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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 (fee required) for the fiscal year ended June 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (no fee required)
For the transition period from ______________ to _______________.
Commission file number 0-21410
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INTERNATIONAL CANINE GENETICS, INC.
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(Name of small business issuer in its charter)
Delaware 23-2418859
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
271 Great Valley Parkway, Malvern PA 19355
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (610) 640-1244
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.00006 per share, and Redeemable Warrants
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $1,651,220
The aggregate market value of Registrant's voting stock held by non-affiliates
of the Registrant was approximately $520,000 (computed on the basis of the
average of the bid and ask prices of a share of Common Stock on September 18,
1996 as reported by NASDAQ). Shares of voting stock held by each officer and
director and by each person who owns 5% or more of the outstanding voting stock
have been excluded in that such persons may be deemed to be affiliates. This
determination of affiliate status is not necessarily a conclusive determination
for other purposes.
On September 18, 1996, the Registrant had 2,819,530 shares of Common Stock
outstanding.
Documents Incorporated by Reference: Portions of the Proxy Statement relating to
the Company's 1996 Annual Meeting of Stockholders are incorporated by reference
into Part III.
Transitional Small Business Disclosure Format (check one):
YES ____, NO __X__
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PART I
Item 1. Description of Business
International Canine Genetics, Inc. is engaged in the business of
developing, manufacturing and marketing products and services that serve the
needs of veterinary specialty markets for companion animals. Currently, the
Company is focused on developing new technology into high value added products
and services for breeders and owners of purebred dogs and their veterinarians.
The Company currently sells its products and services in four specialized
markets: canine reproduction, genetic disorders, nutritional supplements and
grooming products.
U.S. Government statistics state that approximately 36 million households
in the United States own 52.3 million dogs. According to the American Kennel
Club, there are 22 million purebred dogs in the U.S. Of the total 2.5 million
U.S. annual dog breedings, ICG estimates that one million breedings of purebred
dogs occur in the United States annually. Each year approximately 750,000
purebred dog litters are born (whelped) producing approximately 3,450,000
purebred puppies. This one million purebred dog breeding estimate includes show
dogs, sporting dogs, and special situation dogs (i.e. Seeing Eye, MWD, etc.).
The international market for ICG's products and services is comparable in size
to that of the United States. Europe, Japan, Canada, Australia and New Zealand
represent the vast majority of potential revenues.
The objective of most breeders of purebred dogs is to improve the breed
with each litter. Substantial time and attention is devoted to selecting the
correct breeding partner in order to avoid genetic disorders and other
undesirable traits. Frequent breeders, those involved with show or field trial
competition, study pedigrees and performance records of dogs to determine the
optimal breeding partner. Often the best stud dog for a bitch lives some
distance away and breeding requires traveling a substantial distance or shipping
the dog.
Most breedings are conducted by natural methods. The generally accepted
protocol requires the owners of female dogs to drive or ship their dogs to the
stud owner's kennel for one to three services over several days. If the
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owner of a female dog wishes to breed it to a stud dog outside the immediate
area, the cost, time, stress and risk to the dog of injury or death increases
dramatically. International breedings are exceedingly rare due to these risk
factors, the significant expense of such breedings and quarantine requirements.
Even so, many breeders report that up to half of their breedings are conducted
over a long distance where a dog is shipped by air or driven many hours. Other
breeders, in order to avoid the inconvenience and risks associated with long
distance breedings, opt to breed their bitches to a stud dog that is locally
available. The locally available stud dog may be closely related to the bitch,
increasing the likelihood of promoting undesirable genetic traits due to
inbreeding.
Breeders are further limited by the lack of veterinary assistance and
support in the area of canine reproduction. Prior to the availability of the
Company's products and services, many veterinarians were unable to offer basic
reproductive diagnostic services such as ovulation timing and pregnancy testing
because diagnostic products were not available and because most veterinary
schools offer little or no training regarding canine reproduction. The
Veterinary Economics and Veterinary Medicine July, 1995 data base stated that
38,230 veterinarians specialized in small animal practice at 20,803
clinic/hospital locations throughout the U.S. ICG currently sells its products
and services to 4,500 veterinary clinics/hospitals in the U.S. (approximately
22%). Upside potential is substantial and future market penetration can be
achieved through expanded product distribution and new product introduction.
The Company has begun to address the genetic disorder market with the
introduction of the PennHIP(R) diagnostic service. More than 300 genetic defects
have been identified in dogs. Despite more than a quarter century of
international efforts at eradication, Canine Hip Dysplasia (CHD) is the most
common, heritable orthopedic problem occurring in dogs. A degenerative joint
disease, CHD is painful and can be extremely debilitating. Though it affects
virtually all breeds of dogs, it is especially a problem in large and giant
breeds, such as Golden Retrievers, Labrador Retrievers, German Shepherds and St.
Bernards. In the United States alone, dogs affected number in the millions.
In the area of nutritional supplements, the Company has developed and is
marketing two life cycle nutritional supplements which address the nutritional
requirements of dogs during gestation and lactation and various stages of life
and activity levels. The Company entered the grooming products market through
its agreement with the W. R. Van Wyck Group, Limited for the exclusive marketing
and distribution rights for the Duurstede(R) line of premium coat and skin care
products.
Sale of Company's Assets
On July 23, 1996, the Company entered into a purchase agreement, which was
amended on September 7, 1996, with Synbiotics Corporation ("Synbiotics") for
Synbiotics to acquire substantially all of the assets and certain liabilities of
the Company in exchange for the issuance of 1,400,000 shares of Synbiotics
Common Stock (the "Shares"). The number of Shares is subject to adjustment if
the market price per share of Synbiotics Common Stock is above $3.50 or below
$2.50 per share at the closing. In addition, up to 50,000 of the Shares will be
withheld from the Company unless the Company is able to satisfy certain
conditions regarding patent concerns relating to one of the Company's products.
Following the acquisition, which is subject to approval by the Company's
stockholders and Synbiotics' shareholders (if required), and the satisfaction by
the Company of its remaining unassumed liabilities, the Company intends to
redeem its stock from certain participating stockholders, which the Company
anticipates will include all but two of the Company's stockholders. The actual
number of Shares to be distributed to each of such stockholders will depend upon
the amount of the Company's liabilities not assumed in the acquisition. The
Company intends to satisfy certain unassumed liabilities from the proceeds of
the sale of some of the Shares and by the transfer of certain of the Shares to
satisfy up to $1,419,000 of debt.
Following the acquisition, the Company's stock will cease to be publicly
traded. In addition, upon consummation of the acquisition, the Company's
President and CEO will become Vice President and General Manager, Animal Health,
of Synbiotics.
Existing Products and Services
Canine Reproduction
Ovulation Timing Diagnostic Products. The Company's ovulation timing
products assist breeders in more accurately determining when the female dog is
fertile. Improper timing is a primary cause of missed breedings, a problem that
can cut conception rates in half.
A female dog comes into heat once every six to eight months with the heat
cycle lasting between 15 and 30 days. The fertile period during each heat cycle
lasts only two to three days and cannot be accurately determined without hormone
testing. Missed breedings require a six to eight month waiting period prior to
the next attempt and, therefore, can create a major problem in a breeding
program. The effective breeding life of most female dogs is only about four to
six years, or eight to twelve heat cycles.
In June of 1989, the Company introduced its first ovulation timing
diagnostic test for veterinarian use, ICAGENTM Target, which was co-developed
and is manufactured by an unaffiliated company. In June, 1992, the Company
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introduced an internally developed ovulation timing test, Status-Pro(TM), which
is superior to the original test. Status-Pro(TM) is manufactured by the Company
at its Malvern facility. Because demand exists from customers unwilling to
change practices which have worked in the past, the Company continues to sell
ICAGEN(TM) Target although it believes Status-Pro(TM) to be simpler to use. Each
product is sold in a kit which provides enough tests to time two heat cycles. In
April, 1994, the Company introduced a canine LH/Progesterone testing service to
provide veterinarians with quantitative test results for breedings using frozen
semen or chilled semen of poor quality. In February, 1995, the Company
introduced Status-LH(TM), the first in-clinic diagnostic test to measure canine
luteinizing hormone (LH) for timing ovulation.
Although the initial market for these products and services has been
breeders with bitches which have had difficulty conceiving, breeders are
beginning to use these products and services routinely. The current products
require breeders to make several trips to their veterinarians for testing until
the fertility peak has been determined. Nevertheless, these products and
services have been well received by dog breeders despite the cost and
inconvenience involved in visiting veterinarians. Status-Pro(TM), Status-LH(TM)
and ICAGEN(TM) Target are sold direct by the Company and have been well received
by veterinarians who are now able to offer an additional service to dog
breeders.
On October 19, 1995, ICG introduced OPTIMATE(TM), the first at-home canine
ovulation confirmation test available to dog breeders. OPTIMATE(TM) is an easy
to use, urine based test that allows dog breeders to confirm, at home, that
ovulation has occurred and that it is appropriate to proceed with their planned
natural breeding. Additionally, the Company believes that OPTIMATE(TM) will
become an important preliminary diagnostic tool to enable breeders to identify
dogs experiencing abnormal ovulation and encourage breeders to seek veterinary
help to isolate the underlying causes.
The target market for OPTIMATE(TM) is the estimated 850,000 U.S. purebred
dog breedings that occur every year without the benefit of technology or the
involvement of a veterinarian. OPTIMATE(TM) is available directly from ICG,
through veterinarians, and from a select number of dog show product distributors
throughout the United States. International product introduction is scheduled to
begin during the second quarter of fiscal 1997. With the release of
OPTIMATE(TM), ICG provides dog breeders and their veterinarians the most
comprehensive system of canine ovulation timing products in the world.
Pregnancy Testing. The Company introduced what it believes to be the first
canine pregnancy testing service in the United States, the ICAGEN(TM) Pregnancy
Test, in July, 1990. The Company's current pregnancy testing service is based
upon technology licensed to the Company. The license agreement provides the
Company with the exclusive right to use the pregnancy test in the United States
for a period of five years beginning July 13, 1990 and provides for an automatic
five year renewal of the license. Kits are sold to veterinarians who collect and
ship a blood sample to the Company for testing. The ICAGEN(TM) Pregnancy Test is
95% accurate and can detect pregnancy during a window of 28 to 37 days after
breeding (total gestation is 63 to 65 days). The initial market for the
Company's existing pregnancy testing service has been serious breeders who use
this service to confirm the results of a palpation examination or in lieu of an
expensive ultrasound procedure.
On November 6, 1995, ICG concluded an agreement with the Cornell Research
Foundation, the University of Medicine and Dentistry of New Jersey-New Jersey
Medical School and New York University for the exclusive rights to a U.S. patent
entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs". In
addition, the Company entered into a Sponsored Research Agreement with each of
the universities for the co-development of a canine pregnancy test kit based on
the underlying technology covered by the patent.
The Company believes that there are currently no inexpensive and reliable
methods available commercially for early detection of canine pregnancy for the
estimated one million purebred dog breedings in the U.S. as well as the
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millions of other dog owners. In addition, a test to rule out pregnancy in dogs
as a pre-surgical screen is of high interest to veterinarians.
ICG's goal is to develop and validate a simple qualitative test for use in
the veterinary clinic that can reliably determine the success or failure of a
planned breeding, artificial insemination or the inadvertent exposure of
valuable females to unwanted males. This in-clinic product can also be used as a
pre-surgical screening test. Market introduction is targeted for the first
quarter of calendar 1997.
A second product, an at-home pregnancy test is planned for introduction
approximately one year following the in-clinic test to complement ICG's other
over the counter diagnostic product, OPTIMATE(TM), and to address the large
portion of the market that breeds their dogs without the involvement of a
veterinarian. In addition, there is evidence that Relaxin may be an early
indicator of feline pregnancy, a test for which could provide a logical
expansion of activities into the broader companion animal market.
Artificial Insemination Products and Services. The Company's artificial
insemination products and services, introduced in fiscal 1989, include semen
freezing and chilling systems which incorporate proprietary buffers designed
specifically for the dog. Buffers are chemical solutions added to semen which
minimize damage to sperm cell function during freezing, chilling and
transportation. These buffers are sold in kits for overnight shipping of semen
together with a variety of other supplies necessary for artificial insemination.
These products enable breeders to conduct long distance and international
breedings using chilled or frozen semen and artificial insemination thereby
eliminating the constraints of time, distance, shipping stress and risk to the
animals. Frozen semen can be shipped to most countries for breeding thereby
making stud dogs around the world available. Frozen semen also permits breedings
for years after the dog's natural life span.
The Company's Fresh Express(R) system for chilled semen shipping allows
breeders to ship semen overnight between veterinarians to conduct long distance
breedings without shipping dogs. The kit includes all of the supplies and
instructional materials necessary to collect and ship the semen and to document
the breeding. Kits for semen shipping are sold to the 894 veterinarians
participating, under contract, in the Company's veterinarian referral network
("ICG Network Veterinarians"), as well as other veterinarians who then provide
the total service for the breeder. The total service includes the collection of
semen from the stud, shipment of the semen using the Fresh Express(R) kit to the
bitch's veterinarian, artificial insemination of the bitch by the bitch's
veterinarian and the completion by both veterinarians of the documentation
contained in the Fresh Express(R) kit necessary to register the puppies as
purebred with the American Kennel Club or other pedigree registering
organization.
The Company also offers semen freezing services, breeding supplies and
instructional materials to breeders directly and through freezing centers and
ICG Network Veterinarians. Freezing services are performed at the Company's
Malvern facility and through 43 freezing centers located in North America, seven
freezing centers located in Australia and New Zealand, and one center in the
United Kingdom. In addition, ICG has assisted the Seeing Eye, Moorestown, NJ and
the Military Working Dog Program, Lackland AFB, TX establish semen freezing
centers for their special breeding requirements. Freezing centers are
independently owned and operated by veterinarians trained by ICG. Pursuant to
contractual arrangements with the Company, these freezing centers offer semen
freezing services using the Company's proprietary technology and products. In
addition to training, the veterinarians operating freezing centers receive
technical and marketing support, and purchase the equipment and supplies
necessary to operate the freezing center from the Company.
Veterinarians operating freezing centers freeze semen as part of the
services offered in their practices. Several times each year the collected
frozen semen is shipped to the Company for long term storage at the Company's
Malvern facility. Each year thereafter, the Company bills the stud owner for
storage of the semen. At present, the Company has frozen semen stored for over
2,700 dogs. The Company's long-term semen storage facilities located in the
United States meet the requirements of the
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American Kennel Club including those relating to the maintenance of
appropriate security and records systems necessary to verify pedigree.
Ancillary Products. The Company sells various breeding-related products
such as training videos, educational literature and seminars, laboratory
supplies and record keeping systems.
Canine Genetic Disorders
Canine Hip Dysplasia Diagnosis. Canine Hip Dysplasia (CHD) is the most
common, heritable orthopedic problem occurring in dogs. It affects virtually all
breeds of dogs but it is especially a problem in large and giant breeds. Dogs
affected number in the millions in the United States alone. A degenerative joint
disease, CHD is painful and can be extremely debilitating.
In December, 1993, ICG concluded an agreement with the University of
Pennsylvania for the exclusive worldwide rights to commercialize the PennHIP(R)
technology, a new scientific method for the early diagnosis and screening of
Canine Hip Dysplasia. The technology is being marketed under the University of
Pennsylvania registered trademark PennHIP(R) for which ICG also obtained an
exclusive worldwide license. The PennHIP(R) method for evaluating dogs for CHD
was developed during eleven years of intensive research involving biomechanics,
clinical medicine, radiology, population genetics and associated statistical
analysis by Dr. Gail K. Smith at the University of Pennsylvania. On January 9,
1996 a U.S. patent was issued for the PennHIP(R) method and other key aspects of
the technology.
Based on scientific data, the Company believes that the PennHIP(R) method
surpasses other diagnostic methods in the ability to accurately predict
susceptibility to developing CHD. The method can be performed on dogs as young
as sixteen weeks of age compared with two years using the standard technique.
The ability to receive an early estimate of a dog's hip integrity is important
whether the dog is intended for breeding, working or a family pet. The
reliability of the data generated by PennHIP(R) will allow breeders to
confidently identify the tightest hip members of their breeding stock and
accurately assess the progress they are making with their breeding program as
they strive to reduce the amount of hip laxity in their dogs.
Veterinarians wishing to become members and participate in the Company's
PennHIP(R) Referral Network of trained and certified veterinarians attend a
program taught by Dr. Gail Smith. During this program, veterinarians are
instructed on the basis of the technology and proper positioning of the dog
during X-ray. After training, veterinarians are required to submit test
radiographs to the Company for interpretation. If the radiograph's quality is
acceptable, the veterinarian is then certified. The cost of certification is
included in the training seminar fee. Only certified veterinarians can submit
radiographs to the Company for interpretation with results reported back to the
veterinarian and dog owner.
ICG began offering PennHIP(R) training seminars to veterinarians in the
U.S. in June, 1994. Since that time, 763 veterinarians have been trained in U.S.
seminars. Of the total veterinarians trained, 487 have been certified by the
Company and are offering PennHIP(R) to their clients. Certified veterinarians
have the option to join the PennHIP(R) Referral Network by contractually
agreeing to receive referrals from the Company. As of June 30, 1996, 424
certified veterinarians have joined the PennHIP(R) Referral Network.
CHD is a worldwide problem. Interest in PennHIP(R) is as high in the major
international dog markets (i.e. Europe, Japan, Canada, Australia) as it is in
the United States. Since June of 1994, 38 international veterinarians from
Canada, Australia, Spain, France, Denmark, the Netherlands and Japan have
attended training seminars in the United States.
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On March 5, 1996, the Japan Kennel Club (JKC) agreed to adopt PennHIP(R)
as the method of CHD evaluation for the JKC HIP Registry. The JKC, the largest
dog registry in Japan, has approximately 150,000 members with over 350,000 dogs
registered.
As part of the JKC HIP Registry, only dogs tested by the PennHIP(R) method
will be registered in the JKC studbook. PennHIP(R) results will also be recorded
in each dog's certified pedigree and published in the JKC magazine along with
the PennHIP(R) requirements of breeding and registering puppies. Under the
agreement, ICG will provide the training and certification of Japanese
veterinarians, the for-fee measurement of PennHIP(R) radiographs and the program
database management. A total of seventy-one veterinarians, university professors
and JKC representatives attended the first two training sessions in Tokyo and
Kyoto the week of March 25, 1996.
In order to expedite the receipt of films from Japan and other
international markets, streamline the measurement of all films and maximize the
overall profitability of PennHIP(R), the Company has begun a project to automate
the PennHIP(R) process. Target completion of phase one of the project is late
1996. Longer term, it is expected that automation will enable the Company to
process the projected increase in PennHIP(R) films with existing manpower
resources.
ICG has also been informed by the American Kennel Club (AKC) that it is
developing an "Information and Health Database" for its members and that
PennHIP(R) test results will be included. While the AKC breeding requirements
will not be as stringent as those of the JKC, inclusion in this program
represents an endorsement by the primary dog registry in the U.S. that
PennHIP(R) is an effective genetic screening tool.
Canine Nutrition
Nutritional Supplements. The Company has developed and is marketing two
life cycle nutritional supplements, ICG Stress Formula(TM) and ICG Coat & Skin
Formula(TM). These products are marketed to dog owners who recognize the
increased nutritional requirements and the stress to the bitch related to
breeding, gestation and lactation and the importance of maintaining the general
health of their dogs which is reflected in the condition of a dog's coat and
skin. The Company's nutritional supplement products are manufactured to the
Company's specifications by an unaffiliated company under the supervision of the
consultant with whom the Company has contracted for the development of
nutritional supplements.
Grooming Products
In September, 1994, the Company concluded an agreement with the W. R. Van
Wyck Group, Limited of Canada for the exclusive marketing and distribution
rights to the Duurstede(R) line of premium coat and skin care products for dogs
in the United States and selected international markets. Developed in research
facilities in Europe and Canada, the Duurstede(R) line of products offers a
comprehensive, easy to use system that addresses the needs of all coat types.
Marketing and Sales
The Company markets directly to breeders in North America through
mailings, advertisements in trade magazines and by participating in major dog
shows. Currently, the Company's database contains over 85,000 breeders.
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The ICG "typical breeder client" is a dog enthusiast spending an average
of one-half of their weekends each year involved in some activity with their
dogs. A favorite activity of ICG clients is participating in AKC sanctioned dog
shows or field trials of which over 13,000 are held each year in the U.S. In
order to provide easy access to ICG's nutritional supplements, grooming
products, consumer breeding products and prepare for the market introduction of
OPTIMATE(TM), the Company entered into distribution agreements with six regional
dog show distribution companies in 1995.
Breeding supplies and instructional materials are also offered directly to
breeders through a toll free number. The toll free number is staffed by a
veterinarian and trained technicians and provides the Company with an
opportunity to build an awareness of its products and services directly with
breeders. ICG generally receives over 3,000 toll free telephone calls per month
requesting technical, product and service information and to place orders. To
improve timely response and follow-up, the Company has organized a
sales/telemarketing group which routinely contacts potential customers to sell
the Company's products or make veterinary referrals. Network Veterinarians are
also contacted by the sales/telemarketing group to market the Company's products
and perform selected market research.
The major part of the Company's marketing strategy is designed to increase
the involvement of veterinarians in the dog breeding process. The Company
instituted training programs in fiscal 1990 to develop a network of qualified
veterinarians to deliver the Company's Canine Reproduction products and services
and in June, 1994 to develop a PennHIP(R) Referral Network. As of June 30, 1996
there were 896 veterinarians in the Company's Reproduction Network and 424
veterinarians in the Company's PennHIP(R) Referral Network.
Through its direct breeder marketing activities, the Company is able to
provide client referrals to Network Veterinarians thereby enabling them to
increase revenues by attracting new breeder clients and by offering new services
to existing clients. Network Veterinarians receive a product purchase discount
and an opportunity to resell selected Company products. Additionally, the
Company provides extensive marketing support and training to Network
Veterinarians. The Company maintains a veterinary services staff to answer
technical inquiries and a customer support staff to market the Company's
products and perform general customer service.
The Company believes that Western Europe, Japan, Canada, Australia and New
Zealand offer a significant opportunity for its products and services since the
problems confronted by breeders of purebred dogs are similar to those found in
the United States. The Company has established freezing centers in Canada,
Australia, New Zealand and the United Kingdom and has entered into distribution
agreements for its diagnostic products with companies in Australia, Canada,
Italy and Finland. Under the agreements, the distributors are able to purchase
diagnostic and other products at specified discounts from retail prices subject
to minimum order requirements. All sales are denominated in U.S. dollars. The
distributors have undertaken to promote sales of the Company's products through
various advertising and promotional programs.
Manufacturing and Operations
The Company currently manufactures its Status-Pro(TM), Status-LH(TM) and
OPTIMATE(TM) products for ovulation timing at its Malvern facility. By
manufacturing these products, the Company believes it maintains greater control
of quality and is better able to limit outside access to its proprietary
technology. The Company also assembles the kits for Fresh Express(R) and
packages ancillary products at its Malvern facility.
The Company's ICAGEN(TM) Target test for ovulation timing is manufactured
by an unaffiliated company which co-developed that product. The nutritional
supplement products are manufactured to the Company's specifications under the
direct supervision of a consultant to the Company by an unaffiliated
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manufacturer. The Company's proprietary buffers used in its Fresh Express(R) kit
and frozen semen operations are manufactured by an independent contractor.
ICG relies on single sources of supply for certain of the key components
of products it manufactures. However, it believes that alternative sources for
these components are available and generally maintains an adequate inventory to
avoid temporary product flow interruptions. In addition, although ICG does not
have supply contracts with suppliers of its diagnostic and nutritional
supplement products, ICG believes that other contract manufacturers are
available in the event a manufacturer is unable or unwilling to supply products
to the Company.
The Company may be subject to product liability claims based upon product
failure or improper use of products by customers. The Company maintains product
liability insurance of $1,000,000 per occurrence, subject to an annual aggregate
limit of $1,000,000. The Company, based upon its experience and industry
practice, believes that its insurance coverage is adequate for its present
operations.
Competition
The Company believes that its products and services are targeted at
emerging markets in which there is only fragmented competition. The primary
competition for the Company's artificial insemination products and services is,
and is projected to remain, natural breeding. Regional competition exists in the
area of artificial insemination from a number of small businesses including
veterinarian sole practitioners who offer semen freezing services through their
practices. The Company is not aware of any national or international companies
marketing artificial insemination products or services in competition with the
Company. Several companies market nutritional supplements which compete with
those of the Company. Also, various companies and research and academic
institutions are working in the areas of canine genetic research and fertility
management. To date, this research has not resulted in products or services
which compete with those offered or under development by the Company. Although,
as described above, the Company's competition to date has been limited,
primarily because the Company is creating a new market, the Company believes
that competition will increase as the market for the Company's products and
services expands.
The Orthopedic Foundation for Animals (OFA), a non-profit foundation, does
present established competition for the Company's PennHIP(R) product. The OFA
has been providing a diagnostic service for Canine Hip Dysplasia in the U.S. for
over twenty years. However, the Company believes the PennHIP(R) diagnostic
service, which is a quantitative test, is superior to the OFA's qualitative
diagnostic testing service due to published scientific studies and data. ICG
believes it can successfully compete with the OFA for the U.S. Canine Hip
Dysplasia testing market.
Patents, Trademarks and Licenses
The Company has been issued two patents from the U.S. Patent and Trademark
Office relating to certain aspects of its pregnancy and ovulation timing tests,
both of which are currently under development by the Company. The Company has
chosen not to obtain patent protection in foreign countries and has foregone the
option to do so. The Company has elected to maintain its formulas for semen
freezing and chilling medias (buffers) and nutritional supplements as trade
secrets, and has not sought patent protection for those technologies.
The Company has registered its Fresh Express(R) trademark with the United
States Patent and Trademark Office. The Company currently uses ICG(TM),
ICAGEN(TM), Status-Pro(TM), Status-LH(TM), OPTIMATE(TM), ICG Stress FormulaTM,
and ICG Coat & Skin Formula(TM) as trademarks in connection with the Company's
products and intends to file applications to register these marks with the
United States Patent and Trademark Office ("USPTO"). ICG has obtained the rights
to the registered trademark PennHIP(R) via its license from the University of
Pennsylvania and the use of the trademark
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Duurstede(R) through its distribution agreement with the W. R. Van Wyck Group,
Limited. The Company intends to apply to register additional federal trademarks
and service marks with the USPTO when and as management of the Company deems
necessary or appropriate.
ICG holds the exclusive licenses to several proprietary products,
including the license for proprietary technology used in the pregnancy testing
service provided by the Company. The license agreement provides the Company with
the right to use the pregnancy test in the United States for a period of five
years beginning July 13, 1990 and provides for an automatic five year renewal of
the license.
In December, 1993, the Company entered into a license agreement with the
University of Pennsylvania for the exclusive worldwide rights to commercialize a
new technology for the diagnosis of Canine Hip Dysplasia and an exclusive
worldwide license to use the University of Pennsylvania registered trademark
PennHIP(R). The license agreement is for a term of seventeen years based on the
issuance of a U.S. patent for the PennHIP(R) method on January 9, 1996. In
addition, as part of this transaction, the Company entered into an agreement
with Ortho/Analytic, Inc. for the purchase, on an exclusive basis, of devices
used to position the dog during x-ray and which are provided to the veterinarian
as part of the training fee. The agreement is for a term of seventeen years.
In November, 1995, ICG entered into a license agreement with the Cornell
Research Foundation, the University of Medicine and Dentistry of New Jersey-New
Jersey Medical School and New York University for the exclusive rights to the
U.S. patent entitled "Relaxin Testing for Early Detection of Pregnancy in Dogs".
The license agreement is for a term of 13 years.
Government Regulation
The Company's semen freezing products, diagnostic ovulation timing
products and pregnancy testing services for dogs fall within the definition of
devices as that term is defined in the Federal Food, Drugs, and Cosmetic Act
("FFDCA") and, therefore, may be subject to regulation by the FDA. While no
formal pre-approval process is required for ICG's products at this time, such
products must adhere to certain labeling, use and effectiveness requirements.
The Company believes that it is in material compliance with these requirements.
The FFDCA also regulates pet foods, which include the Company's nutritional
supplements, by requiring certain information to be included on pet food labels.
States also often impose labeling requirements on pet food manufacturers which
exceed the federal requirements and require such information as minimum protein
and fat content and maximum fiber content. The Company's nutritional
supplements, which contain nutrients for the promotion of good health in dogs
during pregnancy or for the maintenance of a healthy coat and skin in dogs, are
subject to such regulations. The Company believes that it is in compliance with
federal, state and local regulations applicable to the Company's products and
services.
Employees
As of June 30, 1996, the Company had a total of 17 full-time employees,
each of whom has entered into a confidentiality and non-competition agreement
with the Company. Of the 17 employees, four provide veterinary services, four
are devoted to administrative and financial activities, five are involved in
sales, marketing and order processing, three are engaged in research,
development and manufacturing activities and 1 employee handles shipping,
receiving and warehousing. The Company considers its employee relations to be
satisfactory.
Item 2. Description of Property
Since April, 1989, the Company's executive, marketing, research and
development, manufacturing and distribution operations have been located in an
office/industrial park in Malvern, Pennsylvania. In May, 1993, the Company
entered into a five year lease agreement which expanded its facility from 4,725
square feet to 9,240 square feet. Approximately 25% of ICG's current facilities
<PAGE>
are devoted to each of the Company's 4 principal operations: 1. Research,
Development and Manufacturing, 2. Veterinary Services and Clinical Operations,
3. Sales, Marketing, Finance and Administration, and 4. Shipping, Receiving and
Warehousing.
Item 3. Legal Proceedings
The Company is not a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company's initial public offering in March 1993 consisted of 715,000
Units (each Unit consisting of one share of Common Stock and one Redeemable
Warrant to purchase a share of Common Stock) traded on the NASDAQ Small Cap
Market. In accordance with the terms of the Company's initial public offering,
the 715,000 Units separated into 715,000 shares of Common Stock and 715,000
Redeemable Warrants to purchase Common Stock on March 23, 1994. On March 24,
1994, the shares of Common Stock and the Redeemable Warrants began trading
separately on the NASDAQ Small Cap Market and trading of the Units ceased.
At the date of issuance, each Redeemable Warrant entitled the holder to
purchase one share of Common Stock at an exercise price of $10.00 per warrant.
The terms of the Redeemable Warrant agreement provide the holders of the
Redeemable Warrants with anti-dilution protection if the Company issues common
stock or common stock equivalents, including stock options, at a price below the
current exercise price. During the year ended June 30, 1994, the Company issued
stock options under its 1992 Stock Option Plan at $7.00 per share and $2.00 per
share (see Note 10 to the Financial Statements). As a result, each of the
715,000 Redeemable Warrants now entitles the holder to purchase 1.035 shares of
Common Stock. The exercise price of the Redeemable Warrants was reduced to $5.00
per Warrant as the Company failed to achieve operating revenues of $7,000,000
for the fiscal year ending June 30, 1995.
On August 16, 1995, the Company's Board of Directors approved additional
modifications to the Redeemable Warrants whereby the exercise price of each
Warrant was reduced to $1.25 and the exercise period of each Warrant was
extended two years to March 24, 2000.
The Company has the right to redeem the Redeemable Warrants at a price of
$.05 per Warrant at any time provided that (i) the high closing bid price for
the Company's Common Stock as reported by the National Association of Securities
Dealers Automated Quotation system, or (ii) the closing sales price on the
primary exchange on which the Common Stock is traded, if the Common Stock is
traded on a national securities exchange, shall have for the 30 consecutive days
ending on the fifth day prior to the date of notice of redemption equaled or
exceeded 150% of the then effective exercise price of the Redeemable Warrants.
The Company is required to give warrant holders 30 days' written notice of its
intention to redeem the Redeemable Warrants, and prior to the expiration of this
30-day period, the warrant holders may exercise the Redeemable Warrants.
The Company's Common Stock and Redeemable Warrants were moved from the
NASDAQ Small Cap Market to the OTC Bulletin Board on January 13, 1995. The
inability to maintain a minimum $1.00 per share bid price was the reason cited
by NASDAQ for this action. The Company actively pursued an appeal of this
decision. However, the decision to delist the Common Stock was upheld in May
1995.
<PAGE>
The following table sets forth for the quarters indicated, the high and
low closing bid prices as reported by the National Quotation System. Prices
represent quotations between dealers without adjustments for retail markups,
markdowns or commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
Bid Price
---------
Common Redeemable
Stock Warrant
----- -------
Fiscal year ended June 30, 1996 High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 1/2 3/16 3/64 1/64
Second Quarter 9/16 5/16 1/64 1/64
Third Quarter 5/16 5/16 1/64 1/64
Fourth Quarter 1 13/16 5/16 5/64 1/64
Fiscal year ended June 30, 1995 High Low High Low
---- --- ---- ---
First Quarter 7/8 1/2 1/8 1/8
Second Quarter 23/32 5/8 1/8 1/8
Third Quarter 5/8 1/4 1/8 1/8
Fourth Quarter 5/16 1/4 1/32 1/32
</TABLE>
As of September 4, 1996, there were approximately 425 holders of the
Company's Common Stock and 375 holders of the Redeemable Warrants.
The Company has not paid dividends in cash or stock on its Common Stock
since inception. The Company does not anticipate paying dividends in the
foreseeable future and any cash otherwise available for such dividends will be
reinvested in the Company's business. The payment of cash dividends will depend
on the earnings of the Company, if any, the Company's capital requirements and
other factors considered relevant by the Board of Directors of the Company.
Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
The selected financial data set forth below should be read in conjunction
with the audited financial statements and related notes appearing elsewhere
herein and the discussion of Results of Operations and Liquidity and Capital
Resources below.
Selected Financial Data
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------
Statement of Operations Data: 1992 1993 1994 1995 1996
----------------------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net revenues $757,979 $850,425 $1,114,676 $1,501,864 $1,651,220
Costs of revenues 396,467 $456,497 645,516 814,038 889,240
Gross profit 361,512 393,928 469,160 687,826 761,980
Costs and expenses:
Research and development expenditures 466,763 351,247 380,893 548,852 554,807
Selling, general and administrative 1,228,401 1,157,426 1,557,658 1,587,902 1,478,634
Advertising and promotion expense 174,808 164,378 348,318 282,254 278,764
------- ------- ------- ------- -------
1,869,972 1,673,051 2,286,869 2,419,008 2,312,205
--------- --------- --------- --------- ---------
Loss from operations (1,508,460) (1,279,123) (1,817,709) (1,731,182) (1,550,225)
Interest expense (47,996) (41,101) (27,562) (52,023) (73,808)
Other (expense) income, net (4,444) 21,392 78,788 43,044 13,478
------------ ------------ ----------- ----------- ------------
Net Loss ($1,560,900) ($1,298,832) (1,766,483) (1,740,161) ($1,610,555)
============ ============ =========== =========== ============
Pro forma net loss per share of
common stock ($1.40) ($0.97)
Pro forma shares of common stock
(weighted average) 1,087,984 1,312,301
Net Loss per share of common stock ($0.96) ($0.96) ($0.60)
Shares of common stock outstanding (weighted average) 1,844,974 1,811,040 2,689,343
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
June 30,
-----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $176,881 $3,394,771 1,575,673 247,559 26,104
Working capital (deficiency) (408,056) 3,294,504 1,419,373 ( 361,690) (836,335)
Total assets 383,849 3,592,327 2,074,580 805,461 673,491
Long-term debt 456,903 435,284 535,437 474,396 427,248
Accumulated deficit (6,172,524) (7,471,356) (9,237,839) (10,978,000) (12,588,555)
Stockholders' equity (deficit) ($796,618) $2,861,792 1,095,309 (644,852) (1,045,265)
</TABLE>
General
Since its formation in 1986, the Company has devoted substantially all of
its resources to research and development programs and to the marketing of
products and services developed by the Company or licensed from third parties.
The Company has been unprofitable since its inception and expects to incur
additional losses as it expands the marketing of existing products and services
and continues to invest in research and development programs.
The Company's net revenues consist primarily of sales of its breeding,
diagnostic, nutritional supplement and coat and skin care products and revenues
from its PennHIP(R), ovulation timing, pregnancy and paternity testing services.
Gross profit consists of net revenues reduced by the related cost of revenues
which represents the Company's cost of purchasing, providing or manufacturing
diagnostic and breeding products and services, nutritional supplement and coat
and skin care products, and the cost of providing hip dysplasia, ovulation
timing, pregnancy and paternity testing services to customers.
<PAGE>
Results of Operations
Fiscal Years Ending June 30, 1996 and 1995
Net Revenues
Net revenues for the fiscal year ended June 30, 1996 were $1,651,000,
an increase of $149,000 or 10% compared to the $1,502,000 reported for the
fiscal year ended June 30, 1995. The overall year-to-year increase resulted
primarily from the growth in sales of the Company's diagnostic products,
breeding services and coat and skin care products.
Diagnostic revenues increased 16% to $495,000 in fiscal 1996 from
$426,000 in fiscal 1995. During fiscal 1996, sales of the Company's Status Pro
and Target ovulation timing test increased 5% to $384,000 in fiscal 1996 from
$366,000 in fiscal 1995. In October, 1995, the Company introduced to the market
Optimate, the Company's at-home ovulation confirmation test sold to dog
breeders. This product contributed $45,000 to overall diagnostic revenues in
fiscal 1996. Status-LH, the Company's diagnostic test to measure canine
lutenizing hormone (LH), which was introduced in February, 1995, contributed
$49,000 to fiscal 1996 revenues compared to $21,000 in fiscal 1995. Revenues
from the Company's LH/Progesterone testing service declined from $17,000 in
fiscal 1995 to $4,000 in fiscal 1996 as veterinarians are now using the
diagnostic kit in lieu of the testing service. The Company has discontinued the
testing service. Revenues from the Company's pregnancy testing and paternity
testing services declined from $19,000 and $4,000, respectively, in fiscal 1995
to $10,000 and $2,000 in fiscal 1996.
Revenues from the Company's hip dysplasia service remained at $278,000
in both fiscal 1996 and 1995. Revenues from the training of new veterinarians in
the PennHIP technology declined from $231,000 in fiscal 1995 to $197,000 in
fiscal 1996. The decline was due to lower than planned attendance at the U. S.
training programs compared to fiscal 1995. In March, 1996, the Japan Kennel Club
(JKC) agreed to include PennHIP in the JKC HIP Registry and the Company
conducted the first international training seminars for veterinarians in Tokyo
and Kyoto. These seminars contributed $45,000 to total training revenues. To
date, the Company has trained 810 veterinarians in the PennHIP technology of
which 487 have been certified by the Company and are making PennHIP available to
their clients. During fiscal 1996, the Company generated $81,000 in revenues
from the evaluation of PennHIP radiographs compared to $47,000 in fiscal 1995.
Total breeding services, which consist of frozen and chilled semen
revenues, were $662,000 in fiscal 1996, an increase of 10% compared to the
$601,000 recorded in fiscal 1995. Overall frozen semen revenues increased 15% to
$521,000 in fiscal 1996 from $454,000 in fiscal 1995. Contributing to the
increase in overall frozen semen revenues was a 35% increase in semen storage
revenues from $103,000 in fiscal 1995 to $140,000 in fiscal 1996. This increase
was due to the general increase in semen collection and freezing activity
combined with a price increase implemented in February, 1996. Revenues from
semen collection and freezing activities grew, but at a slower rate, to $324,000
in fiscal 1996 from $319,000 in fiscal 1995. During fiscal 1996, the Company
generated $57,000 from the training and equipping new veterinary practices in
the semen collection and freezing technology. The Company's network of
independently owned and operated veterinary practices trained in semen
collection stands at 51 centers worldwide compared to 44 centers at June 30,
1995.
Overall chilled semen revenues declined 4% to $141,000 in fiscal 1996
from $147,000 in fiscal 1995. Sales of kits to perform chilled semen breedings
declined marginally to $98,000 in fiscal 1996 from $101,000 in fiscal 1995.
Contributing to the decline in overall chilled semen revenues was a 39%
reduction in revenues from the sale of chilled semen training materials as the
growth of the membership in the company's reproductive network has slowed.
Partially offsetting these declines was a 12% increase in veterinary
reproductive fees, generated at the Company's Malvern, PA facility, from $28,000
in fiscal 1995 to $32,000 in fiscal 1996.
<PAGE>
Revenues from grooming products, for which the Company has exclusive
marketing and distribution rights from the W. R. Van Wyck Group, Limited in
Canada, increased from $26,000 in fiscal 1995 to $43,000 in fiscal 1996. The
Company sells these products directly to consumers and through a network of 6
distributors who make these products available at dog shows in 27 states.
During fiscal 1996, nutritional supplement revenues declined 13% to
$79,000 from $91,000 in fiscal 1995 as the Company did not actively advertise or
promote these products during fiscal 1996.
During fiscal 1996, revenues from ancillary products and services
increased 33% to $77,000 in fiscal 1996 from $58,000 in fiscal 1995. Also,
during fiscal 1996, the Company completed all aspects of the Military Working
Dog contract and generated revenue of $32,000 compared to $35,000 in fiscal
1995.
Gross Profit
The Company's gross profit for the twelve months ended June 30, 1996
was $762,000, an increase of 11% compared to the $688,000 recorded for the
twelve months ended June 30, 1995. The Company's gross profit margin increased
to 46.1% of net revenues in fiscal 1996 from 45.8% in fiscal 1995. The
improvement in the gross profit margin was due to favorable product mix. In
fiscal 1996, the Company's diagnostic products, PennHIP radiographs and semen
storage fees, which have higher gross margins than the Company's other products
and services, were 43% of the Company's total revenues compared to 38% of total
revenues in fiscal 1995.
Operating Expenses
Research and development expenses increased 1% from $549,000 in fiscal
1995 to $555,000 in fiscal 1996. The cost incurred for the development of an
in-clinic pregnancy test were partially offset by expense control measures
implemented by the Company in December, 1995, which included a reduction in the
number of employees and development cost incurred in fiscal 1995 for the
Status-LH test kit.
Selling, general and administrative expenses declined 7% to $1,479,000
in fiscal 1996 from $1,588,000 in fiscal 1995. Increased consulting fees and
travel expenses related to the development of the Japanese market for PennHIP
were more than offset by expense control measures implemented by the Company in
December, 1995, which included a reduction in the number of employees.
Advertising and promotional expenses declined 1% to $279,000 in fiscal
1996 from $282,000 in fiscal 1995. Significant expenses associated with the
launch of Optimate were more than offset by expense control measures implemented
by the Company in December, 1995.
Loss from Operations
The Company's loss from operations declined 10% to $1,550,000 in fiscal
1996 from $1,731,000 in fiscal 1995. The decrease in the loss from operations
resulted from increased revenues and resulting gross profit and a decline in
operating expenses.
Interest Expense and Other Income, Net
Interest expense increased $22,000 to $74,000 in fiscal 1996 from
$52,000 in fiscal 1995. The increase in interest expense was due entirely to the
interest incurred on the S. R. One, Limited bridge loan of $500,000 which was
borrowed in December, 1995 to continue to fund operations.
Other income, net declined to $13,000 in fiscal 1996 from $43,000 in
fiscal 1995. The decline was due to lower interest income resulting from
declining cash balances and gain on the sale of an asset in fiscal 1995.
<PAGE>
Net Loss Per Share of Common Stock
The net loss per share of Common Stock in fiscal 1996 was $0.60
compared to a net loss per share of Common Stock of $0.96 in fiscal 1995. The
decline in the loss per share was due to a reduction in the net loss, accounting
for $0.07 of the reduction, and the increase in the number of shares of common
stock outstanding, which accounted for $0.29 of the reduction.
Fiscal Years Ending June 30, 1994 and 1995
Net Revenues
Net revenues for the fiscal year ended June 30, 1995 were $1,502,000, an
increase of $387,000 or 35% compared to the fiscal year ended June 30, 1994. The
overall year-to-year increase resulted primarily from growth in sales of the
Company's PennHIP(R) hip dysplasia diagnostic service, breeding services,
diagnostic products and services and coat and skin care products.
Revenues from the Company's hip dysplasia service increased from $47,000
in fiscal 1994 to $278,000 in fiscal 1995. PennHIP(R) was the fastest growing
component of revenue and accounted for 60% of the Company's overall year-to-year
sales increase. PennHIP(R) revenues are derived from fees from training
veterinarians in the PennHIP(R) technology and from radiographs submitted to the
Company for evaluation. During the fiscal year ended June 30, 1995, the Company
trained 321 veterinarians in PennHIP(R) which generated $231,000 in revenues
compared to $40,000 in fiscal 1994. Also during the fiscal year ended June 30,
1995 the Company certified 252 trained veterinarians enabling them to submit
radiographs to the Company for evaluation. Radiograph revenues in fiscal 1995
amounted to $47,000 compared to $7,000 in fiscal 1994.
Diagnostic revenues increased 21% to $426,000 in fiscal 1995 from $352,000
in fiscal 1994. During fiscal 1995, sales of the Company's Status-Pro and Target
ovulation timing tests increased 14% to $366,000 from $321,000 in fiscal 1994
due to increased market demand. In February 1995, the Company introduced
Status-LH(TM), its new in-clinic diagnostic test to measure canine luteinizing
hormone (LH) for ovulation timing. This new product generated $21,000 in
revenues during fiscal 1995. Revenues from the Company's LH/Progesterone
in-laboratory testing service, which was introduced in April 1994, increased to
$17,000 in fiscal 1995 from $4,000 in fiscal 1994. Revenues from this testing
service began, as expected, to slow in the fourth quarter of fiscal 1995
following the market launch of the Status-LH(TM) test kit. Revenues from the
Company's pregnancy testing service remained flat at $19,000 in both fiscal 1995
and 1994 and revenues from paternity testing declined from $7,000 in fiscal 1994
to $4,000 in fiscal 1995.
Total breeding services, which consist of frozen and chilled semen
revenues, were $601,000 in fiscal 1995, an increase of $60,000 or 11% compared
to the $541,000 recorded in fiscal 1994. Overall frozen semen revenues increased
17% to $454,000 in fiscal 1995 from $387,000 in fiscal 1994. Contributing to the
increase in overall frozen semen revenues was an 82% increase in semen storage
revenues to $103,000 in the 1995 period from $57,000 in the 1994 period. This
increase was due to the general increase in semen collection and freezing
activity combined with a price increase implemented in August 1994. Revenues
from semen collection and freezing activities grew, but at a slower rate, to
$319,000 in fiscal 1995 from $307,000 in fiscal 1994. During fiscal 1995, the
Company trained and equipped five additional veterinary practices in the semen
collection and freezing technology which generated $32,000 in revenues compared
to $23,000 in fiscal 1994. The Company's network of independently owned
veterinary practices trained in semen collections and freezing technology stands
at 44 centers worldwide compared to 40 at June 30, 1994. Overall chilled semen
revenues declined 4% to $147,000 in fiscal 1995 from $154,000 in fiscal 1994.
Revenues from sales of kits used to perform chilled semen breedings increased
only 2% from $100,000 in fiscal 1994 to $101,000 in fiscal 1995. Management
believes the slow rate of growth was due to the severe weather conditions during
the 1994 period, which had the effect of increasing revenues at a faster than
normal rate in fiscal 1994. Completely offsetting the growth in chilled semen
<PAGE>
kits was a 29% decrease in revenues from the sale of chilled semen training
materials. Management expected this decline as growth of the membership in the
Company's reproductive network has slowed.
In September 1994, the Company concluded an agreement with the W.R. Van
Wyck Group Limited in Canada for the exclusive marketing and distribution
rights, in the United States and selected international markets, for the
Duurstede line of premium grooming products for dogs. The Company sells these
products directly to consumers and through a network of six distributors who
make the Duurstede products available at dog shows in 27 states. During fiscal
1995, Duurstede products contributed $26,000 to the Company's total revenue.
During fiscal 1995, nutritional supplements declined 13% to $91,000 from
$105,000 in fiscal 1994. The Company believes the decline in nutritional
supplement revenues is due to the deferred production of the Company's
newsletter to breeders and owners of purebred dogs. The newsletter, which has
been the primary means of advertising support for the nutritional products, has
been deferred while the Company evaluates alternate means of advertising and/or
distribution.
During fiscal 1995, revenues from ancillary products amounted to $58,000,
an increase of 10% compared to the $53,000 reported in fiscal 1994. Also during
fiscal 1995, the Company completed Phase 2 of the Military Working Dog Contract
which generated $35,000 compared with $29,000 in fiscal 1994 associated with the
completion of Phase 1.
Gross Profit
The Company's gross profit for the twelve months ended June 30, 1995 was
$688,000, an increase of 47% compared to the $469,000 recorded for the twelve
months ended June 30, 1994. The Company's gross profit margin increased to 45.8%
of net revenues in fiscal 1995 from 42.1% of net revenues in fiscal 1994. The
growth in gross profit and the improvement in the gross profit margin was due to
the overall 35% increase in revenues and favorable product mix. In fiscal 1995,
the Company's PennHIP(R) and diagnostic revenues, which have higher gross profit
margins than the Company's other products, were 47% of the Company's total
revenues compared to 35% of total fiscal 1994 revenues.
Operating Expenses
Research and development expenditures increased 44% from $381,000 in
fiscal 1994 to $549,000 in fiscal 1995. The increase resulted from the full year
impact of a scientist hired in fiscal 1994, development expenses associated with
Status-LH(TM) which was introduced to the market in February 1995 and expenses
associated with new diagnostic test kits scheduled for market introduction in
fiscal 1996 and beyond.
Selling, general and administrative expenses grew 2% to $1,588,000 in
fiscal 1995 from $1,558,000 in fiscal 1994. The full year salary impact in
fiscal 1995 of hires made in fiscal 1994 and the expenses associated with the
market introduction and ongoing support of the PennHIP(R) technology were
partially offset by relocation expenses incurred during fiscal 1994, in
connection with the employment of a department head, which were not incurred in
the 1995 fiscal year.
Advertising and promotion expenses, which consist of the costs incurred in
developing and placing advertisements, direct mail and attendance at dog shows
and veterinary meetings and conferences, decreased 19% to $282,000 in fiscal
1995 from $348,000 in fiscal 1994. The primary reason for the year-to-year
decline was the Company's decision to defer the quarterly newsletter to breeders
and owners of purebred dogs. In fiscal 1995, the Company prepared and mailed two
newsletters compared to four newsletters in fiscal 1994.
Losses from Operations
<PAGE>
The Company's loss from operations declined 5% to $1,731,000 in fiscal
1995 from $1,818,000 in fiscal 1994. The decrease in the loss from operations
resulted from revenues and the resulting gross profit increasing at a faster
rate than operating expenses.
Interest Expense
The Company's interest expense increased from $28,000 in fiscal 1994 to
$52,000 in fiscal 1995. The increase in interest expense was due primarily to
the full year impact of equipment purchased in fiscal 1994 under non-cancelable
lease agreements which have been classified and accounted for as capital leases.
Other income was $43,000 in fiscal 1995 compared to $79,000 in fiscal
1994. The decrease in other income was due to the reduced amount of cash
available to the Company to invest which was partially offset by a $18,000 gain
on the sale of a fully depreciated asset.
Net Loss
As a result of the foregoing, the Company incurred a net loss of
$1,740,000 in fiscal 1995 compared to a net loss of $1,766,000 in fiscal 1994.
The Company's net loss per share of Common Stock was $.96 in each of fiscal 1995
and 1994. Despite a 2% reduction in the net loss from $1,766,000 in fiscal 1994
to $1,740,000 in fiscal 1995, the net loss per share remained constant due to
the reduction in the number of shares of Common Stock outstanding. The net loss
per share of Common Stock is computed using the weighted average number of
shares of Common Stock outstanding during the period.
Liquidity and Capital Resources
Cash flow from operations has been negative each year since inception as
research and development, selling, general and administrative and advertising
and promotional expenses have exceeded revenues from the Company's products and
services. For the year ended June 30, 1996, the cash flow deficiency from
operations was $1,380,000 compared to a cash flow deficiency of $1,650,000 for
the year ended June 30, 1995. The impact of a $130,000 reduction in the net loss
was increased by significantly higher accounts payable and accrued expense
levels.
The Company purchased approximately $3,000 in office and product
manufacturing equipment in fiscal 1996. During the 1995 and 1994 fiscal years,
the Company's purchases of equipment were $34,000 and $28,000 respectively. The
Company expects to continue to invest in equipment based on its need for
enhanced capabilities to support research, product development, manufacturing,
warehousing and product distribution and to accommodate increased sales.
On August 17, 1995, S. R. One, Limited invested an additional $850,000 and
converted $400,000 of demand notes plus accrued interest of $10,142 into
1,008,155 shares of Common Stock at a price of $1.25 per share. On December 22,
1995, S. R. One, Limited advanced to the Company $500,000 under the terms of a
demand note bearing interest at the prime rate plus two points.
On October 19, 1995, the Company signed an agreement with the Cornell
Research Foundation, the University of Medicine and Dentistry of New Jersey and
New York University for the exclusive rights to the U.S. patent entitled
<PAGE>
"Relaxin Testing for Early Detection of Pregnancy in Dogs." Payments associated
with this agreement and legal fees incurred with this transaction amounted to
$41,000. in addition, the Company has entered into a Sponsored Research
Agreement with each university for the co-development of a canine pregnancy test
kit based on the underlying technology covered by the patent.
At June 30, 1996, the Company had a net working capital deficiency of
$836,000 and for the 1996 fiscal year operated at a deficit of $1,380,000. The
Company has suffered losses from operations since inception which causes
substantial doubt about its ability to continue as a going concern. The Company
has entered into an agreement with Synbiotics for the sale of substantially all
of its assets and certain liabilities to Synbiotics. See "Sale of Company's
Assets" under Part I, Item 1. In the event that the sale is not consummated, the
Company would require funds in addition to those currently available to continue
its sales, marketing and product development activities for the next twelve
months. The Company continues to explore financing options to provide funds
for operations pending the consummation of the sale; however, no assurances can
be given that such funds will be available on terms which are satisfactory to
the Company or its shareholders.
Item 7. Financial Statements.
The index to the financial statements and the financial statements begin
on page F-1.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
(a) The executive officers, directors and significant employees of the
Company are:
<TABLE>
<CAPTION>
<S> <C> <C>
Paul A. Rosinack..................... 49 President, Chief Executive Officer and Director
Peter A. Sears (1)................... 57 Chairman of the Board
R. Grady Rankin...................... 52 Vice Chairman of the Board
John R. Bauer........................ 48 Chief Financial Officer, Treasurer and Secretary
Melissa F. Goodman, DVM.............. 38 Vice President of Veterinary Services
Stephen T. Peterson, DVM............. 46 Director of Sales and Marketing
Michael C. Brown..................... 44 Director of Diagnostic Development
Michael A. Cuneo (1)(2).............. 48 Director
Donald Lein, DVM, Ph.D............... 63 Director
Stephen Hartogensis (2).............. 65 Director
</TABLE>
(1) Member of the Compensation and Stock Option Committee.
(2) Member of the Audit Committee.
<PAGE>
Paul A. Rosinack joined the Company in December 1991. He was appointed a
Director in August 1992 and President and Chief Executive Officer in December
1992. From December 1991 to December 1992, he served as the Company's Chief
Operating Officer and directed all marketing and veterinary services activities.
From June 1990 to December 1991 Mr. Rosinack was an independent consultant to
biotechnology companies. Mr. Rosinack has over twenty years of diversified
management experience in marketing, finance, product development and
manufacturing with biotechnology and diagnostic product companies. Most
recently, he was Chief Executive Officer and Director from March 1989 to June
1990 of Leeco Diagnostics, Inc., a company which researches, develops,
manufactures and markets in-vitro immunodiagnostic test kits and reagents. Prior
to Leeco, from November 1983 to March 1989 he served as President and Chief
Executive Officer and as a Director of Cytotech, Inc., a biotechnology company
engaged in the development, manufacturing and marketing of autoimmune disease
in-vitro diagnostic kits and reagents. While at Cytotech, Mr. Rosinack served as
a Director of the San Diego Venture Group. From May 1980 to February 1983, Mr.
Rosinack served as the Vice President, Sales and Marketing for Hybritech, Inc.,
a company which develops and markets in-vitro diagnostic products. Mr. Rosinack
received a BA from Otterbein College.
Peter A. Sears has been the Chairman of the Board of the Company since
August 1986. Mr. Sears is Vice President, Business Investments with SmithKline
Beecham Corporation. Mr. Sears is also President of S.R. One, Limited,
SmithKline Beecham's $100 million direct investment and venture capital fund.
Mr. Sears joined SmithKline & French Laboratories in 1963 as an attorney. He was
named assistant general counsel and assistant secretary in 1971, General Manager
- - Japan in 1973 and Vice President - Asia Pacific, Menley & James Laboratories
in 1976. He became the director of Corporate Development for SmithKline
Corporation in 1977 and Vice President, Corporate Development in 1980. Mr. Sears
was appointed to his present position in June 1985. Mr. Sears received a BA from
Colgate University and a JD from Harvard Law School. Mr. Sears is a director of
a number of early-stage companies and is a member of the advisory boards of a
number of venture capital funds.
R. Grady Rankin founded the Company in 1986 and has been a Director of the
Company since the date of its formation. He served as the Company's President
until December 1992 when he was appointed Vice Chairman of the Board of
Directors. In September 1993, Mr. Rankin became President and Chairman of the
Board of State Capital Resource Center, Inc., a company which tracks state
legislative developments and provides periodic reports for corporate clients.
Prior to founding the Company, Mr. Rankin was employed by the Agricultural
Chemicals Group of the FMC Corporation from December 1978 to June 1985. During
his employment at FMC, Mr. Rankin held various United States and international
marketing management positions. From July 1974 to December 1978, Mr. Rankin was
employed by W.R. Grace & Co. From July 1974 to April 1976, he served as Director
of Finance and Administration for the American Breeders Service Division, a
leader in the artificial insemination of dairy and beef cattle in the United
States. From May 1976 to December 1978, he served as Manager, Reporting and
Financial Analysis of W.R. Grace & Co. Mr. Rankin received a BS from Western
Carolina University and a MBA from the Harvard Business School.
John R. Bauer joined the Company in August 1990 as Director of Finance and
Administration. In December 1992 he was appointed Chief Financial Officer,
Treasurer and Secretary. Prior to joining the Company, Mr. Bauer was employed by
Zynaxis, Inc., a biotechnology company, as a consultant and acting Chief
Financial Officer from February to May 1990. Mr. Bauer was employed by
SmithKline Beecham Corporation from May 1973 to December 1989. During his
employment at SmithKline, Mr. Bauer held various finance and accounting
positions, the most recent of which was Director of Financial Planning and
Analysis. Mr. Bauer received a BA from LaSalle University, a Certificate in
Management from the Wharton School of the University of Pennsylvania and a MBA
in finance from the Philadelphia College of Textile and Science.
Melissa F. Goodman, DVM joined the Company in December 1987 as Manager of
Laboratory Operations. From December 1990 to December 1991, she served as the
Company's Director of Veterinary Services. In December 1991 she was appointed
<PAGE>
Vice President of Veterinary Services and is currently responsible for technical
services, veterinarian training and all semen freezing activities. Prior to
joining the Company, Dr. Goodman had five years of experience as a general
veterinary practitioner. She was the recipient of the Outstanding Women in
Medicine Award by the Business and Professional Women's Association in 1985. Dr.
Goodman is a member of the Society for Theriogenology, the American Veterinary
Medical Association, the American Animal Hospital Association and the Suburban
Veterinary Medical Association. She is currently a member of the Board of
Directors of the Golden Retriever Club of America. Dr. Goodman received a BA
from the University of Pennsylvania and a DVM from the University of Florida,
College of Veterinary Medicine.
Stephen T. Peterson, DVM joined ICG as Director of Marketing and Sales in
January 1994. Prior to joining the Company, he was employed by Ralston Purina in
1991 as product Manager for the Purina veterinary therapeutic dietary products.
He was employed by Hill's Pet Nutrition Inc., the leading manufacturer of
premium and medical animal foods, from May 1985 to April 1991. Dr. Peterson held
multiple positions with Hill's including, Sales Supervisor, Technical Services
Lecturer and Practice Management Nutritional Consultant. Prior to joining Hill's
he was in small animal private practice for 8 years. He is currently a Member of
the American Veterinary Medical Association. Dr. Peterson received his BA from
the University of Michigan and his DVM from Michigan State University.
Michael C. Brown joined the Company in September 1991 as Director of
Diagnostic Development and is responsible for the Company's new product
development and kit manufacturing activities. Mr. Brown has over twenty years of
experience in research, in-vitro diagnostics and therapeutic product development
and project management with United States based and international companies.
Prior to joining the Company, Mr. Brown served as a scientific consultant with
Genpath Therapeutics, Inc. from July 1990 to August 1991 on the
commercialization of a novel anti-inflammatory therapeutic compound. From
October 1989 to July 1990, Mr. Brown was a Director of Technology and Production
for Endogen, Inc., a company that develops and manufactures specialized research
products. From December 1988 to September 1989 Mr. Brown was employed as Vice
President of Research for Mediators, GesmbH in Austria. From December 1984 to
December 1988 Mr. Brown served as manager of Diagnostic Research and Development
and as a Senior Scientist with T Cell Sciences Inc. Prior to T Cell Sciences, he
held various research positions during his five years with Ortho Diagnostic
Systems (Johnson & Johnson). Mr. Brown is the co-inventor of three issued
patents and co-author of 39 scientific publications. Mr. Brown has engaged in
undergraduate studies at Michigan State University from 1970 to 1972 and Boston
University from 1983 to 1987.
Michael A. Cuneo has been a Director of the Company since December 1988.
As a partner of Howard, Lawson & Co., Mr. Cuneo is responsible for corporate
finance advisory services provided to public and private technology-based
companies which are clients of his firm and for investments in emerging growth
companies which form the portfolios of a group of venture capital partnerships.
From May, 1988 to June, 1993, Mr. Cuneo served as the president of the corporate
general partner of Genesis Seed Fund, Ltd., a venture capital partnership with a
portfolio of emerging growth companies which includes the Company. He has been a
director of a number of start-up companies and is the past Chairman of the Board
of Directors of the Delaware Valley Venture Group. Prior to joining Howard,
Lawson & Co. in 1983, Mr. Cuneo was the Manager of Advanced Business Development
for Leeds & Northrup (1981-1983) and Senior Planner for Catalytic, Inc., a
subsidiary of Air Products and Chemicals, Inc. (1980-1981). Mr. Cuneo received a
BES degree in mechanics from The John Hopkins University, a MS degree in
mechanical engineering from Northwestern University and a MBA in finance from
The Wharton School of the University of Pennsylvania.
Donald Lein, DVM, Ph.D. has been a Director of the Company since February
1988. Dr. Lein, for at least the past five years, has been the director of the
Diagnostic Laboratory and Director of Field Services, and a member of the
Departments of Clinical Science (Theriogenology) and Pathology of the New York
State Veterinary College, Cornell University, Ithaca, NY. Among Dr. Lein's
<PAGE>
fields of specialization are diagnostic pathology, reproductive physiology and
endocrinology. Dr. Lein, a diplomat of the American College of Veterinary
Pathologists, is a frequently cited author and lecturer in a variety of
veterinary disciplines. Dr. Lein holds a DVM from Cornell University and a Ph.D.
from the University of Connecticut.
Stephen Hartogensis became a Director of the Company effective February 1,
1993. From 1982 until his retirement in 1992, Mr. Hartogensis was the Vice
President of Finance and Administration of SmithKline Beecham's Animal Health
Division and, in that position, served as the Chief Financial and Administrative
Officer of SmithKline Beecham's Animal Health Division. Mr. Hartogensis
currently serves as a senior consultant to FINCOM, Inc., a Philadelphia area
mergers and acquisition advisory firm. He also serves as an outside director of
EMBREX, Inc., a corporation that develops and markets bioscience and
bioengineering-based products to increase the productivity and profitability of
the poultry industry. Mr. Hartogensis holds a BS in Finance from Lehigh
University.
Directors and executive officers are elected annually and hold office
until their successors are elected and qualified, or until earlier removal or
resignation. Each director, other than directors who are employees or affiliates
of principal stockholders of the Company, receive as compensation a $3,000 per
annum retainer, $500 per meeting of the Board attended and, annually, a grant of
stock options to purchase $6,000 of Common Stock (based on the fair market value
of the Common Stock on the date of grant). Directors are reimbursed for their
travel expenses in attending meetings.
<PAGE>
(b) Filings Under Section 16(a)
The information appearing in the Proxy Statement relating to the Company's
1996 Annual Meeting of Shareholders under the heading "Filings Under Section
16(a)" is incorporated herein by reference.
Item 10. Executive Compensation.
The information appearing in the Proxy Statement relating to the Company's
1996 Annual Meeting of Stockholders under the headings set forth below is
incorporated herein by reference:
(i) Compensation of Directors
(ii) Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is set forth under the section
heading "Security Ownership" appearing in the Company's Proxy Statement relating
to the Company's 1996 Annual Meeting of Stockholders and is incorporated herein
by reference.
Item 12. Certain Relationships and Related Transactions.
The information required by this Item is set forth under the section
heading "Certain Transactions" appearing in the Company's Proxy Statement
relating to the Company's 1996 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
*****2.1 Purchase Agreement dated July 23, 1996 by and among the
Registrant, Synbiotics Corporation and S.R. One, Limited,
and Amendment to Purchase Agreement dated September 7, 1996
by and among the Registrant, Synbiotics Corporation and
S.R. One, Limited.
*3.1 (i) Articles of Incorporation of the Registrant, as amended.
*3.1 (ii) By-Laws of the Registrant.
****4.1 Underwriter's Warrant Agreement.
4.2 Exchange Agreement, dated August 7, 1995, between Gilford
Securities Incorporated and the Registrant.
*10.1 1988 Stock Grant Plan
*10.2 1992 Stock Option Plan
*10.3 Ben Franklin Partnership Funding Agreement between advanced
Technology Center of Southeastern Pennsylvania and Registrant
dated September 1, 1987 through August 31, 1988.
*10.4 Ben Franklin Partnership Funding Agreement between Advance
Technology Center of Southeastern Pennsylvania and Registrant,
dated September 1, 1988 through August 31, 1989.
<PAGE>
*10.5 Ben Franklin Partnership Agreement between Advanced Technology
Center of Southeastern Pennsylvania and Registrant dated
September 1, 1989 through August 31, 1990.
*10.6 Addendum to Ben Franklin Partnership Funding Agreement between
Ben Franklin Technology Center of Southeastern Pennsylvania
and Registrant dated October 22, 1990.
*10.7 Promissory Note by Registrant to pay $450,000 to S.R. One,
Ltd., dated December 30, 1993.
**10.8 Agreement of Lease between Morehall Associates Limited
Partnership and the Registrant dated April 30, 1993.
*10.9 License Agreement between Cambridge Veterinary Sciences, Ltd.
and the Registrant dated July 13, 1990.
*10.10 Warrant Agreement between the Registrant and StockTrans, Inc.
**10.11 Employment Agreement between the Registrant and Paul A.
Rosinack.
**10.12 Employment Agreement between the Registrant and John Bauer.
**10.13 Employment Agreement between the Registrant and Melissa
Goodman.
**10.14 Employment Agreement between the Registrant and Michael Brown.
**10.15 Warrant Agreement, dated as of January 29, 1993, between the
Registrant and Penn Janney Fund, Inc.
****10.16 Exchange Agreement, dated August 7, 1995, between the
Registrant and Penn Janney Fund, Inc.
**10.17 Warrant Agreement, dated as of January 29, 1993, between the
Registrant and Janney Montgomery Scott, Inc.
****10.18 Exchange Agreement, dated as of August 7, 1995, between the
Registrant and Janney Montgomery Scott, Inc.
**10.19 Warrant Agreement, dated as of January 29, 1993, between the
Registrant and Garry A. Fuld.
****10.20 Exchange Agreement, dated as of August 7, 1995, between the
Registrant and Garry A. Fuld.
**10.21 Warrant Agreement, dated as of January 29, 1993, between the
Registrant and Harry Leopold.
****10.22 Exchange Agreement, dated as of August 7, 1995, between the
Registrant and Harry Leopold.
**10.23 Registration Rights Agreement, dated as of January 29, 1993,
between and among the Registrant and Genesis Seed Fund, Ltd.
<PAGE>
**10.24 Joinder Agreement, dated as of January 29, 1993, between the
Registrant and Harry Leopold.
***10.25 Employment Agreement between the Registrant and Stephen
Peterson.
***10.26 License Agreement between the Registrant and The Trustees of
the University of Pennsylvania.
***10.27 Agreement between the Registrant and Ortho/Analytic Inc.
***10.28 Consulting Agreements between the Registrant and Dr. Gail
Smith.
****10.29 Evaluation and Certification Agreement between the Registrant
and The Trustees of the University of Pennsylvania.
****10.30 Promissory Note by Registrant to pay $200,000 to S.R. One,
Ltd. dated April 21, 1995.
****10.31 Promissory Note by Registrant to pay $200,000 to S.R. One,
Ltd. dated June 23, 1995.
10.32 License agreement between the Registrant and the Cornell
Research Foundation, Inc., The University of Medicine and
Dentistry of New Jersey and New York University.
10.33 Sponsored research agreement between the Registrant and the
University of Medicine and Dentistry of New Jersey.
10.34 Sponsored research agreement between the Registrant and
Cornell University.
10.35 Sponsored research agreement between the Registrant and New
York University.
10.36 Consulting agreemetn between the Registrant and Dr. Bernard
G. Steinetz.
10.37 Consulting agreement between the Registrant and Dr. George
Lust.
10.38 Consulting agreement between the Registrant and Dr. Laura T.
Goldsmith.
10.39 Promissory note to pay $500,000 to S.R. One, Limited, dated
December 22, 1996.
10.40 Promissory note to pay $400,000 to S.R. One, Limited, dated
August 28, 1996.
- --------------
* Incorporated by reference to the Registrant's registration statement on Form
S-1 and amendments thereto as declared effective by the Securities and Exchange
Commission on March 23, 1993.
** Incorporated by reference to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on September 27, 1993.
*** Incorporated by reference to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on September 27, 1994.
**** Incorporated by reference to the Registrant's Form 10-KSB filed with the
Securities and Exchange Commission on September 27, 1995.
***** Incorporated by reference to Exhibits 2.2 and 2.3 of Amendment No. 1 to
Registration Statement No. 333-10343 on Form S-4 of Synbiotics Corporation.
<PAGE>
(b) Reports on Form 8-K
NONE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has caused this Annual Report on Form
10-KSB to be signed on its behalf by the undersigned, thereunto duly authorized.
International Canine Genetics, Inc.
By:_________________________________________________________
Paul A. Rosinack, President and Chief Executive Officer
September____, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Annual Report on Form 10-KSB has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
________________________________ President, Chief Executive September , 1996
Paul A. Rosinack Officer and Director
Treasurer and Chief September , 1996
________________________________ Financial Officer
John R. Bauer
Chairman of the September , 1996
________________________________ Board of Directors
Peter A. Sears
Vice Chairman of the September , 1996
________________________________ Board of Directors
R. Grady Rankin
Director September , 1996
________________________________
Michael A. Cuneo
Director September , 1996
________________________________
Stephen Hartogensis
Director September , 1996
________________________________
Dr. Donald Lein
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants.................................. F-2
Balance Sheets as of June 30, 1996 and 1995........................ F-3
Statements of Operations for the years ended
June 30, 1996, 1995 and 1994................................. F-4
Statements of Changes in Stockholders' Equity (Deficit)
for the years ended June 30, 1996, 1995 and 1994............. F-5
Statements of Cash Flows for the years ended
June 30, 1996, 1995 and 1994................................. F-6
Notes to Financial Statements ..................................... F-7 - F-14
<PAGE>
Coopers Coopers & Lybrand L.L.P.
& Lybrand a professional services firm
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
International Canine Genetics, Inc.:
We have audited the accompanying balance sheets of International Canine
Genetics, Inc. as of June 30, 1996 and 1995, and the related statements of
operations, stockholders equity (deficit) and cash flows for each of the three
years in the period ended June 30, 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Canine Genetics,
Inc. as of June 30, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended June 30, 1996 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to this matter are
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
August 7, 1996
<PAGE>
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, June 30,
1995 1996
----------- ----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 247,559 $ 26,104
Accounts receivable, less allowance for doubtful accounts of $47,792
and $47,226 at June 30, 1995 and June 30, 1996, respectively 97,018 93,986
Inventories 64,864 92,357
Prepaid expenses 17,768 37,342
Other current assets 18,167 12,316
------------ ------------
Total current assets 445,376 262,105
Property and equipment, net 236,156 235,841
Intangible assets, net 65,882 96,961
Security deposits 36,209 48,664
Other assets 21,838 29,920
------------ ------------
Total assets $ 805,461 $ 673,491
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable $ 400,000 $ 500,000
Notes payable-funding agreements 107,162 128,955
Capital leases-current portion 44,877 50,843
Accounts payable 165,087 283,536
Accrued expenses 89,940 135,106
------------ ------------
Total current liabilities 807,066 1,098,440
------------ ------------
Notes payable-funding agreements 362,769 327,886
Capital leases-long term 102,747 89,891
Notes payable-shareholder 8,880 9,471
Deferred compensation 168,851 193,068
------------ ------------
Total liabilities 1,450,313 1,718,756
------------ ------------
Stockholders' deficit:
Common stock, par value $.00006, authorized 10,000,000 shares, issued 1,835,000
and 2,843,115 shares at June 30, 1995 and June 30, 1996, respectively 109 169
Additional paid-in capital 10,341,478 11,551,560
Treasury stock, at cost, 23,960 shares (8,439) (8,439)
Accumulated deficit (10,978,000) (12,588,555)
------------ ------------
Total stockholders' deficit (644,852) (1,045,265)
------------ ------------
Total liabilities and stockholders' deficit $ 805,461 $ 673,491
============ ============
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended June 30,
---------------------------------------
1994 1995 1996
---------- ----------- ---------
<S> <C> <C> <C>
Net revenues $ 1,114,676 $ 1,501,864 $ 1,651,220
Cost of revenues 645,516 814,038 889,240
----------- ----------- -----------
Gross profit 469,160 687,826 761,980
----------- ----------- -----------
Operating expenses:
Research and development expenditures 380,893 548,852 554,807
Selling, general and administrative 1,557,658 1,587,902 1,478,634
Advertising and promotional expense 348,318 282,254 278,764
----------- ----------- -----------
2,286,869 2,419,008 2,312,205
----------- ----------- -----------
Loss from operations (1,817,709) (1,731,182) (1,550,225)
Interest expense (27,562) (52,023) (73,808)
Other income, net 78,788 43,044 13,478
----------- ----------- -----------
Net loss ($1,766,483) ($1,740,161) ($1,610,555)
=========== =========== ===========
Net loss per share of common stock ($ 0.96) ($ 0.96) ($ 0.60)
=========== =========== ===========
Shares of common stock outstanding
(weighted average) 1,844,974 1,811,040 2,689,343
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------
1994 1995 1996
----------- ----------- -----------
Cash flow from operating activities:
<S> <C> <C> <C>
Net loss ($1,766,483) ($1,740,161) ($1,610,555)
----------- ----------- -----------
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 40,169 47,096 50,818
Deferred compensation 48,440 48,448 24,217
Provision for uncollectible accounts 13,615 5,039 --
Loss (Gain) on sale of property and equipment 851 (17,500) --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable (23,137) (26,300) 3,032
Increase in prepaid expenses (4,317) (2,131) (19,574)
Increase in inventories (30,273) (4,398) (27,493)
Decrease in other current assets -- -- 5,851
Increase in accounts payable 48,589 44,412 118,449
Increase (decrease) in accrued expenses 16,390 (30,494) 55,308
Increase in accrued interest payable-note payable-shareholder 591 591 591
Increase in accrued interest payable-funding agreements 16,570 25,378 21,495
----------- ----------- -----------
Total adjustments 127,488 90,141 232,694
----------- ----------- -----------
Net cash used in operating activities (1,638,995) (1,650,020) (1,377,861)
----------- ----------- -----------
Cash flow from investing activities:
Capital Expenditures (27,772) (33,810) (2,644)
Purchase of technology license and trademark (76,381) -- (40,938)
Proceeds from notes receivable -- 811 --
Proceeds from sale of property and equipment -- 1,750 --
----------- ----------- ----------
Net cash (used in) investing activities (104,513) (31,249) (43,582)
----------- ----------- -----------
Cash flow from financing activities:
Net proceeds from issuance of common stock -- -- 800,000
Borrowings under note payable -- 400,000 500,000
Payments under notes payable-funding agreements (30,665) (15,209) (34,585)
Payments under notes payable-shareholder (591) (295) --
(Increase) decrease in security deposits and other assets (23,477) 4,492 (20,537)
Payment of obligations under capital leases (21,217) (35,833) (44,890)
----------- ----------- -----------
Net cash (used in) provided by financing activities (75,950) 353,155 1,199,988
----------- ----------- -----------
Net decrease in cash and cash equivalents (1,819,098) (1,328,114) (221,455)
Cash and cash equivalents at beginning of period 3,394,771 1,575,673 247,559
----------- ----------- -----------
Cash and cash equivalents at end of period $ 1,575,673 $ 247,559 $ 26,104
=========== =========== ===========
Supplemental cash flow disclosures: Cash used in operating activities include:
Cash paid for interest $ 47,743 $ 36,682 $ 52,820
Noncash investing and financing activities:
Sale of asset in exchange for note -- $ 17,500 --
Conversion of note payable and accrued interest -- -- $ 410,142
Capital lease obligation -- -- $ 38,000
</TABLE>
<PAGE>
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Total
Additional Paid Accumulated Stockholders
Common Stock in Capital Treasury Stock Deficit Equity (Deficit)
------------ ---------- -------------- ------- ----------------
Shares Total Shares Total
------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1993 1,835,000 $109 $10,341,478 23,960 ($8,439) ($7,471,356) $2,861,792
Net Loss --- --- --- --- --- (1,766,483) (1,766,483)
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1994 1,835,000 109 10,341,478 23,960 (8,439) (9,237,839) 1,095,309
Net Loss --- --- --- --- --- (1,740,161) (1,740,161)
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1995 1,835,000 109 10,341,478 23,960 (8,439) (10,978,000) (644,852)
Net proceeds from issuance
of common stock 680,000 41 799,959 --- --- --- 800,000
Conversion of bridge notes
and accrued interest 328,115 19 410,123 --- --- --- 410,142
Net Loss --- --- --- --- --- (1,610,555) (1,610,555)
- ---------------------------------------------------------------------------------------------------------------------------------
Balances at June 30, 1996 2,843,115 $169 $11,551,560 23,960 ($8,439) ($12,588,555) ($1,045,265)
=================================================================================================================================
</TABLE>
<PAGE>
INTERNATIONAL CANINE GENETICS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1. Background of the Company:
International Canine Genetics, Inc. (the Company) was formed on July
14, 1986. The Company is primarily engaged in the business of developing,
manufacturing and marketing products and services which address the needs of
owners and breeders of purebred dogs and the veterinarians providing services to
them. The Company currently markets artificial insemination products and
services and in-clinic ovulation and laboratory timing diagnostic tests and a
pregnancy testing services, which collectively comprise the majority of the
Company's sales, the PennHIP(R) diagnostic technology for the early detection of
Canine Hip Dysplasia to breeders and owners of purebred dogs and their
veterinarians, nutritional supplements and grooming products. All product and
service revenues are shipped from or performed at the Company's Malvern, PA
facility and sold to end users and distributors throughout the world, with the
vast majority of the sales made throughout the United States.
Note 2. Liquidity:
The Company has incurred losses from operations since inception as it
has been developing its products and marketing channels which raises substantial
doubt about the entity's ability to continue as a going concern. The Company's
ability to support its operations with product sales is dependent on the
Company's ability to raise additional funds to finance further product
development and marketing as well as the successful completion of such
activities.
Management believes that the Company will be able to attract new
sources of funds to enable the Company to continue the development and marketing
of its products and services until completion of the acquisition by and
integration into Synbiotics Corporation (see Note 4). However, no assurance can
be given that such funds will be available or that the funds will be available
on terms which are satisfactory or advantageous to the Company or its
shareholders.
Note 3. Summary of Significant Accounting Policies:
Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with original maturities of three months or
less to be cash equivalents.
Inventories:
Inventories are stated at the lower of cost (first in, first out
method) or market.
Property and Equipment:
Property and equipment are stated at cost. Equipment acquired under
capital leases is stated at the lesser of the present value of the minimum lease
payments or the fair value of the equipment at the inception of the lease.
Depreciation and amortization, which includes the amortization of assets
recorded under capital leases, are computed using both the straight line and
accelerated methods over the estimated useful lives of the related assets
ranging from three to ten years. Leasehold improvements are amortized over the
lives of the respective leases or the lives of the improvements, whichever is
shorter.
Technology and Trademark License:
<PAGE>
Purchased technology and licenses are capitalized at cost and are
amortized on a straight-line basis over the remaining life of the license
agreement and the patent (10 and 15 years, respectively).
Research and Development:
Research and development costs are expensed in the period incurred.
Advertising and Promotional:
Advertising and promotional costs are expensed in the period incurred.
Income Taxes:
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expected to reverse.
Concentrations of Credit Risk:
Financial instruments which potentially subject the Company to a
concentration of credit risk consist of cash and cash equivalents, which are
maintained in a high quality credit institution, and accounts receivable.
The Company markets its products and services primarily to two specific
classes of customers, namely dog breeders and veterinarians, which may subject
the Company to credit risk. Such risk is mitigated, however, because the
Company's markets are geographically dispersed. The Company performs ongoing
credit evaluations of its customers and generally does not require collateral.
Fair Value of Financial Instruments
The carrying value of the Company's short-term financial instruments,
such as receivables and payables, approximate their fair values, based on the
short-term maturities of these instruments. As of June 30, 1996, the fair value
of the Company's demand notes payable, notes payable funding agreements and
capital lease obligations, using rates currently available to the Company for
such financial instruments with similar terms and remaining maturities,
approximate their carrying amounts.
Net Loss Per Share of Common Stock and Pro Forma Net Loss Per Share of Common
Stock:
The net loss per share of Common Stock is computed using the weighted
average number of shares of Common Stock outstanding during the period.
The effect of stock options and warrants are excluded from the
computation as their effect is anti-dilutive, except that, pursuant to
Securities and Exchange Commission staff accounting bulletins, Common Stock
options issued during the 12 month period prior to the initial public offering
at prices below the public offering price of $7.00 per unit have been included
in the 1994 computation as if they were outstanding for the period presented
(using the treasury stock method).
Stock-Based Compensation
In October, 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation", which is effective for years beginning after December
15, 1995. SFAS No. 123 defines a fair value based method of accounting for an
<PAGE>
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting
prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees" and including pro forma disclosures of net income
and earnings per share as if the fair value method had been applied. The Company
has elected to continue to measure its stock-based compensation in accordance
with APB No. 25 and, accordingly, does not expect the adoption of SFAS No. 123
to have a significant effect on its financial position or results of operations.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Note 4. Acquisition:
On July 23, 1996, the Company entered into a definitive purchase
agreement for Synbiotics Corporation to acquire substantially all of the assets
and certain liabilities of the Company in exchange for the issuance of 1,400,000
shares of registered Synbiotics Common Stock, a transaction valued at between
$3,500,000 and $4,900,000. The number of shares is subject to adjustment if the
market price per share of Synbiotics' stock is above $3.50 per share or below
$2.50 per share at the closing. A portion of the 1,400,000 shares of Synbiotics
Common Stock will be used to satisfy the Company's debt and the balance will be
distributed to the holders of Common Stock. All of the Company's outstanding
warrants and stock options will similarly be replaced by or converted into
warrants and options to acquire shares of Synbiotics Common Stock. Additionally,
S. R. One, Limited, the Company's largest shareholder, will purchase $1,000,000
of newly issued Synbiotics Common Stock at the closing. The transaction is
subject to certain regulatory review and Board of Directors and shareholder
approval of both companies. The transaction is expected to close in October,
1996.
Note 5. Inventories:
At June 30, 1995 and 1996, inventories were as follows:
1995 1996
---- ----
Components $34,747 $61,345
Finished Goods 30,117 31,012
------ ------
$64,864 $92,357
======= =======
Note 6. Technology and Trademark License:
On December 21, 1993, the Company finalized an agreement with the
University of Pennsylvania for the exclusive worldwide rights to commercialize a
new proprietary technology for the diagnosis of Canine Hip Dysplasia. Under the
agreement, the Company also obtained the exclusive worldwide rights to use the
University of Pennsylvania trademark PennHIP(R). At June 30, 1996, the Company
has capitalized costs and accumulated amortization of $76,381 and $18,405,
respectively, related to the licensing and transfer to the Company of this
technology and trademark.
On November 6, 1995, the Company concluded an agreement with the
Cornell Research Foundation, the University of Medicine and Dentistry of New
Jersey-New Jersey Medical School and New York University for the exclusive
rights to a U.S. patent entitled "Relaxin Testing for Early Detection of
<PAGE>
Pregnancy in Dogs." At June 30, 1996, the Company has capitalized costs and
accumulated amortization of $40,938 and $1,952, respectively, related to the
licensing and transfer to the Company of this technology.
Note 7. Property and Equipment:
At June 30, property and equipment were as follows:
1995 1996
---- ----
Lab equipment..................................... $214,045 $214,045
Marketing equipment............................... 44,740 44,740
Furniture and fixtures............................ 197,991 238,634
Warehouse equipment............................... 16,218 16,218
Leasehold improvements............................ 8,464 8,464
--------- ---------
481,458 522,101
Less accumulated depreciation and amortization.... $245,302 $286,260
-------- --------
$ 236,156 $235,841
========= ========
At June 30, 1996, assets recorded under capital leases and related
accumulated amortization are $204,674 and $49,377, respectively.
Note 8. Notes Payable:
During fiscal 1995, the Company borrowed $400,000 from S. R. One,
Limited, a majority shareholder, under the terms of two demand note agreements
bearing interest at the prime rate plus two points. On August 17, 1995, S. R.
One Limited invested cash of $850,000 and converted the $400,000 of demand notes
and accrued interest of $10,142 into 1,008,115 newly issued shares of common
stock at $1.25 per share.
On December 22, 1995, the Company borrowed $500,000 from S. R. One,
Limited, under the terms of a demand note agreement bearing interest at the
prime rate plus two points.
Note 9. Notes Payable - Funding Agreements:
During fiscal years 1988 through 1991, the Company received $145,090
and $51,578 under three separate funding agreements (the "first and second" and
"third" agreements, respectively) from the Ben Franklin Technology Center of
Southeastern Pennsylvania (BFTC).
Under the first and second agreements, the Company is required to repay
three times the disbursed funds in quarterly installments of 1% of total Company
revenues. The full amount of the obligation under the first and second
agreements, $435,270, has been accrued by charges to interest expense during
fiscal years 1988 through 1991.
Under the third agreement, the Company is required to repay up to a
maximum of three times the disbursed funds in quarterly installments of 3% of
total Company revenues subject to annual dollar caps as set forth below.
Year Ending
September 30, Annual Dollar Cap
------------- -----------------
1996 .................................... 37,136
1997 .................................... 46,422
<PAGE>
Under the third agreement, the Company is accreting interest using the
effective interest method over the anticipated repayment period. Interest
expense related to the agreement amounted to $16,570, $24,768 and $21,060 for
the years ended June 30, 1994, 1995 and 1996, respectively, and is included in
the statement of operations.
On February 27, 1995, the Company entered into a supplemental agreement
with BFTC to temporarily modify the repayment requirements until the Company has
obtained additional funding. Under the terms of this supplemental agreement, the
Company's quarterly repayments under the first, second and third agreements are
not to exceed $3,000. The unpaid balance accrues interest at the prime rate. All
amounts in arrears, including accrued interest, under this agreement are payable
within seven days following completion of the Company obtaining additional
funding as defined by the supplemental agreement. At June 30, 1995, the unpaid
balance under this agreement was $30,557 and accrued interest amounted to $610.
Interest expense on the supplemental agreement incurred in fiscal 1996 was $435.
The amounts outstanding under these agreements, including accrued
interest, are as follow:
June 30,
--------------------------
1995 1996
-------- --------
First and Second Agreements.......................$435,270 $435,270
Third Agreement................................... 120,525 141,585
Interest on Supplemental Agreement................ 610 1,045
Less payments .................................... (86,474) (121,059)
-------- ---------
469,931 456,841
Less current portion..............................(107,162) (128,955)
--------- ---------
$362,769 $327,886
======== ========
Note 10. Stock Option Plan
The Company maintains a stock option plan whereby employees,
consultants and advisors may be granted incentive stock options ("ISO") or
non-qualified stock options to purchase up to 275,000 shares of the Company's
Common Stock. The ISO exercise price is determined by the Compensation and Stock
Option Committee subject to a minimum exercise price equal to the fair market
value of the Company's Common Stock on the date of the grant. The exercise price
of non-qualified options is determined by the Compensation and Stock Option
Committee. The options vest over a four year period and expire 10 years from the
date of grant.
A summary of stock option activity is as follows:
Number of Option Price
Shares per Share
------ ---------
Outstanding as of June 30, 1993 42,042 $1.35
Granted 82,332 $7.00
Granted 99,250 $2.00
Exercised - -
Canceled - -
------ ---------
<PAGE>
Outstanding as of June 30, 1994 223,624 $1.35-$7.00
Granted - -
Exercised - -
Canceled 5,510 $2.00-$7.00
------ ---------
Outstanding as of June 30, 1995 218,114 $1.35 - $7.00
======= =============
Granted 152,950 $1.25
Exercised -- --
Canceled 11,465 $1.25-$7.00
------- -----------
Outstanding as of June 30, 1996 359,599 $1.25-$7.00
======= ===========
At June 30, 1996, options for 218,218 shares were exercisable and
130,401 shares were available for future grants under the plan.
During the twelve months ended June 30, 1995 and 1996, the Company
recognized $48,448 and $24,217, respectively, as compensation expense in
connection with options granted prior to the Company's initial public offering.
Note 11. Stock Warrants:
In January, 1993, in accordance with a Recapitalization Agreement,
62,075 shares of Preferred-B warrants were exchanged for 10,346 common stock
warrants exercisable at $8.40 per share over five years, and 300,000 common
share warrants were exchanged for 50,000 common stock warrants exercisable at
$8.40 per share over five years.
In March 1993, 715,000 warrants ("Public Warrants") to purchase common
stock were issued as part of the Company's initial public offering. In this
offering, the Company sold 715,000 Units, each consisting of one share of common
stock and one common stock warrant. The warrants are exercisable over a five
year period at an initial exercise price of $10.00 per warrant. However, as the
Company did not generate revenues of $7 million during the fiscal year ended
June 30, 1995, the exercise price was reduced to $5.00 per warrant in accordance
with the terms of the offering document.
In addition, the underwriter of the Company's initial public offering
received, as part of its compensation, warrants ("Underwriters' Warrants") to
purchase 71,500 Units (each unit consisting of one share of common stock and one
redeemable common stock warrant.). The Underwriters' Warrants are exercisable
over five years at a price of $8.40 per warrant. The common stock warrants
contained in the Unit warrant have the same terms and characteristics as the
public warrants issued as part of the initial public offering.
The terms of the Public Warrant and Underwriters' Warrant agreements
provide the holders of the warrants with anti-dilution protection if the Company
issues common stock or equivalents, including stock options, at a price below
the original exercise prices per warrant of $10.00 and $8.40, respectively.
During the year ended June 30, 1994, the Company issued stock options under its
1992 Stock Option Plan at $7.00 per share and $2.00 per share (see Note 10). As
a result, the Public Warrants have an adjusted exercise price of $9.66 per
warrant and may be redeemed for 740,166 shares of common stock. The
Underwriters' Warrant have an adjusted exercise price of $1.76 and can be
<PAGE>
redeemed for 341,250 shares of Common Stock and 341,250 Redeemable Warrants. The
Redeemable Warrants have an adjusted exercise price of $9.66 and can be redeemed
for 353,538 shares of Common Stock.
On August 16, 1995, the Board of Directors approved modifications to
the 715,000 Public Warrants. The exercise price of the Public Warrants was
reduced from $5.00 per warrant to $1.25 per warrant and the term of each Public
Warrant was extended from March 24, 1988 to March 24, 2000.
In addition, in order to simplify the Company's capital structure and
eliminate certain onerous anti-dilution provisions which have had and would have
an adverse impact on the shareholders, the holders of 60,346 warrants to
purchase common stock at an exercise price of $8.40 per warrant agreed to
exchange their warrants for 245,692 warrants to purchase common stock with the
same terms and conditions as the Public Warrants. Also, the underwriter of the
Company's initial public offering agreed to exchange 71,500 Unit Warrants (each
unit consisting of one share of common stock and one redeemable common stock
warrant) for 71,500 warrants to purchase Common Stock on the same terms and
conditions as the Public Warrants. Warrants outstanding as of June 30, 1996
total 1,032,192 at an exercise price of $1.25 per share.
Note 12. Commitments and Contingencies:
The Company leases equipment and office, research,
manufacturing/warehouse space under various non-cancelable leases with third
parties. The leases range from three to five years and require the Company to
pay all insurance, taxes and operating expenses.
The Company entered into a 5-year lease agreement and expanded its
Malvern, PA facility from 4,725 square feet to 9,240 square feet. Payments under
this lease commenced on September 20, 1993, upon substantial completion of
improvements to the facility. For the years ended June 30, 1994 and 1995, the
Company acquired office, product development, manufacturing and warehouse
equipment under non-cancelable capital lease agreements.
Future minimum obligations under non-cancelable lease agreements at
June 30, 1996 are as follows:
Capital Operating
For years ending June 30, Leases Leases
------------------------- ---------- --------
1997 $63,163 $121,201
1998 44,498 119,104
1999 11,497 39,440
---------- ----------
Total Minimum Payments 119,158 $ 279,745
==========
Less amount representing interest 16,424
----------
Present value of net minimum lease
payments under capital leases $102,734(1)
==========
(1) Does not include a $38,000 capital lease obligation.
Rent expense under operating leases for the years ended June 30, 1994,
1995 and 1996 was $83,504, $115,319 and $159,825 respectively.
At June 30, 1996, the Company has a letter of credit outstanding in the
amount of $19,800 which guarantees a telephone equipment lease. The contract
amount of the letter of credit was for approximately 40% of the fair value of
the lease at its inception and decreases annually over the life of the lease.
Note 13. Income Taxes:
<PAGE>
Effective July 1, 1993, the Company adopted the previsions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). There was no cumulative effect of the accounting change and prior periods
were not restated.
At June 30, 1995 and 1996, the Company had a deferred tax asset
comprised of the following:
1995 1996
---------- ---------
Net operating loss carryforwards $3,917,000 $4,418,000
Receivables 31,000 19,000
Inventory 4,000 4,000
----------- ----------
Deferred tax asset $3,952,000 $4,441,000
=========== ==========
The Company has recorded a valuation allowance for the full amount of
the deferred tax asset at June 30, 1995 and 1996, since the likelihood of the
realization of the tax benefits cannot be established.
At June 30, 1996, the Company had net operating loss carryforwards for
income tax purposes of approximately $11.7 million, which expire in varying
amounts through 2011.
Note 14. Subsequent Event:
On August 28, 1996, the Company borrowed $400,000 from S. R. One,
Limited, which included a $42,497 placement fee payable to S. R. One, Limited,
pursuant to a demand note bearing interest at prime plus two points.
<PAGE>
EXHIBIT INDEX
10.32 License agreement between the Registrant and the Cornell
Research Foundation, Inc., The University of Medicine and
Dentistry of New Jersey and New York University.
10.33 Sponsored research agreement between the Registrant and the
University of Medicine and Dentistry of New Jersey.
10.34 Sponsored research agreement between the Registrant and
Cornell University.
10.35 Sponsored research agreement between the Registrant and New
York University.
10.36 Consulting agreement between the Registrant and Dr. Bernard
G. Steinetz.
10.37 Consulting agreement between the Registrant and Dr. George
Lust.
10.38 Consulting agreement between the Registrant and Dr. Laura T.
Goldsmith.
10.39 Promissory note to pay $500,000 to S.R. One, Limited, dated
December 22, 1996.
10.40 Promissory note to pay $400,000 to S.R. One, Limited, dated
August 28, 1996.
<PAGE>
EXCLUSIVE LICENSE AGREEMENT
THIS AGREEMENT, effective as of the _____ day of October, 1995, by and
among the CORNELL RESEARCH FOUNDATION, INC., having a place of business at
Cornell Business & Technology Park, 20 Thornwood Drive, Suite 105, Ithaca, New
York 14850 (hereinafter referred to as "CRF") and THE UNIVERSITY OF MEDICINE AND
DENTISTRY OF NEW JERSEY, having a place of business located at 30 Bergen Street,
Newark, New Jersey 07107 (hereinafter referred to as "UMDNJ"), the NEW YORK
UNIVERSITY, having a place of business located at 550 First Avenue, New York,
New York 10016 (hereinafter referred to as "NYU") (the above three organizations
being jointly hereinafter referred to as LICENSORS) and INTERNATIONAL CANINE
GENETICS, INC., having a place of business at 271 Great Valley Parkway, Malvern,
Pennsylvania 19355 (hereinafter referred to as "LICENSEE").
W I T N E S S E T H T H A T:
WHEREAS, United States Patent No. 5,108,897, entitled "Relaxin Testing
for Early Detection of Pregnancy in Dogs," (the Patent) which was issued on
April 28, 1992, a copy of which is appended as Exhibit A; and
WHEREAS, the invention or inventions disclosed and claimed in the
Patent have been assigned to CRF, UMDNJ and NYU; and
WHEREAS, CRF is a wholly owned subsidiary corporation of Cornell
University and holds the ownership interests of patents issued on inventions
made by Cornell University's staff and administers licenses in a manner
consistent with the patent policy of Cornell University; and
<PAGE>
WHEREAS, CRF, UMDNJ and NYU each represent that it is an assignee of
the above-identified Patent pursuant to assignment agreements appended as
Exhibit B and has the right to grant licenses under said Patent; and
WHEREAS, CRF has an agreement with UMDNJ and NYU to act in matters of
negotiation and the collection of payments on behalf of the Licensors; and
WHEREAS, the work leading to the invention disclosed and claimed in the
Patent was supported in part by an agency of the U.S. Government, and LICENSORS
are therefore obligated to comply with the U.S. Office of Management & Budget
Circular No. A-124, or 37 CRF Part 401; and
WHEREAS, LICENSEE is desirous of securing a license under the Patent to
make, have made, use and sell Licensed Products (as hereinafter defined) in the
United States;
WHEREAS, LICENSORS are willing to grant a license in the Patent to
LICENSEE upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the covenants and obligations
hereinafter set forth, the parties hereto hereby agree as follows:
I
DEFINITIONS
The following definitions will apply throughout this Agreement:
1. Licensed Patent on the Patent shall mean U.S. Patent No. 5,108,897,
and all reissues thereof.
2. Licensed Product(s) shall mean any product or use which, in the
absence of the license granted
2
<PAGE>
in this Agreement, infringes on one or more of the claims of the Licensed
Patent.
3. License Year shall mean each twelve (12) month period beginning on
the effective date of this Agreement first written above and thereafter on the
anniversary date thereof.
4. LICENSEE shall mean International Canine Genetics, Inc and any
corporation controlling, controlled by or under common control with
International Canine Genetics, Inc. and any successor of International Canine
Genetics, Inc. by the sale of assets or stock or by merger or consolidation. For
purposes of this provision, the ownership of more than 50 percent of the total
combined voting power of all classes of stock entitled to vote of a corporation
shall constitute control.
5. Net Sales Price shall mean the gross amount of money received by
LICENSEE from its customers on the sale or use of Licensed Products subsequent
to the effective date of this Agreement where the Licensed Products were either
made, used or sold in the United States of America, less:
(a) trade and/or quantity discounts; (b) returns and
allowances; (c) retroactive price reductions; (d) sales or
excise taxes paid directly or indirectly by LICENSEE; and (e)
shipping costs actually paid and separately itemized by
LICENSEE.
II
GRANT
Subject only to the rights of and obligations to the U.S.
3
<PAGE>
Government as set forth in U.S. Office of Management & Budget Circular A-124 or
37 CFR Part 401, LICENSORS hereby grant to the LICENSEE for the term set forth
below and upon the royalty basis set forth below, an exclusive license to make,
have made, use, sell or have sold Licensed Products in the United States.
The term "exclusive license" as used hereinabove shall mean that LICENSORS shall
not issue a license to any other person during the term of this Agreement.
III
TO HAVE MADE
The right of LICENSEE to make Licensed Products includes the right to
have such Licensed Products made pursuant to contracts with third parties. Such
contractual arrangements with third parties shall be subject to and conditioned
upon appropriate supervision and quality assurance and control of the third
party by LICENSEE and the third party shall be bound in writing to respect all
rights of LICENSORS and to apply all production of Licensed Products exclusively
to LICENSEE.
IV
PAYMENTS MADE IN CONSIDERATION OF THE
EXECUTION OF THIS LICENSE AGREEMENT
CRF, on behalf of all LICENSORS, hereby acknowledges a payment of
twenty-five thousand dollars ($25,000) made by LICENSEE as a consideration for
entering into this Agreement, which sum is non-refundable and will not be
considered as an advance payment on royalties due hereunder.
LICENSEE further agrees to pay LICENSORS an additional non-refundable,
non-
4
<PAGE>
creditable sum of twenty-five thousand dollars ($25,000) within six months
after the first Licensed Product is sold in the commercial marketplace (the
"Product Introduction Payment").
V
CRF AS AGENT FOR LICENSORS
CRF shall serve as the license administrator for LICENSORS. Any payment
hereunder made by LICENSEE to CRF shall be considered payment to the LICENSORS,
and UMDNJ and NYU shall have no recourse against LICENSEE for CRF's failure to
disperse payments among LICENSORS in whatever manner they may agree upon.
VI
PAYMENT OF U.S. MAINTENANCE FEES
If, during the term of the Agreement, Maintenance Fees become due on
the Licensed Patent, LICENSORS shall pay such fees in a timely manner. LICENSEE
shall reimburse CRF for the amount of such Maintenance Fees and related
attorney's costs within thirty (30) days after LICENSEE'S receipt of written
notice thereof and proof of payment from CRF.
VII
ROYALTIES AND MINIMUM ROYALTIES TO BE
PAID DURING THE LICENSE AGREEMENT
During the term of this Agreement, LICENSEE will pay to CRF as agent
for the LICENSORS and for the benefit of the LICENSORS a royalty of six percent
(6%) of the Net Sales Price of Licensed Products made, used or sold by LICENSEE.
LICENSEE'S obligation to pay royalties on the Net Sales Price of a
Licensed Product shall cease:
5
<PAGE>
1. if the applicable claims in the Licensed Patent are held invalid by
an unappealed or unappealable decision of a court of competent jurisdiction, or
2. upon expiration of the Licensed Patent.
Royalty payments as above will also apply to Licensed Products sold by
LICENSEE prior to the date of this Agreement.
Beginning with the License Year following the year in which the Product
Introduction Payment set forth in IV is made, and each License Year thereafter,
LICENSEE shall pay LICENSORS ten thousand dollars ($10,000) as a minimum royalty
payment for that License Year and such moneys shall be paid quarterly on a
calendar-quarter basis in arrears at the rate of $2,500 per quarter and will be
considered as a credit against the royalties due for that License Year under
this Agreement and the royalty reports should reflect the use of such credit.
This provision is to be construed as an annual minimum royalty payment
requirement and none of the minimum royalty payments are refundable or
applicable to any succeeding License Year.
VIII
ACCOUNTING AND PAYMENT SCHEDULE
Payment, reporting and financial accounting shall be on a calendar
quarter basis and LICENSEE will deliver to CRF within sixty (60) days after the
end of each calendar quarter a report in writing setting forth revenues received
from sales of Licensed Products (including a negative report if appropriate) and
will accompany such report with an appropriate payment of royalty or portion of
the minimum royalty due for such period. LICENSEE will keep accurate
6
<PAGE>
records, certified by it, showing the information by which LICENSEE arrived at a
royalty determination and will, once each License Year, permit a person
appointed by LICENSORS and acceptable to LICENSEE at LICENSORS' expense to make
such inspection of said records as may be necessary to verify royalty reports
made by LICENSEE; provided, however, if LICENSEE has underreported royalties by
10% or more, then the cost of inspection shall be bourne by LICENSEE.
7
<PAGE>
The report for the first calendar quarter reported will include all
sales of Licenses Products by LICENSEE prior to the date of this Agreement and
will be accompanied by appropriate payment of royalty therefor in U.S. dollars.
Conversion from foreign currencies, if any, shall be based upon the
applicable conversion rate published in the Wall Street Journal on the date that
payment is received by LICENSEE.
Payments which are delayed beyond that date which is sixty (60) days
after the end of the quarter in which they become due shall be subject to
interest at an annual rate equal to five percent (5%) in excess of the prime
rate as stated in the Wall Street Journal in effect on such sixtieth (60th) day,
for the period for which such payment remains outstanding after such sixtieth
(60th) day.
IX
TERM
The aforesaid exclusive license under the Licensed Patent shall
commence upon the effective date of this Agreement and shall continue until the
expiration date of the last to expire Licensed Patent, unless terminated
pursuant to Article XV.
X
REPRESENTATIONS AND WARRANTIES OF LICENSORS
LICENSORS jointly and severally represent and warrant as follows:
1. LICENSORS are the sole assignees of all rights of the inventions
under the Patent and have the exclusive right to grant licenses
under the Patent.
2. LICENSORS have not entered in any agreement in conflict herewith
and have not
8
<PAGE>
granted to any other person, firm or corporation any right,
license, shop-right, privilege or interest of any kind in the
Patent.
3. LICENSORS are not presently aware of any infringement issues that
have not been communicated to LICENSEE prior to the execution of
this Agreement.
4. To the best of LICENSORS' present knowledge, the listed inventors
are the sole inventors of the inventions disclosed and claimed in
the Patent.
5. Any and all issue and/or maintenance fees which are due and owing
with respect to the Patent have been paid in full.
6. LICENSORS presently know of no reason why the Patent could be
determined to be invalid.
7. LICENSORS have the full power and authority to enter into this
Agreement and this Agreement is the legal, valid and binding
agreement of LICENSORS, enforceable against them in accordance with
its terms.
XI
DUTY OF DILIGENCE
LICENSEE shall exercise reasonable due diligence to effect the
introduction of Licensed Product(s) into the commercial market as soon as
reasonably practical. LICENSEE agrees to use reasonable efforts to develop and
exploit Licensed Products with diligence by manufacture and sale of Licensed
Products for the duration of the term of this Agreement. LICENSEE further agrees
to use reasonable efforts to maintain quality control over Licensed Products and
to attend to proper, safe, fair, lawful and reasonable development and
exploitation of the market for
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Licensed Products.
Failure of LICENSEE to comply with the provisions of this Paragraph
shall be considered a material breach of this Agreement.
XII
INFRINGEMENT OF LICENSED
PATENT RIGHTS BY THIRD PARTIES
In the event that any infringement of the Licensed Patent shall come to
the attention of LICENSORS or LICENSEE, then LICENSEE and LICENSORS shall duly
inform each other within sixty (60) days. LICENSORS shall, in their sole
discretion, determine whether or not to prosecute a patent infringement action
and shall notify LICENSEE in writing of such decision within a reasonable time
after notice of infringement is provided. If LICENSORS initiate such action, all
legal expenses, including costs and attorneys' fees, shall be paid for by
LICENSORS. LICENSEE shall be entitled, however, to join such litigation as a
plaintiff, to be represented by separate counsel at its own expense and to seek
any legal or equitable remedies for its loss or injury arising out of such
infringement. If LICENSORS do not elect to prosecute a patent infringement
action, then LICENSEE may prosecute such an action against the alleged infringer
at its own expense and at its sole discretion, provided that no other action for
infringement is pending at the time so that only one such lawsuit is pending at
any time, subject however to the penultimate paragraph of this Article XII.
LICENSORS agree to cooperate reasonably in any such action initiated by
LICENSEE, including supplying essential documentary evidence and making
essential witnesses then in LICENSORS' employment available. At any time,
LICENSEE may join LICENSORS as a party, at LICENSEE'S expense.
10
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LICENSEE may defray the expenses (including reasonable attorneys' fees)
of any such lawsuit initiated by LICENSEE to the extent of 50% of royalties
payable by LICENSEE during the course of such legal proceedings.
Out of any damages or awards recovered by either party in any
infringement action, LICENSEE and LICENSORS shall proportionately recover their
expenses, if any, (including reasonable attorneys' fees) arising in connection
with such litigation, beyond the expense defrayed by withheld royalties.
LICENSORS will then recover all royalties up to the amount of royalties, if any,
payable by LICENSEE to LICENSORS and withheld by LICENSEE to defray the expenses
of such lawsuit. Any amount remaining belongs proportionately to LICENSORS and
LICENSEE with respect to loss or injury sustained by LICENSORS and LICENSEE,
including royalty payments to LICENSORS on any amount recovered by LICENSEE
based upon the infringer's sales of Licensed Products.
In any proceedings brought by LICENSEE, LICENSORS shall be entitled to
employ counsel at LICENSORS' expense and control the course of litigation, but
may not compromise or settle any claims for loss or injury sustained by LICENSEE
without LICENSEE'S written approval, which approval shall not be unreasonably
withheld, if, in LICENSORS' reasonable discretion, LICENSEE'S defense of patent
rights is insufficient, or if LICENSEE fails to carry on vigorous prosecution of
said patent rights.
In the event LICENSEE seeks, with justifiable cause, to prosecute more
than one lawsuit at a time, LICENSORS will not unreasonably withhold permission
where such actions are conducted entirely at LICENSEE'S expense, including
reimbursement of LICENSORS'
11
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reasonable expenses incurred on behalf of such action.
In any action brought by LICENSEE, LICENSEE undertakes to indemnify and
hold LICENSORS harmless from any damages, or reasonable costs and expenses
incurred by reason of such litigation, except as hereinabove provided.
XIII
ASSIGNMENT
The rights and obligations of the LICENSEE are not assignable except to
LICENSEE'S successor in business (whether by sale of assets or stock or by
merger or consolidation) unless such assignment is approved by LICENSORS in
writing in advance of such assignment. Such approval shall not be unreasonably
withheld. LICENSEE shall notify LICENSORS in writing in the event of an
assignment to LICENSEE'S successor in business.
XIV
SUBLICENSING
LICENSEE may not sublicense without the permission of LICENSORS. This
Article XIV shall not restrict LICENSEE'S rights under Article III.
XV
TERMINATION
The LICENSORS may terminate this Agreement for material noncompliance
by the LICENSEE with any of its material provisions by giving notice of its
intention to do so three (3) months before the effective date of such
termination. LICENSEE shall have the right to cure such noncompliance within
sixty (60) days after receiving written notice. In the event that
12
<PAGE>
LICENSEE shall make a timely cure of such noncompliance, this Agreement shall
continue and LICENSORS' notice of termination shall have no effect.
LICENSEE may terminate this License Agreement for any reason by giving
notice of its intentions to do so three (3) months before the effective date of
such termination.
XVI
NEW INVENTIONS
If, during the term of this Agreement and, with respect to each
LICENSOR, so long as the Principal Investigator remains actively employed by
such LICENSOR, the LICENSORS, individually or collectively, make any further
improvements in the inventions disclosed and claimed in the Patent or the mode
of using them, or become the owners of any new improvements or new inventions
related to the Patent either through patents or otherwise, then they shall
promptly communicate such improvements or inventions to the LICENSEE. LICENSORS
shall use their best efforts to give LICENSEE notice of improvements or new
inventions related to the Patent prior to any publication, sale, offer of sale
or public use that could bar the filing of a patent with respect thereto.
XVII
CONFIDENTIALITY
LICENSORS each agree that they will not, directly or indirectly, use,
communicate, disclosure or divulge to any natural person or any entity, any
knowledge or information which they may have acquired, no matter from whom or in
what manner, heretofore or hereafter,
13
<PAGE>
concerning the conduct and details of the business of LICENSEE including, but
not limited to, the names of customers and suppliers, financial condition,
business plans and marketing strategies and other information identified in
writing at least within (10) business days of the disclosure as confidential by
LICENSEE ("Confidential Information"). The term "Confidential Information" shall
not include the following:
1. Information that is known to LICENSORS or independently developed by
them prior to the time of disclosure, in each case, to the extent evidenced by
written records promptly disclosed to LICENSEE upon receipt of the Confidential
Information;
2. Information disclosed to LICENSORS by a third party that has a right
to make such disclosure
3. Information that becomes patented, published or otherwise part of
the public domain as a result of acts by LICENSEE or a third person obtaining
such information as a matter of right; or
4. Information that is required to be disclosed by order of United
States governmental authority or a court of competent jurisdiction; provided
that the LICENSORS shall use reasonable efforts to obtain confidential treatment
of such information by the agency or court.
XVIII
OTHER
1. LICENSEE agrees that it will not use the indicia or names of CRF or
of Cornell
14
<PAGE>
University, UMDNJ or NYU or any of their personnel in advertising, promotion, or
labeling of Licensed Products without prior written approval of the respective
organizations.
2. LICENSORS make no representations other than those specified in this
Agreement. LICENSORS MAKE NO EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE.
3. Except as expressly provided in this Agreement, LICENSORS by this
Agreement make no representation as to the patentability and/or breadth of the
inventions and/or discoveries involved in a Licensed Patent. Except as expressly
provided in this Agreement, LICENSORS by this Agreement makes no representation
as to patents now held or which will be held by others in the field of the
Licensed Products for a particular purpose.
4. LICENSEE agrees to defend, indemnify and hold LICENSORS, their
respective trustees, officers, medical and professional staff, employees,
students and agents and their respective successors, heirs and assigns (the
"Indemnitees"), harmless from and against all liability, demands, damages,
expenses (including reasonable attorneys' fees and costs of litigation) or
losses for death, personal injury, illness or property damage incurred by or
imposed upon LICENSORS or any one of them in connection with any claims, suits,
actions or judgements arising (a) out of use by LICENSEE or its transferees of
inventions licensed or information furnished under this Agreement, or (b) out of
any manufacture, use, sale or other disposition by LICENSEE or its transferees
of products made by use of such inventions or information. LICENSORS shall give
LICENSEE prompt written notice of any matter or claim which may be the basis for
an indemnity claim hereunder and LICENSEE shall thereafter control
15
<PAGE>
the defense of such indemnity claim, with attorneys selected by LICENSEE and at
LICENSEE'S own expense. LICENSORS shall be entitled, together with LICENSEE, to
participate in the defense, compromise or settlement of any such matter through
the LICENSORS' own attorneys and at LICENSORS' own expense, but LICENSEE shall
have control thereof. LICENSORS shall provide such cooperation and such access
to their books, records and properties as LICENSEE shall reasonably request with
respect to such matters and the parties hereto agree to render each other such
assistance as they may reasonably require of each in order to ensure the proper
and adequate defense thereof. LICENSEE shall not make any settlement of any
indemnity claims hereunder, other than indemnity claims strictly for monetary
damages as to which the LICENSEE agrees to be responsible, without the written
consent of LICENSORS, which consent shall not be unreasonably withheld. Without
limiting the generality of the foregoing, it shall not be deemed unreasonable to
withhold consent to a settlement involving injunctive or other equitable relief
against the LICENSORS, their assets, employees or business. As used in this
clause, LICENSORS includes their Trustees, Officers, Agents and Employees, and
those of Cornell University and the New York University, and "LICENSEE" includes
its Affiliates, Subsidiaries, Contractors and Sub-Contractors.
5. LICENSEE shall provide at its own expense, attorneys reasonably
acceptable to any individual or entity entitled to indemnification hereunder to
defend against any actions brought or filed against such individual or entity
with respect to the subject of indemnity contained herein.
6. (a) At such time as any Licensed Product, process or service
relating to, or
16
<PAGE>
developed pursuant to, this Agreement is being commercially distributed or sold
(other than for the purpose of obtaining regulatory approvals) by LICENSEE or
agent of LICENSEE, LICENSEE shall at its sole cost and expense, procure and
maintain policies of comprehensive general liability insurance in amounts not
less than $10,000.00 per incident and $1,000,000.00 annual aggregate and naming
the Indemnitees as additional insureds. Such comprehensive general liability
insurance shall provide (i) product liability coverage and (ii) broad form
contractual liability coverage for LICENSEE'S indemnification under this Section
4 of this Article. If LICENSEE elects to self-insure all or part of the limits
described above (including deductibles or retentions which are in excess of
$250,000 annual aggregate) such self-insurance program must be reasonably
acceptable to University.
(b) The minimum amounts of insurance coverage required under
this Section 6 shall not be construed to create a limit of LICENSEE'S liability
with respect to its indemnification under this Section 4 of this Article.
(c) LICENSEE shall provide LICENSORS with written evidence of
such insurance upon request of LICENSORS. LICENSEE shall provide LICENSORS with
written notice at least sixty (60) days prior to the cancellation, non-renewal
or material change in such insurance; if LICENSEE does not obtain replacement
insurance providing comparable coverage within such sixty (60) day period,
LICENSORS shall have the right to terminate this Agreement effective at the end
of such sixty (60) day period without notice or any additional waiting
17
<PAGE>
periods.
(d) LICENSEE shall maintain such comprehensive general
liability insurance beyond the expiration or termination of this Agreement
during (i) the period that any product, process or service, relating to, or
developed pursuant to, this Agreement is being commercially distributed or sold
(other than for the purpose of obtaining regulatory approvals) by LICENSEE or
agent of LICENSEE and (ii) a reasonable period after the period referred to in
Section 6(d)(i) above which in no event shall be less than three (3) years.
7. This Agreement shall be interpreted under the Laws of the State of
New York.
8. This Agreement may be executed in counterparts, each of which when
so executed and delivered shall be an original and such counterparts shall
together constitute but one and the same instrument.
18
<PAGE>
9. Reports, notices and other communications to the LICENSORS shall be
addressed to:
H. Walter Haeussler, President
CORNELL RESEARCH FOUNDATION, INC.
Cornell Business & Technology Park
20 Thornwood Drive, Suite 105
Ithaca, New York 14850
and notices and other communications to the LICENSEE to:
Michael Brown
Director, Diagnostic Development
International Canine Genetics, Inc.
271 Great Valley Parkway
Malvern, PA 19355
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed in duplicate as of the day and year first above written.
ATTEST: CORNELL RESEARCH FOUNDATION, INC.
____________________________ By:_______________________________
H. Walter Haeussler
Title: President
Date:_____________________________
ATTEST: THE UNIVERSITY OF MEDICINE AND
DENTISTRY OF NEW JERSEY
____________________________ By:_______________________________
Title:____________________________
Date:_____________________________
(Signatures continued on next page)
19
<PAGE>
ATTEST: NEW YORK UNIVERSITY
____________________________ By:_______________________________
Title:____________________________
Date:_____________________________
ATTEST: INTERNATIONAL CANINE GENETICS, INC.
____________________________ By:_______________________________
Title: President
Date:_____________________________
20
<PAGE>
Exhibit 10.33
THE UNIVERSITY OF MEDICINE AND DENTISTRY OF NEW JERSEY
OFFICE OF SPONSORED PROGRAMS
RESEARCH AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of October, 1995, by
and between International Canine Genetics, Inc. (hereinafter referred to as the
"Sponsor") and The University of Medicine and Dentistry of New Jersey, a
non-profit, educational institution having corporate powers under the laws of
the State of New Jersey (hereinafter referred to as the "University").
WITNESSETH:
WHEREAS, the effort contemplated by this Agreement is of mutual
interest and benefit to the University and to the Sponsor, will further
instructional and/or research objectives of the University in a manner
consistent with its status as a non-profit, tax-exempt, educational institution,
and may result in benefits to both the Sponsor and the University through
inventions, improvements, and/or discoveries; and
WHEREAS, the University and the Sponsor are entering into this
Agreement in connection with a certain Exclusive License Agreement by and among
Cornell Research Foundation, Inc., The University of Medicine and Dentistry of
New Jersey, the New York University School of Medicine and the Sponsor, executed
as of even date herewith and attached hereto as Exhibit A (the "License
Agreement") and in connection with a certain consulting contract between the
Sponsor and Dr. Laura T. Goldsmith, the principal investigator hereunder.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree to the following:
1. Definitions.
1.1 "Project" shall mean the work funded under this
Agreement as described in the Research Plan (the
"Research Plan"), attached hereto as Exhibit B and
made a part hereof.
1.2 "Intellectual Property" shall mean individually and
collectively all inventions, improvements and/or
discoveries, including deliverable software, if any,
which are conceived and first reduced to practice in
the performance of the Project.
1.3 "Sponsor Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice solely by one or more employees of the
Sponsor.
<PAGE>
1.4 "University Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice solely by one or more employees of the
University, and not as part of the Project.
1.5 "Jointly Owned Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice jointly by one or more employees of the
University and by one or more employees of the
Sponsor, or by one or more employees of the
University as part of the Project.
1.6 "Confidential Information" shall mean any knowledge
or information concerning the conduct and details of
the business of the Sponsor including, but not
limited to, the names of customers and suppliers,
financial condition, business plans, marketing
strategies and other information treated as
confidential by the Sponsor.
2. Work. The University shall commence the Project promptly after
the date of this Agreement and shall use good faith efforts to
perform the Project in accordance with the terms of this
Agreement and the Research Plan.
3. Principal Investigator and other Key Personnel. The following
individuals are identified as key personnel for the
performance of the Project:
Principal Investigator: Dr. Laura T. Goldsmith
If for any reason the Principal Investigator or any other Key
Personnel designated from time to time by mutual agreement by
the parties become unable to continue the Project, the
University and the Sponsor shall attempt to agree upon a
successor within fifteen (15) days. If the parties are unable
to so agree upon a successor, this Agreement may be terminated
in accordance with Article 11, Termination, without prior
notice.
4. Period of Performance. The period of performance of this
Agreement will be October 1, 1995 through September 30, 1996.
5. Reports and Conferences.
5.1 The University shall furnish the Sponsor detailed
written quarterly reports during the term of this
Agreement summarizing the work conducted. A final
such report setting forth the accomplishments and
significant findings shall be submitted by the
University within ninety (90) days of the expiration
or earlier termination of this Agreement.
<PAGE>
5.2 During the term of this Agreement, representatives of
the University will meet with representatives of the
Sponsor at times and places mutually agreed upon to
discuss the progress and results of the Project, as
well as ongoing plans and possible changes to the
Project.
5.3 Technical reports delivered to the Sponsor shall be
the property of the Sponsor and may be copied and
distributed by the Sponsor. The Sponsor shall ensure
that the University's copyright notice appears on all
copies of technical reports reproduced.
6. Costs and Payments.
6.1 It is agreed to and understood by the parties that
the University shall be reimbursed for all reasonable
costs incurred in connection with the Project, other
than overhead expenditures (the "Out-of-Pocket
Costs"), up to the amount of $25,000.00 as
established by the budget in the Research Plan and
overhead expenditures of the University reasonably
and fairly allocable to the Project (the "Overhead
Costs"), up to the amount of $15,500.00, representing
62% of the Out-of-Pocket Costs cap, (collectively,
the Out-of-Pocket Costs and Overhead Costs are
referred to as the "Project Costs"). It is estimated
that the amount designated for the Project Costs is
sufficient to support all Project Out-of-Pocket Costs
and Overhead Costs.
6.2 The Sponsor shall not be liable for any costs in
excess of the Project Cost. Within ninety (90) days
after the expiration or earlier termination of this
Agreement, the University shall submit to Sponsor a
final financial report separately itemizing all
Out-of-Pocket Costs and all Overhead Costs
reimbursable hereunder. The report shall be
accompanied by a check, payable to Sponsor, in the
amount, if any, of the excess of funds advanced by
the Sponsor hereunder over the total of such
Out-of-Pocket Costs and Overhead Costs.
6.3 The University shall maintain accurate records and
books of account relating to all Project Costs in
accordance with generally accepted accounting
principles consistently applied, and shall make such
records and books available to the Sponsor upon
reasonable notice during University's normal business
hours.
<PAGE>
6.4 All checks shall be made payable to the University
and sent to the address specified in Article 19,
Notices. Payment of the Project Costs shall be made
by the Sponsor according to the following schedule:
Out-of- Overhead
Date Due Pocket Costs Costs
-------- ------------ -----
Upon execution of this Agreement $6,250.00 $3,875.00
Specified Date $6,250.00 $3,875.00
Specified Date $6,250.00 $3,875.00
Specified Date $6,250.00 $3,875.00
-------- --------
Total $25,000.00 $15,500.00
7. Equipment. Title to any equipment purchased or manufactured by
the University with funds provided hereunder in the
performance of the Project shall vest in the University.
8. Publicity. Neither party shall use the name of the other
party, nor that of any member of the other's staff, in any
publicity, advertising, or news release without the prior
written approval of the other party.
9. Publications.
9.1 Should the Principal Investigator desire to disclose
publicly, in writing or by oral presentation, the
results of the Project, the Principal Investigator
shall notify the Sponsor and the University in
writing of his or her intention at least thirty (30)
days before submission or other public disclosure.
The Principal Investigator shall include with such
notice a description of the oral presentation or, in
the case of a manuscript or other proposed written
disclosure, a current draft of such written
disclosure. The Sponsor may request the University,
no later than ten (10) days following the receipt of
such notice, to file a patent, copyright or other
application related to University Intellectual
Property or Jointly Owned Intellectual Property
contained in such disclosure. All such filings shall
be subject to the provisions of Article 10 of this
Agreement. Upon receipt of such request, the
University and the Principal Investigator shall
arrange a delay in such public disclosure sufficient
to permit filing of a patent application, copyright
or other application by the University.
9.2 The Sponsor will be given full credit and
acknowledgment for the support provided to the
University in any publication resulting from the
Project, subject to Section 8 hereof.
<PAGE>
10. Intellectual Property.
10.1 All rights and title to University Intellectual
Property shall vest in the University.
10.2 All rights and title to Sponsor Intellectual Property
shall vest in the Sponsor.
10.3 All rights and title to Jointly Owned Intellectual
Property shall vest jointly in the University and in
the Sponsor.
10.4 The University and the Sponsor shall provide a
complete written disclosure to each other of any
Intellectual Property resulting from the Project and
the University shall provide a complete written
disclosure to the Sponsor of any University
Intellectual Property otherwise relating to the
detection of canine pregnancy no later than the last
day of each calendar quarter ("Intellectual Property
Report"). The Sponsor, in its sole discretion, may
request the University to file and prosecute any
patent application, domestic or foreign, or
application for other protection directed to
University Intellectual Property or to Jointly Owned
Intellectual Property described in such disclosure at
any time during the term of this Agreement, including
any extensions and renewals thereof. The Sponsor
shall bear all costs incurred in connection with such
preparation, filing, prosecution, and maintenance of
such applications, including reasonable legal fees,
filing and maintenance fees and other governmental
charges. The Sponsor shall cooperate with the
University to assure that such applications will
cover, to the best of the Sponsor's knowledge, all
items of commercial interest and importance. While
the University shall be responsible for making
decisions regarding the scope and content of such
applications, the Sponsor shall be given an
opportunity to select legal counsel to prepare such
filings and to review and provide input thereto prior
to filing in sufficient time for the Sponsor to
comment. The University shall keep the Sponsor
advised as to all developments with respect to such
applications and shall promptly supply to the Sponsor
copies of all papers received and filed in connection
with the prosecution thereof in sufficient time for
the Sponsor to comment.
10.5 If the Sponsor requests a license in any item of
University Intellectual Property or Jointly Owned
Intellectual Property, in consideration of Sponsor's
funding of the Project, University grants Sponsor a
first option to negotiate to acquire such license and
to make, have made, use and sell products using or
incorporating such Intellectual Property. The
University will negotiate in good faith a license
agreement which contains reasonable payments,
<PAGE>
royalties, and minimum royalties and which, with
respect to Jointly Owned Intellectual Property, takes
into account the existing co-ownership interest of
Sponsor. In addition to the foregoing, the University
will not offer any third party any license with
respect to any item of University Intellectual
Property relating to the detection of canine
pregnancy or Jointly Owned Intellectual Property
unless a license having the same terms and conditions
has first been offered to and refused by the Sponsor.
This provision shall survive the term of this
Agreement for a period of five (5) years.
10.6 If, during the term of this Agreement or of the
License Agreement, whichever is longer, the
University, individually or as part of the Project or
otherwise, makes any further improvements in the
inventions disclosed and claimed in the Patent (as
defined in the License Agreement) or the mode of
using such Patent, or becomes the owner of any new
improvements or new inventions related to the Patent
either through patents or otherwise, whether or not
such improvement or inventions are disclosed in any
Intellectual Property Report, then the University
shall promptly communicate such improvements or
inventions to the Sponsor. The Sponsor, in its sole
discretion, may request the University to file and
prosecute any patent application, domestic or
foreign, or application for other protection directed
to such improvement or invention at any time during
such period. The Sponsor shall also have the right to
negotiate a license agreement with the University
with respect thereto, with reasonable payments,
royalties and minimum royalties and the University
shall negotiate with Sponsor in good faith. Notice of
improvements or new inventions related to the Patent
must be given to the Sponsor prior to any
publication, sale, offer of sale or public use that
could bar the filing of a patent with respect thereto
and the University acknowledges that its failure to
do so could result in irreparable injury to the
Sponsor, and in the event of such a failure, the
Sponsor shall have available to it all remedies at
law or in equity, including injunctive relief.
10.7 If no license agreement can be reached pursuant to
Section 10.5 or Section 10.6 hereof following faith
negotiations between the parties, the matter may be
submitted for resolution by the Sponsor in accordance
with Section 17 hereof or abandoned, as determined by
the Sponsor in its sole discretion.
11. Termination. This Agreement may be terminated at any time by
either party giving the other party at least ninety (90) days
written notice of termination. In the event of such a
termination by Sponsor, the University will be reimbursed for
all Out-of-Pocket Costs actually incurred by the University,
all non-cancelable
<PAGE>
commitments of the University for Out-of-Pocket Costs and all
Overhead Costs as of the date of the termination notice. In
the event of such a termination by the University, the
University will be reimbursed for all Out-of-Pocket Costs
actually incurred by the University and all Overhead Costs as
of the date of the termination notice. In no event shall the
liability of the Sponsor exceed the Project Costs.
12. Copyright. Copyright to materials, including computer
software, first created by the University during the
performance of the Project shall vest in either the author or
the University in accordance with the University's policy on
copyrights. The licensing of such materials by Sponsor shall
be governed by the provisions of Section 10.5 hereof.
13. Independent Contractor.
13.1 In the performance of the Project the University
shall be deemed to be and shall be an independent
contractor and, as such, the University shall not be
entitled to any benefits applicable to employees of
the Sponsor.
13.2 Neither party is authorized or empowered to act as an
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.
14. Insurance, Indemnifications and Warranties.
14.1 The University warrants and represents that the
University has adequate liability insurance, such
protection being applicable to officers, employees,
and agents while acting within the scope of their
employment by the University, and that the University
has no liability protection for any other person.
14.2 Each party hereby assumes any and all risks of
personal injury and property damage attributable to
the negligent acts of that party and the officers,
employees, and agents thereof.
14.3 The University agrees to indemnify the Sponsor for
liability for personal injury or property damage
caused by negligent acts or omissions of the
University, its officers, agents or employees in the
performance of the Project; provided that, as a
condition precedent to indemnification, the Sponsor
shall (a) promptly notify the University of any claim
or cause of action subject to indemnification
hereunder and any occurrence which may give rise to
such claim or cause of action, (b) afford the
University the opportunity to defend any such claim
or cause of action, and (c) cooperate fully with the
University in such defense.
<PAGE>
14.4 The Sponsor agrees to indemnify University for
liability for personal injury or property damage
caused by negligent acts or omissions of the Sponsor,
its officers, agents or employees in the performance
of the Project; provided that, as a condition
precedent to indemnification, the University shall
(a) promptly notify the Sponsor of any claim or cause
of action subject to indemnification hereunder and
any occurrence which may give rise to such claim or
cause of action, (b) afford the Sponsor the
opportunity to defend any such claim or cause of
action, and (c) cooperate fully with the Sponsor in
such defense.
14.5 The University makes no warranties, express or
implied, as to the merchantability or fitness for a
particular purpose of the Project or any invention or
results thereof.
15. Confidentiality. The University agrees that it will not,
directly or indirectly, use, communicate, disclosure or
divulge to any natural person or any entity, any Confidential
Information which it may have acquired, no matter from whom or
in what manner, heretofore or hereafter. The University
acknowledges that a breach of this provision may result in
irreparable injury to the Sponsor and that in such event, the
Sponsor shall be entitled to all remedies available to it at
law or in equity, including injunctive relief.
16. Force Majeure. Neither party shall be liable for any failure
to perform as required by this Agreement to the extent such
failure to perform is reasonably beyond such failing party's
control, or by reason of any of the following, each of which
is reasonably beyond such party's control: labor disturbances
or labor disputes, accidents, failure of any governmental
approval required for full performance, civil disorders or
commotions, acts of aggression, floods, earthquakes, acts of
God, energy or other conservation measures, explosion, failure
of utilities, mechanical breakdowns, material shortages or
disease.
17. Arbitration and Jurisdiction. All disputes between the Sponsor
and the University shall be handled in accordance with the
provisions of Article XVI of the License Agreement and those
terms shall be incorporated herein and made a part hereof. For
purposes of this Agreement, all references therein to Licensor
shall mean the University and all references therein to
"Licensee" shall mean the Sponsor.
18. Assignment. This Agreement shall not be assigned by the
University without the prior written consent of the Sponsor.
This Agreement shall not be assigned by the Sponsor without
the prior written consent of the University, which consent
shall not be unreasonably withheld, provided, however, that
this Agreement may be assigned by Sponsor to Sponsor's
successor in business. This Agreement shall be binding upon
all successors and permitted assigns.
<PAGE>
19. Agreement Modification. 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.
20. Notices. Notices, invoices, communications, and payments
hereunder shall be deemed made if given by registered or
certified mail, 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.
If to the Sponsor: Michael Brown
Director, Diagnostic Development
International Canine Genetics, Inc.
271 Great Valley Parkway
Malvern, PA 19355
If to the University:
Contractual: Norbert I. Swislocki, Ph.D.
Acting Associate Dean for Research
UMD-New Jersey Medical School
185 South Orange Avenue, MSB B648
Newark, New Jersey 07103-2714
(include Dr. Laura T. Goldsmith on any
communications)
Payments: Denise Mulkern
V.P. of Finance and Treasury
UMDNJ-Central Administration
65 Bergen Street, Rm. 1218
Newark, New Jersey 07107-3000
(include Dr. Laura T. Goldsmith
on any payments)
This Agreement is the complete agreement of the Sponsor and the
University with regard to the subject matter herein and supersedes all prior
understandings regarding the Project.
IN WITNESS WHEREOF, intending to be legally bound, the parties have
caused these presents to be executed in duplicate on the dates indicated below.
UNIVERSITY INTERNATIONAL CANINE GENETICS, INC.
By:_____________________________ By:________________________________
Title:___________________________ Title:______________________________
Date:___________________________ Date:______________________________
<PAGE>
CORNELL UNIVERSITY
OFFICE OF SPONSORED PROGRAMS
RESEARCH AGREEMENT
THIS AGREEMENT is entered into as of the ____ day of October, 1995, by
and between International Canine Genetics, Inc. (hereinafter referred to as the
"Sponsor") and Cornell University, a non-profit, educational institution having
corporate powers under the laws of the State of New York (hereinafter referred
to as the "University").
WITNESSETH:
WHEREAS, the effort contemplated by this Agreement is of mutual
interest and benefit to the University and to the Sponsor, will further
instructional and/or research objectives of the University in a manner
consistent with its status as a non-profit, tax-exempt, educational institution,
and may result in benefits to both the Sponsor and the University through
inventions, improvements, and/or discoveries; and
WHEREAS, the University and the Sponsor are entering into this
Agreement in connection with a certain Exclusive License Agreement by and among
Cornell Research Foundation, Inc., The University of Medicine and Dentistry of
New Jersey, the New York University School of Medicine and the Sponsor, executed
as of even date herewith and attached hereto as Exhibit A (the "License
Agreement") and in connection with a certain consulting contract between the
Sponsor and Dr. George Lust, the principal investigator hereunder.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree to the following:
<PAGE>
1. Definitions.
1.1 "Project" shall mean the work funded under this
Agreement as described in the Research Plan (the
"Research Plan"), attached hereto as Exhibit B and
made a part hereof.
1.2 "Intellectual Property" shall mean individually and
collectively all inventions, improvements and/or
discoveries, including deliverable software, if any,
which are conceived and first reduced to practice in
the performance of the Project.
1.3 "Sponsor Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice solely by one or more employees of the
Sponsor.
<PAGE>
1.4 "University Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice solely by one or more employees of the
University.
1.5 "Jointly Owned Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice jointly by one or more employees of the
University and by one or more employees of the
Sponsor.
1.6 "Confidential Information" shall mean any knowledge
or information concerning the conduct and details of
the business of the Sponsor including, but not
limited to, the names of customers and suppliers,
financial condition, business plans, marketing
strategies and other information treated as
confidential by the Sponsor and marked as such.
2. Work. The University shall commence the Project promptly after
the date of this Agreement and shall use good faith efforts to
perform the Project in accordance with the terms of this
Agreement and the Research Plan.
3. Principal Investigator and other Key Personnel. The following
individuals are identified as key personnel for the
performance of the Project:
Principal Investigator: Dr. George Lust
If for any reason the Principal Investigator or any other Key
Personnel designated from time to time by mutual agreement of
the parties become unable to continue the Project, the
University and the Sponsor shall attempt to agree upon a
successor within fifteen (15) days. If the parties are unable
to so agree upon a successor, this Agreement may be terminated
in accordance with Article 11, Termination, without prior
notice.
4. Period of Performance. The period of performance of this
Agreement will be October 1, 1995 through September 30, 1996.
5. Reports and Conferences.
5.1 The University shall furnish the Sponsor detailed
written quarterly reports during the term of this
Agreement summarizing the work conducted. A final
such report setting forth the accomplishments and
significant findings shall be submitted by the
University within ninety (90) days of the expiration
or earlier termination of this Agreement.
<PAGE>
5.2 During the term of this Agreement, representatives of
the University will meet with representatives of the
Sponsor at times and places mutually agreed upon to
discuss the progress and results of the Project, as
well as ongoing plans and possible changes to the
Project.
5.3 Technical reports delivered to the Sponsor shall be
the property of the Sponsor and may be copied and
distributed by the Sponsor. The Sponsor shall ensure
that the University's copyright notice appears on all
copies of technical reports reproduced.
6. Costs and Payments.
6.1 It is agreed to and understood by the parties that
the University shall be reimbursed for all reasonable
costs incurred in connection with the Project, other
than overhead expenditures (the "Out-of-Pocket
Costs"), up to the amount of $20,000.00 as
established by the budget in the Research Plan and
overhead expenditures of the University reasonably
and fairly allocable to the Project (the "Overhead
Costs"), up to the amount of $12,000.00, representing
60% of the Out-of-Pocket Costs cap, (collectively,
the Out-of-Pocket Costs and Overhead Costs are
referred to as the "Project Costs"). It is estimated
that the amount designated for the Project Costs is
sufficient to support all Project Out-of-Pocket Costs
and Overhead Costs.
6.2 The Sponsor shall not be liable for any costs in
excess of the Project Cost. Within ninety (90) days
after the expiration or earlier termination of this
Agreement, the University shall submit to Sponsor a
final financial report separately itemizing all
Out-of-Pocket Costs and all Overhead Costs
reimbursable hereunder. The report shall be
accompanied by a check, payable to Sponsor, in the
amount, if any, of the excess of funds advanced by
the Sponsor hereunder over the total of such
Out-of-Pocket Costs and Overhead Costs.
6.3 The University shall maintain accurate records and
books of account relating to all Project Costs in
accordance with generally accepted accounting
principles consistently applied, and shall make such
records and books available to the Sponsor upon
reasonable notice during University's normal business
hours.
<PAGE>
6.4 All checks shall be made payable to the University
and sent to the address specified in Article 19,
Notices. Payment of the Project Costs shall be made
by the Sponsor according to the following schedule:
Out-of- Overhead
Date Due Pocket Costs Costs
-------- ------------ -----
Upon execution of this Agreement $5,000.00 $3,000.00
January 1, 1996 $5,000.00 $3,000.00
April 1, 1996 $5,000.00 $3,000.00
July 1, 1996 $5,000.00 $3,000.00
-------- --------
Total $20,000.00 $12,000.00
7. Equipment. Title to any equipment purchased or manufactured by
the University with funds provided hereunder in the
performance of the Project shall vest in the University.
8. Publicity. Neither party shall use the name of the other
party, nor that of any member of the other's staff, in any
publicity, advertising, or news release without the prior
written approval of the other party.
9. Publications.
9.1 Should the Principal Investigator desire to disclose
publicly, in writing or by oral presentation, the
results of the Project, the Principal Investigator
shall notify the Sponsor and the University in
writing of his or her intention at least thirty (30)
days before submission or other public disclosure.
The Principal Investigator shall include with such
notice a description of the oral presentation or, in
the case of a manuscript or other proposed written
disclosure, a current draft of such written
disclosure. The Sponsor may request the University,
no later than ten (10) days following the receipt of
such notice, to file a patent, copyright or other
application related to University Intellectual
Property or Jointly Owned Intellectual Property
contained in such disclosure. All such filings shall
be subject to the provisions of Article 10 of this
Agreement. Upon receipt of such request, the
University and the Principal Investigator shall
arrange a delay in such public disclosure sufficient
to permit filing of a patent application, copyright
or other application by the University.
9.2 The Sponsor will be given full credit and
acknowledgment for the support provided to the
University in any publication resulting from the
Project, subject to Section 8 hereof.
<PAGE>
10. Intellectual Property.
10.1 All rights and title to University Intellectual
Property shall vest in the University.
10.2 All rights and title to Sponsor Intellectual Property
shall vest in the Sponsor.
10.3 All rights and title to Jointly Owned Intellectual
Property shall vest jointly in the University and in
the Sponsor.
10.4 The University and the Sponsor shall provide a
complete written disclosure to each other of any
Intellectual Property resulting from the Project and
the University shall provide a complete written
disclosure to the Sponsor of any University
Intellectual Property otherwise relating to the
detection of canine pregnancy no later than the last
day of each calendar quarter ("Intellectual Property
Report"). The Sponsor, in its sole discretion, may
request the University to file and prosecute any
patent application, domestic or foreign, or
application for other protection directed to
University Intellectual Property or to Jointly Owned
Intellectual Property described in such disclosure at
any time during the term of this Agreement, including
any extensions and renewals thereof. The Sponsor
shall bear all costs incurred in connection with such
preparation, filing, prosecution, and maintenance of
such applications, including reasonable legal fees,
filing and maintenance fees and other governmental
charges. The Sponsor shall cooperate with the
University to assure that such applications will
cover, to the best of the Sponsor's knowledge, all
items of commercial interest and importance. While
the University shall be responsible for making
decisions regarding the scope and content of such
applications, the Sponsor shall be given an
opportunity to select legal counsel to prepare such
filings and to review and provide input thereto prior
to filing in sufficient time for the Sponsor to
comment. The University shall keep the Sponsor
advised as to all developments with respect to such
applications and shall promptly supply to the Sponsor
copies of all papers received and filed in connection
with the prosecution thereof in sufficient time for
the Sponsor to comment.
10.5 If the Sponsor requests a license in any item of
University Intellectual Property or Jointly Owned
Intellectual Property arising out of the Project, in
consideration of Sponsor's funding of the Project,
University grants Sponsor a first option to negotiate
to acquire such license and to make, have made, use
and sell products using or incorporating such
Intellectual Property. The University will negotiate
in good faith a license agreement which contains
reasonable payments, royalties, and minimum royalties
and which, with respect to Jointly Owned Intellectual
Property, takes into account the existing
co-ownership interest of Sponsor. In addition to the
foregoing, the University will not offer any third
party any license with respect to any item of
<PAGE>
University Intellectual Property relating to the
detection of canine pregnancy arising out of the
Project or Jointly Owned Intellectual Property unless
a license having the same terms and conditions has
first been offered to and refused by the Sponsor.
This provision shall survive the term of this
Agreement for a period of five (5) years.
10.6 If, during the term of this Agreement or of the
License Agreement, whichever is longer, the
University, individually or as part of the Project or
otherwise, makes any further improvements in the
inventions disclosed and claimed in the Patent (as
defined in the License Agreement) or the mode of
using such Patent, or becomes the owner of any new
improvements or new inventions related to the Patent
either through patents or otherwise, whether or not
such improvement or inventions are disclosed in any
Intellectual Property Report, then the University
shall promptly communicate such improvements or
inventions to the Sponsor. The Sponsor, in its sole
discretion, may request the University to file and
prosecute any patent application, domestic or
foreign, or application for other protection directed
to such improvement or invention at any time during
such period. The Sponsor shall also have the right to
negotiate a license agreement with the University
with respect thereto, with reasonable payments,
royalties and minimum royalties and the University
shall negotiate with Sponsor in good faith. Notice of
improvements or new inventions related to the Patent
must be given to the Sponsor prior to any
publication, sale, offer of sale or public use that
could bar the filing of a patent with respect thereto
and the University acknowledges that its failure to
do so could result in irreparable injury to the
Sponsor, and in the event of such a failure, the
Sponsor shall have available to it all remedies at
law or in equity, including injunctive relief.
11. Termination. This Agreement may be terminated at any time by
either party giving the other party at least ninety (90) days
written notice of termination. In the event of such a
termination by Sponsor, the University will be reimbursed for
all Out-of-Pocket Costs actually incurred by the University,
all non-cancelable commitments of the University for
Out-of-Pocket Costs and all Overhead Costs as of the date of
the termination notice. In the event of such a termination by
the University, the University will be reimbursed for all
Out-of-Pocket Costs actually incurred by the University and
all Overhead Costs as of the date of the termination notice.
In no event shall the liability of the Sponsor exceed the
Project Costs.
<PAGE>
12. Copyright. Copyright to materials, including computer
software, first created by the University during the
performance of the Project shall vest in either the author or
the University in accordance with the University's policy on
copyrights. The licensing of such materials by Sponsor shall
be governed by the provisions of Section 10.5 hereof.
13. Independent Contractor.
13.1 In the performance of the Project the University
shall be deemed to be and shall be an independent
contractor and, as such, the University shall not be
entitled to any benefits applicable to employees of
the Sponsor.
13.2 Neither party is authorized or empowered to act as an
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.
14. Insurance, Indemnifications and Warranties.
14.1 The University warrants and represents that the
University has adequate liability insurance, such
protection being applicable to officers, employees,
and agents while acting within the scope of their
employment by the University, and that the University
has no liability protection for any other person.
14.2 Each party hereby assumes any and all risks of
personal injury and property damage attributable to
the negligent acts of that party and the officers,
employees, and agents thereof.
14.3 The University agrees to indemnify the Sponsor for
liability for personal injury or property damage
caused by negligent acts or omissions of the
University, its officers, agents or employees in the
performance of the Project; provided that, as a
condition precedent to indemnification, the Sponsor
shall (a) promptly notify the University of any claim
or cause of action subject to indemnification
hereunder and any occurrence which may give rise to
such claim or cause of action, (b) afford the
University the opportunity to defend any such claim
or cause of action, and (c) cooperate fully with the
University in such defense.
14.4 The Sponsor agrees to indemnify University for liability
for personal injury or property damage caused by negligent acts or omissions of
the Sponsor, its officers, agents or employees in the performance of the
Project; provided that, as a condition precedent to indemnification, the
University shall (a) promptly notify the Sponsor of any claim or cause of action
subject to indemnification hereunder and any occurrence which may give rise to
such claim or cause of action, (b) afford the Sponsor the opportunity to defend
any such claim or cause of action, and (c) cooperate fully with the Sponsor in
such defense.
<PAGE>
14.5 The University makes no warranties, express or
implied, as to the merchantability or fitness for a
particular purpose of the Project or any invention or
results thereof.
15. Confidentiality. The University agrees that it will use
reasonable efforts not, directly or indirectly, to use,
communicate, disclosure or divulge to any natural person or
any entity, any Confidential Information which it may have
acquired, no matter from whom or in what manner, heretofore or
hereafter. The University acknowledges that a breach of this
provision may result in irreparable injury to the Sponsor and
that in such event, the Sponsor shall be entitled to all
remedies available to it at law or in equity, including
injunctive relief.
16. Force Majeure. Neither party shall be liable for any failure
to perform as required by this Agreement to the extent such
failure to perform is reasonably beyond such failing party's
control, or by reason of any of the following, each of which
is reasonably beyond such party's control: labor disturbances
or labor disputes, accidents, failure of any governmental
approval required for full performance, civil disorders or
commotions, acts of aggression, floods, earthquakes, acts of
God, energy or other conservation measures, explosion, failure
of utilities, mechanical breakdowns, material shortages or
disease.
17. Assignment. This Agreement shall not be assigned by the
University without the prior written consent of the Sponsor.
This Agreement shall not be assigned by the Sponsor without
the prior written consent of the University, which consent
shall not be unreasonably withheld, provided, however, that
this Agreement may be assigned by Sponsor to Sponsor's
successor in business. This Agreement shall be binding upon
all successors and permitted assigns.
18. Agreement Modification. 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.
19. Notices. Notices, invoices, communications, and payments
hereunder shall be deemed made if given by registered or
certified mail, 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.
<PAGE>
If to the Sponsor: Michael Brown
Director, Diagnostic Development
International Canine Genetics, Inc.
271 Great Valley Parkway
Malvern, PA 19355
If to the University:
Contractual: Office of Sponsored Programs
120 Day Hall
Cornell University
Ithaca, NY 14853
Attn: Ms. Juliett Jacobson
Payments: Cornell University
Sponsored Funds Accounting
P. O. Box 22
Ithaca, NY 14851-0022
This Agreement is the complete agreement of the Sponsor and the
University with regard to the subject matter herein and supersedes all prior
understandings regarding the Project.
IN WITNESS WHEREOF, intending to be legally bound, the parties have
caused these presents to be executed in duplicate on the dates indicated below.
UNIVERSITY INTERNATIONAL CANINE GENETICS, INC.
By:_____________________________ By:________________________________
Title:__________________________ Title:_____________________________
Date:___________________________ Date:______________________________
<PAGE>
Exhibit 10.35
NEW YORK UNIVERSITY
INTERNATIONAL CANINE GENETICS, INC.
RESEARCH AGREEMENT
THIS AGREEMENT is entered into as of the _______ day of October, 1995,
by and between International Canine Genetics, Inc. (hereinafter referred to as
the "Sponsor"), with offices located at 271 Great Valley Parkway, Malvern, PA
19355 and New York University , a non-profit, educational institution having
corporate powers under the laws of the State of New York (hereinafter referred
to as the "University") with offices located at 70 Washington Square South, New
York, NY 10012.
WITNESSETH:
WHEREAS, the effort contemplated by this Agreement is of mutual
interest and benefit to the University and to the Sponsor, will further
instructional and/or research objectives of the University in a manner
consistent with its status as a non-profit, tax-exempt, educational institution,
and may result in benefits to both the Sponsor and the University through
inventions, improvements, and/or discoveries; and
WHEREAS, the University and the Sponsor are entering into this
Agreement in connection with a certain Exclusive License Agreement by and among
Cornell Research Foundation, Inc., The University of Medicine and Dentistry of
New Jersey, the New York University School of Medicine and the Sponsor, executed
as of even date herewith and attached hereto as Exhibit A (the "License
Agreement").
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereto agree to the following:
1. Definitions.
1.1 "Project" shall mean the work funded under this
Agreement as described in the Research Plan (the
"Research Plan"), attached hereto as Exhibit B and
made a part hereof.
1.2 "Intellectual Property" shall mean individually and
collectively all inventions, improvements and/or
discoveries, including deliverable software, if any,
and biological materials, antigens and antibodies
which are conceived and first reduced to practice in
the performance of the Project.
1.3 "Sponsor Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice solely by one or more employees of the
Sponsor.
<PAGE>
1.4 "University Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice solely by one or more employees of the
University.
1.5 "Jointly Owned Intellectual Property" shall mean
Intellectual Property conceived and first reduced to
practice jointly by one or more employees of the
University and by one or more employees of the
Sponsor.
1.6 "Confidential Information" shall mean any knowledge
or information concerning the conduct and details of
the business of the Sponsor including, but not
limited to, the names of customers and suppliers,
financial condition, business plans, marketing
strategies and other information treated as
confidential by the Sponsor and marked as such.
2. Work. The University shall commence the Project promptly after the date
of this Agreement and shall use good faith efforts to perform the
Project in accordance with the terms of this Agreement and the Research
Plan.
3. Principal Investigator and other Key Personnel. The following
individual is identified as the Principal Investigator for the
performance of the Project:
Principal Investigator: Dr. Bernard G. Steinetz
If for any reason the Principal Investigator designated from time to
time by mutual agreement by the parties becomes unable to continue the
Project, the University and the Sponsor shall attempt to agree upon a
successor within fifteen (15) days. If the parties are unable to so
agree upon a successor, this Agreement may be terminated in accordance
with Article 11, Termination, without prior notice.
4. Period of Performance. The period of performance of the Project will be
October 1, 1995 through September 30, 1996 (the "Period of
Performance").
5. Reports and Conferences.
5.1 The University shall furnish the Sponsor detailed
written quarterly reports during the Period of
Performance under this Agreement summarizing the work
conducted. A final such report setting forth the
accomplishments and significant findings shall be
submitted by the University within ninety (90) days
of the expiration or earlier termination of this
Agreement.
5.2 During the Period of Performance under this
Agreement, representatives of the University will
meet with representatives of the Sponsor at times and
places mutually agreed upon to discuss the progress
and results of the Project, as well as ongoing plans
and possible changes to the Project.
2
<PAGE>
5.3 Technical reports prepared by the University and
delivered to the Sponsor shall be the property of the
University and the Sponsor agrees that it will not,
directly or indirectly, use, communicate, disclose or
divulge to any natural person or any entity the
information contained in such reports; provided,
however, that such reports may be copied and used by
the Sponsor in connection with its research and in
the ordinary course of its business. The Sponsor
shall ensure that the University's copyright notice
appears on all copies of technical reports
reproduced.
6. Costs and Payments.
6.1 As compensation to University for work to be
performed on the Project during the Period of
Performance under this Agreement, Sponsor will pay
University the total sum of $48,000 (the "Project
Costs") payable in four (4) equal consecutive
quarterly installments of $12,000 each, commencing
upon the effective date of this Agreement and due and
payable quarterly.
6.2 Nothing in this Agreement shall be interpreted to
prohibit University (or the Principal Investigator)
from obtaining additional financing or research
grants for the Project from government agencies,
which grants or financing may render all or part of
the Project and the results thereof subject to the
patent rights of the U.S. Government and its
agencies, as set forth in Title 35 U.S.C Section 200
et seq.
6.3 The Sponsor shall not be liable for any costs of the
University incurred in the Project in excess of the
Project Costs unless additional work is mutually
agreed to by both parties.
7. Equipment. Title to any equipment purchased or manufactured by the
University with funds provided hereunder in the performance of the
Project shall vest in the University.
8. Publicity. Neither party shall use the name of the other party, nor
that of any member of the other's staff, in any publicity, advertising,
or news release without the prior written approval of the other party
except that the University may reference Sponsor's support of the
Project in any scientific publication.
9. Publications.
9.1 Should the Principal Investigator desire to disclose
publicly, in writing or by oral presentation, the results of the Project, the
Principal Investigator shall notify the Sponsor and the University in writing of
his or her intention at least thirty (30) days before submission or other public
disclosure. The Principal Investigator shall include with such notice a
description of the oral presentation or, in the case of a manuscript or other
proposed written disclosure, a current draft of such written disclosure. The
Sponsor may request the University, no later than ten (10) days following the
receipt of such notice, to file a patent, copyright or other application
3
<PAGE>
related to University Intellectual Property or Jointly Owned Intellectual
Property contained in such disclosure. All such filings shall be subject to the
provisions of Article 10 of this Agreement. Upon receipt of such request, the
University and the Principal Investigator shall arrange a delay in such public
disclosure for a maximum period of sixty (60) days, or if earlier, until filing
of a patent application, copyright or other application by the University.
9.2 The Sponsor will be given full credit and
acknowledgment for the support provided to the
University in any publication resulting from the
Project.
10. Intellectual Property.
10.1 All rights and title to University Intellectual
Property shall vest in the University.
10.2 All rights and title to Sponsor Intellectual
Property shall vest in the Sponsor.
10.3 All rights and title to Jointly Owned Intellectual
Property shall vest jointly in the University and in
the Sponsor.
10.4 The University and the Sponsor shall provide a
complete written disclosure to each other of any
Intellectual Property resulting from the Project
("Intellectual Property Report"). The Sponsor, in its
sole discretion, may request the University to file
and prosecute any patent application, domestic or
foreign, or application for other protection directed
to such Intellectual Property at any time during the
term of this Agreement, including any extensions and
renewals thereof. The Sponsor shall bear all costs
incurred in connection with such preparation, filing,
prosecution, and maintenance of such applications,
including reasonable legal fees, filing and
maintenance fees and other governmental charges. The
Sponsor shall cooperate with the University to assure
that such applications will cover, to the best of the
Sponsor's knowledge, all items of commercial interest
and importance. While the University shall be
responsible for making decisions regarding the scope
and content of such applications, the Sponsor and the
University shall jointly select legal counsel to
prepare such filings and to review and provide input
thereto prior to filing in sufficient time for the
Sponsor to comment. The University shall keep the
Sponsor advised as to all developments with respect
to such applications and shall promptly supply to the
Sponsor copies of all papers received and filed in
connection with the prosecution thereof in sufficient
time for the Sponsor to comment.
4
<PAGE>
10.5 If the Sponsor requests a license in any item of
University Intellectual Property or Jointly Owned
Intellectual Property, in consideration of Sponsor's
funding of the Project, University grants Sponsor a
first option to negotiate to acquire such license and
to make, have made, use and sell products using or
incorporating such Intellectual Property. The
University and Sponsor will negotiate in good faith a
license agreement which contains reasonable payments,
royalties, and minimum royalties and which, with
respect to Jointly Owned Intellectual Property, takes
into account the existing co-ownership interest of
Sponsor. In the event that the University and the
Sponsor fail, after good faith negotiations, to enter
into a written license agreement after the expiration
of 180 days from the earlier of the date of (i)
Sponsor's request for such license, or (ii) Sponsor's
request that the University file and prosecute a
patent application with respect to such item of
Intellectual Property, the University shall have the
right to offer such license to a third party. In
addition to the foregoing, the University will not
offer any third party any license with respect to any
item of University Intellectual Property relating to
the detection of canine pregnancy or Jointly Owned
Intellectual Property unless a license having the
same terms and conditions has been offered to and
refused by the Sponsor. Upon receipt of notice of
such an offer, the Sponsor shall have 14 days to
accept or reject such offer. In the event that
Sponsor elects to reject such offer, the University
shall have the right to enter into a license
agreement with a third party upon the same terms and
conditions as were first offered to Sponsor. In the
event that Sponsor elects to accept the offer, the
University and the Sponsor shall use good faith
efforts to execute a written license agreement with
respect thereto within 60 days after the date of the
Sponsor's notice of acceptance. In the event that the
parties fail, after good faith negotiations, to enter
into a written agreement within such 60 day period,
the University shall have the right to offer such
license to a third party and Sponsor shall have no
further rights or options in such Intellectual
Property. This provision shall survive the term of
this Agreement for a period of five (5) years.
11. Termination. This Agreement may be terminated at any time by either
party as a result of a material breach of this Agreement by the other
party after giving the other party thirty (30) days written notice of
termination.
12. Copyright. Copyright to materials, including computer software, first
created by the University during the performance of the Project shall
vest in either the author or the University in accordance with the
University's policy on copyrights. The licensing of such materials by
Sponsor shall be governed by the provisions of Section 10.5 hereof.
5
<PAGE>
13. Independent Contractor.
13.1 In the performance of the Project the University
shall be deemed to be and shall be an independent
contractor and, as such, the University shall not be
entitled to any benefits applicable to employees of
the Sponsor.
13.2 Neither party is authorized or empowered to act as an
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.
14. Insurance, Indemnifications and Warranties.
14.1 Sponsor shall indemnify, defend and hold harmless
University and its trustees, officers, medical and
professional staff, employees, students and agents
and their respective successors, heirs and assigns
(the "Indemnitees"), against any liability, damage,
loss or expense (including reasonable attorneys' fees
and expenses of litigation) incurred by or imposed
upon the Indemnitees or any one of them in connection
with any claims, suits, actions, demands or judgments
arising out of any activities carried out pursuant to
this Agreement.
14.2 Sponsor's indemnification obligation under 14.1 shall
not apply to any liability, damage, loss or expense
to the extent that it is attributable to the
negligent activities of any such Indemnitee.
14.3 Sponsor agrees, at its own expense, to provide
attorneys reasonably acceptable to University to
defend against any actions brought or filed against
any Indemnitee with respect to the subject of
indemnity to which such Indemnitee is entitled
hereunder, whether or not such actions are rightfully
brought.
14.4 The University makes no warranties, express or
implied, as to the merchantability or fitness for a
particular purpose of the Project or any invention or
results thereof.
15. Confidentiality. The University agrees that it will not, directly or
indirectly, use, communicate, disclosure or divulge to any natural
person or any entity, any Confidential Information which it may have
acquired, no matter from whom or in what manner, heretofore or
hereafter, unless such data has already been published or publicly
disclosed by the Sponsor. The University acknowledges that a breach of
this provision may result in irreparable injury to the Sponsor and that
in such event, the Sponsor shall be entitled to all remedies available
to it at law or in equity, including injunctive relief.
6
<PAGE>
16. Force Majeure. Neither party shall be liable for any failure to perform
as required by this Agreement to the extent such failure to perform is
reasonably beyond such failing party's control, or by reason of any of
the following, each of which is reasonably beyond such party's control:
labor disturbances or labor disputes, accidents, failure of any
governmental approval required for full performance, civil disorders or
commotions, acts of aggression, floods, earthquakes, acts of God,
energy or other conservation measures, explosion, failure of utilities,
mechanical breakdowns, material shortages or disease.
17. Assignment. This Agreement shall not be assigned by the University
without the prior written consent of the Sponsor. This Agreement shall
not be assigned by the Sponsor without the prior written consent of the
University, which consent shall not be unreasonably withheld, provided,
however, that this Agreement may be assigned by Sponsor to Sponsor's
successor in business. The Sponsor shall give the University notice of
any transfer by the Sponsor to a successor in business. This Agreement
shall be binding upon all successors and permitted assigns.
18. Agreement Modification. 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.
19. Notices. Notices, invoices, elections, communications, and payments
hereunder shall be deemed made if given by registered or certified
mail, 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.
If to the Sponsor: Michael Brown
Director, Diagnostic Development
International Canine Genetics, Inc.
271 Great Valley Parkway
Malvern, PA 19355
If to the University:
Contractual: New York University Medical Center
550 First Avenue
New York, NY 10016
Attn: Isaac T. Kohlberg
Vice President for Industrial Liaison
and
7
<PAGE>
Office of Legal Counsel
New York University
Bobst Library
70 Washington Square South
New York, NY 10012
Attn: Annette B. Johnson
Senior Counsel for
Medical Center Affairs
Payments: New York University Medical Center
550 First Avenue
New York, NY 10016
Attn: Isaac T. Kohlberg
Vice President for Industrial Liaison
This Agreement is the complete agreement of the Sponsor and the
University with regard to the subject matter herein and supersedes all prior
understandings regarding the Project.
IN WITNESS WHEREOF, intending to be legally bound, the parties have
caused these presents to be executed in duplicate on the dates indicated below.
UNIVERSITY INTERNATIONAL CANINE GENETICS, INC.
By:_____________________________ By:________________________________
Title:__________________________ Title:_____________________________
Date:___________________________ Date:______________________________
8
<PAGE>
Exhibit 10.36
As of October 1, 1995
Dr. Bernard G. Steinetz
Laboratory for Experimental Medicine
& Surgery in Primates
New York University Medical Center
RR #1 Long Meadow Road
Tuxedo, NY 10987
RE: Consulting Agreement
Dear Dr. Steinetz:
INTERNATIONAL CANINE GENETICS, INC., a Delaware corporation (the "Company"),
desires to engage you as a consultant on the following terms and conditions:
1. This Agreement is being entered into in connection with, and is
contingent upon, the execution of a certain Research Agreement by
the Company and New York University (the "University"), (the
"Research Agreement"), and Research Plan attached thereto (the
"Plan") and in connection with, and is contingent upon, the
execution of a certain exclusive License Agreement by the Company
and Cornell Research Foundation, Inc., The University of Medicine
and Dentistry of New Jersey and the New York University School of
Medicine (the "License Agreement"). Copies of the Research
Agreement, the Plan and the License Agreement are attached hereto.
2. You shall act as a consultant to the Company commencing October 1,
1995, and terminating on September 30, 1996, in connection with the
Research Agreement and the Plan, (the Research Agreement and the
Plan are attached hereto and made a part hereof), and shall use
your best efforts to cause the University to fulfill its
obligations under the Research Agreement and the Plan. You shall
consult with Company personnel at mutually agreeable times and
places during the term of the Agreement.
<PAGE>
Dr. Bernard G. Steinetz
Page 2
3. Your compensation for this one (1) year term shall be in the form
of a $10,000 honorarium payable in equally quarterly installments
as follows:
October 10, 1995 $2,500
January 10, 1995 $2,500
April 10, 1996 $2,500
July 10, 1996 $2,500
4. The Sponsor shall reimburse you for all ordinary, necessary and
reasonable out-of-pocket travel expenses actually incurred by you
at the request of the Sponsor upon presentation of expense
statements or vouchers or such other supporting information as may
be required under established Company policy of Sponsor.
5. You shall (a) keep the Company regularly advised of the progress in
your work; (b) keep records reflecting the results of said
consulting services as are appropriate to the nature of such
services; (c) permit any representative duly authorized in writing
by the Company to inspect from time to time such results of said
consulting services as are susceptible of inspection; and (d)
provide the Company with such reports, specifications, drawings,
models, and the like, as are appropriate to the nature of the
services being performed hereunder upon reasonable notice to you by
the Company.
6. In order to carry out the consulting services set forth herein, it
is contemplated that the Company will disclose to and provide you
with certain technical, economic and business information and
material samples relating to the Company's business (hereinafter
collectively referred to as "Information") which Company considers
proprietary. Additionally, certain technical, economic and business
information may be developed by you in the course of the services
provided to the Company hereunder and this information will also be
included in the term "Information". You shall keep such Information
in strict confidence and not disclose or otherwise use such
Information for any purpose other than for the performance of the
services contemplated herein without the prior written consent of
the Company. The obligations of confidentiality and nonuse set
forth herein shall survive the expiration or termination of this
Agreement.
<PAGE>
Dr. Bernard G Steinetz
Page 3
7. You will have the right to perform consulting services for any
other company of your choosing, subject to your fulfillment of the
obligations set forth in this Agreement and provided such
consulting services do not involve methods for the detection of
canine pregnancy.
8. It is expressly understood that any service which you perform for
the Company under this Agreement is performed as an independent
contractor and not as an employee or agent of the Company. You are
not entitled to and will not receive from the Company in connection
with your consulting services any insurance coverage, pension, or
other benefits normally provided by the Company to its current
employees.
9. This Agreement may be terminated by the Company upon thirty (30)
days notice to you if you breach or fail to perform any of your
obligations under this Agreement, you cease to serve as the
Principal Investigator under the Research Agreement, or if either
the Research Agreement or the License Agreement is terminated. In
the event this Agreement is so terminated, you shall be paid the
unpaid honorarium, prorated on a daily basis to the date of the
Agreement, and the Company shall have no further obligation for the
payment of compensation to you.
10. You shall have no ownership interest in any inventions which are
conceived and/or made by you during the performance of services
contemplated hereunder, or in any associated patent rights. Such
inventions and patent rights shall be owned by the Company and/or
the University in accordance with the Research Agreement.
11. This Agreement may be renewed at the election of the Company upon
such terms and conditions as the parties shall mutually agree.
12. The terms of this Agreement may be varied only in writing.
Please sign and return the enclosed copy of this letter acknowledging
your agreement to the terms set forth herein.
Sincerely,
Paul A. Rosinack,
President
International Canine Genetics, Inc.
AGREED:
- ------------------
Dr. Bernard G. Steinetz
DATE: ___________
<PAGE>
Exhibit 10.37
As of October 1, 1995
Dr. George Lust
James A. Baker Institue
of Animal Health
Cornell College
of Veterinary Medicine
Cornell University
Ithaca, New York 14853
RE: Consulting Agreement
Dear Dr. Lust:
INTERNATIONAL CANINE GENETICS, INC., a Delaware corporation (the "Company"),
desires to engage you as a consultant on the following terms and conditions:
1. This Agreement is being entered into in connection with, and is
contingent upon, the execution of a certain Research Agreement by
the Company and Cornell University (the "University"), (the
"Research Agreement"), and Research Plan attached thereto (the
"Plan") and in connection with, and is contingent upon, the
execution of a certain exclusive License Agreement by the Company
and Cornell Research Foundation, Inc., The University of Medicine
and Dentistry of New Jersey and the New York University School of
Medicine (the "License Agreement"). Copies of the Research
Agreement, the Plan and the License Agreement are attached hereto.
2. You shall act as a consultant to the Company commencing October 1,
1995, and terminating on September 30, 1996, in connection with the
Research Agreement and the Plan, (the Research Agreement and the
Plan are attached hereto and made a part hereof), and shall use
your best efforts to cause the University to fulfill its
obligations under the Research Agreement and the Plan. You shall
consult with Company personnel at mutually agreeable times and
places during the term of the Agreement.
<PAGE>
Dr. George Lust
Page 2
3. Your compensation for this one (1) year term shall be in the form
of a $10,000 honorarium payable in equally quarterly installments
as follows:
October 10, 1995 $2,500
January 10, 1995 $2,500
April 10, 1996 $2,500
July 10, 1996 $2,500
4. The Sponsor shall reimburse you for all ordinary, necessary and
reasonable out-of-pocket travel expenses actually incurred by you
at the request of the Sponsor upon presentation of expense
statements or vouchers or such other supporting information as may
be required under established Company policy of Sponsor.
5. You shall (a) keep the Company regularly advised of the progress in
your work; (b) keep records reflecting the results of said
consulting services as are appropriate to the nature of such
services; (c) permit any representative duly authorized in writing
by the Company to inspect from time to time such results of said
consulting services as are susceptible of inspection; and (d)
provide the Company with such reports, specifications, drawings,
models, and the like, as are appropriate to the nature of the
services being performed hereunder upon reasonable notice to you by
the Company.
6. In order to carry out the consulting services set forth herein, it
is contemplated that the Company will disclose to and provide you
with certain technical, economic and business information and
material samples relating to the Company's business (hereinafter
collectively referred to as "Information") which Company considers
proprietary. Additionally, certain technical, economic and business
information may be developed by you in the course of the services
provided to the Company hereunder and this information will also be
included in the term "Information". You shall keep such Information
in strict confidence and not disclose or otherwise use such
Information for any purpose other than for the performance of the
services contemplated herein without the prior written consent of
the Company. The obligations of confidentiality and nonuse set
forth herein shall survive the expiration or termination of this
Agreement.
<PAGE>
Dr. George Lust
Page 3
7. You will have the right to perform consulting services for any
other company of your choosing, subject to your fulfillment of the
obligations set forth in this Agreement and provided such
consulting services do not involve methods for the detection of
canine pregnancy.
8. It is expressly understood that any service which you perform for
the Company under this Agreement is performed as an independent
contractor and not as an employee or agent of the Company. You are
not entitled to and will not receive from the Company in connection
with your consulting services any insurance coverage, pension, or
other benefits normally provided by the Company to its current
employees.
9. This Agreement may be terminated by the Company upon thirty (30)
days notice to you if you breach or fail to perform any of your
obligations under this Agreement, you cease to serve as the
Principal Investigator under the Research Agreement, or if either
the Research Agreement or the License Agreement is terminated. In
the event this Agreement is so terminated, you shall be paid the
unpaid honorarium, prorated on a daily basis to the date of the
Agreement, and the Company shall have no further obligation for the
payment of compensation to you.
10. You shall have no ownership interest in any inventions which are
conceived and/or made by you during the performance of services
contemplated hereunder, or in any associated patent rights. Such
inventions and patent rights shall be owned by the Company and/or
the University in accordance with the Research Agreement.
11. This Agreement may be renewed at the election of the Company upon
such terms and conditions as the parties shall mutually agree.
12. The terms of this Agreement may be varied only in writing.
Please sign and return the enclosed copy of this letter acknowledging
you agreement to the terms set forth herein.
Sincerely,
Paul A. Rosinack,
President
International Canine Genetics, Inc.
AGREED:
- ------------------
Dr. George Lust
DATE: ___________
<PAGE>
Exhibit 10.38
As of October 1, 1995
Dr. Laura T. Goldsmith
Department of Obstetrics and Gynecology
University of medicine and Dentistry
New Jersey Medical School
Newark, NJ 07103
RE: Consulting Agreement
Dear Dr. Goldsmith:
INTERNATIONAL CANINE GENETICS, INC., a Delaware corporation (the "Company"),
desires to engage you as a consultant on the following terms and conditions:
1. This Agreement is being entered into in connection with, and is
contingent upon, the execution of a certain Research Agreement by
the Company and The University of Medicine and Dentistry of New
Jersey (the "University"), (the "Research Agreement"), and Research
Plan attached thereto (the "Plan") and in connection with, and is
contingent upon, the execution of a certain exclusive License
Agreement by the Company and Cornell Research Foundation, Inc., The
University of Medicine and Dentistry of New Jersey and the New York
University School of Medicine (the "License Agreement"). Copies of
the Research Agreement, the Plan and the License Agreement are
attached hereto.
2. You shall act as a consultant to the Company commencing October 1,
1995, and terminating on September 30, 1996, in connection with the
Research Agreement and the Plan, (the Research Agreement and the
Plan are attached hereto and made a part hereof), and shall use
your best efforts to cause the University to fulfill its
obligations under the Research Agreement and the Plan. You shall
consult with Company personnel at mutually agreeable times and
places during the term of the Agreement.
<PAGE>
Dr. Laura T. Goldsmith
Page 2
3. Your compensation for this one (1) year term shall be in the form
of a $10,000 honorarium payable in equally quarterly installments
as follows:
October 10, 1995 $2,500
January 10, 1995 $2,500
April 10, 1996 $2,500
July 10, 1996 $2,500
4. The Sponsor shall reimburse you for all ordinary, necessary and
reasonable out-of-pocket travel expenses actually incurred by you
at the request of the Sponsor upon presentation of expense
statements or vouchers or such other supporting information as may
be required under established Company policy of Sponsor.
5. You shall (a) keep the Company regularly advised of the progress in
your work; (b) keep records reflecting the results of said
consulting services as are appropriate to the nature of such
services; (c) permit any representative duly authorized in writing
by the Company to inspect from time to time such results of said
consulting services as are susceptible of inspection; and (d)
provide the Company with such reports, specifications, drawings,
models, and the like, as are appropriate to the nature of the
services being performed hereunder upon reasonable notice to you by
the Company.
6. In order to carry out the consulting services set forth herein, it
is contemplated that the Company will disclose to and provide you
with certain technical, economic and business information and
material samples relating to the Company's business (hereinafter
collectively referred to as "Information") which Company considers
proprietary. Additionally, certain technical, economic and business
information may be developed by you in the course of the services
provided to the Company hereunder and this information will also be
included in the term "Information". You shall keep such Information
in strict confidence and not disclose or otherwise use such
Information for any purpose other than for the performance of the
services contemplated herein without the prior written consent of
the Company. The obligations of confidentiality and nonuse set
forth herein shall survive the expiration or termination of this
Agreement.
<PAGE>
Dr. Laura T. Goldsmith
Page 3
7. You will have the right to perform consulting services for any
other company of your choosing, subject to your fulfillment of the
obligations set forth in this Agreement and provided such
consulting services do not involve methods for the detection of
canine pregnancy.
8. It is expressly understood that any service which you perform for
the Company under this Agreement is performed as an independent
contractor and not as an employee or agent of the Company. You are
not entitled to and will not receive from the Company in connection
with your consulting services any insurance coverage, pension, or
other benefits normally provided by the Company to its current
employees.
9. This Agreement may be terminated by the Company upon thirty (30)
days notice to you if you breach or fail to perform any of your
obligations under this Agreement, you cease to serve as the
Principal Investigator under the Research Agreement, or if either
the Research Agreement or the License Agreement is terminated. In
the event this Agreement is so terminated, you shall be paid the
unpaid honorarium, prorated on a daily basis to the date of the
Agreement, and the Company shall have no further obligation for the
payment of compensation to you.
10. You shall have no ownership interest in any inventions which are
conceived and/or made by you during the performance of services
contemplated hereunder, or in any associated patent rights. Such
inventions and patent rights shall be owned by the Company and/or
the University in accordance with the Research Agreement.
11. This Agreement may be renewed at the election of the Company upon
such terms and conditions as the parties shall mutually agree.
12. The terms of this Agreement may be varied only in writing.
Please sign and return the enclosed copy of this letter acknowledging
you agreement to the terms set forth herein.
Sincerely,
Paul A. Rosinack,
President
International Canine Genetics, Inc.
AGREED:
- ------------------
Dr. Laura T. Goldsmith
DATE: ___________
<PAGE>
Exhibit 10.39
THIS NOTE HAS NOTE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "33 ACT"). THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW
TO RESALE AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER THE 1933 ACT IS NOT
REQUIRED.
PROMISSORY NOTE
$500,000 DECEMBER 22, 1995
FOR VALUE RECEIVED, International Canine Genetics, Inc., a Delaware
corporation (the "Company"), promises to pay to the order of S. R. One, Limited
(the "Payee"), the principal sum of $500,000 together with interest on the
outstanding principal balance from the date hereof at the Interest Rate (as
defined in Section 1 below). The entire unpaid principal balance of this Note,
together with all accrued and unpaid interest payable hereunder, shall be and is
due and payable upon demand.
1. Interest Computation. All computations of interest shall be made on
the basis of a 360-day year of twelve 30 day months. The "interest Rate" shall
initially be set at eleven percent (11%) per annum. The Interest Rate shall be
recalculated each January 1 and July 1 while any amounts remain outstanding
hereunder for the following six month period. The Interest Rate shall be
recalculated to equal two percent (2%) in excess of the prime rate of interest
charged by Mellon Bank on the last preceding business day.
2. Place and Manner of Payment. Payments of principal and interest
shall be made in lawful money of the United States of America, unless such
amounts shall be converted pursuant to the terms hereof, for the credit of Payee
at the offices of SmithKline Beecham Corporation, One Franklin Plaza,
Philadelphia, PA 19101, or at such other address within the United States of
America as the Payee shall designate in writing to the Company.
3. Effect of Holiday. If any payment of principal or of interest on the
Note shall be due on a Saturday, Sunday or public holiday under the laws of the
Commonwealth of Pennsylvania or on any other day on which banking institutions
are authorized or obligated by law to close in the Commonwealth of Pennsylvania,
such payment shall be made on the next succeeding business day and such
extension of time shall in each case be included in computing interest in
connection with such payment.
4. Prepayment. (a) The Company may prepay the principal amount of this
Note at any time in whole or in part without penalty. Any partial Prepayment
shall be applied against the principal amount outstanding and shall be
accompanied by all interest accrued to the date of such prepayment.
(b) At the election of the Payee all amounts due under this
Note shall be paid upon receipt by the Company of proceeds from and debt or
equity financing subsequent to the date hereof.
<PAGE>
5. Overdue Principal and Interest. At any time that any principal of or
interest on this Note is part due for any reason, the rate of interest on such
past due amount of principal or interest shall be at a rate per annum equal to
the lower of 200 basis points above the Interest Rate in effect and the highest
rate of interest permitted under applicable law, until such past due principal
and interest has been paid in full.
6. Unconditional Obligation. The obligation of the Company hereunder
are unconditional and are independent of any obligation which the Payee or any
affiliate of the Payee may have to the Company.
7. Miscellaneous. No waiver whatsoever shall be valid unless in writing
and signed by the holder hereof and then only to the extent in such writing
specifically set forth. No failure or delay on the part of the Payee or any
other holder of this Note in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. This Note and all of the
rights and obligations of the parties hereunder shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania. Section captions in this Note are included for the convenience of
reference only and shall not constitute a part of this Note for any other
purpose.
IN WITNESS WHEREOF, the Company has executed this Note the day and year
first written above.
[corporate seal]
INTERNATIONAL CANINE
GENETICS, INC.
-------------------------
President
Attest:
- -------------------------
Assistant Secretary
<PAGE>
Exhibit 10.40
PROMISSORY NOTE
$400,000 August 28, 1996
FOR VALUE RECEIVED, International Canine Genetics, Inc., a Delaware
corporation (the "Company"), promises to pay to the order of S.R. One, Limited
(the "Payee"), the principal sum of $400,000 together with interest on the
outstanding principal balance from the date hereof at the Interest Rate (as
defined in Section 1 below). The entire unpaid principal balance of this Note,
together with all accrued and unpaid interest payable hereunder, shall be and is
due and payable upon demand.
1. Interest Computation; Placement Fee. All computations of interest
shall be made on the basis of a 360-day year of twelve 30-day months. The
"Interest Rate" is ten and one-quarter percent (10.25%) per annum. The principal
amount of this Note represents cash loaned to the Company by the Payee in the
amount of $357,503 and a placement fee in connection with such loan in the
amount of $42,497.
2. Place and Manner of Payment. Payments of principal and interest
shall be made in lawful money of the United States of America, unless such
amounts shall be converted pursuant to the terms hereof, for the credit of Payee
at the offices of SmithKline Beecham Corporation, One Franklin Plaza,
Philadelphia, Pennsylvania 19101, or at such other address within the United
States of America as the Payee shall designate in writing to the Company.
3. Effect of Holiday. If any payment of principal of or interest on
this Note shall be due on a Saturday, Sunday or public holiday under the laws of
the Commonwealth of Pennsylvania or on any other day on which banking
institutions are authorized or obligated by law to close in the Commonwealth of
Pennsylvania, such payment shall be made on the next succeeding business day and
such extension of time shall in each case be included in computing interest in
connection with such payment.
4. Prepayment. The Company may prepay the principal amount of this Note
at any time in whole or in part without penalty. Any partial prepayment shall b
applied against the principal amount outstanding and shall be accompanied by all
interest accrued to the date of such prepayment.
5 Overdue Principal or Interest. At any time that any principal of or
interest on this Note is past due for any reason, the rate of interest on such
past due amount of principal or interest shall be at a rate per annum equal to
the lower of 200 basis points above the Interest Rate then in effect and the
highest rate of interest permitted under applicable law, until such past due
principal or interest has been paid in full.
6. Unconditional Obligation. The obligations of the Company hereunder
are unconditional and are independent of any obligation which the Payee or any
affiliate of the Payee may have to the Company.
<PAGE>
7. Miscellaneous. No waiver whatsoever shall be valid unless in writing
and signed by the holder hereof and then only to the extent in such writing
specifically set forth. No failure or delay on the part of the Payee or any
other holder of this Note in exercising any right, power, or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. This Note and all of the
rights and obligations of the parties hereunder shall be governed by and
construed and enforced in accordance with the laws of the Commonwealth of
Pennsylvania. Sections captions in this Note are included for the convenience of
reference only and shall not constitute a part of this Note for any other
purpose.
IN WITNESS WHEREOF, the Company has executed this Note the day and year
first written above.
INTERNATIONAL CANINE
GENETICS, INC.
--------------------
President
[corporate seal]
ATTEST:
- --------------------------
Assistant Secretary
<TABLE> <S> <C>
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<NAME> INTERNATIONAL CANINE GENETICS, INC.
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