, the estimated fair value of the options is
expensed immediately.
The Company's pro forma net income following SFAS 123 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net loss $ (285,424) $ (1,559,459) $(1,045,782)
Pro forma earnings per share
Primary $ (0.01) $(0.06) $ (0.04)
Fully diluted $ (0.01) $(0.05) $ (0.04)
- --------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
9. VETERINARY LABORATORIES INC. ["VET. LABS."]
[a] Purchase Obligation to Continental Grain Company
In 1992, the Company, through its 90% owned subsidiary, Chemdex Inc.
["Chemdex"], acquired 100% of the issued outstanding share capital of Vet. Labs.
from Continental Grain Company ["CGC"], for a total purchase price of
$3,894,980, which was satisfied by issuing 1,947,490 common shares of the
Company. The acquisition was accounted for as a purchase.
The Company and the Major Shareholder had guaranteed that, by November 30,
1996, CGC would realize a value of $3,894,980 on the eventual sale of these
shares or CGC had an option to put its remaining shares to the Company or the
Major Shareholder at such a price to bring CGC's total consideration to
$3,894,980. The assets of Vet Labs were pledged as collateral for this
guarantee. By November, 1996, CGC had realized approximately $800,000 on the
sale of shares but had not been able to sell all of their shares. On November
22, 1996, the terms of the original purchase agreement were amended.
In exchange for the Company reattributing net operating loss carryforwards
of $5.0 million [carrying value of nil] which existed in Vet. Labs. at the time
of acquisition by the Company, CGC has reduced the maximum repurchase obligation
of the Company from approximately $3.1 million at November 22, 1996 to $2.0
million. In addition, the deadline for CGC to exercise its option for sale of
shares to the Company has been extended from November 30, 1996 to May 30, 1999,
and CGC has released the Major Shareholder from his guarantee.
In order to ensure that there is an orderly disposition of shares, CGC has
agreed to not sell more than an average of 50,000 shares per month in any six
month period. If CGC has not been able to sell an average of 50,000 shares per
month at an average price of $1.33 per share, the Company will issue to CGC
additional shares such that the proceeds realized by CGC in the six-month period
plus the market value of the additional shares issued will leave CGC in the same
position as if it had sold shares at an average price of $1.33 per share. If
CGC's sale of shares at the end of each six-month period is at an average price
greater than $1.33 per share, then CGC will return to the Company sufficient
additional shares to reduce the average price to $1.33 per share. Throughout
fiscal 1997, the shares have traded at values in a range of $0.63 to $1.44. To
date, CGC has not requested any additional shares under this agreement. Any
shares issued will be considered to be a component of the original transaction
value and would be issued at nominal consideration.
The assets of Vet. Labs. continue to be pledged as collateral for the
performance of the Company pursuant to this agreement. If CGC does not exercise
its option for sale of shares to the Company by May 30, 1999, the Company's
obligation to repurchase such shares shall cease.
[b] Sparhawk Laboratories Inc. ["Sparhawk"]
In 1992, Vet. Labs and Sparhawk entered into a joint venture [collectively
referred to as the "Joint Venture"] for the purpose of manufacturing and selling
veterinary pharmaceutical products. Sparhawk is an affiliated company owned
primarily by the management of the Joint Venture. The Company controls the Joint
Venture through its control of the board of directors. The Company has funded
the Joint Venture's losses since 1992, and accordingly has recorded 100% of
these losses in the consolidated financial statements. Future profits will
accrue to the Company until Sparhawk's share of losses since 1992, $1,900,000 at
January 31, 1997, have been recovered. Subsequent income will be allocated 50%
to Vet. Labs. and 50% to Sparhawk.
10. RESEARCH AND DEVELOPMENT
[a] Iron Dextran Process
Effective February 1, 1995, the Company entered into an agreement with Novadex
Inc., an affiliated company, whereby Novadex Inc. granted the Company the
exclusive worldwide license to use a certain process developed by Novadex Inc.
for producing Iron Dextran. The term of this license agreement is 10 years. The
Company pays a license fee based on production volumes. The total royalty
expense incurred during the year was $88,835 [1996 - $80,491].
[b] Cystic Fibrosis
Effective April 1, 1994, the Company had entered into a Research Agreement [the
"Agreement"] with an affiliated company and the University of British Columbia
["UBC"]. Under the terms of the Agreement, the Company agreed to provide
equipment and funding in connection with research into Cystic Fibrosis. This
agreement was amended on April 1, 1996 and expanded to include a number of
Canadian Hospitals.
In conjunction with the Agreement, UBC granted the Company, through a
sub-licensing agreement with an affiliated company, an exclusive worldwide
license to manufacture, distribute and sell products derived or developed from
the research performed. The Company will pay a quarterly royalty, based on net
sales.
Costs incurred during the year in relation to the Agreement total
$55,483 [1996 - $175,100; 1995 - $198,818]. The Company has committed to funding
approximately $70,000 in fiscal 1998.
11. WRITE-DOWN OF LONG-TERM INVESTMENTS
During the year ended January 31, 1996, the Company wrote off the $400,000
investment in Personal Blood Storage of South Florida Inc. as a result of its
continuing financial difficulties. This investment had been recorded at cost in
the consolidated financial statements.
16
<PAGE> 17
12. INCOME TAXES
[a] Substantially all of the Company's activities are carried out through
operating subsidiaries in Canada and the United States. The Company's effective
income tax rate is dependent on the tax legislation in each country and the
operating results of each subsidiary and the parent Company. The provision for
income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Provision for income taxes based on statutory rates $ 334,811 $ (56,054) $(186,977)
Benefit of previously unrecorded tax items (484,566) (117,738) --
Losses not recognized 162,236 180,542 186,977
- ------------------------------------------------------------------------------------------
PROVISION FOR INCOME TAXES $ 12,481 $ 6,750 $ --
- ------------------------------------------------------------------------------------------
</TABLE>
The income tax provision consists entirely of Canadian federal deferred tax
expense.
[b] Deferred income taxes have been provided on timing differences which
consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
DEFERRED TAX ASSETS
Canadian non-capital losses $ 467,000 $ 557,000 $ 718,000
U.S. net operating losses 762,000 2,100,000 2,073,000
Amounts provided for in the financial statements which
have not yet been claimed for income tax purposes 1,244,000 1,556,000 1,568,000
Investment tax credits 223,000 227,000 291,000
- ---------------------------------------------------------------------------------------------------
2,696,000 4,440,000 4,650,000
Valuation allowance (2,696,000) (4,440,000) (4,650,000)
- ---------------------------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ -- $ -- $ --
- ---------------------------------------------------------------------------------------------------
</TABLE>
[c] The Canadian subsidiaries of the Company have non-capital loss carryforwards
for Canadian tax purposes which expire in the following fiscal years:
<TABLE>
<CAPTION>
Federal Ontario
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 596,000 $ 612,000
1999 268,000 268,000
2000 -- 37,000
2001 -- 28,000
2002 -- --
2003 130,000 130,000
2004 37,000 21,000
- --------------------------------------------------------------------------------
$1,031,000 $1,096,000
- --------------------------------------------------------------------------------
</TABLE>
In addition, the Canadian subsidiaries have deductions available to reduce
future years' income for tax purposes on account of net timing differences
resulting from expense items reported for tax purposes in different periods than
for financial statement purposes totalling $2.7 million and $2.5 million for
federal and provincial purposes respectively. Certain Canadian subsidiaries also
have net capital losses available for carryforward of $422,000 available to
offset taxable capital gains. These potential deductions and net capital losses
have an indefinite carryforward period.
Certain Canadian subsidiaries have also earned investment tax credits of
$223,000 which are available to offset federal income taxes payable in the
future expiring from 1999 through 2007.
The benefits associated with these losses, deductions and investment tax
credits have been recorded in the consolidated financial statements to the
extent described in paragraph [b].
[d] The U.S. subsidiaries of the Company, have net operating loss carryforwards
for tax purposes of approximately $1.9 million which expire from 2001 to 2011.
The benefits associated with these losses have been recorded in the
consolidated financial statements to the extent described in paragraph [b].
17
<PAGE> 18
13. Consolidated Statements of Cash Flows
Changes in non-cash working capital balances consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
DECREASE (INCREASE) IN CURRENT ASSETS
Trade accounts receivable $(371,576) $(119,149) $ (77,856)
Inventories 140,539 324,636 (153,847)
Prepaid expenses and other assets 1,499 (1,117) (73,865)
- -------------------------------------------------------------------------------
$(229,538) $ 204,370 $(305,568)
INCREASE (DECREASE) IN CURRENT LIABILITIES
Accounts payable and accrued liabilities (321,129) 7,601 489,511
- -------------------------------------------------------------------------------
$(550,667) $ 211,971 $ 183,943
- -------------------------------------------------------------------------------
</TABLE>
Cash paid during the year for interest was $85,943 [1996 - $68,313; 1995 -
$30,557]. Cash paid during the year for income taxes was $1,767 [1996 - $6,750;
1995 - nil].
Excluded from the consolidated statements of cash flows for the year ended
January 31, 1997 is the issuance of 200,000 common shares of the Company in
exchange for a reduction in the Major Shareholder's loan account.
Excluded from the consolidated statements of cash flows for the year ended
January 31, 1996 is the issuance of 10,000 common shares of the Company in
exchange for services rendered to the Company, the issuance of 6,000,000 B
preferred shares in exchange for a reduction in the Major Shareholder's loan
account and the acquisition of a 90% interest in Novadex International Inc.
[note 5] from the Major Shareholder in exchange for a shareholder loan.
The above transactions are considered non-cash financing and investing
activities.
14. SEGMENTED INFORMATION
All of the operations of the Company are carried on through Dextran Products
Limited ["Dextran Products"] in Canada and through Vet. Labs. in the United
States. These subsidiaries operate principally in one industry: the manufacture
of veterinary pharmaceuticals products. Dextran Products manufactures and sells
bulk quantities of Dextran and several of its derivatives to large
pharmaceutical companies. Vet.Labs. develops, manufactures and sells veterinary
pharmaceutical products through distributors and private labelers.
[a] Segment Information by Geographic Area is as Follows:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales
Canada $ 4,201,555 $ 3,249,032 $ 3,033,026
United States 5,142,534 5,210,531 4,221,887
- --------------------------------------------------------------------------------------
CONSOLIDATED SALES 9,344,089 8,459,563 7,254,913
- --------------------------------------------------------------------------------------
Operating income (loss)
Canada 1,214,678 525,005 554,988
United States (365,467) (404,917) (770,393)
General corporate expenses (527,587) (509,238) (559,864)
Corporate research and development (92,063) (314,149) (270,488)
Interest expense (151,463) (131,259) (73,378)
- --------------------------------------------------------------------------------------
CONSOLIDATED INCOME (LOSS) FROM OPERATIONS 78,098 (834,558) (1,119,135)
- --------------------------------------------------------------------------------------
Identifiable assets at year end
Canada 3,354,384 2,046,793 1,789,429
United States 3,619,717 3,736,838 3,937,420
Corporate assets 1,653,416 2,281,359 2,685,747
- --------------------------------------------------------------------------------------
CONSOLIDATED ASSETS $ 8,627,517 $ 8,064,990 $ 8,412,596
- --------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
Identifiable assets are those assets of the Company that are identified with the
operations in each geographic area. Corporate assets are princially patents,
investment in affiliated company and amounts due from affiliated companies.
[b] Consolidated Sales by Destination are Analyzed as Follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $5,852,313 $5,770,268 $4,990,344
Canada 792,051 723,452 486,280
Europe 1,470,159 1,190,660 761,424
Pacific Rim 983,029 725,783 792,700
Other 246,537 49,400 224,165
- ---------------------------------------------------------------------------------
Consolidated Sales $9,344,089 $8,459,563 $7,254,913
- ---------------------------------------------------------------------------------
</TABLE>
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined based on
available market information and appropriate valuation methodologies.
The carrying amounts of cash, trade accounts receivable, accounts payable,
and accrued liabilities approximate fair value at January 31, 1997 because of
the short maturity of these financial instruments.
The estimated carrying value of due from Novadex and non-current
liabilities is not materially different from the carrying value for financial
statement purposes at January 31, 1997 and 1996.
16. NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards Number 128 ["SFAS 128"], "Earnings per share".
SFAS 128 will replace the current presentation of primary earnings per share
["EPS"] with a presentation of basic EPS. Basic EPS will exclude dilution and
will be computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
will reflect the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings of the
entity. SFAS 128 is required for fiscal periods ending after December 15, 1997
and accordingly, the Company will adopt this standard for its 1998 fiscal year
end.
17. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS
The comparative consolidated financial statements have been reclassified from
statements previously presented to conform to the presentation of the 1997
consolidated financial statements.
19
<PAGE> 1
Exhibit 21
Polydex Pharmaceuticals Limited
Subsidiaries List
<TABLE>
<CAPTION>
Subsidiary Percentage Owned Incorporated
---------- ---------------- ------------
<S> <C> <C>
Chemdex, Inc. 90% Kansas, USA
Dextran Products Limited 100% Ontario, Canada
Polydex Chemicals (Canada) 100% Ontario, Canada
Limited
Veterinary Laboratories, Inc. 100% Kansas, USA
</TABLE>
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Polydex Pharmaceuticals Limited of our report dated March 14, 1997, with
respect to the consolidated financial statements of Polydex Pharmaceuticals
Limited included in its 1997 Annual Report to Shareholders.
Toronto, Canada Ernst & Young LLP
April 30, 1997 Chartered Accountants
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JANUARY 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 603,491
<SECURITIES> 0
<RECEIVABLES> 1,133,477
<ALLOWANCES> 25,648
<INVENTORY> 1,279,280
<CURRENT-ASSETS> 3,053,912
<PP&E> 7,874,655
<DEPRECIATION> 4,017,353
<TOTAL-ASSETS> 8,627,517
<CURRENT-LIABILITIES> 1,571,883
<BONDS> 584,841
<COMMON> 46,959
0
15,010
<OTHER-SE> 4,638,759
<TOTAL-LIABILITY-AND-EQUITY> 8,627,517
<SALES> 9,344,089
<TOTAL-REVENUES> 9,344,089
<CGS> 6,890,059
<TOTAL-COSTS> 6,890,059
<OTHER-EXPENSES> 2,375,932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 151,463
<INCOME-PRETAX> 78,098
<INCOME-TAX> 12,481
<INCOME-CONTINUING> 122,390
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 122,390
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
