SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _________
Commission File No. 0-19844
PARACELSIAN, INC.
(Name of small business issuer in its charter)
Delaware 16-1399565
(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer
Identification No.)
222 Langmuir Laboratories, Cornell Technology Park, Ithaca, New York 14850
(Address of principal executive offices) Zip Code
Issuer's telephone number: (607) 257-4224
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
Redeemable Common Stock Purchase Warrants
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
section 13 or 15(d) of the securities 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 paced 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. [ ]
Issuer's revenues for its most recent fiscal year were $59,036.
The aggregate market value of the voting stock (based on the closing
price of such stock on NASDAQ) held by non-affiliates of the Registrant
at December 18, 1996 was approximately $20,400,000.
There were 11,669,604 shares of Common Stock and 2,042,870 Redeemable
Common Stock purchase Warrants outstanding at December 18, 1996.
<PAGE>
Item 1. Business
Paracelsian, Inc. (the "Company") is a biotechnology company that
develops dietary supplements and prescription therapeutics utilizing a
proprietary screening technology. This technology has been developed
by the Company to identify potential products that inhibit the
biological signals generated by targeted cells that result in
controlled or uncontrolled growth and division. The Company's
screening technology that evaluates the effects of potential products
on intracellular signals is referred to its "Signal Transduction
technology". The Company's Signal Transduction Technology is applied
to targeted cells such as HIV infected cells and cancer cells.
Cell division is one of the basic processes in biology necessary
for normal growth of tissues to support life. The Company's Signal
Transduction Technology enables researchers to observe intracellular
signals and measure the effects of chemicals contained in synthetic or
natural compounds, such as herbs and extracts from herbs, on cell
division. In the course of these observations, the Company can
distinguish the effects of such chemicals on targeted cells, thereby
screening compounds to identify those with promising profiles. (This
proprietary technology, including the components, methods, procedures
and know-how employed in this screening process, is referred to herein
as the "Screening Technology".)
The Company believes that the results of its research coincides
with recent scientific advances and could ultimately lead to the
improved detection and enhanced well being and treatment of individuals
with AIDS, certain cancers, and selected cardiovascular conditions.
The Company's research and product development activities are
focused in four (4)principal areas:
Screening Technology. The Company continues to improve its
screening Technology in order to increase its efficiency in the
identification of active extracts and chemical compounds. This work,
which consists of laboratory-based experiments on living cells, is
expected to be ongoing throughout fiscal 1997 and thereafter. The
focus of this work is to expand the data collected from the initial
screens performed by the Company with a series of incremental screens
aimed at further specifying the utility of a particular product
candidate. The Company has developed a series of proprietary cell
lines used to evaluate the effectiveness of candidate extracts and
compounds. The Company also utilizes a series of cell lines acquired
under a proposed license with the National Cancer Institute and
commercial cell lines for such screening. The ultimate objective of
the Screening Technology is to identify potential products and their
precise mechanism of action. In many cases potentially useful products
are identified before the mechanism of action can be determined. In
these cases research to determine the precise mechanism of action may
continue while the candidate product is developed for commercial
application. The Company's Screening Technology has improved during
1996, as the Company is now capable of screening compounds for effect
faster for a broad spectrum of situations and with greater precision.
The Company continues to refine, enhance and further specify its
Screening technology.
Screening Activities. The Company applies its Screening
technology to its library of over 2,800 extracts of herbs used in
traditional Chinese medicine. Since October 1994, the Company has
screened approximately 1,000 extracts from this library. The results
of the initial screens have shown over 370 extracts that have
demonstrated the ability to inhibit signaling in targeted cells.
These first 1,000 extracts were selected for evaluation based on (1)
the Company's assessment of the chemical composition, (2)relative
bioavailability and toxicity data and (3) the documented historical
use of the herbs. The more than 370 extracts with favorable signaling
characteristics represent a pipeline of potential products for
commercial development.
Product Development. The Company targets extracts that have shown
promising results in the Screening Technology for commercial
development. Several development options are available to the
Company. The first option considered is the desirability and
suitability of a candidate as a dietary supplement. The scientific
criteria include an evaluation of the safety profile and data to
support how the herb effects structure or function in humans. This
option represents the fastest route to a market for a product since a
pre-marketing regulatory approval or notification is not required for
herbal dietary ingredients marketed in the United States prior to
October 15, 1994. "See Government regulation and Approval-Effect of
Governmental Regulation on the Company". In addition to the
scientific and regulatory suitability described above, a candidate for
this development plan must meet all of the other definitional aspects
of dietary supplement set forth in the Dietary Supplement and Health
Education Act of 1994.
The Company has selected the dietary supplement option and
commenced development with respect to two herbal extracts,
AndroVir(trademark) to support normalimmune function in HIV+
individuals, and AndroCar(trademark) for the well-being of cancer
patients. Both contain extracts of Andrographi spaniculata, an herb
from China and India. In laboratory tests conducted and validated at
the Frederick Research Center, AndroVir(trademark) has demonstrated
the capacity to inhibit the replication of HIV-1 (the virus that causes
AIDS) in human lymphocytes. Further laboratory tests at the Frederick
Research Center show that AndroVir(trademark) increased the effect of
Glaxo-Welcome's AZT in the inhibition of replication of the AIDS virus.
During fiscal 1996, the Company conducted a clinical study in 13
patients at Bastyr University. The results of this trial showed that
AndroVir(trademark) was well tolerated and that viral loads and CD4
counts improved. In the laboratory, AndroCar(trademark) was
demonstrated to have an effect on cancer cells. During fiscal 1996,
the Company completed a clinical trial in nine patients. The results
showed that AndroCar(trademark) was well tolerated and 80% of the
subjects experienced enhanced well being. Additional clinical studies
of both AndroVir(trademark) and AndroCar(trademark) are underway or
planned as described in the products section below. The Company
currently plans to develop these products internally and commence
sales as dietary supplements in fiscal 1997 as AndroVir(trademark)-DS
and AndroCar(trademark)-DS. Other herbal extracts currently in the
pipeline that are judged to be suitable for this type of development
plan may be commercialized internally or licensed for development and
sales by third parties.
In addition to the dietary supplement development option, the
Company also evaluates the suitability of these and other compounds
for therapeutic development. The Company intends to pursue this
option while also pursuing the plan for development as a dietary
supplement. Toward this end, the Company has elected to pursue
therapeutic development of both AndroVir(trademark) and
AndroCar(trademark). The Company's plan is to develop the dietary
supplement and launch the product and commence commercial sales and
distribution prior to licensing these compounds for therapeutic
development by third parties or conducting pre-clinical tests, filing
for an investigational New Drug exemption or applying for a New Drug
Application under the Federal Food, Drug, and Cosmetic Act. Once the
development options have been selected, the Company then evaluates
whether to out source the development or develop the products
internally. With regard to AndroVir(trademark) and
AndroCar(trademark), the Company has elected to develop the dietary
supplements for marketing under DSHEA internally. With regard tithe
therapeutic development plan, the Company has not yet elected whether
to develop the products internally or license the development and
marketing rights to third parties. The Company expects to make this
election during fiscal 1997.
Diagnostic Tools and Assays. The fourth focus of the Company is
the product support for diagnostic tools and assays to detect cancer
and chemical carcinogens that have been licensed to third parties.
The Company has developed a product that is a biomarker for human
prostate cancer as well as canine osteosarcomas, lung tumors and
lymphosarcomas. Additionally, the Company's CDK2 serum and CDK1
tissue assays can be used to detect chemically-induced cancer in
laboratory animals. The Company licensed these products to CN
Biosciences during fiscal 1996. The Company also has developed the
Ah-IMMUNOASSAY(trademark), an in vitro bio-immunoassay that detects the
amount of potentially toxic chemicals in the environment from several
classes of compounds, including dioxins and polychlorinated biphenyls
(PCBs). The Company has licensed rights to this assay to Dow
Environmental, a subsidiary of Dow Chemical Co. The Company has also
licensed rights to its veterinary cancer diagnostic to IDEXX
Laboratories. The Company provides technical support to licensees to
assist in the marketing and distribution of these products in return
for royalties on the sales of such products by the licensees.
Other Activities. In addition to the foregoing, the Company has
acquired an option to purchase all of the capital stock of East West
Herbs, Ltd.("EWH"), an operating Company with sales of approximately
$2 million, founded in 1987 with its head office located in the
United Kingdom ("UK"). EWH sells and distributes herbs and related
products to professional health care providers practicing complementary
medicine throughout the UK, Europe and the US. EWH is a leader in the
highly fragmented herb distribution industry that differentiates
itself from competitors by providing a ready supply of a wide variety
of products all manufactured to the highest quality standards. EWH
also invests in new product research and development and has clinical
trials underway for two new products for cancer patients under the
direction of Oxford University. Under the terms of the option, the
Company has the right, but not the obligation, to acquire EWH on or
before April 6, 1997.
Signal Transduction and Product Discovery
Scientific Background
Over the past few years cell biologists have made remarkable
progress in identifying the molecules that drive the cell cycle: the
carefully choreographed series of events that culminates in cell
division. In doing so they have not only provided a better
understanding of one of the most fundamental of the cell's activities,
they have also opened a new direction for research aimed at pinpointing
the pathogenicity of cancer, certain cardiovascular diseases, AIDS and
Alzheimer's. The reason for this intriguing convergence is that
accumulating evidence by the Company and others indicates that
derangements in the cell cycle signal transduction processes may
contribute to pathology of a number of apparently unrelated diseases.
p34cdc2 kinase
A family of cell division control enzymes termed cyclin-dependent
kinases ("CDKs"), along with the cyclin proteins, serve to control and
coordinate the molecular events of cell division in all eukaryotic
cells. Although twelve CDKs have been described, the p34cdc2 kinase
remains the most actively studied due to its central role in the
control of cell division in plant and animal cells.
In normal resting cells p34cdc2 (CDK1) is either not expressed or
expressed at very low levels, but concentrations of p34cdc2 increase as
the cell enters and passes through G1 and the G1/S transition. p34cdc2
concentrations reach maximal levels in the S, G2 and M phases. In
association with cyclin B, p34cdc2 is the serine/threonine kinase
sub-unit of M-phase-promoting factor (MPF); active MPF triggers the
G2/M transition in species ranging from yeast to humans. Several
studies also suggest that p34cdc2 functions in the control of the G1/S
transition and as well as the initiation of mitosis.
The role of CDK proteins in the cell cycle (see Figure 1 below) is
completely dependent upon their kinase activity. p34cdc2 kinase
activity during the cell cycle is regulated through cycles of
phosphorylation and dephosphorylation and interactions with cyclins.
Intracellular compartment translocation has also been demonstrated by
the Company and others to regulate the substrate availability of the
p34cdc2 protein.
Essential Steps in the Regulation of Cell Division
Figure 1: Schematic of Cell Cycle Regulation Indicating Central
Role of CDKs
The functioning of p34cdc2 involves the coordination of all events
relating to cell division. In this role p34cdc2 is the central
information processing protein. As the cell moves through the cell
cycle, information concerning the activities of the cell are sent to
p34cdc2 and, as long as these signals indicate proper functioning of
the cell, movement through the cell cycle continues. The cellular
expression of p34cdc2 is governed by exposure to cytokines and
hormones; the expression of p34cdc2 is one signal to the cell to
initiate the events of cell division.
Extract Screening And Product Discovery
The Company's product discovery approach is unique within the
biotechnology industry. Utilizing a combination of cellular and
biochemical responses in the first tier of screening, the Company is
able to identify herbs and extracts that (I) affect targeted cell cycle
proteins, (ii) have the capacity to enter the cell and (iii) do not
interact with nontarget proteins. For extracts that produce a positive
response, historical use patterns in China of the herbs from which
those extracts were derived are then examined. Those herbs and
extracts that have exhibited significant toxicity in humans are ranked
lower than herbs and extracts having a history of low toxicity. By
using the information available to the Company from traditional use in
China, it is possible to eliminate further development of compounds
that would be excessively toxic to humans or have poor bioavailability.
In the second tier of testing, a chemical is identified within the
extract and the mechanism of action is described. In this phase of
the product discovery program, the Company has incorporated a "fuzzy
logic" identification process that has allowed the Company to
discover novel pathways of action for the potential product. This
process has already allowed the Company to identify a kinase known to
have high activity in cancer cells and low activity in normal body
cells. It is this second mode of discovery in the Company's product
discovery program, that generates additional value. As new, previously
undiscovered pathways are identified, they can be used in screening
for other active compounds as well as analogs of the original natural
compound identified.
Competition
There are a number of small biotechnology companies that focus on
the discovery of novel compounds. The Company competes on the basis of
the combination of its therapeutic focus on anti-proliferative action
in cells, its novel screening technology and a large library of Chinese
extracts with data on historical use. The Company is not aware of any
competitors with a similar discovery program.
Business Strategy
The Company's strategy is to add value to the product development
process by concentrating its efforts on the highly specialized area of
early-stage compound development, generally discovery through
preclinical toxicology mode of action, pharmacology and Phase I
clinical trials. Industry factors such as downsizing and the trend
toward outsourcing by major pharmaceutical companies support the
strategy of identifying chemicals as potential therapeutic agents
without the intent to develop these discoveries into clinically proven
therapeutics. There are a number of biotechnology companies focusing
their efforts on early-stage drug development. By partnering with
large pharmaceutical companies at the phase II/III stages of
development they can capitalize on the synergy of their discovery
technology and the capital resources of large pharmaceutical
corporations. Uncertainty about government health care reform and
rising competition from the generic sector are forcing research
oriented pharmaceutical companies to look for ways of reducing the high
cost of research and development, but without harming their ability to
develop innovative products. With rising competition from generics,
the development of novel products has become more important to the
success of the research oriented pharmaceutical industry. Thus, such
pharmaceutical companies are increasingly focusing their capital and
human resources on the development of fewer, but higher quality,
compounds.
The Company has completed screening of extracts of approximately
1,000 traditional Chinese herbs and herbal extracts using its
proprietary screening methodology. As a result of this screening
effort, the Company has identified approximately 370 herbal extracts
that demonstrate inhibitory activity in signal transduction processes
involved in cell proliferation. Of these, ten extracts appear to
possess significant potential to yield good candidate products.
The Company has a unique set of development options for compounds
with favorable safety and efficacy profiles. These extracts are
eligible for development as dietary supplements since they are
naturally occurring compounds with documented histories of
traditional use. This development plan consists of Company prescribed
safety and efficacy evaluations that may in some instances require
pre-market notification but does not require pre-marketing approval
by the FDA. Product selected for development under this option can
generally reach markets faster than the route for pharmaceuticals that
requires pre-marketing approval under a New Drug Application.
Marketing plans for products developed under this option require
precise characterization or how the compounds effect the human
structure and function and cannot carry claims regarding the diagnosis,
mitigation, treatment, cure or prevention of any disease. In addition
to this option, the Company may also elect to develop these
candidates as traditional therapeutics by following the FDA
regulations for new drug approval. A full description of the
regulatory requirements of each development option is set out in the
"Governmental Regulation and Approval" section of this report. It is
the Company's strategy to develop products for marketing, where
appropriate, as dietary supplements and/or traditional therapeutics.
The Company refers to this combination development plan as a dual
development path.
Products
AndroVir(trademark)
AndroVir(trademark) is a formulation of a naturally occurring compound
that functions biochemically in cellular signal transduction as a kinase
inhibitor. The compound was isolated from an herb used routinely in
traditional Chinese medicine ("TCM").
In laboratory animal tests performed by Chinese scientists,
AndroVir(trademark) is reported to have exhibited extremely low acute
and subchronic toxicity. Rats and rabbits were administered one gram
of AndroVir(trademark)(trademark) per kg body weight daily for seven
days and no changes were reported in body weights, complete blood
counts or histopathologic evaluation of liver, kidneys or other major
organs.
In laboratory research conducted on behalf of the Company at the
Frederick Research Center, a contract research organization,
AndroVir(trademark) demonstrated the capacity to inhibit the
replication of HIV-1 in human lymphocytes. The median inhibitory
effect of AndroVir(trademark) was observed at 640 micro gram/mL. Toxicity of
AndroVir(trademark) to lymphocytes was not observed until
concentrations of AndroVir(trademark) exceeded 10,000 micro gram/mL, providing
a minimum therapeutic index in excess of fifteen-fold. Further
laboratory testing of AndroVir(trademark) at Frederick Research Center
indicated that it synergized with AZT in the inhibition of replication
of the AIDS virus.
The mechanism of action of AndroVir(trademark) was determined
during fiscal 1996 through a joint research project conducted by the
Company and the National Cancer Institute. This research determined
that AndroVir(trademark) controls AIDS cytotoxicity through a novel
enzyme target. AndroVir(trademark) was shown to inhibit the signals of
c-Mos, an enzyme not normally found in cells outside the reproductive
system except in the case of HIV infected cells. The identification of
this new enzyme's role in HIV killing of the immune system represents
significant new information for HIV research. The inhibitory effect of
AndroVir(trademark) on this target indicates that it may be useful in
supporting a normal immune function and possibly useful as an adjunct
to existing therapies for the treatment of AIDS.
The Company completed its first clinical study of
AndroVir(trademark) in December 1996. The results of this nine-week
study in 13 HIV+ subjects, demonstrated that the product was well
tolerated at the doses tested. After an initial increase, the subjects
experienced a median drop in viral load (a measure of the concentration
of the virus in the subjects' blood stream) of 31% and an increase in
CD4+ cell counts (a measure of the status of the immune system) of 38%.
These subjects also experienced a median increase in serum cholesterol
(a measure of the subjects' overall well-being) of 14%. These results
support the hypotheses developed early in the laboratory experiments
(including the results of the Company's proprietary Screening
Technology) concerning the mechanism of action of AndroVir(trademark)
in HIV+ individuals.
The Company plans to complete the development of
AndroVir(trademark) as a dietary supplement to support normal immune
function in HIV+ individuals and develop the necessary marketing plan
to begin commercial sales and distribution as AndroVir(trademark)-DS as
early in 1997 as practicable. Upon the successful launch of this
product, the Company plans to pursue a therapeutic development plan by
completing the necessary development steps to facilitate the license of
marketing rights.
AndroCar(trademark)
In December 1994, after screening only 300 extracts from its
library of 2,800 TCM extracts, the Company filed a patent describing
the use of compounds for the treatment of proliferative and viral
diseases. See "Patent Applications and Proprietary Technology."
In three initial laboratory screens against the Company's own test
cell line, the crude extract of Andrographis paniculata demonstrated
median effective doses averaging approximately 30 micro gram/mL.
AndroCar(trademark) exhibited a median effective dose of 5 microgram/mL.
This compared favorably to the median effective doses obtained for the
positive control drugs Taxol(r) and etoposide of 3 and 7 micro gram/mL,
respectively, in the same test system.
Testing in other laboratories for effectiveness against human
prostate cancer cells indicated that AndroCar(trademark) inhibited
LNCaP, PC-3 and DU-145 tumor cell lines, while the median effective
doses of cisplatin in these studies was 4.6, 2.8 and 0.9 microM,
respectively for the three cell lines tested. The estimated median
effective dose for AndroCar(trademark) was 8, 1.7 and 1.4 microM,
respectively, for the same three cell lines. At the Company's
laboratory, inhibition of human breast cancer cells (MCF-7) over seven
days was achieved at concentrations of AndroCar(trademark) that were
similar to the pure reference drugs used in these studies. It is also
believed that AndroCar(trademark) inhibits proliferation of blood
vessels and that this may attack solid tumors in a manner different
from current cancer therapeutics. This effect may occur as a result of
inhibiting the growth of the tumor cells and small blood vessels into
the tumor mass. This latter effect may restrict the food supply of the
tumor and leads to starvation of the tumor cells.
Based on these results in the laboratory, the Company elected to
pursue the internal development of AndroCar(trademark) as a dietary
supplement to support the general well-being of cancer patients.
During fiscal 1996, the Company conducted a physician referred,
clinical safety study of AndroCar(trademark) in nine patients over a
90-day period. Results of this study indicated that
AndroCar(trademark) was well tolerated at the doses evaluated. Eighty
percent of these subjects reported an increased sense of well-being
while on the study. Five of these patients elected to continue receive
AndroCar(trademark) during a post-study follow-up period. These
patients continued to report an increased sense of well-being.
Based on the success of this study and the follow-up, the Company
initiated two additional physician referred, safety studies that are
currently underway. Both studies are 90-day studies at three
increasing doses. Study endpoints are aimed at further establishing
the safety of AndroCar(trademark) and its effects on the general
well-being of the subjects. The first study is in approximately 30
subjects with end-stage prostate cancer and the second study is in
approximately 12 subjects with a variety of end-stage cancers. The
Company expects to have the results of these studies available in June
1997.
Based on the development results obtained to-date and the results
expected from the clinical studies currently underway, the Company
presently expects to launch commercial sales of AndroCar(trademark),
as a dietary supplement, during fiscal 1997 as
AndroCar(trademark)-DS. Upon the successful launch of this product,
the Company plans to pursue a therapeutic development plan by
completing the necessary development steps to facilitate the license
of marketing rights.
Developmental Compounds
PN27,1 for Restenosis
Angioplasty is a life-saving surgical procedure resulting in an
increased diameter of the treated blood vessel and improved blood flow.
The procedure is associated with less risk than surgical bypass
operations, while offering rapid improvement to the patient. However,
approximately 40 to 50 percent of angioplasty patients experience an
overall decrease in diameter of the treated blood vessel within several
months of the operation. This adverse response to angioplasty is
termed restenosis. Neovascularization begins with the attraction of
circulating platelets to the traumatized vessel wall. The attached
platelets degranulate and release growth factors that stimulate smooth
muscle cell proliferation. As a result of the proliferation of the
arterial smooth muscle, the blood vessel thickens and the diameter of
the vessel decreases. To date there have been no drugs developed that
adequately control restenosis. Therapeutics that affect either
platelet aggregation, the first step in the process, or angiogenesis,
smooth muscle cell proliferation, have met with little success.
The finding that p34cdc2 expression and activity relate to a wide
variety of disease manifestations is rapidly becoming obvious as more
research on the functions of this kinase is published. However, for
therapeutic purposes, the more direct question involves whether the
manipulation of p34cdc2 concentrations or activity in the affected
cells alters cytopathology. During the last two years, research has
been published indicating that it is possible to control cellular
proliferation associated with cancer by inhibiting or down-regulating
p34cdc2. In addition to effects on a wide variety of tumor cells, the
down-regulation of p34cdc2 has proven in the laboratory to be a
mechanism to avert smooth muscle cell proliferation.
That p34cdc2 (I) exists in biological systems as diverse as yeast
and humans, (ii) serves a fundamental role in control and coordination
of the cell cycle and (iii) is involved in a wide variety of pathologic
consequences of abnormal expression, reflects the enormous importance
of p34cdc2 in cell physiology. Therefore the capacity of a chemical to
affect p34cdc2 concentrations in a multiplicity of cell types (e.g.
epithelial, mesothelial) while avoiding direct cytotoxicity has
possible therapeutic implications.
Chinese researchers have reported that extracts of the herb
Andrographis paniculata inhibit platelet aggregation in humans and
repress restenosis in the rabbit model of angioplasty. Through the use
of the Company's proprietary p34cdc2-screening assay, it has identified
the compound PN27,1 from this herb. This naturally occurring chemical
inhibits both platelet aggregation and smooth muscle cell proliferation
in vitro and along with several of its analogs, defines the biological
activity seen with the administration of the herbal extracts to humans
and laboratory animals. Overall, the novel bi-modal mechanism of
action, the excellent oral bioavailability and the low toxicity of
PN27,1 are the basis for the development of this compound for the
prevention of restenosis in angioplasty patients although no definite
assessment can be made at this time.
In studies conducted by the Company, the ability to inhibit the
proliferation of human aortic smooth muscle cells was demonstrated by
PN27,1 in vitro. Similar studies reported by Chinese researchers using
an angioplasty model in the rabbit, indicate that the herbal extract
from which PN27,1 is derived can also inhibit the arterial thickening
resulting from the angioplasty procedure.
Products for the Transmission of HIV-1
The sexual transmission of the AIDS virus to women is becoming one
of the most significant female health issues in the world. According
to studies published in Science magazine, HIV-1 is currently among the
top five causes of death for women in developing countries.
Furthermore, reports indicate that the heterosexual spread of HIV-1 in
Asia may be the result of a viral strain that differs from the HIV-1
viral strain involved in homosexual AIDS cases in Western countries.
The principal drugs being evaluated by others for the inhibition
of HIV-1 transmission utilize physical processes to deactivate the
virus. These physical processes include surface charge, detergent
lysis and acidity. Associated with these physical agents are the
problems of irritation and administration. The Company's product
discovery program is focusing on the discovery of products that inhibit
the transmission of AIDS and can be used orally or topically before or
shortly after exposure.
In 1995, the Frederick Research Center completed the development
of an assay, under a contract with the National Institutes of Health,
to assess the capacity of a material to inhibit cell-to-cell
transmission of the human HIV-1 virus. The Company sent 100 TCM
extracts, which had been pre-selected from the library of extracts
screened at the Company using its proprietary signal transduction
assays, to Frederick Research Center for screening in their newly
developed assay. Thirty-two percent of the Company's extracts tested
at Frederick Research Center exhibited significant capacity to inhibit
sexual transmission of the HIV-1 virus. Seven of the herbal extracts
were more potent than the dextran sulfate positive control used in the
study, while twenty herbal extracts demonstrated potency equal to
dextran sulfate.
Figure 2: Inhibition of HIV-1 Transmission by Dextran Sulfate and the
Company's TCM Extracts.
The Company believes these results are significant from a
public health as well as a scientific standpoint, since herbal
extracts can be manufactured inexpensively in developing countries,
where the need is greatest. Furthermore, historical use of several
of the HIV-1 inhibiting extracts indicates a good margin of safety
with the possibility of oral as well as topical administration.
Cost of manufacture and route of administration have been two of
the greatest concerns in the development of an effective
therapeutic for the inhibition of HIV-1 transmission.
Signal Transduction and the Biosensor Assay for Dioxin Compounds
Scientific Background
The Ah-IMMUNOASSAY(trademark) was developed by the Company to
identify chemical carcinogens of the dioxin class that are commonly
found in environmental pollutants from incineration of plastics and in
paper production and recycling. TCDD
(2,3,7,8-tetrachlorodibenzo-p-dioxin) or dioxin is the best studied and
most toxic of a number of these environmentally important chemicals
known as dioxin-like compounds.
Presently, scientists concur that all toxic effects of dioxin and
structurally related compounds are mediated by a protein present in
cells called the Aryl hydrocarbon (Ah) receptor. The initial step in
dioxin toxicity requires the binding to, and transformation of, the Ah
receptor to a DNA-binding form that then affects the expression of
several gene products. In support of this concept, the susceptibility
of different species to the toxic effects of dioxins can be correlated
to the susceptibility of their Ah receptor molecule to transformation
by dioxins. Furthermore, the toxicity of dioxin-like compounds is
linked with their ability to transform the Ah receptor into a
DNA-binding form. The Ah-IMMUNOASSAY(trademark) was designed to be
selective for the toxic members of the dioxin family by utilizing the
transformation of the Ah receptor as a biosensor. In the past year,
the Environmental Protection Agency (the "EPA") circulated proposed
regulations providing for the measurement of the dioxin family to be
expressed as "Toxic Equivalent Quotients". The Company's assay
provides this form of response and measurement.
Product
As designed and formatted, the Ah-IMMUNOASSAY(trademark) does not
require the use of radioactivity, sophisticated equipment, live cells
or live animals. Three convenient formats of the
Ah-IMMUNOASSAY(trademark) have been designed by the Company to provide
several methods of quantification of the amount of several important
classes of compounds including dioxins, polychlorinated biphenyls,
polybrominated biphenyls and polycyclic aromatic hydrocarbons. The
interaction of dioxin with the Ah-biosensor complex in the
Ah-IMMUNOASSAY(trademark) produces a transformation in the shape of the
biosensor complex. The number of molecules of the biosensor complex
that are transformed can be quantified with specific antibodies to the
transformed, DNA-binding form of the complex.
The Ah-IMMUNOASSAY(trademark) indicates the toxicity of the test
sample in terms of fractional equivalencies of the most toxic
dioxin-like compound: TCDD. Because of the simplicity of the assay,
hundreds of air, soil, food or water samples may be tested in a single
day at field locations. Two formats of the assay are designed to be
low-cost and high throughput versions that can be performed in several
hours by non-technical personnel. Sensitivity of the
Ah-IMMUNOASSAY(trademark) to the contaminants that it detects is
comparable to instrumental methods currently used and is well below the
recently proposed EPA concentrations for water, food and soil.
Unlike competing products, the Ah-IMMUNOASSAY(trademark) biosensor
test does not detect the contaminant directly with antibodies, but
detects the interaction of an intracellular receptor and ligands
contained in the sample of interest. The Company believes that the
advantages of this biosensor approach are (I) simple extraction
procedures with few clean-up steps, (ii) high sensitivity, (iii) high
specificity for the contaminant family of interest, (iv) reduced
testing time, (v) lower testing costs and (vi) adaptable to robotic,
high-throughput systems.
Competition
Many large companies with extensive research and development,
marketing, financial and other capabilities, as well as
government-funded institutions and smaller research firms are engaged
in the development of diagnostic assays for environmental applications.
The significant majority of diagnostic tests developed for these
companies, however, are designed for use in laboratories that require
sophisticated instrumentation and skilled technicians. The Company has
designed its Ah-IMMUNOASSAY(trademark) system as an inexpensive, rapid,
field test for use by minimally-skilled personnel and does not
currently compete with laboratory-based systems. Moreover, while the
Company is aware of a number of other firms that have developed an
environmental field test, it is not aware of any such test that detects
the substances identified by the Ah-IMMUNOASSAY(trademark) test. Early
attempts to develop an antibody-based test for all dioxins have been
unsuccessful. With the introduction of the Ah-IMMUNOASSAY(trademark)
biosensor test, the Company provides the first receptor-based
environmental testing system. Although there is no single product
presently in the marketplace that competes directly with the
Ah-IMMUNOASSAY(trademark), organizations in the field of environmental
diagnostics are potential competitors.
Based upon scientific papers presented by the Company and others
at International Symposiums on Dioxins and Related Compounds the
Company anticipates performance of the Ah-IMMUNOASSAY(trademark) to be
free of interference with common, nontoxic, naturally occurring,
organic compounds that are capable of interacting with the Ah-receptor.
Furthermore, the Company's assay, unlike others presented, does not
require the use of dangerous radioisotopes and can be performed in
hours. The Company believes these qualities provide a significant
competitive advantage to the Ah-IMMUNOASSAY(trademark) over all other
known bioanalytical assays for dioxin-like compounds.
Business Strategy.
Environmental engineering firms must rely exclusively on
sophisticated instrumentation, reagents, highly trained personnel and
significant elapsed time for the information they need to begin any
plan for remediation. By providing a real-time assay and freeing
highly trained technicians for more sophisticated work, the Company
believes that the Ah-IMMUNOASSAY(trademark) would be an invaluable tool
to these target markets. For this application the Company has
developed the Ah-IMMUNOASSAY(trademark) as a supplement to and not a
replacement for existing instrumental methods by providing a system for
use in connection with existing environmental remediation efforts at
increased efficiency and decreased cost. Recently the EPA circulated
proposed regulations providing for the measurement of the dioxin family
to be expressed as "Toxic Equivalent Quotients". The Company's assay
provides this form of response and measurement.
Additionally, developing economies in Asia and Eastern Europe are
facing significant environmental problems with dioxin-like compounds
and have neither the sophisticated instrumentation nor the trained
personnel to address their analytical needs. In these potential
markets there is the immediate need for an inexpensive testing system
that will reliably identify problematic water, food and soil
contamination.
In January 1995, the Company announced an agreement with Dow
Environmental providing for a non-exclusive license and an option for
an exclusive license to evaluate and commercialize the Company's
Ah-IMMUNOASSAY(trademark) technology. Earlier this year Dow
Environmental notified the Company that it does not intend to execute
the exclusive worldwide license for the assay. Their intent is to use
the assay for safety testing within the Dow organizations. The Company
is in discussions with Dow to obtain a release of the nonexclusive
agreement which will permit licensing the technology to other
companies.
In October representatives from China conducted tests on samples
from mainland China in the Company's lab utilizing the assay. The
results of that test proved the usefulness to countries with enormous
environmental problems utilizing low cost field test facilities.
Since August the Company has been in discussion with Japanese
representatives of environmentally sensitive companies needing this
type of assay for use in Japan. They are reviewing the technology and
patents in preparation for conducting tests at the Company and then in
Japan.
While the Company believes that a license arrangement can be
achieved there is no assurance that this license can be completed.
Signal Transduction and Cancer Diagnostics
Scientific Background
All of the Company's products and their applications are based on
a biochemical process known as signal transduction -- a form of
information processing. Two proteins involved in separate cellular
signal transduction pathways, p34 and the Ah-receptor, have been
formatted by the Company into products that address the detection of
cancerous tissues, identification of cancer causing chemicals and
discovery of anti-cancer drugs.
The Company's CDK2 biomarker has been applied to the diagnosis of
human prostate, as well as canine osteosarcomas, lung tumors and
lymphosarcomas. Additionally, CDK2 serum and CDK1 tissue assays can be
used to detect chemically induced cancer in laboratory rodents. The
Company's CDK1 biomarker is one of the earliest indications that a
normal cell is undergoing transformation to a cancer cell and,
therefore, CDKs provides unique advantages in each of these
applications.
In human medicine, CDK2 has demonstrated the capacity to identify
individuals diagnosed with benign prostate hyperplasia who may be at
high risk for development of metastatic prostate cancer. Males with
metastatic prostate cancer have a 4-fold elevation of CDK2 in their
serum in comparison to normal males. Early diagnosis of cancer in
companion (dog and cat) animals suffers from the necessary expense of
using a number of tissue-specific tumor biomarkers. Since CDK2 can be
detected in the serum from any tumor tissue, the veterinarian can
utilize a single serum CDK2 determination as a cost-effective part of
routine dog and cat physicals. Similarly, the determination of a
chemical's ability to induce cancer in rodents can benefit from a serum
biomarker for tumor-bearing animals. By monitoring the serum CDK2
concentration of rodents receiving a test chemical, it is possible to
assess the relative carcinogenicity of the chemical within 90 days as
compared to the two years that it currently takes to determine chemical
carcinogenicity in rodent bioassay systems.
Research Products
Currently the Company has seven products for research purposes
only designed for laboratory animal carcinogen testing and cell culture
markets. Utilizing an Enzyme Linked Immunosorbent Assay ("ELISA")
format, the In VIVO research product line (two kits plus a combination
kit) is for research of the quantification of CDK1 in human or animal
tissues except blood. The In Vitro research product line (two kits
plus a combination kit) permits quantification of CDK1 in cell
cultures. Visualization of increased CDK1 in specific cells on
microscopic slides is achieved by means of the Company's CDK1 Antibody
Immunohistochemistry Kit.
Since several protein biomarkers had established a history of use
in the human and animal solid tissue research markets before CDK1 was
discovered, the Company offers ELISA kits for research on the
quantification of the most widely-used competing biomarker in this
market, PCNA (proliferating cell nuclear antigen). The Company's IN
VIVO-CDKTM ELISA with confirmatory PCNA ELISA enables the researcher to
make a direct comparison of both the CDK1 and PCNA biomarker.
In April 1996 the Company signed an exclusive worldwide licensing
agreement for its CDK1 biomarker with CN Biosciences (formerly
Calbiochem-Novabiochem) providing for royalties on a graduated scale
commencing at 5%.
Competition - Laboratory Animal Cancer Diagnostics
The most significant barrier to entry for the cancer biomarker
test in rodent studies is the general aversion by the marketplace to
new technology in toxicology testing. Toxicology studies in the
pharmaceutical and agrochemical industries are performed to assess
chemical safety (carcinogenic potential). Ultimately, results of these
studies are submitted to the FDA or EPA as part of drug or chemical
applications. Although not mandated, the protocols for data submission
established by these agencies are generally "recommended". Although
the Company's published and marketing data demonstrates that toxicity
studies could be conducted more quickly and with significant cost
reduction using its CDK1 tests, the regulatory culture of these
industries has prevented rapid penetration by the Company of this
market. Products currently on the market that complete with the
Company's ELISA assays include 3H-thymidine, a radioactive compound,
and bromodeoxyuridine. These compounds are the reagents that are
currently used in methodology to assess the ability of a chemical to
generate a proliferative response in a cell. The testing protocols
that are used with these chemicals are time consuming, taking up to
several months to produce a result, and the generated data are
difficult to interpret.
A strength of the CDK serum/tissue cancer diagnostic tests is that
they are the first molecular, mechanistic assay offered to the
toxicology industry. However, many principal investigators in the
field of toxicology, among others, are not conversant with molecular
biology techniques, cell cycle analysis, or current cancer research.
As health care reform increases the pressure on pharmaceutical
companies to reduce the prices of new drugs, it is conceivable that
pressure to adopt cost-cutting new technologies also will increase.
The mechanistic nature of the Company's test may be useful in cutting
research costs. In addition, the Company anticipates offering three
separate products to the toxicology market. This portfolio of products
is expected to meet the needs for monitoring, documenting endpoints and
analyzing archival materials.
Competition - Human CDK2 Cancer Diagnostics
There are a number of companies and academic scientists
endeavoring to discover serum-based tumor markers, many of which have
significantly larger resources than that of the Company. The Company
believes that its marker, however, is currently the only tumor
biomarker that is mechanistically based. That is, since the role of
CDK2 in cell division and the fact that this protein is elevated in
transformed cell lines and tumors is known, the CDK2 marker is ideally
suited as a diagnostic marker for a large number of cancers. The
universality of CDK2 for all cancers is a positive attribute indicating
that the biomarker could be useful for detection, prognosis and
post-therapy to monitor for recurrence of the cancer. CDK2 is also one
of the earliest indicators of cell transformation and, as such,
provides the physician with a greater range of therapeutic options.
However, the ubiquity of the CDK2 biomarker for all cancers has a
weakness for the diagnostician. Since CDK2 detects abnormally high
cell division from any cancerous tissue nonspecifically, a physician
could not use a CDK2 test alone to determine where the cancer is
located. This deficiency may be overcome through the use of a panel of
cancer biomarkers. For example, prostatic acid phosphate (PAP),
prostate-specific antigen (PSA) and CDK2 could be requested for a
patient if prostate cancer were suspected. The use of several tumor
biomarkers as a diagnostic panel may increase the positive and negative
predictive values of all biomarkers in the panel.
It is expected that the CDK2 tumor biomarker initially will be
evaluated for prostate cancer, then for breast, colon, lung, ovarian
and uterine cancers. Ultimately, CDK2 has the potential to be widely
used as a screen during regular check-ups to determine if any early,
undetected cancers of any site are present. As an in-vitro diagnostic,
the CDK2 tumor biomarker requires pre-market notification or approval
by the Food and Drug
Administration.
A variety of tumor biomarkers are currently being introduced by
various competitors. The Company's strategy is to validate the CDK2
biomarker in a number of studies, obtain FDA clearance to market the
biomarker, and then build physician awareness and understanding so that
the test will be ordered. p53, p65, nuclear matrix proteins, and
biomarkers are also vying for attention and clinical importance.
Future competitors could arise from as yet undiscovered biomarkers
or technologies. The Company, however, knows of no competing
technologies under development at this time. There is a trend toward
home diagnosis as with blood sugar levels, cholesterol and pregnancy.
If a home monitoring screen for cancer was desired, however, the CDK2
biomarker could be easily converted to the necessary test format. FDA
clearance to market the CDK2 biomarker for home use would be required.
Competition - Veterinary CDK2 Cancer Diagnostics
There are currently no screening tests for cancer being used in
veterinary medicine. Therefore, the Company expects single greatest
barrier to the successful introduction of the CDK2 test to be
acceptance by veterinarians and pet owners. Recent growth of oncology
as an area of specialization in veterinary medicine is expected to
facilitate the adoption of the test.
The Company's patented test is expected by the Company to impede
immediate imitation. The fact that the biomarker is a mechanistic
marker also should make it difficult for another test to enter the
market after initial acceptance. The Company intends to rely upon the
quality reputation and capabilities of its intended partner to maintain
sales and market share.
For the companion animal market, general economic factors will
play a role in the willingness of research customers to add a new test
to their veterinary bills. Major competitors may attempt to maintain
comparable product lines, so it is expected that other veterinary
suppliers could produce a companion animal cancer screening test. The
likelihood of success for another company is difficult to predict,
although such success may require substantial investments in research
and development.
Business Strategy - Laboratory Animal Diagnostics
The potential customers for the IN VIVO-CDKTM and IN VITRO-CPATM
are toxicologists working to characterize the carcinogenicity of
chemicals in the pharmaceutical, agrochemical, food and cosmetic
industries. The CDK1 diagnostic market in toxicology can be estimated
based upon the number of rodents used in cancer testing in the US.
Sixteen percent of animals used in research are involved in studies to
evaluate the toxicity of chemicals. Of that number, 63% represent
studies that could use the CDK1 cancer diagnostic test. Currently, 20
to 40 million rodents are used each year for toxicology testing.
Approximately 10% of these animals are used in studies in which the
CDK1 diagnostic test could be applied which represents the Company's
target market. The Company's ELISA CDK1 diagnostic test kit currently
on the market for rodent tissues can assay 42 tissue samples per kit.
Estimating usage at three or four assays per animal based on the number
of tissues or serum assays per animal, the potential number of tests is
estimated at eight to 16 million tests per year. Based on the Company's
current kit price, the market potential in the US is estimated to be in
the range of $75 to $150 million per year.
The regulatory environment facing customers of the rodent CDK1
diagnostic test has inhibited the rapid adoption of new technologies
and testing protocols. Testing laboratories routinely use procedures,
tests and protocols approved by the FDA. This barrier to sales can be
alleviated by the introduction and regulatory approval of CDK2 serum
diagnostics in human and veterinary medicine, of which there can be no
assurance.
In April 1996 the Company signed an exclusive worldwide licensing
agreement for its CDK1 diagnostic with CN Biosciences (formerly
Calbiochem-Novabiochem) providing for royalties on a graduated scale
commencing at 5%.
The Company's research finding, that CDK2 can serve as a serum
biomarker for cancer and its progression, has led to the continued
development of two additional products; these diagnostic tests provide
for rapid and early detection of cancer in humans and companion animals
such as dogs and cats.
Business Strategy - Human CDK2 Cancer Diagnostics
If FDA clearance or pre-market approval is obtained, the Company
in partnership with testing labs, expects to market the CDK2 diagnostic
testing kits to the clinical chemistry laboratories in hospitals and
reference laboratories. Attending physicians would utilize the
Company's CDK2 diagnostic testing kits for patients to assist in the
diagnosis of prostatic, breast or colon cancer. Additionally, the serum
CDK2 diagnostic test would be used to assess treatment efficacy and to
define the period of remission.
The overall market for serum tumor biomarkers in 1992 was $85
million. An annual growth rate of 10% was forecast through 1997 in the
Biomedical Business International Report, 1992. Market size is
projected to grow when additional tumor markers obtain FDA approval.
Market growth also could be significantly increased if viable serum
marker screening tests are developed and adopted for any of the major
cancer types.
The CDK2 biomarker is a mechanistic biomarker for the detection of
cancer cells, which represent a novel characteristic of tumor
biomarkers. See "Patent Applications and Proprietary Technology."
Furthermore, the Company has filed a patent to protect its rights to
the CDK2 serum marker. Present tumor markets for the CDK2 biomarker
include prostate, breast and colorectal cancers, while markets that
could be developed after the second year include lung,
uterine/cervical, bladder and ovarian cancers.
The current format of the test is expected to be compatible with
the Company's intended partner reference laboratory. In subsequent
years, the Company expects to evaluate the test's format for high
volume scale-up on automated instruments.
The Company intends to sell the marketing rights to such tests to
a third party for an up-front licensing fee, milestone payments and
royalties of which there can be no assurance. The Company expects that
overseas distribution will be through licensing to one or more
diagnostic companies.
Business Strategy - Veterinary CDK2 Cancer Diagnostics
The American Veterinary Medical Association ("AVMA") estimates
that there were 110 million dogs and cats in the US in 1993. Assuming
only 20% of these animals visit a veterinarian on an annual basis,
these numbers yield 22 million companion animal visits to veterinarians
each year. The target customers are the veterinarians who treat these
22 million animals and the target use is for integration into routine
physical exams for dogs and cats. The market for CDK2 cancer
diagnostic tests is veterinarians working in small clinics as well as
large hospitals.
In October 1994, the Company licensed the marketing rights to the
assay to IDEXX Laboratories, Inc., a company with revenues in excess of
$130 million per year in the veterinary diagnostic market, in exchange
for a licensing fee and royalty payments from IDEXX Laboratories, Inc.
Patent Applications and Proprietary Technology
The Company believes that patent protection of materials or
processes it develops and any products that may result from the
Company's research and development efforts are important to the
commercialization of the Company's products. The Company has five US
patent applications and three foreign applications that are currently
pending.
In the 1995 fiscal year the Company filed a US patent describing the
use of compounds identified from two of its TCM extracts. The patent
describes uses of these compounds for the treatment of cancer, arterial
restenosis following angioplasty and the prevention or treatment of
cytopathology related to HIV-1, herpes or hepatitis infections.
Two patent applications for the biosensor detection methodology,
which utilize properties of ligand-receptor interaction such as
the Ah-IMMUNOASSYTM and potential derivative products using the Ah
receptor technology, have been filed in the United States Patent and
Trademark Office on behalf of Cornell Research Foundation, Inc. See
"Exclusive License Agreement with Cornell Research Foundation,
Inc.". The first, describing an indirect immunoassay for the
detection of dioxin-like compounds issued on March 5, 1996 as U.S.
Patent No. 5.496.703. The second application issued on June 25, 1996
as U.S. Patent No. 5.529.899 for foreign patent applications based
upon the first patent were filed in Europe, Canada, and Japan and
are still pending. Cornell Research Foundation has filed a Patent Cooperation
Treaty (PCT) application for the second patent application that will allow
applications to be filed in these countries and others after an
international examination process.
The Company filed a third patent on October 27, 1995 describing
improvements to the Ah-IMMUNOASSYTM technology. This new assay is
targeted for markets in Asia and Eastern Europe. The simplicity
and speed of the new formats, which will be owned entirely by the
Company, are ideal for countries with enormous environmental problems
and little financial support for high-cost instrumentation.
The Company filed for patent protection in Europe and Canada in
fiscal 1994 on finding the increased presence of CDK protein in
cells that are exposed to carcinogenic chemicals and after
becoming cancerous. This concept was accepted by the International
Preliminary Examining Authority during the prosecution of the Patent
Cooperation Treaty patent application and a notice of allowance
has been received on one of the U.S. patent applications related
to this technology. If patents are issued, the Company will have
exclusive rights to assays that use certain CDKs as early diagnostic or
prognostic markers for cancer.
It is anticipated that continuing United States and corresponding
foreign patent applications will be filed in the future. There can be
no assurance that any patents will be issued based upon such
applications or that any patents that may be issued will provide the
Company with significant protection from competitors. Further, there
can be no assurance that any patents that may be issued based upon such
applications will not be successfully challenged and declared invalid.
The patent positions of biopharmaceutical and biotechnology firms,
as well as of academic and other research institutions, are uncertain
and involve complex factual and legal questions. Accordingly, no
predictions can be made regarding the allowance, breadth or
enforceability of claims in these applications or others that may be
filed by the Company. The Company and Cornell Research Foundation,
Inc. believe that they have the sole and exclusive rights in the
technologies underlying the Company's products. The Company would
vigorously defend any attempt by any individuals to assert any rights
in such technologies. Although Cornell Research Foundation, Inc. has
substantial resources to legally enforce its patent rights, there can
be no assurance that it will do so. If Cornell Research Foundation,
Inc. elects not to enforce its patent rights in the technologies
underlying the Company's products, the Company has the right under its
license agreement with Cornell Research Foundation, Inc. to seek to
enforce those rights. However, in such event, there can be no assurance
that the Company will have the financial resources to do so. In
addition, although all of the Company's employees are parties to
confidentiality agreements which are intended to protect the Company's
proprietary technology, there can be no assurance that any of such
employees will not compromise any of the Company's proprietary rights.
The Company also relies upon unpatented proprietary technology,
and no assurance can be given that others will not independently
develop substantially equivalent proprietary information or techniques
or otherwise gain access to the Company's proprietary technology or
disclose such technology or that the Company can meaningfully protect
its rights in such unpatented proprietary technology.
United States trademark applications were approved during the 1995
fiscal year for IN VIVO-CDK( and IN VITRO-CPA( ELISA assays.
Exclusive License Agreement with Cornell Research Foundation, Inc.
The Company and Cornell Research Foundation, Inc., a wholly-owned
subsidiary corporation of Cornell University, are parties to a license
agreement (the "License Agreement") pursuant to which the inventors
have assigned to Cornell Research Foundation, Inc. their ownership
interests in the Ah-IMMUNOASSAYTM technology in accordance with Cornell
University's patent policy. Cornell University's patent policy states
that all patentable inventions conceived or first reduced to practice
by Cornell University's faculty and staff in the course of research
conducted during an inventor's employment with Cornell University or
with the use of Cornell University's resources shall belong to Cornell
University, thereby giving Cornell University, through Cornell Research
Foundation, Inc., the right to grant licenses under such patent
applications and patents issuing thereon.
Pursuant to the License Agreement, Cornell Research Foundation,
Inc. has granted an exclusive license for any patent applications based
on the Ah-IMMUNOASSAYTM and any patents issuing thereon to the Company
and the Company has issued to Cornell Research Foundation, Inc. 195,190
shares of Common Stock of the Company. In the License Agreement,
Cornell Research Foundation, Inc. has expressed an intention to
maintain a passive non-voting position with respect to its stock
holdings in the Company. The Company also will pay Cornell Research
Foundation, Inc. a royalty equal to 3% of the net sales price of
licensed products based on Ah-IMMUNOASSAY(trademark) technology sold by
the Company in the United States and throughout the world. Dr. John G.
Babish, an officer of the Company and a co-inventor of the
Ah-IMMUNOASSAY(trademark) technology, is entitled to a portion of such
royalty payments since Cornell University's patent policy provides that
the inventor of patented technology owned by Cornell Research
Foundation, Inc. shall be entitled to a distribution of a portion of
the net royalty income. Dr. Babish has assigned to the Company all of
the royalty payments which he is entitled to receive pursuant to
Cornell University's patent policy. Among other matters, the License
Agreement also provides that the Company shall exercise diligence to
introduce the licensed product into the commercial market.
The Company has the right to sub-license under the License
Agreement with the approval of Cornell Research Foundation, Inc., which
approval may not be unreasonably withheld or delayed. The Company's
rights and obligations under the License Agreement are non-assignable,
except to its successor in business if such assignment is approved by
Cornell Research Foundation, Inc., which approval may not be
unreasonably withheld or delayed. The License Agreement provides for
the indemnification of the Company by Cornell Research Foundation, Inc.
from any damages, costs or expenses incurred by reason of a breach of
Cornell Research Foundation, Inc., warranties set forth in the License
Agreement. The License Agreement further provides for the Company's
indemnification of Cornell Research Foundation, Inc. with respect to
any claim arising out of the Company's or its transferees' use of
inventions licensed or information furnished under the agreement, or
out of any use, sale or other disposition by the Company or its
transferees of products made by use of such inventions or information.
Any exclusive license under a patent application lasts until the
expiration date of the last to expire licensed patent, unless otherwise
earlier terminated. Cornell Research Foundation, Inc. may terminate
the License Agreement for noncompliance with a material provision by
six month notice to the Company. Upon receipt of such notice, the
Company has ninety days to cure its noncompliance.
Relationship with Cornell University and Cornell Research Foundation,
Inc.
The initial Ah-IMMUNOASSAY(trademark)technology was developed at
Cornell University. The Company is a party to the License Agreement
with Cornell Research Foundation, Inc. covering this system. See
"Exclusive License Agreement with Cornell Research Foundation, Inc."
Cornell University received 78,660 shares of the Company's Common
Stock in consideration for consulting services rendered to the Company
by various members of the faculty of Cornell University. Cornell
Research Foundation, Inc. received 195,190 shares of the Company's
Common Stock in consideration for entering into the License Agreement.
In the License Agreement, Cornell Research Foundation, Inc. has
expressed an intention to maintain a passive non-voting position with
respect to its stock holdings in the Company.
In July 1993, Dr. Babish began to devote his full time to the
Company, taking an indefinite leave of absence from his tenured
position at Cornell University until July 1996 when Dr. Babish resigned
from this position.
Government Regulation and Approval
The formulating, processing, manufacturing, packaging, labeling
and advertising of the Company's products are subject to
regulation by one or more federal agencies, including the Food and
Drug Administration (FDA), the Federal Trade Commission (FTC), and the
Environmental Protection Agency. These activities are also
regulated by various agencies of the states and foreign countries
to which the Company's products may be distributed and in which
the Company's products may be sold. The FDA, in particular, regulates
the formulation, manufacture, and labeling of dietary supplements,
drugs and diagnostics.
Dietary Supplements
Herbs and other botanicals, including the Company's Chinese herbs
and herbal extracts, are regulated as dietary supplements under
the Dietary Supplement Health and Education Act of 1994, so long
as no claims are made that such dietary supplements are intended for
the diagnosis, cure, mitigation, treatment, or prevention of disease
in humans or other animals. The Company presently intends to
introduce AndroVir(trademark)-DS and AndroCar(trademark)-DS to the
market as dietary supplements during 1997.
The Dietary Supplement Health and Education Act of 1994 was
adopted in recognition of the role dietary supplements, including
herbs and other botanicals, can play in health promotion and the
link between supplements and prevention of chronic diseases such as
cancer, heart disease and osteoporosis. This new law revises the
provisions of the Federal Food, Drug, and Cosmetic Act (FFDCA)
concerning the definition, composition and labeling of dietary
supplements. The legislation creates a new statutory class of "dietary
supplements." This new class includes vitamins, minerals, herbs,
other botanicals, amino acids and other dietary substances for
human use to supplement the diet. The legislation grandfathers,
with certain limitations, dietary ingredients on the market before
October 15,1994. A dietary supplement which is to contain a new
dietary ingredient, one not on the market before October 15, 1994,
requires evidence of a history of use or other evidence of safety
establishing that it will reasonably be expected to be safe, such
evidence to be provided by the manufacturer or distributor to the
FDA at least 75 days before the product is to be marketed.
The provisions in the law that are significant to the Company are:
(i) If a product is first marketed as a dietary supplement and is
later approved as a new drug, it may remain on the market as a
dietary supplement unless the FDA determines by regulation that it is
unsafe. If a product is first publicly investigated or approved as a
new drug before being marketed as a dietary supplement, it may not
later be marketed as a dietary supplement unless the FDA
determines by regulation that it is safe to do so. (ii) A dietary
supplement containing only old dietary ingredients can be removed
from the market if the FDA shows that it presents "a significant
or unreasonable risk of illness or injury," that it is or contains
a "poisonous or deleterious substance which may render it injurious to
health" or if the FDA determines that it "presents an imminent
hazard to public health or safety." (iii) A dietary supplement
containing a new dietary ingredient can be removed from the market if
there is "inadequate information to provide reasonable assurance that
the ingredient does not present a significant or unreasonable risk
of illness or injury." (iv) Dietary supplements may make
statements of nutritional support on their labels which describe the
role of a dietary ingredient intended to affect any part of the
structure or function of the human body, characterize the
documented mechanism by which a dietary ingredient acts to
maintain such structure or function, or describe general well being
from consumption of the dietary ingredient, so long as the
statement is substantiated to be truthful and not misleading, FDA
is notified within 30 days of first making the statement, and the
statement is accompanied in boldface by the following: "This
statement has not been evaluated by the Food and Drug
Administration. This product is not intended to diagnose, treat, cure,
or prevent any disease."
The general labeling requirements for dietary supplements have not
been clearly established. In December 1995, the FDA issued
proposed regulations to govern the nutrition and ingredient
labeling of dietary supplements. These regulations are expected to
become final early in 1997 and would require the Company to conform any
dietary supplement labels to the regulations.
The products intended to be marketed by the Company as dietary
supplements (AndroVir(trademark)-DS and AndroCar(trademark)-DS)
may be determined by the FDA to be new drugs. In such case, new
drug approval would be required in order to market or to continue
marketing the products.
Advertising and label claims for dietary supplements are also
regulated by state and federal authorities under a number of
disparate regulatory schemes. There can be no assurance that a
state will not interpret claims presumptively valid for dietary
supplements under federal law to be illegal or to be drug claims
under the state's laws or regulations, or that future FDA or FTC
regulations or decisions will not restrict the permissible scope of
such claims.
Governmental regulations in foreign countries where the Company
may determine to commence sales may prevent or delay entry into
the market or prevent or delay the introduction, or require the
reformulation of the Company's products.
See "Effect of Governmental Regulations on the Company."
Pharmaceuticals
Under the FFDCA, drugs are defined as articles intended for use in
the diagnosis, cure, mitigation, treatment or prevention of
disease in man or other animals. In addition, a drug is an
article (other than food) intended to affect the structure or any
function of the body of man or other animals. To the extent that
the Company markets its products as dietary supplements, a subset
of food, the Company may make statements of nutritional support
(structure or function claims), as set forth above in "Dietary
Supplements," without causing the products to be deemed drugs.
If the Company's products were deemed by the FDA to be drugs or,
if the Company chooses to develop the products as drugs, the
products would be new drugs under the FFDCA. As new drugs, these
products would require FDA approval prior to marketing based on
clinical studies demonstrating safety and effectiveness. An
Investigational New Drug exemption must be obtained from FDA prior
to the initiation of human clinical trials. In order to obtain an
Investigational New Drug exemption, the Company would be required
to establish the chemistry of the compound (including assays for
identity, strength, quality and purity) to be investigated and to
demonstrate that it is manufactured and controlled in accordance
with current good manufacturing practices for pharmaceuticals. In
addition, the Company would be required to establish the safety of
the compounds by toxicological studies in animals. It is possible, but
by no means probable, that some of all of these requirements would
be waived by FDA based on the history of use of the herb in traditional
Chinese medicine or otherwise.
If the Company were to seek approval of a New Drug Application for
a compound, at least two adequate and well-controlled clinical
trials, in several hundred patients or more, usually performed in
multiple centers, would be required. These are in addition to Phase I
(initial evaluation of safety) and Phase 2 (initial evaluation of
efficacy) human clinical trials to identify compounds safe enough
for and worthy of large scale efficacy studies. In addition, the
Company would be required to develop human pharmacokinetic and
bioavailability data.
The new drug approval process, including performing clinical
trials to establish efficacy, usually takes at least several years
and requires a substantial investment of capital. In certain
circumstances, expedited approval is possible for drugs intended to
treat life-threatening or debilitating diseases where initial
safety and efficacy is established in Phase I and Phase II
clinical trials. Once approval is obtained, the Company may be
entitled to a period of exclusivity depending an whether the compound
is considered a New Chemical Entity or not and whether the Company
owns or has exclusive rights in the clinical trial data, or
contributed more than half its cost. Once a new drug is approved,
annual and other reports are required to be submitted to FDA, including
reports of adverse drug experiences.
Diagnostics
Neither the Ah-IMMUNOASSAY(trademark) nor the INVIVO-CDK(trademark) and
the IN VIVO-CPA(trademark) assays used for environmental analyses or for
research purposes only currently require pre-market approval by the FDA,
the EPA or any other regulatory agency. However, there can be no assurance
that these products will not become subject to pre-market approval or some
other form of government regulation at a future date.
The IN VIVO-CDK(trademark) and the IN VITRO-CPA(trademark) assays
can be used immediately by customers to screen drugs and compounds
as nongenotoxic carcinogens. Sufficient data must be generated to
substantiate the correlation to presently accepted in vivo tests
prior to the test being accepted as a complete substitute for these in
vivo tests. The Company expects that it will take up to eight
years before complete acceptance is achieved. The Company has
based this estimate of the time required for acceptance for prior
assays that test genotoxic carcinogens. There is no guarantee that
this acceptance will occur or that it will occur in the time frame
estimated by the Company.
In addition, diagnostic tests developed from the IN
VITRO-CPA(trademark) ELISA kit will be subject to FDA or other
regulatory approval if they are used in clinical diagnostics.
This test may be classified by the FDA as a Class III medical device,
automatically requiring an FDA-approved pre-market approval
application ("PMA") prior to commercial marketing and distribution
in the clinical diagnostic market.
A PMA for a diagnostic test must contain the results of clinical
investigations providing reasonable assurance that the test is
safe and effective for its intended use. Thus, the data in such a
study must demonstrate the sensitivity and specificity of the test to a
sufficiently high degree to permit a judgment that the test will
be clinically useful in diagnosing a specific disease or
condition, and that the risk of a misdiagnosis is minimal. The FDA
usually requires investigations at three separate sites to establish
inter-laboratory reproducibility of results. While this
investigational process is typically less complex and costly than
the clinical testing process for pharmaceuticals, it nonetheless
requires a sizable investment of capital. The Company cannot
commercialize a medical diagnostic test classified by the FDA as a
Class III medical device until the FDA approves a PMA for the
product.
A Class III or other medical device not approved for marketing in
the US may be exported for commercial sale in other countries
pending PMA approval upon notification to the FDA. If the device
is approved for marketing in certain foreign countries, the filing of a
notification that such commercial sale is approved is sufficient to
begin exportation.
Under the Patent Term Restoration Act of 1984, an entity which
owns a patent claiming a Class III medical device requiring PMA
approval, or a method of using or manufacturing such a product,
may apply for an extension of the normal statutory patent term of 20
years to compensate for the time taken for clinical research and
FDA review of the product's PMA. The Company may be eligible to
apply for such additional patent protection if a patent issues on
any of its medical diagnostic tests requiring PMA approval. There can
be no guarantee, however, that any such patents will be issued or
that such patent term extensions will be obtained.
Effect of Governmental Regulations on the Company
There is a risk that the FDA may take the position that the
Company's clinical trials of AndroCar(trademark) and/or
AndroVir(trademark) are new drug investigations which would
require an Investigational New Drug exemption to continue the trial.
In addition, there is a risk that the FDA may take the position
that the marketing of AndroCar(trademark)-DS and
AndroVir(trademark)-DS to individuals compromised by cancer or
HIV+ is a new drug use, and not a dietary supplement use, and that new
drug approval is required prior to marketing. Either of these
events, while contestable with FDA, would require the Company to
re-evaluate how it intends to market the products.
There also is a risk that FDA may take the position that
Andrographis paniculata, as it is proposed for use in
AndroCar(trademark)-DS and AndroVir(trademark)-DS, is a new
dietary ingredient requiring a 75 day advance notification to FDA and
the submission of evidence of safety prior to marketing. If this
were to occur, introduction of these products to the market could
be delayed.
In late October 1996, FDA personnel performed an inspection at the
Company's offices in Ithaca, New York in order to obtain
information related to the clinical trials that the Company has
performed and is performing on AndroCar(trademark), as well as to
obtain samples of AndroCar(trademark). Study-related information
and AndroCar(trademark) samples were provided by the Company.
With respect to product development generally, the Company is not
aware of any other companies that are proceeding with development
on dual tracks as dietary supplements making statements of
nutritional support (structure or function claims) and
pharmaceuticals. Accordingly, the Company anticipates that it may be
subject to greater scrutiny by FDA than if it were pursuing either
course alone.
Initially, the Company does not anticipate that the drug discovery
pathway will be effected by FDA pharmaceutical regulation under
the FFDCA, since the Company intends to license drug compounds to
established pharmaceutical companies prior to extensive testing
and development. In the future, it is conceivable that the Company
could move further downstream in the new drug development process,
possibly through Phase I clinical trials, in which case compliance
with FDA regulations regarding Investigational New Drugs would
become an important factor.
Due to the nature of the Company's products, they could become
subject to governmental regulation in the future, and changes in
regulations on other industries or products could indirectly
affect the pricing and markets for the Company's products.
Proposed legislation for health care reform has increased pressure
on pharmaceutical companies to reduce their pricing. The
Company's Cell Proliferation Assays, if they are accepted by the
scientific community, can provide its customers with the ability to
reduce their direct costs and time required to either perform
tests or to develop products for market. They also provide the
customer with information regarding toxicity that is not currently
available from any other source.
Funding of Research and Development
The Company expended $1,362,971 and $703,806 on research and
development in fiscal years 1996 and 1995, respectively. None of these
research and development costs were borne directly by customers.
Costs of Environmental Compliance
The Company believes it is in compliance with all environmental
laws and the cost to the Company for this compliance has been minimal.
Employees
As of September 30, 1996, the Company had 20 employees. Nine
employees are primarily engaged in research and development. Four
employees are engaged in publishing the newsletter. Nine of the
employees have a Ph.D. or MD degree. None of the Company's employees
is covered by a collective bargaining agreement. The Company considers
its relationship with its employees to be excellent. All employees of
the Company are signatories to confidentiality agreements that restrict
proprietary rights in, and commercial development of, all technology
developed by the employees.
ITEM 2. Description of Properties.
The Company's executive offices and research facilities are
located at Langmuir Laboratories in Ithaca, New York, and occupy
approximately 6,000 square feet at that location. The Company occupies
this space under a one year lease from Cornell University which expires
in 1997 and provides for automatic annual renewals. At this time and
for the foreseeable future, the Company believes that this space is
sufficient for its administrative offices as well as currently
contemplated manufacturing and research and development activities.
The Company believes that the cost of such space is competitive.
ITEM 3. Legal Proceedings.
In June 1993, a suit was commenced in the New York State Supreme
Court (Onondaga County) by certain persons, individually and doing
business as In Vitro Bioanalytic Systems, against the Company, Dr. John
G. Babish, an officer and director of the Company, and Edward Heslop, a
founding shareholder of the Company.
The plaintiffs allege, among other things, that in 1990, prior to
the Company's incorporation, a partnership had been formed with Messrs.
Babish and Heslop to commercialize products which the Company is now
developing. Damages, an accounting and an injunction are being sought
against the Company. By decision dated September 14, 1994, the Court
dismissed certain of the plaintiffs' claims against the Company while
permitting a claim alleging unfair competition to proceed. The Company
believes that the suit against it is without merit, intends to continue
to vigorously oppose the allegations and is appealing the Court's
ruling to the extent that it did not dismiss the entire complaint.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
ITEM 5. Market for Common Equity and Related Stockholder
Matters.
The Company's Common Stock, par value $0.01 per share (the "Common
Stock"), commenced trading on February 11, 1992 on the over-the-counter
market and is quoted on the National Association of Securities Dealers'
Automated Quotation System ("NASDAQ") under the symbol PRLN. The
Company's Redeemable Common Stock Purchase Warrants (the "Warrants")
commenced trading on September 24, 1993 on the over-the-counter market
and is quoted on NASDAQ under the symbol PRLNW.
The following table sets forth the high and low bid prices for the
Common Stock and Warrants during the periods indicated as reported by
NASDAQ. The prices reported reflect inter-dealer quotations, may not
represent actual transactions and do not include retail mark-ups,
mark-downs or commissions.
Common Stock Warrant
High Bid Low Bid High Bid Low Bid
Fiscal 1995
First Quarter 2 1/2 7/8 9/32 1/8
Second Quarter 3 5/8 1 1/2 1 3/16 1/8
Third Quarter 5 5/8 3 1/8 1 13/16 7/8
Fourth Quarter 8 3 3/8 4 7/8 7/8
Fiscal 1996
First Quarter 7 1/8 2 1/8 4 1/8 7/8
Second Quarter 2 9/16 29/32 1 1/8 7/16
Third Quarter 4 1/4 2 5/32 1 5/8 3/4
Fourth Quarter 3 3/4 2 5/8 1 9/16 5/8
As of December 18, 1996, the Company had 11,669,604 shares of
Common Stock outstanding held by approximately 1,200 record holders.
As of such date, the Company had 2,042,870 Warrants outstanding and 60
record holders of Warrants.
The Company did not pay cash dividends on the Common Stock during
the two fiscal years ended September 30, 1996. It is the present policy
of the Company to retain earnings, if any, to finance the development and
growth of its business. Accordingly, the Company does not anticipate that
cash dividends will be paid until earnings of the Company warrant such
dividends, and there can be no assurance that the Company can achieve
such earnings or any earnings.
ITEM 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussions should be read in conjunction with the
consolidated financial statements and related notes thereto of the
Company included elsewhere herein.
General
Research and product engineering expenses include internal
expenditures as well as expenses associated with third party
consultants and collaborators. Newsletter expenses and costs include
the cost of printing, supplies, and other administrative costs incurred
with operating the Company's New Century Nutrition newsletter and the
costs related to winding down the operation which ceased publication
with its December 1996 issue. General and administrative expenses
include salaries, overhead, and consulting costs incurred in connection
with maintaining the Company's day to day operations. The Company's
historical revenues have primarily been attributable to licensing fees
generated from the use of its technology.
Results of Operations
Fiscal years ended September 30, 1996 and 1995
Revenues
Revenues decreased 81% to $59,000 in the fiscal 1996 from $306,000
in the fiscal 1995. This decrease in revenue is primarily attributable
to a $245,000 decrease in licensing fees in the current year. In
January 1995, the Company entered into an agreement with The Dow
Chemical Company (Dow) for a non-exclusive license and an option for an
exclusive license to evaluate and commercialize the Company's
Ah-IMMUNOASSAY technology. In connection with the agreement, the
Company received a one-time license fee of $250,000 for a worldwide,
non-exclusive license. Dow has notified the Company that it does not
intend to execute the exclusive worldwide license for the assay. This
decrease in revenues was offset in part by the $32,000 in subscription
revenue from the operations of the Company's newsletter.
Research and Product Engineering Expenses
Research and product engineering expenses increased by 94% to
$1,363,000 in the fiscal 1996 as compared to $704,000 in the fiscal
1995. The significant increase in these types of expenditures are
attributable to the costs of clinical studies associated the Company's
AndroVir(trademark) and AndroCar(trademark), and associated personnel
increases.
In the second quarter of fiscal 1995, the Company retained
consultants to perform research into Indian sourced herbs and their
medicinal benefits. The Company issued 200,000 shares of its common
stock as full payment to such consultants in connection with this
research and recognized a non-cash research expense of $375,000 in the
fourth quarter of fiscal 1995.
General and Administrative Expenses
General and administrative expenses were $2,007,000 and $1,014,000
in fiscal 1996 and fiscal 1995, respectively, representing increases of
98% in fiscal 1996 from fiscal 1995. These expenses relate to the
administration of the research, development and product engineering
activities and support services including raising capital, arranging
for facilities, hiring employees, market analysis and the development
and administration of the Company's business and marketing plans.
The primary reasons for the increase in general and administrative
expenses in fiscal 1996 are due to increases in hiring of additional
employees, costs incurred with respect to raising additional capital
and marketing initiatives put in place to develop the Company's
business. Also included in fiscal 1996 are $160,000 of non-cash
expenses associated with an aggregate of 283,000 of options or shares
issued in consideration of legal and professional services performed,
or to be performed, for the Company.
Newsletter Expenses and Costs
During November 1995, the Company, through its wholly-owned
subsidiary, purchased substantially all of the assets related to the
New Century Nutrition (formerly Nutrition Advocate), a newsletter
promoting disease prevention through nutrition, from Advocacy
Communications, Inc. The purchase price for the acquired assets was
$350,000 in cash. T. Colin Campbell, a Director of the Company and his
son T. Nelson Campbell, then a Vice President of the Company, were
majority shareholders and officers of Advocacy Communications, Inc.
The purchase price represented principally intangible assets which
were to be amortized on a straight-line basis over 10 years. During
fiscal 1996, the Company incurred expenses of approximately $531,000
developing the newsletter and soliciting subscriptions.
In December 1996, the Company decided to cease publication of the
newsletter effective January 1, 1997. The Company will seek a buyer
for either the newsletter business and/or the subscriber list. The
Company wrote off the purchase price of the newsletter of $350,000 and
accrued $75,000 for the anticipated costs to wind up the newsletter
operations all of which are reflected in the September 30, 1996
financial statements.
Officer Stock Compensation
In fiscal 1995, the President and then CEO of the Company,
purchased common stock at prices below market on the date of purchase.
The Company incurred a one-time, non-cash compensation expense of
$1,228,000 for the period ended September 30, 1995.
Liquidity & Capital Resources
As of September 30, 1996, the Company maintained working capital
of $3,820,000, which included cash and cash equivalents of $4,171,000.
On September 30, 1995, working capital was $821,000 and cash and cash
equivalents were $1,416,000. During fiscal 1995 and 1996, the Company
raised $9.9 million in equity through a series of transactions as
described below.
In June and July 1996, the Company completed a private placement
to certain investors for net proceeds of $2.2 million in which it
issued 825,001 shares of common stock and 1.2 million warrants with
various exercise prices ranging from $3.25 to $4.50 and other terms.
In September 1996, the Company completed a private placement financing
to many of the same investors for net proceeds of $2.0 million in which
it issued 683,333 shares of common stock and 683,333 warrants with
various exercise prices ranging from $3.25 to $4.00 and other terms.
During the period, August through October 1995, the Company sold
300,000 shares of common stock and 102,351 of convertible preferred
stock in private transactions generating net proceeds of $5.7 million.
During the period October 31, 1995 through February 1, 1996, all of the
holders of the convertible preferred stock converted such shares into
5.4 million shares of common stock.
The Company intends to use the proceeds for continued research and
development, product launch expenses associated with
AndroVir(trademark)-DS and AndroCar(trademark)-DS and for working
capital.
During November 1995, the Company purchased 265,478 shares of its
common stock on the open market for an aggregate cost of $1,342,515.
The Company has no further plans to make any additional purchases of
its shares.
On April 9, 1996, the Company signed an option to acquire East
West Herbs Ltd. of Kingham, England ("EWH"). EWH markets and
distributes traditional Chinese medicines in the United Kingdom and
throughout Europe. Under terms of the option, the Company has the
right to acquire all of the outstanding shares of EWH on or before
April 6, 1997 for $780,000 in cash and shares of the Company with a
value of approximately $2,400,000 for a total proposed acquisition
price of $3.2 million. Additionally, if the option is exercised, the
Company has the obligation to extend an additional working capital loan
to EWH of $300,000. Consideration for the option was made in the form
of an option fee of $20,000 and a working capital loan of $340,000.
The loan bears interest at the LIBOR rate and is payable in eight equal
quarterly installments with the first installment to be paid six months
after the first anniversary of the loan agreement. The loan is
guaranteed by the majority shareholder of EWH.
The loan is to be used by EWH for inventory purchases, continuing
research and development including the clinical trials of two herbal
products for cancer patients and corporate working capital.
EWH is believed to be a leader in its industry and has launched 24
new products during the three month period ended September 30, 1996.
Additionally, the Company anticipates that EWH's United States
operations will expand as the awareness of complementary medicine
increases. Should the Company not exercise its option to acquire EWH,
the eventual collectibility of the loan will be subject to EWH's
ability to obtain alternative financing, achieve profitable operations
and/or positive cash flow in the future as well as the financial
resources of the loan's guarantor. If the Company elects to exercise
its option, it intends to fund the cash portions of the transactions
from its existing funds.
In October 1994, the Company acquired Pacific Liaisons for
approximately $1.6 million in common stock.
The Company expects to incur additional research and development
and product engineering expenses, including personnel and costs related
to pre-clinical testing and clinical trials. The Company intends to
seek additional funding sources of capital and liquidity through
collaborative agreements, through the exercise by the holders of
outstanding warrants to purchase common stock or through public or
private financing, however, there can be no assurance that additional
financing will be available on acceptable terms or at all.
If additional financing is not available, the Company anticipates
that its available cash and existing sources of funding will be
adequate to satisfy its capital requirements through fiscal 1997. The
Company's future capital requirements will depend on many factors,
including continued scientific progress in its research and development
programs, the magnitude of such programs and its acquisition plan,
including the exercise of the option to acquire EWH and related
transactions.
Recently Issued Accounting Standards
In March, 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long - Lived Assets and for
Long-Lived Assets to be Disposed Of", which becomes effective for the
Company in fiscal 1997. This statement establishes accounting
standards for the impairment of long-lives assets, certain identifiable
intangibles and goodwill related to those assets to be held and used,
and for long-lived assets and certain identifiable intangibles to be
disposed. Adoption of SFAS No. 121 is not expected to have a material
impact on the Company's consolidated financial position and operating
results, nor will it materially affect the Company's cash flows.
In October, 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. This statement establishes an alternative
method of accounting for stock-based compensation awarded to employees,
such as stock options granted by the Company to employees. SFAS No.
123 provides for the recognition of compensation expense based on the
fair value of the stock-based award, but allows companies to continue
to measure compensation cost in accordance with the Accounting
Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued to
Employees". Companies electing to retain this method must make pro
forma disclosure of net income and earnings per share as if the fair
value based method had been applied. The Company plans to continue to
use APB No. 25, which does not require the Company to record
compensation expense for the stock options it awards to employees. In
the Company's consolidated financial for fiscal 1997, the Company will
disclose the pro forma effect of the fair value method on 1997 and 1996
net income and earnings per share.
ITEM 7. Financial Statements
Independent Auditors' Report.
Consolidated Balance Sheets as of September 30, 1996 and September 30,
1995.
Consolidated Statements of Operations for the years ended September 30,
1996, 1995 and 1994, and the period from inception (April 15, 1991)
to September 30, 1996.
Consolidated Statements of Stockholders' Equity for the period from
inception (April 15, 1991) to September 30, 1996.
Consolidated Statements of Cash Flows for the years ended September 30,
1996, 1995 and 1994 and the period from inception (April 15, 1991)
to September 30, 1996.
Notes to Consolidated Financial Statements.
Financial Statement Schedules: No schedules were submitted because
they are not applicable, not required or because the required information
is included in the Financial Statements or notes thereto.
Independent Auditors' Report
The Board of Directors and Stockholders Paracelsian, Inc.
We have audited the accompanying consolidated balance sheet of
Paracelsian, Inc. and subsidiary (a development stage enterprise) as of
September 30, 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year ended to
September 30, 1996 and for the period from April 15, 1991 (inception)
to September 30, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on
our audit. The financial statements of the Company as of and for the
year ended September 30, 1995 were audited by other auditors, whose
report dated November 30, 1995, expressed an unqualified opinion on
those financial statements. The cumulative statements of operations,
stockholders' equity, and cash flows for the period April 15, 1991
(inception) to September 30, 1996 include amounts for the period from
April 15, 1991 (inception) to September 30, 1991 and for each of the
years in the four-year period ending September 30, 1995, which were
audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for the
period April 15, 1991 (inception) through September 30, 1995 is based
solely on the report of the other auditors.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Paracelsian, Inc. and subsidiary (a development stage enterprise) as of
September 30, 1996, and the results of their operations and their cash
flows for the year ended September 30, 1996 and for the period April
15, 1991 (inception) to September 30, 1996, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Jericho, New York
November 22, 1996
<TABLE>
<CAPTION>
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Balance Sheets
September 30, 1996 and 1995
<S> <C> <C>
Assets 1996 1995
- ------ ---- ----
Current Assets:
Cash and cash equivalents $ 4,171,402 $ 1,416,022
Prepaid expenses and other current assets 278,367 146,155
------------ ------------
Total current assets 4,449,769 1,562,177
Equipment, net 384,790 456,555
Traditional Chinese Medicine extracts, net 622,419 778,014
Licensing agreements, net 555,602 678,446
Patents and trademarks, net 258,206 209,169
Option to acquire East West Herbs, Ltd. and
related acquisition costs 92,866 -
Loan to East West Herbs , Ltd. 340,000 -
----------- -----------
1,869,093 1,665,629
----------- ------------
$ 6,703,652 $ 3,684,361
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Current Liabilities:
Accounts payable $ 312,817 $ 539,084
Accrued expenses 192,790 65,328
Deferred revenue 46,858 -
Due to related party 77,597 137,261
----------- -----------
Total current liabilities 630,062 741,673
Commitments and contingency
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares authorized;
Series A - 10,700 shares outstanding in 1995 - 107
Series B - 10,000 shares outstanding in 1995 - 100
Series C - 5,000 shares outstanding in 1995 - 50
Common stock, $.01 par value; 20,000,000 shares authorized;
11,935,082 shares issued in 1996
and 4,901,584 shares issued in 1995 119,348 49,016
Additional paid-in capital 20,348,005 11,742,899
Deficit accumulated during the development stage (13,051,248) (8,849,484)
Treasury stock, at cost; 265,478 shares in 1996 (1,342,515) -
------------ -----------
Total stockholders' equity 6,073,590 2,942,688
----------- -----------
$ 6,703,652 $ 3,684,361
=========== ===========
See accompanying notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Operations
For the years ended September 30, 1996, 1995 and 1994
And the period from inception to September 30, 1996
Cumulative
Period from
Inception to
September 30,
1996 1995 1994 1996
<S> <C> <C> <C> <C>
Revenues:
Marketing rights $ 5,000 $ 249,995 $ - $ 254,995
Products 22,411 55,695 74,219 157,813
Subscription revenues 31,625 - - 31,625
----------- ---------- --------- -------------
59,036 305,690 74,219 444,433
Operating expenses:
Research and product
engineering 1,362,971 703,806 972,159 5,257,934
Research concerning
Indian herbs - 375,000 - 375,000
Newsletter expenses
and costs 955,586 - - 955,586
Cost of products sold 10,538 28,319 54,785 95,023
General and administrative 2,006,801 1,013,941 1,004,139 5,390,964
Officer stock compensation - 1,228,275 - 1,228,275
------------ ------------- ----------- -----------
4,335,896 3,349,341 2,031,083 13,302,782
------------ ------------- ------------ -----------
Loss from operations during
the development stage (4,276,860) (3,043,651) (1,956,864) (12,858,349)
Interest income, net 75,096 12,455 16,602 307,101
Net loss during ------------ ------------- ------------- ------------
the development stage $ (4,201,764) $ (3,031,196) $ (1,940,262) $ (12,551,248)
============ ============== ============= =============
Net loss per weighted average
shares of common stock $ (0.49) $ (0.75) $ (0.84)
======== ======== ========
Weighted average number of common
stock outstanding 8,597,479 4,055,598 2,312,388
========= ========= =========
See accompanying notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Stockholders' Equity
For the period from Inception to September 30, 1996
Deficit
Accumulated
Additional During the
Preferred Stock Common Stock Paid-In Development Treasury
Shares Amount Shares Amount Capital Stage Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock April-July 1991 - $- 806,250 $ 8,063 $ - $ - $ - $ 8,063
Issuance of Common Stock for licensing,
technology and consulting services-July 1991 333,850 3,338 3,338
Private placement of Common Stock-
August-September 1991, net of costs 267,288 2,673 369,017 371,690
Net loss(April 15, 1991 to
September 30, 1991) (133,469) (133,469
-----------------------------------------------------------------------------------
BALANCE, September 30, 1991 - - 1,407,388 14,074 369,017 (133,469) - 249,622
Redemption of Common Stock-November 1991 (245,000) (2,450) (2,450)
Initial Public Offering of Common Stock
- February 1992, net of costs 1,150,000 11,500 5,103,451 5,114,951
Issuance of Warrants-February 1992 1,000 1,000
Net loss (year ended September 30, 1992) (1,221,943) (1,221,943)
-----------------------------------------------------------------------------------
BALANCE, September 30, 1992 - - 2,312,388 23,124 5,473,468 (1,355,412) - 4,141,180
Warrant dividend-September 1993 436,898 (500,000) (63,102)
Net loss (year ended September 30, 1993) (2,022,614) (2,022,614)
-----------------------------------------------------------------------------------
BALANCE, September 30, 1993 - - 2,312,388 23,124 5,910,366 (3,878,026) - 2,055,464
Net loss (year ended September 30, 1994) (1,940,262) (1,940,262)
-----------------------------------------------------------------------------------
BALANCE, September 30, 1994 - - 2,312,388 23,124 5,910,366 (5,818,288) - 115,202
Issuance of Common Stock for acquisition
of Pacific Liaisons - October 1994 1,116,666 11,167 1,632,833 1,644,000
Exercise of Warrants 221,200 2,212 716,644 718,856
Common Stock purchase by Officer
-January 1995 705,000 7,050 1,311,075 1,318,125
Issuance of Common Stock for services
rendered-January 1995 33,330 333 21,167 21,500
-April 1995 200,000 2,000 373,000 375,000
Issuance of Common Stock for conversion of
short-term liabilities-June 1995 13,000 130 48,849 48,979
Issuance of Common Stock
-August 1995, net of costs 300,000 3,000 749,625 752,625
Issuance of Preferred Stock-September 1995
Series A, net of costs 10,700 107 361,018 361,125
Series B, net of costs 10,000 100 399,900 400,000
Series C, net of costs 5,000 50 218,422 218,472
Net loss(year ended September 30, 1995) (3,031,196) (3,031,196)
-----------------------------------------------------------------------------------
BALANCE, September 30, 1995 25,700 257 4,901,584 49,016 11,742,899 (8,849,484) - 2,942,688
Issuance of Series B Preferred Stock,
net of costs 76,651 767 3,999,233 4,000,000
Exercise of Warrants 73,318 733 154,676 155,409
Issuance of Common Stock for services
rendered-October 1995 33,336 331 42,669 43,000
Purchase of Treasury Stock-November 1995 (1,342,515)(1,342,515)
Conversion of Preferred Stock (102,351) (1,024) 5,371,010 53,710 (52,686) -
Issuance of Common Stock
for conversion of short-term liabilities
-January 1996 2,500 25 9,975 10,000
Issuance of Common Stock
for services rendered-February 1996 25,000 250 27,875 28,125
Issuance of Warrants and Options
for services rendered-February 1996 132,500 132,500
Issuance of Common Stock
-June 1996,net of costs 733,334 7,333 1,965,663 1,972,996
Sale of Warrants-June 1996 35,000 35,000
Issuance of Common Stock
-July 1996,net of costs 91,667 917 250,075 250,992
Issuance of Common Stock
for services rendered-July 1996 5,000 50 4,950 5,000
Excersise of Options-September 1996 15,000 150 37,350 37,500
Issuance of Common Stock
-September 1996, net of costs 683,333 6,833 1,997,826 2,004,659
Net loss(year ended September 30, 1996) (4,201,764) (4,201,764)
-----------------------------------------------------------------------------------
BALANCE, September 30, 1996 - $- 11,935,082 $ 119,348 $20,348,005 $(13,051,248)$(1,342,515)$6,073,590
====================================================================================
See accompanying notes to consolidated financial statements.
<PAGE>
</TABLE>
<TABLE>
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1996, 1995 and 1994
And the Period From Inception to September 30, 1996
Cumulative
Period from
Inception to
September 30,
1996 1995 1994 1996
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,201,764) $(3,031,196) $(1,940,262) $(12,551,248)
Adjustments to reconcile net loss to net cash
used in by operating activities:
Non-cash compensation expense - 1,228,275 - 1,228,275
Other non-cash expenses 725,658 415,000 - 1,140,658
Depreciation and amortization 274,818 302,320 110,202 777,604
Changes in assets and liabilities
(Increase) decrease in prepaid expenses
and other current assets (132,212) (4,209) 35,535 (248,947)
(Decrease) increase in accounts payable (183,142) 302,221 234,560 644,432
(Decrease) increase in due to related party (59,664) (4,998) 80,838 77,597
Increase in deferred revenues 46,858 - - 46,858
(Decrease) increase in accrued expenses 127,462 30,696 (34,781) 192,790
------------ ------------ ------------ -------------
Net cash used in operating activities (3,401,986) (761,891) (1,513,908) (8,691,981)
------------ ------------ ------------ -------------
Cash flows from investing activities:
Purchase of investments - - - (6,719,089)
Redemption of investments - - 1,256,755 6,719,089
Purchase of equipment (54,352) (14,243) (16,737) (715,299)
Proceeds from sale of equipment - 20,000 - 20,000
Acquisition of licensed technology (50,000) - - (50,000)
Acquisition of patents and trademarks (69,457) (120,581) - (304,803)
Acquisition of New Century Nutrition newsletter (350,000) - - (350,000)
Acquisition of option for EWH and
related acquition costs (92,866) - - (92,866)
Loan to EWH (340,000) - - (340,000)
------------ ------------ ------------ -------------
Net cash provided by (used in)
investing activities (956,675) (114,824) 1,240,018 (1,832,968)
------------ ------------ ------------ -------------
Cash flows from financing activities:
Sale of common stock, initial public offering,
net of costs - - - 5,124,014
Sale of common and preferred stock, net of costs 8,228,647 1,732,222 - 10,330,109
Proceeds from the exercise of warrants 155,409 510,886 - 666,295
Proceeds from the exercise of options 37,500 - - 37,500
Proceeds from the sale of warrants 35,000 - - 35,000
Purchase of treasury stock (1,342,515) - - (1,342,515)
Cost of warrant dividend - - - (63,102)
Proceeds from short term borrowing, net - - (100,000) -
Payments on equipment contract - - - (90,950)
------------ ------------ ------------ -------------
Net cash provided by (used in)
financing activities 7,114,041 2,243,108 (100,000) 14,696,351
------------ ------------ ------------ -------------
Net increase (decrease) in cash and
cash equivalents 2,755,380 1,366,393 (373,890) 4,171,402
Cash and cash equivalents, beginning of perid 1,416,022 49,629 423,519 -
------------ ------------ ------------ -------------
Cash and cash equivalents, end of period $ 4,171,402 $ 1,416,022 $ 49,629 $ 4,171,402
============ ============ ============ =============
Supplemental disclosure:
Cash paid during the period for interest $ 6,875 $ 973 $ 2,826 $ 14,800
Supplemental disclosure of non-cash investing and financing activities:
Fair value of assets acquired,
net of cash acquired $ - $ 1,702,000 $ - $ 1,702,000
Less - liabilities assumed - 52,000 - 52,000
Less - issuance of common stock - 1,644,000 - 1,644,000
------------ ------------ ------------ -------------
Net cash paid $ - $ 6,000 $ - $ 6,000
=========== ============ ============ =============
Warrant dividend $ - $ - $ - $ 500,000
Issuance of common stock/warrants for services
and to reduce short-term liabilities $ 218,625 $ 278,449 $ - $ 497,074
Purchase of equipment $ - $ - $ - $ 90,950
Issuance of common stock for licensing
and technology rights $ - $ - $ - $ 3,338
============ ============ ============ =============
See accompanying notes to consolidated financial statements.
</TABLE>
Paracelsian, Inc. and Subsidiary
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
1. ORGANIZATION, BUSINESS, AND RISK FACTORS:
Organization and Business
Paracelsian, Inc. (The "Company") is a biotechnology company that
markets and develops products from technology related to the detection
of signals from the exterior of a cell to its nucleus (signal
transduction). These signals result in the activation or suppression
of specific genes and culminate in cell division.
Cell division is the one of the basic steps in biology necessary for
normal growth of tissues to support life. The Company's technology
enables researchers to observe signal transduction and measure the
effects of chemicals contained in synthetic and natural compounds, such
as herbal extracts, on cell division. In the course of these
observations, the Company can distinguish the effects of such chemicals
on targeted cells, thereby screening compounds to identify those with
promising therapeutic effects. (This proprietary technology, including
the components, methods, procedures and know-how employed in this
screening process, is referred to herein as the "Screening
Technology".)
In October 1994, Pacific Liaisons (Pacific), a partnership engaged in
identifying and acquiring biologically active drugs, natural products
and foods from Eastern Asia, merged with a wholly-owned subsidiary of
the Company and the Company now maintains a large library of natural
medicinal extracts. These extracts are being processed with the
Company's p34 screening assay. The Company also has access to the
informational database related to the medicinal extracts, which
contains, among other things, a history of the usage of each extract
(see Note 3).
In November 1995, the Company purchased substantially all the assets
related to New Century Nutrition, a newsletter promoting disease
prevention through nutrition. In December 1996, the Company decided to
cease publication of the newsletter and seek potential buyers for the
newsletter and/or its subscriber list (see Note 3).
Development Stage Company and Risk Factors
The Company is considered to be a development stage company as defined
in Statement of Financial Accounting Standards No. 7, "Accounting and
Reporting by Development Stage Enterprises." Since inception, the
Company has been primarily engaged in research, product engineering and
raising capital.
The Company, as a development stage enterprise, has yet to generate
significant revenues and has no assurance of substantial future
revenues. Even if marketing efforts are successful, it may take
several years before significant revenues are realized. The Company is
subject to a number of risks that may affect its ability to become an
operating enterprise or impact its ability to remain in existence,
including risks related to successful development and marketing of its
products, patent protection of proprietary technology, government
regulation competition from substitute products (including technologies
that may not yet have been developed), dependence on key employees and
the need to obtain additional funds that may not be available to it.
As shown in the accompanying financial statements, the Company incurred
a net loss of approximately $4,200,000 for the year ended September 30,
1996 and has working capital of approximately $3,820,000 at year-end.
The Company continues to expend funds on product research and
development and general and administrative expenses and has not
generated significant revenues subsequent to year-end.
2. SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
The consolidated financial statements of the Company include the
accounts of Paracelsian, Inc. and its wholly owned subsidiary ParaComm,
Inc. formerly known as Para Acquisition Corp. All intercompany
balances and transactions have been eliminated.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments with an
original maturity of three months or less. Cash equivalents as of
September 30, 1996 and 1995 approximated $2,145,000 and $0,
respectively.
Research and Product Engineering
Company-sponsored research and product engineering expenditures have
been charged to expense as incurred. These costs consist primarily of
employee salaries and direct laboratory costs. The cost of extracts
used in research and development activities is expensed as consumed.
Net Loss Per Share
Net loss per share was computed by dividing net loss for the period by
the weighted average number of shares of common stock outstanding
during the period. Common stock equivalents are not included in the
computation of average shares outstanding because the effect of such
inclusion would be to decrease the loss per share.
Patents and Trademarks
The Company has acquired or applied for certain patent and trademark
rights. Costs associated with the acquisition and application for
these rights have been capitalized and are being amortized on the
straight-line method over the estimated legal life of the assets which
range from 15 to 17 years. Accumulated amortization of the patents and
trademarks totaled $58,747 and $26,177, respectively, at September 30,
1996 and 1995.
Equipment and Depreciation
Equipment is stated at cost and is depreciated over the estimated
useful lives of the assets using the straight-line method. Equipment
consists of the following as of September 30:
Useful
Lives 1996 1995
------ ---- ----
Laboratory Equipment 10 years $ 500,623 $ 563,577
Office furniture,equipment 10 years 88,095 73,273
Computer equipment,software 5 years 133,033 104,820
------- -------
721,751 741,670
Less Acccumulated Depreciation 336,961 285,115
------- -------
$ 384,790 $ 456,555
======== =======
Depreciation expense of $81,554, $93,332 and $101,519 were charged to
operations for the years ended September 30, 1996, 1995 and 1994,
respectively.
Use of Estimates
The preparation of the consolidated 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 the disclosure of contingent assets and
liabilities at the date of the financial statements. Estimates also
affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. ACQUISITIONS:
(a) East West Herbs Ltd.
On April 9, 1996, the Company signed an option to acquire East West
Herbs Ltd. of Kingham, England. East West Herbs Ltd. markets and
distributes traditional Chinese medicines in the United Kingdom and
throughout Europe. Under terms of the option, the Company has the
right to acquire all of the outstanding shares of East West Herbs on or
before April 6, 1997 for $780,000 in cash and shares of the Company
with a value of approximately $2,400,000 for a total proposed
acquisition price of $3.2 million. Consideration for the option was
made in the form of an option fee of $20,000 and a working capital loan
of $340,000. The loan bears interest at the LIBOR rate (6% at
September 30, 1996) and is payable in eight equal quarterly
installments with the first installment to be paid six months after the
first anniversary of the loan agreement. The loan is guaranteed
by a majority shareholder of East West Herbs.
The loan is to be used by East West Herbs for inventory purchases,
continuing research and development including the clinical trials of
two herbal products for cancer patients and corporate working capital.
In connection with the option and loan agreements, the Company also
incurred other direct costs of $72,866. Such costs will either be
capitalized as part of the acquisition costs of East West Herbs should
the merger be consummated or written off if the Company elects not to
exercise its option.
Summary unaudited financial information of East West Herbs as of
September 30, 1996 is as follows (in US dollars translated from Pounds
Sterling at $1.50):
As of Sept. 30, 1996
Total assets $ 772,000
Total liabilities 995,000
Total stockholders' deficit (223,000)
For six months
ended Sept. 30, 1996
Total sales $ 900,000
Total expenses 1,019,000
Net loss (119,000)
Management believes East West Herbs has launched numerous new products
during the last three month period ended September 30, 1996. The
Company anticipates that East West Herbs will further expand its
product line and its operations in the United States over the next
twelve months.
Should the Company not exercise its option to acquire East West Herbs,
the eventual collectibility of the loan will be subject to East West
Herbs' ability to achieve profitable operations and positive cash flow
in the future and the financial resources of the loan's guarantor.
(b) New Century Nutrition Newsletter
During November 1995, the Company, through its wholly-owned subsidiary,
purchased substantially all of the assets related to the New Century
Nutrition (formerly Nutrition Advocate), a newsletter promoting disease
prevention through nutrition, from Advocacy Communications, Inc. The
purchase price for the acquired assets was $350,000 in cash. The
purchase agreement provided for contingent payments to be made to the
China-Cornell Project, a non-profit organization, based upon revenues
to be generated by this subsidiary. T. Colin Campbell, a Director of
the Company and his son T. Nelson Campbell, a Vice President of the
Company, were majority shareholders and officers of Advocacy
Communications, Inc.
The purchase price represented principally intangible assets which were
to be amortized on a straight-line basis over 10 years. During fiscal
1996, the Company incurred expenses of approximately $531,000
developing the newsletter and soliciting subscriptions. The Company
recorded subscription revenues of $31,625 for the year ended September
30, 1996 and, as of September 30, 1996, the Company had recorded
deferred revenue of $46,858 representing subscriptions paid in advance.
In December 1996, the Company decided to cease publication of the
newsletter effective January 1, 1997. The Company will seek a buyer
for either the newsletter business and/or the subscription list. The
Company wrote off the purchase price of the newsletter and accrued $75,000
for the anticipated costs to close down the newsletter operations which
amounts are included in newsletter expenses and costs in the accompanying
consolidated statement of operations for the year ended September 30, 1996.
(c) Pacific Liaisons
During October 1994, a wholly-owned subsidiary of the Company acquired
Pacific Liaisons for approximately $1.6 million in common stock. The
acquisition has been accounted for using the purchase method and the
accompanying statement of operations includes the results of operations
of Pacific Liaisons from October 25, 1994. The allocation of the
purchase price was based on an independent appraisal of certain assets
acquired which include traditional Chinese medicine ("TCM") extracts
and a licensing agreement. The approximately 2,800 TCM extracts can be
sold outright or utilized in various research and development
applications using the Company's screening technology. It is the
Company's intention to sell/license the extracts to established
pharmaceutical and biotechnology companies. Effective October 1, 1995,
the Company elected to begin amortizing the cost of the TCM extracts on
a straight line basis over a five-year period, which represents the
estimated period over which the extracts will be used in the Company's
research and development efforts. Amortization of the extracts
totaling $155,602 is included in research and product engineering
expense in the accompanying consolidated statement of operations for
the year ended September 30, 1996.
Through the licensing agreement with the Institute of Nutrition and
Food Hygiene, an institute within the Chinese Academy of Preventive
Medicine, the Company has the exclusive right to acquire up to 5,000 to
10,000 extracts. The licensing agreement is being amortized over a
period of five years commencing in October 1994. The annual
amortization of the license agreement is $173,290 which is included in
research and product engineering expense in the accompanying
consolidated statements of operations for the years ended September 30,
1996 and 1995.
The Company continually evaluates the recoverability of its TCM
extracts and the license agreement by assessing whether the unamortized
value can be recovered through expected future results.
At the time of the acquisition, T. Colin Campbell became a director of
the Company and his son, T. Nelson Campbell was hired as a Vice
President of the Company. Both individuals were majority stockholders
of Pacific Liaisons.
4. STOCKHOLDERS' EQUITY:
(a) Common Stock Offerings
In September 1996, the Company completed a private placement financing
for approximately $2.05 million in which it issued:
1) 683,333 shares of common stock;
2) Warrants to purchase 372,727 shares of common stock at an exercise
price of $4.00 per share, of which the right to purchase 300,000 shares
of common stock is not immediately exercisable and is void after the
fifth anniversary of the date on which they first become exercisable
and of which the right to purchase 72,727 shares of common stock is
immediately exercisable and void after September 30, 2001; and
3) Warrants to purchase 310,606 shares of common stock at an exercise
price of $4.50 per share, of which the right to purchase 250,000 shares
is not immediately exercisable and is void after the fifth anniversary
of the date on which they first become exercisable and of which the
right to purchase 60,606 shares is immediately exercisable and void
after September 30, 2001.
In June and July 1996, the Company completed a private placement to
certain investors for approximately $2.25 million in which it issued:
1) 825,001 shares of common stock;
2) Warrants to purchase 825,001 shares of common stock at an exercise
price of $3.25 per share, of which the right to purchase 550,000 shares
of common stock is not immediately exercisable and is void after the
fifth anniversary of the date on which they first become exercisable
and of which the right to purchase 275,000 shares is immediately
exercisable and void after June 26, 2001; and
3) Warrants to purchase 375,001 shares of common stock at an exercise
price of $4.50 per share, of which the right to purchase 250,000 shares
is not immediately exercisable and is void after the fifth anniversary
of the date on which they first become exercisable and of which the
right to purchase 125,001 shares is immediately exercisable and void
after June 26, 2001.
In August 1995, the Company completed a private placement of 300,000
shares of common stock to certain investors at $2.76 per share
resulting in net proceeds, after expenses, to the Company of $752,625.
The Company intends to use the proceeds of the private placements for
product launch expenses, working capital and research and development.
(b) Convertible Preferred Stock Offerings
In the period August through November 1995, the Company sold
convertible preferred stock through various private placements. The
Company issued 10,700 shares of its Series A preferred stock at $37.50
per share, 86,651 shares of its Series B preferred stock at an average
price of $63.47 per share and 5,000 shares of its Series C preferred
stock at $50.00 per share. The net proceeds from these issuance's were
used primarily to provide working capital and fund research and
development.
The preferred stock had a stated dividend rate of 8% payable in cash or
common stock at the option of the Company. The preferred stock was
convertible into common stock based on the following conversion prices:
Shares
Series Authorized Conversion Price
A 50,000 Lower of $3.75 or 85% of five-day average
Closing Price
B 100,000 80% of three-day average Closing Price
C 50,000 72.5% of three-day average Closing Price
The Closing Price is defined in the agreements as the bid price of the
common stock beginning on the trading day prior to conversion.
During the period October 31, 1995 through February 1, 1996, all of the
holders of the preferred shares converted such shares into common stock
summarized as follows:
Preferred Gross Net Common Shares
Series Stock Issued Proceeds Proceeds Converted
------ ------------ -------- -------- -------------
A 10,700 $ 402,250 $ 361,125 372,253
B 86,651 5,500,000 4,400,000 4,918,409
C 5,000 250,000 218,472 80,348
------ --------- ---------- ---------
Total 102,351 $ 6,152,250 $ 4,979,597 5,371,010
======= =========== =========== ==========
Included in the common shares converted are 58,031 shares issued in
exchange for the cumulative dividends payable on the preferred stock.
(c) Other Transactions
In June 1996, the Company sold an investor 350,000 warrants at $.10 per
warrant to purchase 350,000 shares of common stock at $5.25 per share.
The warrants can be exercised at any time over a three-year period.
The cash paid for the warrants of $35,000 is reflected as an addition
to additional paid-in capital in the accompanying consolidated
statement of stockholders' equity for the year ended September 30, 1996.
During November 1995, the Company purchased 265,478 shares of its
common stock on the open market for an aggregate cost of $1,342,515.
In April 1995, the Company issued 200,000 shares of common stock to an
individual in connection with the Company's research of Indian herbs.
The fair value of the common stock of $375,000 is reflected as an
expense in the consolidated statement of operations for the year ended
September 30, 1995.
During fiscal 1996 and 1995, the Company issued 63,336 and 33,330
shares of common stock in exchange for services rendered and issued
2,500 and 13,000 shares, respectively, for the conversion of short-term
liabilities. The transactions have been valued based on the estimated
fair value of the common stock on the date issued.
On September 8, 1993, the Company granted a warrant dividend. The
Company distributed to each stockholder, excluding one of the Company's
founders, one redeemable common stock purchase warrant for each share
of the Company's common stock owned, entitling the holder to purchase
an additional share of common stock for $3.25 per share. On October
12, 1994, the Company granted 375,000 warrants to one of the Company's
founders, under similar terms. The warrants were originally valued at
$500,000. The warrants expire on September 7, 1997 and may be called
at a redemption price of $.05 per warrant, if the Company's common
stock trades at $4.75 or higher for 15 consecutive days. As of
September 30, 1996, a total of 2,312,388 warrants have been issued and
269,518 warrants have been exercised.
In February 1992, the Company completed its initial public offering
covering 1,150,000 shares of common stock at $5.50 per share. Issuance
costs totaled approximately $1,210,000 which were treated as a
reduction of proceeds. In connection with the offering, the Company
sold warrants to the underwriter for $1,000 exercisable for a four year
period beginning in February 1993 for 100,000 shares of common stock at
a price of $6.60 per share. The number of shares and the exercise
price per share of the warrants are to be adjusted for certain events,
as defined in the agreement.
5. COMMON STOCK OPTIONS:
In 1991, the Company adopted a Stock Option Plan (the Plan). Under the
Plan, directors, key employees and consultants of the Company are
eligible to receive grants of options which are intended to qualify as
incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the Code) or which are
nonqualified stock options. In addition, nonemployee directors of the
Company may receive grants of options according to a formula which upon
the adoption of the Plan provided for an initial grant of an option to
purchase 5,000 shares of common stock and annual grants of options to
purchase 2,500 shares of common stock for each person who is
subsequently elected or re-elected and for each year of service
thereafter as a director. An aggregate of 394,000 shares of common
stock has been reserved for issuance under the Plan. The Plan is
administered by a committee (the Committee) designated by the Board of
Directors of the Company. The exercise price per share for the options
granted under the plan may not be less than the fair value of the
Company's common stock on the date of grant. The exercise price and the
term are fixed by the Committee, subject to the terms of the Plan.
Changes in the status of options under the Plan for the years ended
September 30, 1996, 1995 and 1994 are summarized as follows:
1996 1995 1994
---- ---- ----
Outstanding at beginning of period 150,150 116,150 187,150
Granted 22,500 34,000 2,500
Exercised (15,000) - -
Forfeited (57,000) - (73,500)
-------- -------- --------
Outstanding at end of period 100,650 150,150 116,150
======== ======== ========
Number of options at end of period-
Exercisable 130,650 150,150 98,775
Available for grant 293,350 243,850 277,850
Average exercise price of
options outstanding $ 2.68 $ 4.02 $ 4.23
======= ======= =======
15,000 options granted pursuant to the Plan and an additional 200,000 (for
a total of 215,000) were granted consultants providing communications services
to the Company. The fair value of these options of $107,500 is being amortized
over the three year terms of the consulting contracts. In addition, 50,000
options were issued to the Company's legal counsel in exchange for
services rendered. The fair value of this option of $25,000 and the
amortization of the options issued to the consultants of $35,000 are
included in general and administrative expenses in the accompanying
consolidated statements of operations for the year ended September 30,
1996.
On January 23, 1995, the Company approved a stock purchase by the
Company's President and then Chief Executive Officer to purchase an
aggregate of 705,000 shares of the Company's common stock at a price of
$.05 and $.56 per common share for 245,000 and 460,000 shares of common
stock, respectively. In connection with this transaction, the Company
recognized a one-time, non-cash compensation expense of approximately
$1,228,000 in the year ended September 30, 1995.
6. LICENSING AGREEMENTS:
The Company entered into an exclusive licensing agreement with Cornell
Research Foundation, Inc. in July 1991 in exchange for common stock of
the Company, for proprietary rights allowing the Company to use certain
technology and patents for the purpose of developing, manufacturing and
selling any products derived therefrom. The agreement provides that
the Company will pay royalties to Cornell Research Foundation, Inc. for
certain licensed products sold by the Company in the United States and
throughout the world.
In January 1995, the Company entered into an agreement with The Dow
Chemical Company (Dow) for a non-exclusive license and an option for an
exclusive license to evaluate and commercialize the Company's
Ah-IMMUNOASSAY technology. In connection with the agreement, the
Company received a license fee of $250,000 for the worldwide,
non-exclusive license. Dow has notified the Company that it does not
intend to execute the exclusive worldwide license for the assay.
In December 1995, the Company entered into a license agreement with
Northwestern University with respect to use of certain biological
materials for dioxin assays. The Company paid Northwestern $50,000 for
an exclusive worldwide license to the materials for the specified use
of dioxin assays. The Company will amortize the license fee on a
straight line basis over a five-year period.
7. INCOME TAXES:
Effective October 1, 1993, the Company prospectively adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. The cumulative effect of
this change in accounting principle did not have a material effect on
the Company's financial position or results of operations.
The income tax effects of temporary differences that give rise to the
deferred tax asset/(liability) as of September 30 are approximately as
follows (in thousands):
1996 1995
------- -------
Net operating loss $ 3,600 $ 2,500
Start-up costs 150 230
Patents and trademarks (30) (30)
Newsletter 130 -
Accelerated depreciation (70) (70)
-------- --------
3,780 2,630
Less valuation allowance (3,780) (2,630)
-------- ---------
Net deferred tax asset/liability $ - $ -
========== ==========
Valuation allowances of $3,780,000 and $2,630,000 were recorded at
September 30, 1996 and 1995, respectively, to offset the related net
deferred tax asset due to the uncertainty of realizing the related tax
benefit (see Note 1).
8. RELATED PARTIES:
During fiscal 1996 and 1995, the Company made loans to its Vice
President and Chief Science Officer. Such loans are due on demand and
bear interest at 8% per annum. As of September 30, 1996 and 1995,
these loans aggregated $56,000 and $26,000, respectively.
During fiscal 1994 and 1993, the Company had research and sponsorship
agreements with Cornell. Approximately $165,000 and $376,000 were
expensed under these agreements in 1994 and 1993, respectively. In the
opinion of the Board of Directors, the terms of these agreements were
at least as favorable as could have been obtained if the agreements
were undertaken with an unrelated party. Amounts payable to Cornell
total approximately $77,000 and $137,000 at September 30, 1996 and
1995, respectively.
9. COMMITMENTS AND CONTINGENCY :
Lease and Rental Commitments
The Company has entered into noncancelable operating leases for
executive offices and laboratory facilities from an entity owned by
Cornell covering approximately 6,000 square feet and expiring in
February 1997. Such leases provide for automatic renewals for one year
terms. Amounts charged to expense in 1996, 1995 and 1994 totaled
approximately $90,000, $76,000 and $67,000, respectively.
Employment Agreements
The Company entered into an employment agreement with the Vice
President of Science (Vice President) which expired in 1994. The Vice
President's contract provided that he would assign to the Company all
royalty payments due to him pursuant to the Cornell patent policy. The
Company and the Vice President are continuing their relationship under
the terms of the previous agreement until such time as negotiations for
a new agreement are completed.
Contingency:
During 1993, an action was commenced against the Company, a Company
Vice President and a shareholder and former employee of the Company.
The complaint seeks money damages and alleges that in 1990, prior to
the Company's incorporation, certain individuals became partners with
the individual defendants in a venture formed to commercialize products
which the Company had originally intended to develop. Management
believes that the action is without merit and is vigorously opposing
the allegations and that the ultimate resolution of this litigation
will not have a material adverse effect on the Company's financial
position or results of operations.
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121.
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", which becomes effective for the Company as
of October 1, 1996. This statement establishes accounting standards of
the impairment of long-lived assets, certain identifiable intangibles
and goodwill related to those assets to be held and used and for
long-lived assets and certain identifiable intangibles to be disposed.
Adoption of SFAS No. 121 is not expected to have a material impact on
the Company's consolidated financial position and operating results,
nor will it materially effect the Company's cash flows.
In October, 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation. This statement establishes an alternative
method of accounting for stock based compensation awarded to employees,
such as stock options granted by the Company to employees. SFAS No.
123 provides for the recognition of compensation expense based on the
fair value of the stock -based award, but allows companies to continue
to measure compensation cost in accordance with the Accounting
Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to
Employees. Companies electing to retain this method must make pro
forma disclosure of net income and earnings per share as if the fair
value based method had been applied. The Company plans to continue to
use APB No. 25, which does not require the Company to record
compensation expense for the stock options it awards to employees. In
the Company's consolidated financial statements for the year ending
September 30, 1997 the Company will disclose the pro forma effect of
the fair value method on 1996 and 1997 net income and earnings per
share.
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
On November 8, 1996 the Company engaged KPMG Peat Marwick, LLP as its
independent auditors for the year ending September 30, 1996 as approved
by its Board of Directors and simultaneously dismissed Arthur Andersen
LLP.
The reports of Arthur Andersen LLP on the Company's financial
statements for the past two fiscal years did not contain an adverse
opinion or a disclaimer of opinion and were not qualified or modified
as to uncertainty, audit scope, or accounting principles.
In connection with the audits of the Company's financial statements for
each of the two years ended September 30, 1995 and 1994, and in the
subsequent interim period there were no disagreements with Arthur
Andersen LLP on any matters of accounting principles or practices,
financial statement disclosure, or auditing scope and procedures which,
if not resolved to the satisfaction of Arthur Andersen LLP would have
caused Arthur Andersen LLP to make reference to the matter in their
report.
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons
in compliance with Section 16(a) of the Exchange Act and
ITEM 10. Executive Compensation and
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management and
ITEM 12. Certain Relationships and Related Transactions
Omitted, per general instruction E. The information required by Part
III shall be incorporated by reference from the registrant's definitive
proxy statement pursuant to Regulation 14A for the fiscal year ended
September 30, 1996 which is to be filed with the Commission.
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 10-K
a. Exhibits: The following exhibits are filed as part of this report.
Exhibit No. Description
3.1 Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, File
No. 33-44809 (the "1992 Registration Statement").
3.2 By-Laws of the Registrant. (Incorporated by reference
to Exhibit 3.2 to the 1992 Registration Statement.)
4.1 Form of Stock Certificate. (Incorporated by reference
to Exhibit 1.1 to the Registrant's Registration
Statement on Form 8-A, File No. 0-19844.)
4.2 Warrant Agreement dated July 1993 between the Registrant
and American Stock Transfer & Trust Company
(Incorporated by reference to Exhibit (4)(b) to the
Registrant's Registration Statement on Form S-3, File
No. 33-65782).
4.3* Form of Warrants issued to institutional investors in
June and September 1996.
10.1 Exclusive License Agreement, dated as of July 1, 1991,
between the Registrant and Cornell Research Foundation,
Inc. (Incorporated by reference to Exhibit 10.1 to the
1992 Registration Statement).
10.2 Assignment Agreement, dated as of December 1, 1991,
between the Registrant and John G. Babish (Incorporated
by reference to Exhibit 10.3 to the 1992 Registration
Statement).
10.3 Amended 1991 Stock Option Plan and form of Stock Option
Contracts (Incorporated by reference to Exhibit 10.4 to
the 1992 Registration Statement).
10.4* Lease Agreement, dated as of February 31, 1996 (sic.)
Between ParaComm, Inc. And Cornell University c/o Sibley
Real Estate Services, Inc.
10.5 Agreement and Plan of Merger, dated as of October 25,
1994, among the Registrant, Para Acquisition
Corporation, Pacific Ventures, Inc., China Consultants
Inc., Pacific Liaisons, T. Nelson Campbell, T. Colin
Campbell, Dr. Chen Junshi, Dr. Wu Boping and Mr. Ming
Li. (Incorporated by reference to Exhibit 2.1 to the
Registrant's Report on Form 8-K dated October 25, 1994,
File No. 0-19844.)
10.6 Agreement, dated September 23, 1994, between the
Registrant and IDEXX Laboratories Corp. (Incorporated
by reference to Exhibit 2.1 to the Registrant's Report
on Form 8-K dated October 25, 1994. File No. 0-19844.)
10.7 License Agreement, dated January 19, 1995, between the
Registrant and Dow Environmental. (Incorporated by
reference to Exhibit 10.8 to the Registrant's Report on
Form 10-KSB for the Fiscal year ended September 30,
1995).
10.8* Cooperative Research and Development Agreement dated
December 18, 1995 by and between the Registrant and the
National Cancer Institute.
10.9* Agreement, dated April 9, 1996, between the Registrant,
East West Herbs Limited, Robert E. Miller and A. E.
Lyon.
10.10* Option Agreement, dated April 9, 1996, relating to the
purchase of East West Herbs Limited, Re: Robert E.
Miller and Others (defined therein) and the Registrant
and East West Herbs Limited.
10.11* Exclusive Licensing Agreement, dated April 1, 1996,
between Calbiochem-Novabiochem International and the
Registrant.
21* Subsidiaries of the Registrant.
23.1* Consents of Arthur Andersen LLP
23.2* Consent of KPMG Peat Marwick LLP.
*Included herewith.
b. Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
the Registrant caused this Amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: December 20, 1996
PARACELSIAN, INC.
By:/s/KEITH A. RHODES By:/s/JOHN G. BABISH By: /s/ARTHUR A. KOCH, JR.
Keith A. Rhodes John G.Babish Arthur A. Koch, Jr.
Chairman of the Board, Vice President and Vice President and
President, Member of Member of the Office of Member of the Office of
the Office of the the Chief Executive the Chief Executive
Chief Executive
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
/s/KEITH A. RHODES Chairman of the Board December 20, 1996
Keith A. Rhodes and President
/s/JOHN G. BABISH Vice President of Science December 20, 1996
John G. Babish Secretary and Director
/s/ARTHUR A. KOCH, JR Vice President, Chief December 20, 1996
Arthur A. Koch,Jr. Financial Officer
/s/ T. COLIN CAMPBELL Director December 30, 1996
T. Colin Campbell
/s/JAMES NICHOLS Director December 30, 1996
James Nichols
/s/THEODORE P. NIKOLIS Director December , 1996
Theodore P.Nikolis
/s/JACK O'REILLY Director December , 1996
Jack O'Reilly
/s/WILLIAM J. WARWICK Director December 30, 1996
William J. Warwick
COMMISSION FILE NO. 0-19844
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS
to
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
PARACELSIAN, INC.
EXHIBIT INDEX
Exhibit No. Description
3.1 Certificate of Incorporation of the Registrant.
(Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1, File
No. 33-44809 (the "1992 Registration Statement").
3.2 By-Laws of the Registrant. (Incorporated by reference
to Exhibit 3.2 to the 1992 Registration Statement.)
4.1 Form of Stock Certificate. (Incorporated by reference
to Exhibit 1.1 to the Registrant's Registration
Statement on Form 8-A, File No. 0-19844.)
4.2 Warrant Agreement dated July 1993 between the Registrant
and American Stock Transfer & Trust Company
(Incorporated by reference to Exhibit (4)(b) to the
Registrant's Registration Statement on Form S-3, File
No. 33-65782).
4.3* Form of Warrants issued to institutional investors in
June and September 1996.
10.1 Exclusive License Agreement, dated as of July 1, 1991,
between the Registrant and Cornell Research Foundation,
Inc. (Incorporated by reference to Exhibit 10.1 to the
1992 Registration Statement).
10.2 Assignment Agreement, dated as of December 1, 1991,
between the Registrant and John G. Babish (Incorporated
by reference to Exhibit 10.3 to the 1992 Registration
Statement).
10.3 Amended 1991 Stock Option Plan and form of Stock Option
Contracts (Incorporated by reference to Exhibit 10.4 to
the 1992 Registration Statement).
10.4* Lease Agreement, dated as of February 31, 1996 (sic.)
Between ParaComm, Inc. And Cornell University c/o Sibley
Real Estate Services, Inc.
10.5 Agreement and Plan of Merger, dated as of October 25,
1994, among the Registrant, Para Acquisition
Corporation, Pacific Ventures, Inc., China Consultants
Inc., Pacific Liaisons, T. Nelson Campbell, T. Colin
Campbell, Dr. Chen Junshi, Dr. Wu Boping and Mr. Ming
Li. (Incorporated by reference to Exhibit 2.1 to the
Registrant's Report on Form 8-K dated October 25, 1994,
File No. 0-19844.)
10.6 Agreement, dated September 23, 1994, between the
Registrant and IDEXX Laboratories Corp. (Incorporated
by reference to Exhibit 2.1 to the Registrant's Report
on Form 8-K dated October 25, 1994. File No. 0-19844.)
10.7 License Agreement, dated January 19, 1995, between the
Registrant and Dow Environmental. (Incorporated by
reference to Exhibit 10.8 to the Registrant's Report on
Form 10-KSB for the Fiscal year ended September 30,
1995).
10.8* Cooperative Research and Development Agreement dated
December 18, 1995 by and between the Registrant and the
National Cancer Institute.
10.9* Agreement, dated April 9, 1996, between the Registrant,
East West Herbs Limited, Robert E. Miller and A. E.
Lyon.
10.10* Option Agreement, dated April 9, 1996, relating to the
purchase of East West Herbs Limited, Re: Robert E.
Miller and Others (defined therein) and the Registrant
and East West Herbs Limited.
10.11* Exclusive Licensing Agreement, dated April 1, 1996,
between Calbiochem-Novabiochem International and the
Registrant.
21* Subsidiaries of the Registrant.
23.1* Consents of Arthur Andersen LLP
23.2* Consent of KPMG Peat Marwick LLP.
*Included herewith.
<PAGE>
EXHIBIT 4.3
Form of Warrants issued to institutional investors in June
and September, 1996
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 P.M. Eastern Standard time, on the Expiration Date.
WARRANT TO PURCHASE COMMON STOCK
OF
PARACELSIAN, INC.
FOR VALUE RECEIVED, Paracelsian, Inc., a Delaware corporation (the
"Company") hereby certifies that Xxxx or its permitted assigns
("Xxxx"), is entitled to purchase from the Company, at any time or from
time to time commencing 5:00 P.M., Eastern Standard Time, on the
Commencement Date (as defined below) and prior to 5:00 P.M., Eastern
Standard Time, on the fifth anniversary of the Commencement Date (the
"Expiration Date"), a total of fully paid and nonassessable
shares of the common stock, par value $.01 per share, of the Company
for an aggregate purchase price of $ per share. (Hereinafter,
(i) said common stock, together with any other equity securities which
may be issued by the Company with respect thereto or in substitution
therefor, is referred to as the "Common Stock", (ii) the shares of the
Common Stock purchasable hereunder are referred to as the "Warrant
Shares", (iii) the aggregate purchase price payable hereunder for the
Warrant Shares is referred to as the "Aggregate Warrant Price", (iv)
the price payable hereunder for each of the Warrant Shares is referred
to as the "Exercise Price", (v) this Warrant, and all warrants
hereafter issued in exchange or substitution for this Warrant are
referred to as the "Warrant" and (vi) the holder of this Warrant is
referred to as the "Holder".) The Exercise Price is subject to
adjustment as hereinafter provided. The "Commencement Date" shall be
the 61st day after the day on which (1) the number of Warrant Shares
plus (2) the number of any shares of Common Stock owned by Xxxx
(including, for purposes of this paragraph, any affiliate of Xxxx whose
beneficial ownership would be aggregated with Xxxx for purposes of the
rules promulgated under Section 16 of the Exchange Act (as defined
below)) plus (3) the number of any shares of Common Stock that may then
be received by Xxxx upon exercise of warrants to purchase and
shares of Common Stock, respectively, issued to Xxxx on plus
(4) the number of any shares of Common Stock that may then be received
by Xxxx upon exercise of a warrant to purchase shares of Common
Stock issued to Xxxx on , shall equal less than 10% of the then
outstanding shares of Common Stock as is determined in accordance with
the rules promulgated under Section 16 of the Exchange Act.
1. Exercise of Warrant. This Warrant may be exercised, in
whole at any time or in part from time to time, commencing 5:00 P.M.,
Eastern Standard Time, on the Commencement Date and prior to 5:00 P.M.,
Eastern Standard Time, on the Expiration Date, by the Holder of this
Warrant by the surrender of this Warrant (with the subscription form at
the end hereof duly executed) at the address set forth in Subsection
9(a) hereof, together with proper payment of the Aggregate Warrant
Price, or the proportionate part thereof if this Warrant is exercised
in part. Payment for Warrant Shares shall be made by certified or
official bank check payable to the order of the Company. If this
Warrant is exercised in part, this Warrant must be exercised for a
minimum of shares of the Common Stock (or such lesser number of
shares of Common Stock as shall remain available for purchase under the
terms of the Warrant), and the Holder is entitled to receive a new
Warrant covering the number of Warrant Shares in respect of which this
Warrant has not been exercised and setting forth the proportionate part
of the Aggregate Warrant Price applicable to such Warrant Shares. Upon
such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder of the largest
number of whole shares of the Common Stock to which the Holder shall be
entitled if this Warrant is exercised in whole and (b) deliver the
proportionate part thereof if this Warrant is exercised in part,
pursuant to the provisions of the Warrant. In lieu of any fractional
share of the Common Stock which would otherwise be issuable in respect
to the exercise of the Warrant, the Company at its option (a) may pay
in cash an amount equal to the product of (i) the daily mean average of
the Closing Price of a share of Common Stock on the ten consecutive
trading days before the Conversion Date and (ii) such fraction of a
share or (b) may issue an additional share of Common Stock.
Upon exercise of the Warrant, the Company shall issue and deliver
to the Holder certificates for the Common Stock issuable upon such
exercise within ten business days after such exercise and the person
exercising shall be deemed to be the holder of record of the Common
Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 P.M.,
Eastern Standard Time, on the Expiration Date.
2. Consolidations and Mergers. In case of any consolidation or
merger of the Company with any other corporation (other than a wholly-owned
subsidiary of the Company), or in case of any sale or transfer of all or
substantially all of the assets of the Company, or in the case of any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, the Company shall make appropriate
provision or cause appropriate provision to be made so that each Holder shall
have the right thereafter to obtain upon exercise of the Warrant the kind and
amount of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer, or share exchange by a holder of
the number of shares of Common Stock for which the Warrant may be
exercised prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder
of shares of Common Stock is entitled to elect to receive either
securities, cash, or other assets upon completion of such transaction,
the Company shall provide or cause to be provided to each Holder the
right to elect the securities, cash, or other assets for which the
Warrant may be exercised by such Holder subject to the same conditions
applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in
which such election shall be made, and the effect of failing to
exercise such election). The Company shall not effect any such
transaction unless the provisions of this paragraph have been complied
with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
3. Adjustments to the Exercise Price. Notwithstanding anything
in this Section 3 to the contrary, no change in the Exercise Price
shall actually be made until the cumulative effect of the adjustments
called for by this Section 3 since the date of the last change in the
Exercise Price would change the Exercise Price by more than 1%.
However, once the cumulative effect would result in such a change, then
the Exercise Price shall actually be changed to reflect all adjustments
called for by this Section 3 and not previously made. Notwithstanding
anything in this Section 3 to the contrary, no change in the Exercise
Price shall be made that would result in an Exercise Price of less than
the par value of the Common Stock to be issued upon the exercise of
this Warrant.
The "Closing Price" for each day shall be the closing price
regular way on such day as reported on the New York Stock Exchange
Composite Tape, or, if the Common Stock is not listed or admitted to
trading on such Exchange, on the principal national securities exchange
on which Common Stock is listed or admitted to trading, or, if not
listed or admitted to trading on any national securities exchange, the
closing bid price as reported on the Nasdaq Stock Market (or, if not so
reported, the closing price), or, if not admitted for quotation on the
Nasdaq Stock Market, the average of the high bid and low asked prices
on such day as recorded by the National Association of Securities
Dealers, Inc. through the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or if the National Association
of Securities Dealers, Inc. through NASDAQ shall not have reported any
bid and asked prices for the Common Stock on such day, the average of
the bid and asked prices for such day as furnished by any New York
Stock Exchange member firm selected from time to time by the Company
for such purposes, or, if no such bid and asked prices can be obtained
from any such firm, the fair market value of one share of Common Stock
on such day as determined in good faith by the Board of Directors.
Such determination by the Board of Directors shall be conclusive.
Subject to the provisions of the first paragraph of this Section
3, the Exercise Price shall be appropriately adjusted from time to time
to account for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events and under
certain circumstances as follows:
(i) In case the Company shall issue rights or warrants to
all holders of Common Stock entitling such holders to subscribe for or
purchase Common Stock on the record date referred to below at a price
per share less than the average daily Closing Prices of the Common
Stock for the 30 consecutive business days commencing 45 business days
before the record date (the "Current Market Price"), then, in each such
case, the Exercise Price in effect on such record date shall be
adjusted in accordance with the following formula:
EP1 = EP x O + N x P
M
_________
O + N
where
EP1 = the adjusted Exercise Price.
EP = the current Exercise Price.
O = the number of shares of Common Stock
outstanding on the record date.
N = the number of additional shares of Common
Stock issuable pursuant to the exercise of such rights
or warrants.
P = the offering price per share of the additional
shares (which amount shall include amounts received by
the Corporation in respect of the issuance and exercise
of such rights or warrants).
M = the Current Market Price per share of Common
Stock on the record date mentioned below.
Such adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
rights or warrants. If any or all such rights or warrants are not so
issued or expire or terminate before being exercised, the Exercise
Price then in effect shall be readjusted appropriately.
(ii) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, but excluding any
warrants or subscription rights referred to in subparagraph (i) above
and any dividend or distribution paid in cash out of the retained
earnings of the Company), then in each such case the Exercise Price
then in effect shall be adjusted in accordance with the following
formula:
EP1 = EP x M-F
M
where
EP1 = the adjusted Exercise Price.
EP = the current Exercise Price.
M = the Current Market Price per share of Common
Stock on the record date mentioned below.
F = the aggregate amount of such cash dividend
(other than a cash dividend paid out of retained
earnings) and/or the fair market value on the record
date of the assets or securities to be distributed
divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors
shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
dividend or distribution.
(iii) All calculations hereunder shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made
pursuant to Section 2, the Holder of any Warrant thereafter exercised
shall become entitled to receive securities, cash, or assets other than
Common Stock, the number or amount of such securities or property so
receivable upon exercise shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 3, no
adjustment in the Exercise Price shall be made in respect of any
conversion for share distributions or dividends theretofore declared
and paid or payable on the Common Stock.
Whenever the Exercise Price is adjusted, the Company will
give notice by mail to the Holders, which notice shall be made within
45 days after the effective date of such adjustment and shall state the
adjustment and the Exercise Price. Notwithstanding the foregoing
notice provisions, failure by the Company to give such notice or a
defect in such notice shall not affect the binding nature of such
corporate action of the Company.
Whenever the Company shall propose to take any of the actions
specified in Section 2 or in subparagraphs (i) or (ii) of the third
paragraph of this Section 3 which would result in any adjustment in the
Exercise Price under this Section 3, the Company shall cause a notice
to be mailed at least 15 business days prior to the date on which the
books of the Company will close or on which a record will be taken for
such action, to the Holders. Such notice shall specify the action
proposed to be taken by the Company and the date as of which holders of
record of the Common Stock shall participate in any such actions or be
entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of
the transaction.
Notwithstanding any other provision of this Section 3, no
adjustment in the Exercise Price need by made (a) for sales of Common
Stock pursuant to a plan for reinvestment of dividends and interest,
provided that the purchase price in any such sale is at least equal to
the fair market value of the Common Stock at the time of such purchase;
(b) for sales of up to 750,000 shares of Common Stock pursuant to any
plan adopted by the Corporation for the benefit of its employees,
directors, or consultants; or (c) after the Common Stock becomes
convertible into cash (no interest shall accrue on the cash).
4. Reservation of Warrant Shares. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times
have authorized and reserved, and will keep available, solely for
issuance or delivery upon the exercise of this Warrant, the number of
shares of the Common Stock as from time to time shall be receivable
upon the exercise of this Warrant.
5. Fully Paid Stock; Taxes.The Company agrees that the shares
of the Common Stock represented by each and every certificate for
Warrant Shares delivered on the exercise of this Warrant shall, at the
time of such delivery, be validly issued and outstanding, fully paid
and nonassessable, and not subject to preemptive rights, and the
Company will take all such actions as may be necessary to assure that
the par value or stated value, if any, per share of the Common Stock
is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and
payable, any and all Federal and state stamp, original issue or similar
taxes that may be payable in respect of the issue of any Warrant Shares
or certificate therefor.
6. Transfer.
a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any
state securities laws and unless so registered may not be transferred,
sold, pledged, hypothecated or otherwise disposed of unless an
exemption from such registration is available. In the event Holder
desires to transfer this Warrant or any of the Warrant Shares issued,
the Holder must give the Company prior written notice of such proposed
transfer including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon publication by the
Securities and Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel to the Company in either case to the effect that the
proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations promulgated under either such act,
or in the case of clause (ii) above, to the effect that the Warrant or
Warrant Shares to be sold or transferred has been registered under the
Securities Act and that there is in effect a registration statement in
which is included a prospectus meeting the requirements of Section
10(a) of the Securities Act, which is being or will be delivered to the
purchaser or transferee at or prior to the time of delivery of the
certificates evidencing the Warrant or Warrant Shares to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made
pursuant to an effective registration statement under the Securities
Act, the Holder will, if requested by the Company, deliver to the
Company (i) an investment covenant signed by the proposed transferee,
(ii) an agreement by such transferee to the impression of the
restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee,
(iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent
as set forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and
the Holder hereby agrees to indemnify and hold harmless the Company,
its representatives and each officer and director thereof from and
against any and all loss, damage or liability (including all attorneys'
fees and costs incurred in enforcing this indemnity provision) due to
or arising out of (a) the inaccuracy of any representation or the
breach of any warranty of the Holder contained in, or any other breach
of, this Warrant, (b) any transfer of the Warrant or any of the Warrant
Shares in violation of the Securities Act, the Exchange Act or the
rules and regulations promulgated under either of such acts, (c) any
transfer of the Warrants or any of the Warrant Shares not in accordance
with this Warrant, or (d) any untrue statement or omission to state any
material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to
counsel to the Company upon which its opinion as to a proposed transfer
shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and the
Warrant Shares may be transferred by the Holder in whole or in part at
any time or from time to time. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with
assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the
Company shall, without charge, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this
Warrant shall promptly be canceled. Any assignment, transfer, pledge,
hypothecation or other disposition of this Warrant attempted contrary
to the provisions of this Warrant, or any levy of execution, attachment
or other process attempted upon this Warrant, shall be null and void
and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any
part of the Warrant and the issuance of any of the Warrant Shares, the
Company shall instruct its transfer agent to enter stop transfer orders
with respect to such shares, and all certificates representing Warrant
Shares shall bear on the face thereof substantially the following
legend:
"The shares of common stock represented by
this certificate have not been registered under the
Securities Act of 1933, as amended, and may not be
sold, offered for sale, assigned, transferred or
otherwise disposed of unless registered pursuant to
the provisions of that Act or an opinion of counsel
to the Company is obtained stating that such
disposition is in compliance with an available
exemption from such registration."
7. Loss, etc. of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and of an unsecured indemnity from the
Holder reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of the Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new
Warrant of like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right
to vote or to consent to or receive notice as a shareholder of the
Company, as such, in respect of any matters whatsoever, or any other
rights or liabilities as a shareholder, prior to the exercise hereof.
9. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed
by first-class mail, postage prepaid, addressed to:
(a) the Company at 222 Langmuir Laboratories, Cornell
Technology Park, Ithaca, New York 14850 or such other address as the
Company has designated in writing to the Holder, with a copy to .
(b) the Holder at or such other address as the
Holder has designated in writing to the Company, with a copy to Xxxx,
.
10. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof.
Dated as of
PARACELSIAN, INC.
By: __________________________________
Agreed and Accepted as of
XXXX
By: __________________________________
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT
OF 1933, AND NEITHER THIS WARRANT NOR SUCH SHARES MAY BE SOLD,
ENCUMBERED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN EXEMPTION
FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 P.M. Eastern Standard time, on .
WARRANT TO PURCHASE COMMON STOCK
OF
PARACELSIAN, INC.
FOR VALUE RECEIVED, Paracelsian, Inc., a Delaware corporation (the
"Company") hereby certifies that xxxxx or its permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing 5:00 P.M., Eastern Standard Time, on and prior to
5:00 P.M., Eastern Standard Time, on , a total of fully
paid and nonassessable shares of the common stock, par value $.01 per
share, of the Company for an aggregate purchase price of $ per
share. (Hereinafter, (i) said common stock, together with any other
equity securities which may be issued by the Company with respect
thereto or in substitution therefor, is referred to as the "Common
Stock", (ii) the shares of the Common Stock purchasable hereunder are
referred to as the "Warrant Shares", (iii) the aggregate purchase price
payable hereunder for the Warrant Shares is referred to as the
"Aggregate Warrant Price", (iv) the price payable hereunder for each of
the Warrant Shares is referred to as the "Exercise Price", (v) this
Warrant, and all warrants hereafter issued in exchange or substitution
for this Warrant are referred to as the "Warrant" and (vi) the holder
of this Warrant is referred to as the "Holder".) The Exercise Price is
subject to adjustment as hereinafter provided.
1. Exercise of Warrant. This Warrant may be exercised, in
whole at any time or in part from time to time, commencing 5:00 P.M.,
Eastern Standard Time, on and prior to 5:00 P.M., Eastern
Standard Time, on , by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof
duly executed) at the address set forth in Subsection 9(a) hereof,
together with proper payment of the Aggregate Warrant Price, or the
proportionate part thereof if this Warrant is exercised in part.
Payment for Warrant Shares shall be made by certified or official bank
check payable to the order of the Company. If this Warrant is
exercised in part, this Warrant must be exercised for a minimum of
shares of the Common Stock (or such lesser number of shares of Common
Stock as shall remain available for purchase under the terms of the
Warrant), and the Holder is entitled to receive a new Warrant covering
the number of Warrant Shares in respect of which this Warrant has not
been exercised and setting forth the proportionate part of the
Aggregate Warrant Price applicable to such Warrant Shares. Upon such
surrender of this Warrant, the Company will (a) issue a certificate or
certificates in the name of the Holder of the largest number of whole
shares of the Common Stock to which the Holder shall be entitled if
this Warrant is exercised in whole and (b) deliver the proportionate
part thereof if this Warrant is exercised in part, pursuant to the
provisions of the Warrant. In lieu of any fractional share of the
Common Stock which would otherwise be issuable in respect to the
exercise of the Warrant, the Company at its option (a) may pay in cash
an amount equal to the product of (i) the daily mean average of the
Closing Price of a share of Common Stock on the ten consecutive trading
days before the Conversion Date and (ii) such fraction of a share or
(b) may issue an additional share of Common Stock.
Upon exercise of the Warrant, the Company shall issue and deliver
to the Holder certificates for the Common Stock issuable upon such
exercise within ten business days after such exercise and the person
exercising shall be deemed to be the holder of record of the Common
Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 P.M.,
Eastern Standard Time, .
2. Consolidations and Mergers. In case of any consolidation or
merger of the Company with any other corporation (other than a wholly-owned
subsidiary of the Company), or in case of any sale or transfer of all or
substantially all of the assets of the Company, or in the case
of any share exchange pursuant to which all of the outstanding shares
of Common Stock are converted into other securities or property, the
Company shall make appropriate provision or cause appropriate provision
to be made so that each Holder shall have the right thereafter to
obtain upon exercise of the Warrant the kind and amount of shares of
stock and other securities and property receivable upon such
consolidation, merger, sale, transfer, or share exchange by a holder of
the number of shares of Common Stock for which the Warrant may be
exercised prior to the effective date of such consolidation, merger,
sale, transfer, or share exchange. If, in connection with any such
consolidation, merger, sale, transfer, or share exchange, each holder
of shares of Common Stock is entitled to elect to receive either
securities, cash, or other assets upon completion of such transaction,
the Company shall provide or cause to be provided to each Holder the
right to elect the securities, cash, or other assets for which the
Warrant may be exercised by such Holder subject to the same conditions
applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in
which such election shall be made, and the effect of failing to
exercise such election). The Company shall not effect any such
transaction unless the provisions of this paragraph have been complied
with. The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers, or share exchanges.
3. Adjustments to the Exercise Price. Notwithstanding anything
in this Section 3 to the contrary, no change in the Exercise Price
shall actually be made until the cumulative effect of the adjustments
called for by this Section 3 since the date of the last change in the
Exercise Price would change the Exercise Price by more than 1%.
However, once the cumulative effect would result in such a change, then
the Exercise Price shall actually be changed to reflect all adjustments
called for by this Section 3 and not previously made. Notwithstanding
anything in this Section 3 to the contrary, no change in the Exercise
Price shall be made that would result in an Exercise Price of less than
the par value of the Common Stock to be issued upon the exercise of
this Warrant.
The "Closing Price" for each day shall be the closing price
regular way on such day as reported on the New York Stock Exchange
Composite Tape, or, if the Common Stock is not listed or admitted to
trading on such Exchange, on the principal national securities exchange
on which Common Stock is listed or admitted to trading, or, if not
listed or admitted to trading on any national securities exchange, the
closing bid price as reported on the Nasdaq Stock Market (or, if not so
reported, the closing price), or, if not admitted for quotation on the
Nasdaq Stock Market, the average of the high bid and low asked prices
on such day as recorded by the National Association of Securities
Dealers, Inc. through the National Association of Securities Dealers
Automated Quotations System ("NASDAQ"), or if the National Association
of Securities Dealers, Inc. through NASDAQ shall not have reported any
bid and asked prices for the Common Stock on such day, the average of
the bid and asked prices for such day as furnished by any New York
Stock Exchange member firm selected from time to time by the Company
for such purposes, or, if no such bid and asked prices can be obtained
from any such firm, the fair market value of one share of Common Stock
on such day as determined in good faith by the Board of Directors.
Such determination by the Board of Directors shall be conclusive.
Subject to the provisions of the first paragraph of this Section
3, the Exercise Price shall be appropriately adjusted from time to time
to account for stock splits, stock dividends, combinations,
recapitalizations, reclassifications and similar events and under
certain circumstances as follows:
(i) In case the Company shall issue rights or warrants to
all holders of Common Stock entitling such holders to subscribe for or
purchase Common Stock on the record date referred to below at a price
per share less than the average daily Closing Prices of the Common
Stock for the 30 consecutive business days commencing 45 business days
before the record date (the "Current Market Price"), then, in each such
case, the Exercise Price in effect on such record date shall be
adjusted in accordance with the following formula:
EP1 = EP x O + N x P
M
_________
O + N
where
EP1 = the adjusted Exercise Price.
EP = the current Exercise Price.
O = the number of shares of Common Stock
outstanding on the record date.
N = the number of additional shares of Common
Stock issuable pursuant to the exercise of such rights
or warrants.
P = the offering price per share of the additional
shares (which amount shall include amounts received by
the Corporation in respect of the issuance and exercise
of such rights or warrants).
M = the Current Market Price per share of Common
Stock on the record date mentioned below.
Such adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
rights or warrants. If any or all such rights or warrants are not so
issued or expire or terminate before being exercised, the Exercise
Price then in effect shall be readjusted appropriately.
(ii) In case the Company shall, by dividend or otherwise,
distribute to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, but excluding any
warrants or subscription rights referred to in subparagraph (i) above
and any dividend or distribution paid in cash out of the retained
earnings of the Company), then in each such case the Exercise Price
then in effect shall be adjusted in accordance with the following
formula:
EP1 = EP x M-F
M
where
EP1 = the adjusted Exercise Price.
EP = the current Exercise Price.
M = the Current Market Price per share of Common
Stock on the record date mentioned below.
F = the aggregate amount of such cash dividend
(other than a cash dividend paid out of retained
earnings) and/or the fair market value on the record
date of the assets or securities to be distributed
divided by the number of shares of Common Stock
outstanding on the record date. The Board of Directors
shall determine such fair market value, which
determination shall be conclusive.
Such adjustment shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
dividend or distribution.
(iii) All calculations hereunder shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be.
(iv) If at any time as a result of an adjustment made
pursuant to Section 2, the Holder of any Warrant thereafter exercised
shall become entitled to receive securities, cash, or assets other than
Common Stock, the number or amount of such securities or property so
receivable upon exercise shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to the Common Stock contained in
subparagraphs (i) to (iii) above.
Except as otherwise provided above in this Section 3, no
adjustment in the Exercise Price shall be made in respect of any
conversion for share distributions or dividends theretofore declared
and paid or payable on the Common Stock.
Whenever the Exercise Price is adjusted, the Company will
give notice by mail to the Holders, which notice shall be made within
45 days after the effective date of such adjustment and shall state the
adjustment and the Exercise Price. Notwithstanding the foregoing
notice provisions, failure by the Company to give such notice or a
defect in such notice shall not affect the binding nature of such
corporate action of the Company.
Whenever the Company shall propose to take any of the actions
specified in Section 2 or in subparagraphs (i) or (ii) of the third
paragraph of this Section 3 which would result in any adjustment in the
Exercise Price under this Section 3, the Company shall cause a notice
to be mailed at least 15 business days prior to the date on which the
books of the Company will close or on which a record will be taken for
such action, to the Holders. Such notice shall specify the action
proposed to be taken by the Company and the date as of which holders of
record of the Common Stock shall participate in any such actions or be
entitled to exchange their Common Stock for securities or other
property, as the case may be. Failure by the Corporation to mail the
notice or any defect in such notice shall not affect the validity of
the transaction.
Notwithstanding any other provision of this Section 3, no
adjustment in the Exercise Price need by made (a) for sales of Common
Stock pursuant to a plan for reinvestment of dividends and interest,
provided that the purchase price in any such sale is at least equal to
the fair market value of the Common Stock at the time of such purchase;
(b) for sales of up to 750,000 shares of Common Stock pursuant to any
plan adopted by the Corporation for the benefit of its employees,
directors, or consultants; or (c) after the Common Stock becomes
convertible into cash (no interest shall accrue on the cash).
4. Reservation of Warrant Shares. The Company agrees that,
prior to the expiration of this Warrant, the Company will at all times
have authorized and reserved, and will keep available, solely for
issuance or delivery upon the exercise of this Warrant, the number of
shares of the Common Stock as from time to time shall be receivable
upon the exercise of this Warrant.
5. Fully Paid Stock; Taxes. The Company agrees that the shares
of the Common Stock represented by each and every certificate for
Warrant Shares delivered on the exercise of this Warrant shall, at the
time of such delivery, be validly issued and outstanding, fully paid
and nonassessable, and not subject to preemptive rights, and the
Company will take all such actions as may be necessary to assure that
the par value or stated value, if any, per share of the Common Stock
is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and
payable, any and all Federal and state stamp, original issue or similar
taxes that may be payable in respect of the issue of any Warrant Shares
or certificate therefor.
6. Transfer.
a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under any
state securities laws and unless so registered may not be transferred,
sold, pledged, hypothecated or otherwise disposed of unless an
exemption from such registration is available. In the event Holder
desires to transfer this Warrant or any of the Warrant Shares issued,
the Holder must give the Company prior written notice of such proposed
transfer including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon publication by the
Securities and Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon facts
presented to said Commission, or (ii) upon receipt by the Company of an
opinion of counsel to the Company in either case to the effect that the
proposed transfer will not violate the provisions of the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations promulgated under either such act,
or in the case of clause (ii) above, to the effect that the Warrant or
Warrant Shares to be sold or transferred has been registered under the
Securities Act and that there is in effect a registration statement in
which is included a prospectus meeting the requirements of Section
10(a) of the Securities Act, which is being or will be delivered to the
purchaser or transferee at or prior to the time of delivery of the
certificates evidencing the Warrant or Warrant Shares to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made
pursuant to an effective registration statement under the Securities
Act, the Holder will, if requested by the Company, deliver to the
Company (i) an investment covenant signed by the proposed transferee,
(ii) an agreement by such transferee to the impression of the
restrictive investment legend set forth herein on the certificate or
certificates representing the securities acquired by such transferee,
(iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent
as set forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and
the Holder hereby agrees to indemnify and hold harmless the Company,
its representatives and each officer and director thereof from and
against any and all loss, damage or liability (including all attorneys'
fees and costs incurred in enforcing this indemnity provision) due to
or arising out of (a) the inaccuracy of any representation or the
breach of any warranty of the Holder contained in, or any other breach
of, this Warrant, (b) any transfer of the Warrant or any of the Warrant
Shares in violation of the Securities Act, the Exchange Act or the
rules and regulations promulgated under either of such acts, (c) any
transfer of the Warrants or any of the Warrant Shares not in accordance
with this Warrant, or (d) any untrue statement or omission to state any
material fact in connection with the investment representations or with
respect to the facts and representations supplied by the Holder to
counsel to the Company upon which its opinion as to a proposed transfer
shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant and the
Warrant Shares may be transferred by the Holder in whole or in part at
any time or from time to time. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with
assignment documentation duly executed and funds sufficient to pay any
transfer tax, and upon compliance with the foregoing provisions, the
Company shall, without charge, execute and deliver a new Warrant in the
name of the assignee named in such instrument of assignment, and this
Warrant shall promptly be canceled. Any assignment, transfer, pledge,
hypothecation or other disposition of this Warrant attempted contrary
to the provisions of this Warrant, or any levy of execution, attachment
or other process attempted upon this Warrant, shall be null and void
and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant Shares
have been registered under the Securities Act, upon exercise of any
part of the Warrant and the issuance of any of the Warrant Shares, the
Company shall instruct its transfer agent to enter stop transfer orders
with respect to such shares, and all certificates representing Warrant
Shares shall bear on the face thereof substantially the following
legend:
"The shares of common stock represented by
this certificate have not been registered under the
Securities Act of 1933, as amended, and may not be
sold, offered for sale, assigned, transferred or
otherwise disposed of unless registered pursuant to
the provisions of that Act or an opinion of counsel
to the Company is obtained stating that such
disposition is in compliance with an available
exemption from such registration."
7. Loss, etc. of Warrant. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant, and of an unsecured indemnity from the
Holder reasonably satisfactory to the Company, if lost, stolen or
destroyed, and upon surrender and cancellation of the Warrant, if
mutilated, the Company shall execute and deliver to the Holder a new
Warrant of like date, tenor and denomination.
8. Warrant Holder Not Shareholder. Except as otherwise
provided herein, this Warrant does not confer upon the Holder any right
to vote or to consent to or receive notice as a shareholder of the
Company, as such, in respect of any matters whatsoever, or any other
rights or liabilities as a shareholder, prior to the exercise hereof.
9. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed
by first-class mail, postage prepaid, addressed to:
(a) the Company at 222 Langmuir Laboratories, Cornell
Technology Park, Ithaca, New York 14850 or such other address as the
Company has designated in writing to the Holder, with a copy to .
(b) the Holder at or such other address as the Holder
has designated in writing to the Company.
10. Headings. The headings of this Warrant have been inserted as
a matter of convenience and shall not affect the construction hereof.
11. Applicable Law. This Warrant shall be governed by and
construed in accordance with the laws of the State of Delaware without
giving effect to the principles of conflicts of law thereof.
Dated as of
PARACELSIAN, INC.
By: __________________________________
Agreed and Accepted as of
xxxxx
By: __________________________________
<PAGE>
EXHIBIT 10.4
Lease agreement, dated as of February 31, 1996 (sic), between
ParaComm, Inc. and Cornell University c/o Sibley Real Estate
Services, Inc.
LEASE AGREEMENT
THIS LEASE AGREEMENT, hereinafter called the Lease, is made and entered
into on the date, between the parties, and upon the terms and
conditions hereinafter set forth.
1. Short Description of Terms. This Lease is an integrated
agreement. The format used in this paragraph is for the convenience of
the parties. The terms in this paragraph are controlled by the Lease
in its entirety.
A. Date of Lease: February 31, 1996
B. Landlord: Cornell University
c/o Sibley Real Estate Services, Inc.
146 Langmuir Lab
95 Brown Road
Ithaca, New York 14850
C. Tenant: ParaComm, Inc.
145 Langmuir Lab
95 Brown Road
Ithaca, New York 14850
D. Term of Lease: (1) Beginning: May 1, 1996
(2) Ending: April 30, 1997
E. Purpose: Office
F. Description of Premises: Room(s) 145
Building: Langmuir Lab
Cornell Business and Technology Park
Ithaca, New York 14850
G. Rentable Square Feet: 725
H: Rent: Annually: $8,700.00
Monthly: $ 725.00
I. Security Deposit: Total Deposit: $ 725.00
Date Received: 12/01/95
2. Premises. Landlord, for and in considerations of the rents,
covenants and agreements, and upon the terms and conditions set forth
herein, hereby leases to the Tenant, and Tenant hereby hires from the
Landlord, the Premises set forth above, together with the right in
common with other tenants entitled thereto, to use the halls, elevators
(if any), and stairways in the building of which the Premises are a
part (hereinafter call the Building) for purposes of ingress and
egress, and of any land and parking areas which Landlord may designate
(hereinafter called the Grounds) for any use by Tenant, its employees,
and invitees.
3. Square Footage. Tenant hereby acknowledges that the total square
footage represented in section one is comprised of the total Rentable
Square Footage for the space plus a fifteen percent common area factor.
4. Rent. Tenant shall pay the rental set forth above in consecutive
monthly installments, in advance, on the first day of each month. If
rent is not paid by the tenth of the month, it shall be subject to a
late charge equal to two percent (2%) per month of such unpaid amount
to cover Landlord's additional administrative costs and other losses
and expenses resulting from said late payment.
5. Security Deposit. Tenant hereby deposits with Landlord the amount
set forth above as security for the faithful performance by Tenant of
the terms hereof, to be returned to Tenant (without interest) on the
full and faithful performance by Tenant of the provisions hereof, less
any deductions necessary for damage, breakage, cleaning, unpaid and due
rent, etc., and only after an agent of the Landlord has inspected the
Premises. Under no circumstances shall the security deposit be used as
any month's rent or the last month's rent.
6. Manner of Payment. Tenant agrees to pay (a) rent and (b) all
other sums, impositions, costs, expenses, and other payments which
Tenant assumes or agrees to pay in any of the provisions of this Lease
(hereinafter called "Additional Rent") at the Landlord's address above
or at such other address as the Landlord may designate in writing, and
to make such payments in lawful money of the United States of America,
without demand by the Landlord, and without counterclaim, deduction, or
set off. The rent for the calendar month of the Term, if either is not
a full month, shall be apportioned.
7. Use. The Tenant shall use and occupy the Premises for the
purposes set forth above and for no other purpose. The Tenant shall
comply with all laws, orders, and regulations of the Federal, State,
and Municipal Governments, or any of their departments, and the
regulations of the Board of Fire Underwriters governing such use.
Tenant shall procure and maintain in force during the Term all permits,
authorizations, and licenses necessary for Tenant's business use and
operation in the premises. Tenant covenants that neither it nor any
assignee nor subtenant will (a) use or permit to be used any part of
the Premises for any dangerous or noxious trade or business, (b)
transport to or from, dispose of, use, store, handle, or generate any
flammable substances or explosives or hazardous or toxic substances in
quantities or concentration which are unsafe or otherwise not suitable
for the Premises, (the foregoing shall not be construed to prohibit
Tenant from using the Premises for reasonable and suitable laboratory
purposes, provided accepted laboratory safety procedures and
precautions appropriate to the Premises are employed), or (c) cause or
maintain any nuisance, waste, or injury to the Premises. Tenant shall
conform to the Rules and Regulations now or hereinafter established by
Landlord, and changed from time to time, for the general safety, care,
and cleanliness of the entire Premises; the preservation of good order
therein; and the comfort, quiet, and convenience of the other tenants.
The Tenant shall not without Landlord's written consent: (a) abandon
the Premises or suffer the Premises to become vacant or deserted; (b)
assign, mortgage, pledge or encumber this Lease, in whole or in part;
(c) underlet or sublet the Premises or any part thereof.
8. Services and Utilities. A. At its own expense, Landlord agrees
to provide the following services and utilities:
(1) Electricity for normal business use;
(2) Heat to a reasonable temperature during normal business hours;
(3) Cold water for drinking, lavatory, and toilet purposes, and
hot water for lavatory purposes;
(4) Regular cleaning and janitorial services as follows:
(a) Clean lavatories daily;
(b) Empty wastebaskets daily;
(c) Vacuum or dust mop floors weekly;
(d) Wash exterior of windows semi-annually;
(5) Necessary lawn care and snow removal;
(6) Replace burnt out light bulbs and ballasts.
B. At its own expense, Tenant agrees to provide the following
services and utilities:
(1) Telephone service;
(2) Place large boxes and trash, other than normal wastebasket
trash, in dumpster;
(3) Dust and clean desk tops, ashtrays, telephones, furniture,
machines, lab equipment and sinks, interior of windows, and
window sills as necessary;
C. If utility costs in the Building are materially increasing,
Landlord reserves the right to pass Tenant's pro-rata share of the cost
of such increases on to Tenant, as determined in Landlord's sole and
absolute discretion;
D. Landlord shall not be liable for any consequential damages arising
out of its provision of services and utilities or any failure to
provide services and utility.
9. Construction. A. Landlord and Tenant agree to complete the
items of work and materials required, if any, under the terms of a Work
Letter executed by Landlord and Tenant in connection with this lease.
B. Tenant shall not without Landlord's written consent make or allow
to be made any structural alterations, additions or improvements to the
Premises, including electrical and plumbing connections, without first
submitting plans thereof and obtaining the written approval of the
Landlord permitting the carrying out of said structural alterations,
additions, or improvements. All improvements made by Tenant to the
Premises, which are attached to the Premises, including, but not
limited to, carpets, drapes, and anything bolted, nailed, plumbed, or
otherwise secured in a manner customarily deemed to be permanent, shall
become the property of Landlord upon termination of the Lease. The
Tenant shall, within ten (10) days after filing, discharge any
mechanic's lien for materials or labor claimed to have been furnished
to the Premises on Tenant's behalf.
10. Maintenance. A. Landlord will, at its own expense;
(1) Repair as necessary the exterior of the Building;
(2) Repair as necessary the common areas of the Building;
(3) Repair as necessary the Grounds, including parking areas;
(4) Make all necessary structural repairs and repairs to the
Building Utility systems.
B. Tenant will, at its own expense:
(1) Repair as necessary the interior of the Premises, excluding
structural repairs and repairs to the Building Utility
systems;
(2) Make all repairs and replacement to the Premises, Building,
Building Utility systems, and Grounds, necessitated by the
negligence of Tenant, its employees, customers, invitees,
and assignees.
11. "As Is" Condition. Landlord leases, and Tenant agrees to accept,
Premises in an "as is" condition. Landlord makes no warranties,
representations, or promises as to the condition of the Premises,
Building, or Grounds, except as herein expressly set forth. Tenant
agrees that it has examined said Premises and takes the same in their
present conditions and state of repair. The taking of possession of
the Premises and said Building and Grounds were in satisfactory
conditions at the time such possession was so taken. Landlord makes no
representation or warranty that the Premises are suitable for Tenant's
purposes, and Tenant agrees that any measures necessary to make the
Premises suitable and safe or to otherwise adapt the Premises for its
purpose (e.g. fume hoods, drains, or other work to ventilation,
electrical, plumbing, or other systems) shall be undertaken at Tenant's
expense in accordance with the provisions of Paragraph 8.
12. Indemnity. Tenant agrees to hold and save Landlord harmless from,
and indemnify Landlord against, any and all claims of any party for
damage, loss, or injury (including death) of whatever nature, including
costs of legal defense, arising out of use or occupancy of the
Premises, or out of any act, omission, or negligence of Tenant or
anyone claiming under Tenant.
13. Insurance. A. The Tenant agrees to obtain comprehensive general
liability insurance to include both bodily injury and property damage
liability insurance. Such insurance shall name Landlord as an
additional named insured. The limits of liability shall be not less
than one million dollars ($1,000,000.00) combined single limit for
bodily injury and property damage liability. Each such policy shall
contain a provision that it cannot be canceled or amended insofar as it
relates to the Leased Premises without at least thirty (30) days prior
written notice to the Landlord. Tenant also agrees to provide Landlord
with a Certificate of Insurance showing evidence of Workers'
Compensation Insurance. In addition, Tenant agrees to obtain Builder's
Risk Insurance covering Landlord during construction or renovation by
the Tenant, and to carry Workers' Compensation Insurance affording
applicable statutory coverage and containing statutory limits on
employees at all times. A Certificate of Insurance at inception and
each renewal period shall be provided to Landlord by Tenant.
B. Notwithstanding any other provisions contained herein, in the
event of any loss or damage to the Premises and/or any contents, Tenant
shall look solely to Insurance in its favor. Tenant shall obtain for
each policy of such insurance, provisions waiving the right of
subrogation against the Landlord for loss or damage within the scope of
the insurance; and Tenant hereby does for itself and its insurers waive
all such insured claims against the Landlord.
14. Property Loss or Damage. All merchandise, furniture, and property
of any kind, nature, and description, belonging to Tenant or any person
claiming by, through, or under Tenant, which may be in, on, or about
the Premises during the continuance of this Lease, or any extension or
renewal thereof, is to be at the sole risk and hazard of Tenant; and if
the whole or any part thereof shall be destroyed or damaged by fire,
water, steam, smoke, cold, by the leakage or bursting of water privies,
or in any other way or manner, no part of said loss or damage is to be
charged to or to be borne by Landlord in any case whatsoever.
15. Interference. A. In the case the Premises, during the term
hereby created, shall be destroyed or damaged by fire or other
unavoidable casualty so that the same shall be thereby rendered unfit
for Tenant for its business purposes, or in case Tenant shall be
prevented from using said Premises by reason of any action on the part
of municipal or state officers through no fault, neglect, or willful
act of his own, his agents, servants, or employees, then the rent
hereinbefore reserved, or a just proportionate part thereof, according
to the nature and extent of the injury sustained, shall be suspended or
abated until the said Premises shall have been put in proper condition
for use of Tenant in its business purpose, or until Tenant is permitted
to resume the use thereof by said municipal or state officers. In case
of fire, Tenant shall give immediate notice thereof to Landlord. If
the Premises be so damaged that Landlord shall decide not to rebuild,
the term hereby created shall cease, and the accrued rent be paid up to
the time of the fire, or refunded to Tenant for such period beyond the
time of the fire, as Tenant may have paid the same. If the damage
results from the fault of the Tenant, or Tenant's agents, servants,
visitors, or licensees, Tenant shall not be entitled to any abatement
or reduction of rent, except to the extent, if any, that Landlord
receives the proceeds of rent insurance in lieu of such rent.
B. The Tenant shall not be entitled to claim a constructive eviction
from the Premises unless Tenant shall have first notified Landlord in
writing of the condition or conditions giving rise thereto, and, if the
complaints be justified, unless Landlord shall have failed within a
reasonable time after receipt of said notice to remedy such conditions.
16. Condemnation. If the Premises or any part thereof or any estate
therein, be taken by virtue of eminent domain, this Lease shall
terminate on the date when title vests pursuant to such taking, the
rent and Additional Rent shall be apportioned as of said date, and any
rent paid for any period beyond said date shall be repaid to Tenant.
Tenant shall not be entitled to any part of the award or any payment in
lieu thereof; but Tenant may file a claim against the taking authority
for any taking of fixtures and improvements owned by Tenant, and for
moving expenses.
17. Entry. The Landlord may enter the Premises at any time, on
reasonable notice to Tenant (except that no notice need be given in
case of emergency), for any legal purpose. Landlord may show the
Premises to prospective purchasers, mortgagees, and Tenants upon
reasonable notice to Tenant.
18. Subordination. This Lease shall be subject and subordinate to all
underlying leases and to mortgages which may now or hereinafter affect
such leases or the real property of which the Premises is a part, and
also to all renewals, modifications, consolidations, and replacements
of said underlying leases and said mortgages. Although no instrument
or act on the part of Tenant shall be necessary to effectuate such
subordination, Tenant will, nevertheless, execute and deliver such
further instruments confirming such subordination of this Lease as may
be desired by the holders of said mortgages or by any of the lessors
under such underlying leases. Tenant hereby appoints Landlord
attorney-in-fact, irrevocably, to execute and deliver any such
instrument for Tenant. If any underlying lease to which this Lease is
subject terminates, Tenant shall, on timely request, attorn to the
owner of the reversion.
19. Liens. The Tenant shall have no power to do any act or make any
contract which may create or be the foundation for any lien, mortgage,
or other encumbrance upon any interest in property of the Landlord,
including the Premises, Building, and Grounds, it being agreed that
this Lease may not be subordinated to the interest of any other party
without the express written consent of the Landlord, which consent the
Landlord may withhold for any reason or no reason.
20. Estoppel Certificates. Tenant shall, from time to time, upon not
less than ten (10) days prior written request by Landlord, execute,
acknowledge, and deliver to Landlord a written statement certifying
that this Lease is unmodified and in full force and effect (or that the
same is in full force and effect as modified, listing the instruments
of modification), the dates to which the rent and other charges have
been paid, and whether or not to the best of Tenant's knowledge
Landlord is in default hereunder (and, if so, specifying the nature of
the default).
21. Default. If the Tenant defaults in the payment of rent or
Additional Rent or defaults in the performance of any of the covenants
or conditions hereof, Landlord may give to Tenant notice of such
default, and if Tenant does not pay the rent or Additional Rent default
within five (5) days, or cure such other default within ten (10) days,
after the giving of such notice (or, if such other default is of such
nature that it cannot be completely cured within such ten (10) days, if
Tenant does not commence such curing within such (10) days thereafter
and proceed with reasonable diligence and in good faith to cure such
default), or if the default is irreversible and not capable of cure; or
if the Tenant has engaged in any act or activity unreasonably dangerous
or hazardous to the Premises, the Building, or to the other occupants
or tenants of the Building, then Landlord may terminate this Lease with
not less than three (3) days notice to Tenant, and on the date
specified in said notice the term of this Lease shall terminate, and
Tenant shall then quit and surrender the Premises to Landlord, but
Tenant shall remain liable as hereinafter provided. If this Lease
shall have been so terminated by Landlord, Landlord may at any time
thereafter resume possession of the Premises by any lawful means and
remove Tenant or other occupants and their effects, and use any legal
remedy.
22. Landlord's Right to Cure. If Tenant breaches any covenant or
condition of this Lease, Landlord may, on reasonable notice to Tenant
(except that no notice need be given in case of emergency), cure such
breach at the expense of Tenant and the reasonable amount of all
expenses, including attorneys' fees, incurred by Landlord in do so
shall be deemed Additional Rent payable on demand.
23. Other Tenants. Landlord shall not be liable to Tenant for failure
to enforce or for violation of any Rules and Regulations or the breach
of any covenant or condition in any Lease by any other tenant.
24. Agreement to Lease. The Tenant agrees to pay the rent and other
charges as required in the Lease. The Tenant agrees to do everything
required in the Lease. Landlord agrees that if Tenant pays the rent
and is not in default under this Lease, Tenant may peaceably and
quietly have, hold, and enjoy the Premises for the Term of this Lease.
25. End of Term. No later than the last day of the Term, Tenant
shall, at Tenant's expense, remove all of Tenant's personal property
and those improvements made by Tenant which have not become the
property of Landlord, including trade fixtures, cabinet work, moveable
paneling, partitions and the like, repair all injury done by or in
connection with the installation or removal of said property and
improvements, and surrender the leased Premises broom clean and in as
good condition as they were at the beginning of the Term, reasonable
wear, and damage by fire, the elements, casualty, or other causes not
due to the misuse or neglect by Tenant or Tenant's agents, servants,
visitors, or licensees, excepted. All property of Tenant remaining on
the Premises after the last day of the Term of this Lease shall be
conclusively deemed abandoned and may be removed by Landlord, and
Tenant shall reimburse Landlord for the cost of such removal. Landlord
may, but is not obligated to, have any such property stored. Such
storage shall be at Tenant's risk and expense.
26. Option to Renew (if applicable). Tenant, if such option is
granted above and if not in default under any of the terms hereof,
shall have the option to renew the term of the Lease for the period set
forth above, by giving notice in writing to Landlord no later than
ninety (90) days prior to the end of the original term. The terms and
conditions hereof shall also apply to the renewal term shall be as set
forth above. If the option to renew is not set forth above, then
Tenant shall have no option to renew.
27. Holding Over. In the event Tenant remains in possession of the
leased Premises after expiration of this Lease and without the
execution of a new Lease, it shall be deemed to be occupying the
Premises as a holdover tenant from month to month (and not from year to
year), and subject to all the obligations, conditions and provisions of
this Lease except that Tenant shall pay for each day the Tenant holds
over rent at twice the rate of the rental herein before provided to be
paid. Such holdover, month to month tenancy shall be cancelable by
either party upon thirty (30) days written notice to the other.
28. Notice. Any notice by either party to the other shall be in
writing and shall be deemed to be duly given only if delivered
personally or mailed by registered or certified mail in a postpaid
envelope addressed to the addresses first given above, or at such other
addresses as Tenant or Landlord, respectively, may designate in
writing. Notice shall be deemed to have been duly given if delivered
personally, upon delivery thereof, and if mailed, upon the third (3rd)
day after the mailing thereof.
29. No Broker. The parties agree that no real estate broker or
salesperson was involved in this transaction.
30. Relocation. Notwithstanding anything to the contrary contained in
this Lease, the parties acknowledge that it may become necessary for
Landlord to reallocate the space Lease in the Building from time to
time as conditions warrant. If it becomes necessary for Landlord to
reallocate space in order to accommodate the needs of other tenants,
Tenant agrees to relocate subject to the following conditions:
(1) Ninety (90) days prior written notice by Landlord;
(2) Allocation of comparable space to Tenant by Landlord;
(3) Written consent by Tenant which shall not be unreasonably
withheld;
(4) Compensation for the reasonable value of and expense, loss,
damage or interruption of business caused by the relocation
either by Landlord or by tenant for whose benefit the
relocation is made.
31. Miscellaneous. This lease contains the entire agreement between
the parties respecting the matters herein set forth and supersedes all
prior agreements between the parties hereto respecting such matters.
Paragraph headings herein contained are for convenience only and shall
not be considered in construing this Lease. Time is of the essence
with respect to all matters provided in this Lease. If any party
obtains a judgement or decree against any other party by reason of this
Lease, reasonable attorneys' fees, as fixed by the court, shall be
included in such judgement or decree. The Lease shall be construed and
enforced in accordance with the laws of the State of new York. No
waiver by Landlord of any default of Tenant shall be implied or
inferred, and no written waiver thereof shall constitute, a waiver of
any other default of Tenant, whether of the same or of any other nature
or type and whether preceding, concurrent or succeeding; and no failure
or delay on the part of Landlord to exercise any right it may have by
the terms hereof or by law upon the default of Tenant, shall prevent
the exercise thereof by Landlord at any time when Tenant shall continue
to be so in default and no such failure or delay and no waiver of
default shall operate as a waiver of any other default, or as a
modification in any respect of the provisions of this Lease. As used
herein "Landlord" means the entity(ies) who is or are the owner or
owners of the Premises at the time in question, whether singular or
plural in number and whether named in this Lease as Landlord or having
become the successor or successors in interest of the same. In the
event Landlord conveys its interest in the Premises, then it shall
thereupon be automatically freed relieved from all obligations under
this Lease which arise or accrue after the date of such conveyance.
"Tenant" as used herein means the party, whether singular or plural in
number; provided, however, that Tenant does not include any entity
claiming under any assignment or other transfer prohibited by this
Lease and this definition does not alter the provisions of the Lease
relating to assignment or subletting. If there shall be more than one
entity constituting Tenant, their obligations shall be joint and
several, and any notice required or permitted by the terms of this
Lease may be given by or to any one thereof, and shall have the same
force and effect as if given by or to all thereof. The consent by
Landlord to any act by Tenant requiring the Landlord's approval shall
not be deemed to waive or render unnecessary Landlord's consent to any
subsequent similar acts. To the extent such waiver is permitted by
law, the parties waive trial by jury in any action or proceeding
brought in connection with this Lease or Premises. Unless otherwise
stated, this Lease is binding on all parties who lawfully succeed to
the right or take the place of the Landlord or the Tenant. Any
provision(s) of this Lease which shall be to any extent in violation of
the law or ordinance which shall prove to be to any extent
unenforceable, invalid, void, or illegal, shall in no way affect,
impair, or invalidate any other provisions hereof, and the remaining
provisions, except those provisions that are made subject to or
conditions upon such unenforceable, invalid, void, or illegal
provision(s), shall nevertheless remain in full force and effect. No
payment by Tenant or receipt by Landlord of a lesser amount than the
monthly rent shall be deemed to be other than on account of the
earliest stipulated rent, nor shall any endorsement or statement on any
check or any letter accompanying any check or payment as rent be deemed
to be an accord and satisfaction, and Landlord may accept such payment
without prejudice to Landlord's right to recover the balance of such
rent or pursue any other remedy. Landlord shall have the right to
credit Tenant's payments towards any due or past due item(s) it so
desires, notwithstanding any specification of Tenant. This Lease can
be changed only by an agreement in writing signed by Landlord and
Tenant.
IN WITNESS WHEREOF, the parties have executed this Leases as of the
date first above written.
LANDLORD, Cornell University TENANT, ParaComm, Inc.
Real Estate Department
/s/ John E. Majeroni /s/Arthur A. Koch, Jr.
John E. Majeroni, Director
of Real Estate
<PAGE>
</TEXT/
EXHIBIT 10.8
Cooperative Research and Development Agreement dated December 18, 1995,
by and between the Registrant and the National Cancer Institute
PUBLIC HEALTH SERVICE
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
This Cooperative Research and Development Agreement, hereinafter
referred to as the "CRADA," consists of this Cover Page, an attached
Agreement, and various Appendices referenced in the Agreement. This
Cover Page serves to identify the Parties to this CRADA:
(1) the following Bureau(s), Institute(s), Center(s) or
Division(s) of the National Institutes of Health ("NIH"), the Food and
Drug Administration ("FDA"), and the Centers for Disease Control and
Prevention ("CDC"):
The Laboratory of Tumor Cell Biology
Division of Basic Science
National Cancer Institute
hereinafter singly or collectively referred to as the Public Health
Service ("PHS"); and
(2) Paracelsian, Inc.
which has offices at
222 Languir Laboratories
95 Brown Road
Cornell Tecvhnology Park
Ithaca, NY USA 14850
hereinafter referred to as the "Collaborator."
COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT
Article 1. Introduction
This Cooperative Research and Development Agreement (CRADA) between PHS
and the Collaborator will be effective when signed by all Parties. The
research and development activities which will be undertaken by each of
the Parties in the course of this CRADA are detailed in the Research
Plan (RP) which is attached as Appendix A. The funding and staffing
commitments of the Parties are set forth in Appendix B. Any exceptions
or changes to the CRADA are set forth in Appendix C.
Article 2. Definitions
As used in this CRADA, the following terms shall have the indicated
meanings:
2.1 "Affiliate" means any corporation or other business entity
controlled by, controlling, or under common control with
Collaborator. For this purpose, "control" means direct or indirect
beneficial ownership of at least fifty (50) percent of the voting
stock or at least fifty (50) percent interest in the income of
such corporation or other business.
2.2 "Cooperative Research and Development Agreement" or "CRADA" means
this Agreement, entered into by PHS pursuant to the Federal
Technology Transfer Act of 1986, as amended, 15 U.S.C. 3710a et
seq. and Executive Order 12591 of October 10, 1987.
2.3 "Government" means the Government of the United States as
represented through the PHS agency that is a Party to this
agreement.
2.4 "IP" means intellectual property.
2.5 "Invention" means any invention or discovery which is or may be
patentable or otherwise protected under title 35, United States
Code, or any novel variety or plant which is or may be protectable
under the Plant Variety Protection Act (7 U.S.C. 2321 et seq.).
2.6 "Principal Investigator(s)" or "PIs" means the persons designated
respectively by the Parties to this CRADA who will be responsible
for the scientific and technical conduct of the RP.
2.7 "Proprietary/Confidential Information" means confidential
scientific, business, or financial information provided that such
information does not include:
2.7.1 information that is publicly known or available from
other sources who are not under a confidentiality
obligation to the source of the information;
2.7.2 information which has been made available by its owners
to others without a confidentiality obligation;
2.7.3 information which is already known by or available to
the receiving Party without a confidentiality
obligation; or
2.7.4 information which relates to potential hazards or
cautionary warnings associated with the production,
handling or use of the subject matter of the Research
Plan of this CRADA.
2.8 "Research Materials" means all tangible materials other than
Subject Data first produced in the performance of this CRADA.
2.9 "Research Plan" or "RP" means the statement in Appendix A of the
respective research and development commitments of the Parties to
this CRADA.
2.10 "Subject Invention" means any Invention of the Parties, conceived
or first actually reduced to practice in the performance of the
Research Plan of this CRADA.
2.11 "Subject Data" means all recorded information first produced in
the performance of this CRADA by the Parties.
Article 3. Cooperative Research
3.1 Principal Investigators. PHS research work under this CRADA will
be performed by the PHS laboratory identified in the RP, and the
PHS Principal Investigator (PI) designated in the RP will be
responsible for the scientific and technical conduct of this
project on behalf of PHS. Also designated in the RP is the
Collaborator PI who will be responsible for the scientific and
technical conduct of this project on behalf of the Collaborator.
3.2 Research Plan Change. The RP may be modified by mutual written
consent of the Principal Investigators. Substantial changes in
the scope of the RP will be treated as amendments under Article
13.6.
Article 4. Reports
4.1 Interim Reports. The Parties shall exchange formal written
interim progress reports on a schedule agreed to by the PIs, but
at least within twelve (12) months after this CRADA becomes
effective and at least within every twelve (12) months thereafter.
Such reports shall set forth the technical progress made,
identifying such problems as may have been encountered and
establishing goals and objectives requiring further effort, any
modifications to the Research Plan pursuant to Article 3.2, and
all CRADA-related patent applications filed.
4.2 Final Reports. The Parties shall exchange final reports of their
results within four (4) months after completing the projects
described in the RP or after the expiration or termination of this
CRADA.
Article 5. Financial and Staffing Obligations
5.1 PHS and Collaborator Contributions. The contributions of the
Parties, including payment schedules, if applicable, are set forth
in Appendix B. PHS shall not be obligated to perform any of the
research specified herein or to take any other action required by
this CRADA if the funding is not provided as set forth in
Appendix B. PHS shall return excess funds to the Collaborator
when it sends its final fiscal report pursuant to Article 5.2,
except for staffing support pursuant to Article 10.3.
Collaborator acknowledges that the U.S. Government will have the
authority to retain and expend any excess funds for up to one (1)
year subsequent to the expiration or termination of the CRADA to
cover any costs incurred during the term of the CRADA in
undertaking the work set forth in the RP.
5.2 Accounting Records. PHS shall maintain separate and distinct
current accounts, records, and other evidence supporting all its
obligations under this CRADA, and shall provide the Collaborator a
final fiscal report pursuant to Article 4.2.
5.3 Capital Equipment. Equipment purchased by PHS with funds provided
by the Collaborator shall be the property of PHS. All capital
equipment provided under this CRADA by one party for the use of
another Party remains the property of the providing Party unless
other disposition is mutually agreed upon by in writing by the
Parties. If title to this equipment remains with the providing
Party, that Party is responsible for maintenance of the equipment
and the costs of its transportation to and from the site where it
will be used.
Article 6. Intellectual Property Rights and Patent Applications
6.1 Reporting. The Parties shall promptly report to each other in
writing each Subject Invention resulting from the research
conducted under this CRADA that is reported to them by their
respective employees. Each Party shall report all Subject
Inventions to the other Party in sufficient detail to determine
inventorship. Such reports shall be treated as
Proprietary/Confidential Information in accordance with Article
8.4.
6.2 Collaborator Employee Inventions. If the Collaborator does not
elect to retain its IP rights, the Collaborator shall offer to
assign these IP rights to the Subject Invention to PHS pursuant to
Article 6.5. If PHS declines such assignment, the Collaborator
may release its IP rights as it may determine.
6.3 PHS Employee Inventions. PHS on behalf of the U.S. Government may
elect to retain IP rights to each Subject Invention made solely by
PHS employees. If PHS does not elect to retain IP rights, PHS
shall offer to assign these IP rights to such Subject Invention to
the Collaborator pursuant to Article 6.5. If the Collaborator
declines such assignment, PHS may release IP rights in such
Subject Invention to its employee inventors pursuant to Article
6.6.
6.4 Joint Inventions. Each Subject Invention made jointly by PHS and
Collaborator employees shall be jointly owned by PHS and the
Collaborator. The Collaborator may elect to file the joint patent
or other IP application(s) thereon and shall notify PHS promptly
upon making this election. If the Collaborator decides to file
such applications, it shall do so in a timely manner and at its
own expense. If the Collaborator does not elect to file such
application(s), PHS on behalf of the U.S. Government shall have
the right to file the joint application(s) in a timely manner and
at its own expense. If either Party decides not to retain its IP
rights to a jointly owned Subject Invention, it shall offer to
assign such rights to the other Party pursuant to Article 6.5. If
the other Party declines such assignment, the offering Party may
release its IP rights as provided in Articles 6.2, 6.3, and 6.6.
6.5 Filing of Patent Applications. With respect to Subject Inventions
made by the Collaborator as described in Article 6.2, or by PHS as
described in Article 6.3, a Party exercising its right to elect to
retain IP rights to a Subject Invention agrees to file patent or
other IP applications in a timely manner and at its own expense
and after consultation with the other Party. The Party shall
notify the other Party of its decision regarding filing in
countries other than the United States in a timely manner. The
Party may elect not to file a patent or other IP application
thereon in any particular country or countries provided it so
advises the other Party ninety (90) days prior to the expiration
of any applicable filing deadline, priority period or statutory
bar date, and hereby agrees to assign its IP right, title and
interest in such country or countries to the Subject Invention to
the other Party and to cooperate in the preparation and filing of
a patent or other IP applications. In any countries in which
title to patent or other IP rights is transferred to the
Collaborator, the Collaborator agrees that PHS inventors will
share in any royalty distribution that the Collaborator pays to
its own inventors.
6.6 Release to Inventors. In the event neither of the Parties to this
CRADA elects to file a patent or other IP application on a Subject
Invention, either or both (if a joint invention) may retain or
release their IP rights in accordance with their respective
policies and procedures. However, the Government shall retain a
nonexclusive, non-transferrable, irrevocable, royalty-free license
to practice any such Subject Invention or have it practiced
throughout the world.
6.7 Patent Expenses. The expenses attendant to the filing of patent
or other IP applications generally shall be paid by the Party
filing such application. If an exclusive license to any Subject
Invention is granted to the Collaborator, the Collaborator shall
be responsible for all past and future out-of-pocket expenses in
connection with the preparation, filing, prosecution and
maintenance of any applications claiming such exclusively-licensed
inventions and any patents or other IP grants that may issue on
such applications. The Collaborator may waive its exclusive
license rights on any application, patent or other IP grant at any
time, and incur no subsequent compensation obligation for that
application, patent or IP grant.
6.8 Prosecution of Intellectual Property Applications. Within one
month of receipt or filing, each Party shall provide the other
Party with copies of the applications and all documents received
from or filed with the relevant patent or other IP office in
connection with the prosecution of such applications. Each Party
shall also provide the other Party with the power to inspect and
make copies of all documents retained in the patent or other IP
application files by the applicable patent or other IP office.
Where licensing is contemplated by Collaborator, the Parties agree
to consult with each other with respect to the prosecution of
applications for PHS Subject Inventions described in Article 6.3
and joint Subject Inventions described in Article 6.4. If the
Collaborator elects to file and prosecute IP applications on joint
Subject Inventions pursuant to Article 6.4, PHS will be granted
an associate power of attorney (or its equivalent) on such IP
applications.
Article 7. Licensing
7.1 Option for Commercialization License. With respect to Government
IP rights to any Subject Invention not made solely by the
Collaborator's employees for which a patent or other IP
application is filed, PHS hereby grants to the Collaborator an
option to elect an exclusive or nonexclusive commercialization
license, which is substantially in the form of the appropriate
model PHS license agreement. This option does not apply to
Subject Inventions conceived prior to the effective date of this
CRADA that are reduced to practice under this CRADA, if prior to
that reduction to practice, PHS has filed a patent application on
the invention and has licensed it or offered to license it to a
third party. The terms of the license will fairly reflect the
nature of the invention, the relative contributions of the Parties
to the invention and the CRADA, the risks incurred by the
Collaborator and the costs of subsequent research and development
needed to bring the invention to the marketplace. The field of
use of the license will be commensurate with the scope of the RP.
7.2 Exercise of License Option. The option of Article 7.1 must be
exercised by written notice mailed within three (3) months after
either (i) Collaborator receives written notice from PHS that the
patent or other IP application has been filed; or (ii) the date
Collaborator files such IP application; whichever comes first.
Exercise of this option by the Collaborator initiates a
negotiation period that expires nine (9) months after the exercise
of the option. If the last proposal by the Collaborator has not
been responded to in writing by PHS within this nine (9) month
period, the negotiation period shall be extended to expire one (1)
month after PHS so responds, during which month the Collaborator
may accept in writing the final license proposal of PHS. In the
absence of such acceptance, PHS will be free to license such IP
rights to others. In the event that the Collaborator elects the
option for an exclusive license, but no such license is executed
during the negotiation period, PHS agrees not to make an offer for
an exclusive license on more favorable terms to a third party for
a period of six (6) months without first offering Collaborator
those more favorable terms.
7.3 License for PHS Employee Inventions and Joint Inventions.
Pursuant to 15 U.S.C. 3710a(b)(1)(A), for inventions made by PHS
employees or jointly with a Collaborator under this CRADA,
pursuant to Articles 6.3 and 6.4, the Collaborator grants to PHS a
nonexclusive, nontransferable, irrevocable, paid-up license to
practice the invention or have the invention practiced throughout
the world by or on behalf of the Government. In the exercise of
such license, the Government shall not publicly disclose trade
secrets or commercial or financial information that is privileged
or confidential within the meaning of 5 U.S.C. 552(b)(4) or which
would be considered as such if it had been obtained from a non-Federal
party.
7.4 License in Collaborator Inventions. Pursuant to 15 U.S.C.
3710a(b)(2), for inventions made solely by Collaborator employees
under this CRADA, pursuant to Article 6.2, the Collaborator grants
to PHS a nonexclusive, nontransferable, irrevocable, paid-up
license to practice the invention or have the invention practiced
throughout the world by or on behalf of the Government for
research or other Government purposes.
7.5 Third Party License. Pursuant to 15 U.S.C. 3710a(1)(B), if PHS
grants an exclusive license to a Subject Invention made wholly by
PHS employees or jointly with a Collaborator under this CRADA,
pursuant to Articles 6.3 and 6.4, the Government shall retain the
right to require the Collaborator to grant to a responsible
applicant a nonexclusive, partially exclusive, or exclusive
sublicense to use the invention in Collaborator's licensed field
of use on terms that are reasonable under the circumstances; or if
the Collaborator fails to grant such a license, to grant the
license itself. The exercise of such rights by the Government
shall only be in exceptional circumstances and only if the
Government determines (i) the action is necessary to meet health
or safety needs that are not reasonably satisfied by Collaborator,
(ii) the action is necessary to meet requirements for public use
specified by Federal regulations, and such requirements are not
reasonably satisfied by the Collaborator; or (iii) the
Collaborator has failed to comply with an agreement containing
provisions described in 15 U.S.C. 3710a(c)(4)(B). The
determination made by the Government under this Article is subject
to administrative appeal and judicial review under 35 U.S.C.
203(2).
7.6 Joint Inventions Not Exclusively Licensed. In the event that the
Collaborator does not acquire an exclusive commercialization
license to IP rights in all fields in joint Subject Inventions
described in Article 6.4, then each Party shall have the right to
use the joint Subject Invention and to license its use to others
in all fields not exclusively licensed to Collaborator. The
Parties may agree to a joint licensing approach for such IP
rights.
Article 8. Proprietary Rights and Publication
8.1 Right of Access. PHS and the Collaborator agree to exchange all
Subject Data produced in the course of research under this CRADA,
whether developed solely by PHS or jointly with the Collaborator.
Research Materials will be shared equally by the Parties to the
CRADA unless other disposition is agreed to by the Parties. All
Parties to this CRADA will be free to utilize Subject Data and
Research Materials for their own purposes, consistent with their
obligations under this CRADA.
8.2 Ownership of Subject Data and Research Materials. Subject to the
sharing requirements of Paragraph 8.1 and the regulatory filing
requirements of Paragraph 8.3, the producing Party will retain
ownership of and title to all Subject Inventions, all Subject Data
and all Research Materials produced solely by their investigators.
Jointly developed Subject Inventions, Subject Data and Research
Materials will be jointly owned.
8.3 Dissemination of Subject Data and Research Materials. To the
extent allowed under law, the Collaborator and PHS agree to use
reasonable efforts to keep Subject Data and Research Materials
confidential until published or until corresponding patent
applications are filed. Any information that would identify human
subjects of research or patients will always be maintained
confidentially. Collaborator shall have the exclusive right to
use any and all CRADA Subject Data in and for any regulatory
filing by or on behalf of Collaborator, except that PHS shall have
the exclusive right to use Subject Data for that purpose, and
authorize others to do so, if the CRADA is terminated or if
Collaborator abandons its commercialization efforts.
8.4 Proprietary/Confidential Information. Each Party agrees to limit
its disclosure of Proprietary/Confidential Information to the
amount necessary to carry out the Research Plan of this CRADA, and
shall place a confidentiality notice on all such information.
Confidential oral communications shall be reduced to writing
within 30 days by the disclosing Party. Each Party receiving
Proprietary/Confidential Information agrees that any information
so designated shall be used by it only for the purposes described
in the attached Research Plan. Any Party may object to the
designation of information as Proprietary/Confidential Information
by another Party. Subject Data and Research Materials developed
solely by the Collaborator may be designated as
Proprietary/Confidential Information when they are wholly
separable from the Subject Data and Research Materials developed
jointly with PHS investigators, and advance designation of such
data and material categories is set forth in the RP. The exchange
of other confidential information, e.g., patient-identifying
data, should be similarly limited and treated. Jointly developed
Subject Data and Research Material derived from the Research Plan
may be disclosed by Collaborator to a third party under a
confidentiality agreement for the purpose of possible sublicensing
pursuant to the Licensing Agreement and subject to Article 8.7.
8.5 Protection of Proprietary/Confidential Information.
Proprietary/Confidential Information shall not be disclosed,
copied, reproduced or otherwise made available to any other person
or entity without the consent of the owning Party except as
required under court order or the Freedom of Information Act (5
U.S.C. Sect. 552). Each Party agrees to use its best efforts to
maintain the confidentiality of Proprietary/Confidential
Information. Each Party agrees that the other Party is not liable
for the disclosure of Proprietary/Confidential Information which,
after notice to and consultation with the concerned Party, the
other Party in possession of the Proprietary/Confidential
Information determines may not be lawfully withheld, provided the
concerned Party has been given an opportunity to obtain a court
order to enjoin disclosure.
8.6 Duration of Confidentiality Obligation. The obligation to
maintain the confidentiality of Proprietary/Confidential
Information shall expire at the earlier of the date when the
information is no longer Proprietary Information as defined in
Article 2.5 or three (3) years after the expiration or termination
date of this CRADA. The Collaborator may request an extension to
this term when necessary to protect Proprietary/Confidential
Information relating to products not yet commercialized.
8.7 Publication. The Parties are encouraged to make publicly
available the results of their research. Before either Party
submits a paper or abstract for publication or otherwise intends
to publicly disclose information about a Subject Invention,
Subject Data or Research Materials, the other Party shall be
provided thirty (30) days to review the proposed publication or
disclosure to assure that Proprietary/Confidential Information is
protected. The publication or other disclosure shall be delayed
for up to thirty (30) additional days upon written request by any
Party as necessary to preserve U.S. or foreign patent or other IP
rights.
Article 9. Representations and Warranties
9.1 Representations and Warranties of PHS. PHS hereby represents and
warrants to the Collaborator that the official signing this CRADA
has authority to do so.
9.2 Representations and Warranties of the Collaborator.
(a) The Collaborator hereby represents and warrants to PHS that
the Collaborator has the requisite power and authority to enter
into this CRADA and to perform according to its terms, and that
the Collaborator's official signing this CRADA has authority to do
so. The Collaborator further represents that it is financially
able to satisfy any funding commitments made in Appendix B.
(b) The Collaborator certifies that the statements herein
are true, complete, and accurate to the best of its
knowledge. The Collaborator is aware that any false,
fictitious, or fraudulent statements or claims may subject it
to criminal, civil, or administrative penalties.
Article 10. Termination
10.1 Termination By Mutual Consent. PHS and the Collaborator may
terminate this CRADA, or portions thereof, at any time by mutual
written consent. In such event the Parties shall specify the
disposition of all property, inventions, patent or other IP
applications and other results of work accomplished or in
progress, arising from or performed under this CRADA, all in
accordance with the rights granted to the Parties under the terms
of this Agreement.
10.2 Unilateral Termination. Either PHS or the Collaborator may
unilaterally terminate this entire CRADA at any time by giving
written notice at least thirty (30) days prior to the desired
termination date, and any rights accrued in property, patents or
other IP rights shall be disposed of as provided in paragraph
10.1.
10.3 Staffing. If this CRADA is mutually or unilaterally terminated
prior to its expiration, funds will nevertheless remain available
to PHS for continuing any staffing commitment made by the
Collaborator pursuant to Article 5.1 above and Appendix B, if
applicable, for a period of six (6) months after such termination.
If there are insufficient funds to cover this expense, the
Collaborator agrees to pay the difference.
10.4 New Commitments. No Party shall make new commitments related to
this CRADA after a mutual termination or notice of a unilateral
termination and shall, to the extent feasible, cancel all
outstanding commitments and contracts by the termination date.
10.5 Termination Costs. Concurrently with the exchange of final
reports pursuant to Articles 4.2 and 5.2, PHS shall submit to the
Collaborator for payment a statement of all costs incurred prior
to the date of termination and for all reasonable termination
costs including the cost of returning Collaborator property or
removal of abandoned property, for which Collaborator shall be
responsible.
Article 11. Disputes
11.1 Settlement. Any dispute arising under this CRADA which is not
disposed of by agreement of the Principal Investigators shall be
submitted jointly to the signatories of this CRADA. If the
signatories are unable to jointly resolve the dispute within
thirty (30) days after notification thereof, the Assistant
Secretary for Health (or his/her designee or successor) shall
propose a resolution. Nothing in this Article shall prevent any
Party from pursuing any additional administrative remedies that
may be available and, after exhaustion of such administrative
remedies, pursuing all available judicial remedies.
11.2 Continuation of Work. Pending the resolution of any dispute or
claim pursuant to this Article, the Parties agree that performance
of all obligations shall be pursued diligently in accordance with
the direction of the PHS signatory.
Article 12. Liability
12.1 Property. The U.S. Government shall not be responsible for
damages to any Collaborator property provided to PHS, where
Collaborator retains title to the property, or any property
acquired by Collaborator for its own use pursuant to this CRADA.
12.2 NO WARRANTIES. EXCEPT AS SPECIFICALLY STATED IN ARTICLE 9, THE
PARTIES MAKE NO EXPRESS OR IMPLIED WARRANTY AS TO ANY MATTER
WHATSOEVER, INCLUDING THE CONDITIONS OF THE RESEARCH OR ANY
INVENTION OR PRODUCT, WHETHER TANGIBLE OR INTANGIBLE, MADE, OR
DEVELOPED UNDER THIS CRADA, OR THE OWNERSHIP, MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE OF THE RESEARCH OR ANY INVENTION
OR PRODUCT.
12.3 Indemnification. The Collaborator agrees to hold the U.S.
Government harmless and to indemnify the Government for all
liabilities, demands, damages, expenses and losses arising out of
the use by the Collaborator for any purpose of the Subject Data,
Research Materials and/or Subject Inventions produced in whole or
part by PHS employees under this CRADA, unless due to the
negligence or willful misconduct of PHS, its employees, or agents.
The Collaborator shall be liable for any claims or damages it
incurs in connection with this CRADA. PHS has no authority to
indemnify the Collaborator.
12.4 Force Majeure. Neither Party shall be liable for any
unforeseeable event beyond its reasonable control not caused by
the fault or negligence of such Party, which causes such Party to
be unable to perform its obligations under this CRADA, and which
it has been unable to overcome by the exercise of due diligence.
In the event of the occurrence of such a force majeure event, the
Party unable to perform shall promptly notify the other Party. It
shall further use its best efforts to resume performance as
quickly as possible and shall suspend performance only for such
period of time as is necessary as a result of the force majeure
event.
Article 13. Miscellaneous
13.1 Governing Law. The construction, validity, performance and
effect of this CRADA shall be governed by Federal law, as applied
by the Federal Courts in the District of Columbia. Federal law
and regulations will preempt any conflicting or inconsistent
provisions in this CRADA.
13.2 Entire Agreement. This CRADA constitutes the entire agreement
between the Parties concerning the subject matter of this CRADA
and supersedes any prior understanding or written or oral
agreement.
13.3 Headings. Titles and headings of the articles and subarticles of
this CRADA are for convenient reference only, do not form a part
of this CRADA, and shall in no way affect its interpretation.
13.4 Waivers. None of the provisions of this CRADA shall be considered
waived by any Party unless such waiver is given in writing to the
other Party. The failure of a Party to insist upon strict
performance of any of the terms and conditions hereof, or failure
or delay to exercise any rights provided herein or by law, shall
not be deemed a waiver of any rights of any Party.
13.5 Severability. The illegality or invalidity of any provisions of
this CRADA shall not impair, affect, or invalidate the other
provisions of this CRADA.
13.6 Amendments. If either Party desires a modification to this CRADA,
the Parties shall, upon reasonable notice of the proposed
modification or extension by the Party desiring the change, confer
in good faith to determine the desirability of such modification
or extension. Such modification shall not be effective until a
written amendment is signed by the signatories to this CRADA or by
their representatives duly authorized to execute such amendment.
13.7 Assignment. Neither this CRADA nor any rights or obligations of
any Party hereunder shall be assigned or otherwise transferred by
either Party without the prior written consent of the other Party.
13.8 Notices. All notices pertaining to or required by this CRADA
shall be in writing and shall be signed by an authorized
representative and shall be delivered by hand or sent by certified
mail, return receipt requested, with postage prepaid, to the
addresses indicated on the signature page for each Party. Notices
regarding the exercise of license options shall be made pursuant
to Article 7.2. Any Party may change such address by notice given
to the other Party in the manner set forth above.
13.9 Independent Contractors. The relationship of the Parties to this
CRADA is that of independent contractors and not agents of each
other or joint venturers or partners. Each Party shall maintain
sole and exclusive control over its personnel and operations.
Collaborator employees who will be working at PHS facilities may
be asked to sign a Guest Researcher or Special Volunteer Agreement
appropriately modified in view of the terms of this CRADA.
13.10 Use of Name or Endorsements. By entering into this CRADA,
PHS does not directly or indirectly endorse any product or
service provided, or to be provided, whether directly or
indirectly related to either this CRADA or to any patent or
other IP license or agreement which implements this CRADA by
its successors, assignees, or licensees. The Collaborator
shall not in any way state or imply that this CRADA is an
endorsement of any such product or service by the U.S.
Government or any of its organizational units or employees.
Collaborator issued press releases that reference or rely
upon the work of PHS under this CRADA shall be made available
to PHS at least 7 days prior to publication for review and
comment.
13.11 Exceptions to this CRADA. Any exceptions or modifications to
this CRADA that are agreed to by the Parties prior to their
execution of this CRADA are set forth in Appendix C.
13.12 Reasonable Consent. Whenever a Party's consent or permission
is required under this CRADA, such consent or permission
shall not be unreasonably withheld.
Article 14. Duration of Agreement
14.1 Duration. It is mutually recognized that the duration of this
project cannot be rigidly defined in advance, and that the
contemplated time periods for various phases of the RP are only
good faith guidelines subject to adjustment by mutual agreement to
fit circumstances as the RP proceeds. In no case will the term of
this CRADA extend beyond the term indicated in the RP unless it is
revised in accordance with Article 13.6.
14.2 Survivability. The provisions of Articles 4.2, 5-8, 10.3-10.5,
11.1, 12.2-12.4, 13.1, 13.10 and 14.2 shall survive the
termination of this CRADA.
<PAGE>
APPENDIX A: RESEARCH PLAN
Title of CRADA
Role of certain signal transduction pathways in malignant cell growth
and in cell death
NCI PRINCIPAL INVESTIGATOR
Dr. Genoveffa Franchini
Laboratory of Tumor Cell Biology/Division of Basic Sciences
NCI CO-INVESTIGATOR
Dr. David I. Cohen
Laboratory of Tumor Cell Biology/Division of Basic Sciences
COLLABORATOR PRINCIPAL INVESTIGATOR
Dr. John Babish
Paracelsian, Inc.
Term of CRADA
Two (2) years from the date of execution of the CRADA.
Work on this project has commenced pursuant to letter of intent
executed between Paracelsian, Inc. and NCI on December 20, 1995
Conflict of Interest Information
See attached Conflict of Interest and Fair Access Survey form.
GOALS OF THIS CRADA
The principal goals of this CRADA are:
1. To screen for unique pharmacological agents from a library of
traditional Chinese medicines (TCMs) for their capability of modulating
a cell signaling pathway induced by the cell lines HIVenv(2-2) and
HIVenv(2-8) expressing HIV-1 envelope proteins gp160, gp120 and/or
gp41. This pathway is triggered coincident with a GP120/41-dependent
cell interaction with CD4+ T lymphocytes ("fusion"), eventually leading
to depletion of the CD4+ T cells.
2. To screen for unique pharmacological agents from a library of
traditional Chinese medicines (TCMs) for their capability of modulating
a cell signaling pathway within various cancer cell lines to promote
cell death during the course of tumorigenesis. This signaling pathway
will have components which are in common with the pathway discussed in
#1 and limited to the following cell lines: human pancreatic tumor cell
lines ASPC-1, PANC1-60, and M776T; human Kaposi's sarcoma cell line
KSY-1 and related cells; human breast cancer cell lines HTB 20, HTB 22,
HTB 121, HTB 122, and HTB 126.
3. To develop an understanding of the molecular interactions of the
various screen-positive TCMs with the cell signaling pathways in the
cell. A detailed knowledge of these interactions will be useful for
potential future molecular modeling and design of improved
therapeutics.
Scientific Background
Dramatic changes in cellular growth and viability are controlled by
protein phosphorylation/dephosphorylation, and protein kinases have
frequently been transduced as oncogenes into the genome of acutely
transforming retroviruses. Protein phosphorylation physiologically
occurs in response to specific extracellular, and intracellular,
stimuli, but viral infections can also aberrantly trigger protein
phosphorylation. In both cases, these phosphorylation events are
mediated by cellular protein kinases. Several protein kinases have
been shown to interact like links in a chain to pass signals from one
compartment of the cell to another. Upsetting these normal signaling
pathways within a cell, such as occurs during tumorigenesis or viral
infection, can lead to dramatic effects on cell growth and on cell
viability.
CD4+ T cell death associated with HIV-1 infections has been mapped to
the envelope glycoprotein, gp120/41 of the virus. HIV-1 isolates
infect cells by a process of membrane fusion through the utilization of
specific cellular receptors. In the case of HIV-1, the primary
receptor is CD4, while the main co-receptors involved in membrane
fusion are the chemokine receptors CC-CKR5, for macrophage infection,
and CXC-4 (LESTR, FUSIN), for T cell infection. Co-receptor
utilization is also a property of the HIV envelope glycoproteins.
During HIV-1 infection, CD4+ T cells are rapidly lost . This
depletion of CD4+ T cells is the major contributing factor that
cripples the immune system and leads to the eventual death of AIDS
patients.
A helper T-cell line, stably expressing the HIV-1 envelope surface
glycoproteins gp160, gp120, and gp41 (HIVenv), tat and rev proteins,
but not surface CD4, has been established [(HIVenv(2-8)] as a model
for the HIV cell death process. Studies with either HIV-1 infected
peripheral blood mononuclear cells (PBMCs), or with HIVenv(2-8), show
that the HIVenv glycoproteins are expressed on the surface of the cell
after infection with HIV-1. HIVenv then interacts with a CD4 molecule
and chemokine co-receptor(s) on the surface of another CD4+ T cell to
induce membrane fusion and cell death. During this process, protein
kinases are activated, and inhibition of kinase triggering strongly
reduces cell death. Some of the protein kinases identified within
this pathway are c-mos , and the p34cdc2/cyclin B complex . It is
hoped that further delineation of the kinases and the overall
mechanisms involved in this pathway will help in explaining how
depletion of CD4+ T cells occurs. Using this HIV-1/T-cell model
system, pharmaceuticals can be identified which modulate this cellular
kinase death pathway, possibly leading to improved therapeutics for
AIDS.
The cell signaling pathway, inducing cell death in HIV infected cells,
shares in common kinases known to aberrantly trigger cell growth during
tumorigenesis (oncogenes). As examples, Fyn and Lck are two protein
tyrosine kinases (PTKs) activated during HIV-cell death, that are also
oncogenes. Therefore, the HIVenv model system can lead to better
understanding of the different outcomes (cell death versus unregulated
cell division) that can follow activation of the same kinase(s). This
knowledge may be used to tip the balance of a kinase pathway in favor
of the desired outcome, such as cell death in the case of cancer.
Using the model system, pharmaceuticals may be identified which enhance
or accelerate HIV-induced cell death, which might be predicted to
induce cell death in the context of unregulated proliferation
(malignancy). Alternatively, synthetic modifications to cell death
inhibitory compounds might produce the opposite outcome, and trigger
cell death.
Androvir (andrographolide)(PN355) is a proprietary compound of
Paracelsian, Inc. Paracelsian has purified Androvir from a panel of
traditional Chinese medicines (TCMs), and has demonstrated that it
inhibits several kinases, including the c-src PTK and the mitotic
cyclin-dependent kinase, cdc2. Androvir is also proposed to inhibit in
vitro HIV-1 replication. Androvir is a compound with unique cell
cycle effects, in so far as it first reduces the percentage of cells in
S phase at lowest doses (<1 mg/ml), arrests cells in G1 phase at
somewhat higher doses (1-5 mg/ml), and at the highest doses begins to
trigger cell death and apoptosis. No other compound with a similar
effect has been described. The mode of action of Androvir in cell
cycle, and its specific target of activity, are at this time unknown
and are one of the goals of this CRADA.
In short term trials of one to three months conducted by Paracelsian,
Inc., under compassionate-use protocols, humans with endstage cancer
have been administered oral doses of Androvir corresponding to a peak
serum concentration of 10-:g/ml, without serious side effect. These
studies were performed in Aberdeen, TX, between January and March,
1996. Rats administered similar doses for 60 days become infertile,
but suffered no other deleterious effects, suggesting that a part of
the meiotic cell cycle is most sensitive to andrographolide.
Introduction
Dr. Genoveffa Franchini and Dr. David Cohen, who will undertake this
project collaboratively within the NCI, have extensive experience in
the areas of gene expression systems and protein interactions designed
to mimic given aspects of HIV-1 and HTLV-1 infection in cell culture,
the development of recombinant vectors, the identification,
characterization and cloning of HIV-1 genes, the design of assays to
measure kinase levels and their activation state within cells, and
testing these observations in animal models. In addition, NCI has
designed and synthesized bacterial expression vectors to produce large
quantities of the human kinase c-mos. The NCI collaborators have worked
extensively on the characterization of other serine-threonine kinases,
including the cyclin-dependent kinases and the MAP kinases, and PTKs,
including Fyn and Lck kinases, which are candidate targets of action
for Androvir.
Paracelsian, Inc. has extensive experience in the design, development,
and marketing of products that detect cancerous tissues and identify
toxic chemicals. The company has developed kits based on the ELISA
system as well as diagnostics for the detection of cancer in animals.
These products rely heavily on their knowledge and experience in the
field of intracellular signaling processes. A recent merger between
Paracelsian and Pacific Liaisons has afforded the company access to a
collection of over 2,000 traditional Chinese medicines (TCMs) and the
ability to collect an additional 5,000 to 10,000 extracts. This places
Paracelsian in a position of holding the world's largest databases of
TCM. Paracelsian has the capabilities of producing recombinant protein
in large quantities for future crystallographic work.
The subject of this CRADA, including any in vitro and in vivo testing
conducted by Drs. David Cohen and Genoveffa Franchini in conjunction
with this CRADA Research Plan, is strictly limited to investigation of
the mechanism(s), definition of novel compounds derived from
Paracelsian's library of TCMs, and development and use of assays
related to components of the cell signaling pathways involved in
HIVenv-dependent cytotoxicity or increased cell growth during
tumorigenesis. The pathways are defined in terms of all of their
components, that may be modulated from the cell surface through the
nucleus. Additionally, these studies may involve other TCMs that may
be collected by the company. The addition of vectors, genes, cell
types, antigens, cytokines or other medicinal compounds to this
Research Plan shall be added by amendment in accordance with paragraph
13.6 of the CRADA.
Although HIV-associated Kaposi's sarcoma and pancreatic malignancy are
viewed as possible future targets of this research, no clinical trials
will be conducted under this Research Plan. Any future clinical
studies will be added either by amendment in accordance with paragraph
13.6 of this CRADA or under a new CRADA as appropriate.
To date experimental protocols have been performed under the Letter of
Intent between the National Cancer Institute and Paracelsian, Inc.
signed on 12/20/95. However, the original collaborative research
effort dates to a meeting between Drs. David Cohen and Genoveffa
Franchini (representing the NCI) and Keith Rhodes, President and CEO of
Paracelsian, and Dr. John Babish (Vice President of Science of
Paracelsian) on September 7, 1995 conducted in Bldg. 37, National
Cancer Institute, National Institutes of Health, Bethesda, MD. A
confidentiality agreement was signed and exchanged between the Parties
on August 25, 1995, in preparation for this meeting. Thus far, these
studies have involved the use of Androvir with cell lines HIVenv(2-8),
SupT1, PANC1-60, M776T, and ASPC-1; and kinases c-src, cdc2, cdk2, and
c-mos.
WORK SCOPE OF PROPOSED CRADA BETWEEN
NCI AND PARACELSIAN, INC.
It is proposed that the objectives of this CRADA will be divided into
five parts:
Part I:
NIH will supply Paracelsian, Inc. with stabile transfected Jurkat T
cell lines expressing the HIVenv protein combinations of gp160 or
gp160, gp120, and gp41 having been assigned the names HIVenv(2-2) and
HIVenv(2-8) respectively. (See summary of Material Transfer Agreement
and Biological Materials License under "Description of Other Agreements"
below.) These cell lines will be used to test compounds that have an
inhibitory role in the HIV-1env induced cytotoxicity. Compounds to be
tested shall be limited to those found in the TCM database supplied by
Paracelsian, Inc. The compounds for future work will be limited to
those having an effect on the HIVenv-dependent cytotoxicity. NCI may
also supply other selected cell lines as agreed upon in writing by both
Parties. It is anticipated that the assay for novel compounds will
continue throughout the two years of this agreement, and the completion
of these studies is not dependent upon other aspects of this research
plan. Inhibitory compounds will be tested at NCI for the ability to
limit HIV-1 and SIV infection of PBMCs in vitro. Compounds
demonstrating anti-SIV activity in vitro will be tested in monkeys
infected with SIVmac251 or with SIVpbj simian immunodeficiency viruses.
Part II:
NCI will develop vectors for the production of bacterially expressed
c-mos protein and any mutants of c-mos as agreed upon by both Parties.
Paracelsian will use these vectors to express and purify mg quantities
of the c-mos protein for use in x-ray crystallography to determine the
three dimensional structure of the protein. In addition, the purified
enzyme will be used to examine the potential molecular interactions of
said enzyme with compounds identified in Part I. These studies may
assist in the rational design of future drugs with activity in the
signaling pathway, which will be performed at Paracelsian. Additional
protein expression vectors and scale-up production thereof may be
needed to investigate other kinases identified within the signaling
pathway . The c-mos expression vectors, and 1 ml of affinity-purified
rabbit anti-human c-mos antibody, will be provided by NCI to
Paracelsian immediately upon the execution of this agreement. The
antibody will be employed in Part V of these objectives. It is
anticipated that these studies will be ongoing throughout the two years
of the initial agreement, and may aide, but are not required for the
completion of Part V of these objectives.
Part III:
NCI and Paracelsian, Inc. will carry out experiments to test compounds
for their affect on the uncontrolled cell growth of several tumor cell
lines. Paracelsian will select for anti-signaling compounds according
to their cdc2 inhibition assay or according to the joint HIVenv
cytotoxicity assay. These selected compounds will be further tested on
the human pancreatic tumor cell lines ASPC-1, PANC1-60, and M776T;
human Kaposi's sarcoma cell line KSY-1 and related cells; human breast
cancer cell lines HTB 20, HTB 22, HTB 121, HTB 122, and HTB 126; human
infected HTLV-1 cell lines, CR45-8166, C91-PL, ESS, 1186, and I-94.
The cell lines will be used to test compounds that have an inhibitory
role in the uncontrolled growth of said cell lines. Compounds to be
tested shall be limited to those found in the TCM database supplied by
Paracelsian, Inc. The compounds for future work will be limited to
those having an effect on reducing or inhibiting cell growth from the
above tests. NCI may also supply other selected cell lines as agreed
upon in writing by both Parties. NCI anticipates testing compounds
displaying anti-tumor activity in small animal models relevant to the
tumor under study, by amendment to the research plan in accordance with
paragraph 13.6 of the CRADA. These tests will depend upon the rate of
discovery of novel compounds at Paracelsian. Several such novel
compounds will be identified by Paracelsian and provided to NIH at the
time of execution of this CRADA. This part of the work will extend
throughout the two years of this agreement.
Part IV.
Those compounds showing a reduction in cell growth from Part III will
be examined for their ability to interact with given kinases. The
study shall be limited to kinases which have been previously identified
to be altered in some manner as a result of their particular types of
cancer, and/or are kinases that are part of the signal pathway altered
during HIVenv-dependent cytotoxicity. Kinases involved may be
commercially available or obtained through a<PAGE>
collaboration between NCI and
Paracelsian as outlined in Part II above. Studies to determine the rational
design of future drugs based on this information will be conducted at
Paracelsian in accordance with Part II, and will be ongoing throughout this
CRADA. Kinase studies employing defined compounds should be completed within
the first year of this CRADA.
Part V:
The activities and mechanisms of action of Androvir in terms of
inhibition of and/or activation of protein kinases that function in
cell cycle regulation, or that function by directly triggering
programmed cell death in sensitive cells will be jointly investigated.
To do this, the activity and phosphorylation state of the cyclin-dependent
kinases cdk1, cdk2, and cdk4 will be examined. Additionally,
c-mos, MAPK, JNK, and p38 kinases, recently implicated in multiple
forms of programmed cell death, will be assessed. These studies will
employ several types of human cell lines such as: pancreatic, breast,
HTLV-1 transformed, Kaposi's sarcoma, and HIVenv(2-1) and HIVenv(2-8).
A therapeutic window in which cancer cells lines may be killed more
readily by Androvir than normal cells will be determined. These
studies can be completed within the first year of this CRADA, and are
not linked to other studies.
DESCRIPTION OF CONTRIBUTIONS AND RESPONSIBILITIES OF THE PARTIES
Laboratory of Tumor Cell Biology, NCI
- - Provide cell lines HIVenv(2-2) and HIVenv(2-8) and protocols for
cell lysis of CD4+ lymphocytes. (See summary of Material Transfer
Agreement and Biological Materials License under
"Description of Other Agreements" below.)
- - Test Androvir and other kinase inhibitory compounds identified by
Paracelsian for the ability to inhibit SIV-1 infection in vitro.
Test compounds with clearly defined in vitro activity (greater than
one logarithmic reduction of viral growth in the absence of
significant cellular toxicity), for therapeutic benefit in SIV-1
infected monkeys.
- - Obtain and/or clone genes encoding specific kinases involved in the
cell signaling pathway leading to HIVenv-dependent cell death, and
modify genes as necessary for expression in DNA plasmid constructs.
- - Collaborate in the analysis and design of protein expression from
vectors containing these genes for their use in X-ray
crystallography, molecular interactions with TCMs.
- - Provide plasmids to be used for subsequent scale-up into research
grade reagents.
- - Provide polyclonal antibodies with specificity and affinity to
proteins used as immunogen. Produce rabbit polyclonal antibodies
to human c-mos kinase.
- - Design and synthesize DNA vectors producing c-mos peptides and
recombinant protein substrates.
- - Test anti-signaling compounds identified by Paracelsian according to
their cdc2 inhibition assay, or according to the joint HIVenv
cytotoxicity assay, for activity against human pancreatic tumor cell
lines ASPC-1, PANC1-60, and M776T; human Kaposi's sarcoma cell line
KSY-1 and related cells; human breast cancer cell lines; HTB 20, HTB
22, HTB 121, HTB 122, and HTB 126; human infected HTLV-1 cell lines,
CR45-8166, C91-PL, ESS, 1186, and I-94.
Paracelsian, Inc.
- - Paracelsian will test Androvir and the remaining TCMs for their
effects on cdc2 inhibition or on the HIVenv-dependent
cytotoxicity of CD4+ T cells.
- - Using expression vectors designed in LTCB, Paracelsian will express
and purify c-mos protein in sufficient quantities for X-ray
crystallography (mg quantities) from bacteria.
- - Test Androvir and the remaining TCMs for their affects on
reducing or inhibiting cell growth of selected tumor cell lines.
- - Paracelsian will provide input as to the design of future expression
vectors.
- - Purify c-mos protein and peptide substrates produced from DNA vectors
synthesized by LTCB.
- - Paracelsian will perform X-ray crystallographic studies to determine
the three dimensional structure of human c-mos, and other
compounds discovered in the course of these studies. These
investigations will form the basis for rational drug design performed
at Paracelsian.
Paracelsian, Inc. and Laboratory of Tumor Cell Biology, NCI
- - Design of in vitro assays to assess the molecular interactions taking
place between Androvir and other screen-positive TCMs with cell
cycle regulators and kinases found to play a role in either HIVenv-dependent
cell death or tumorigenesis.
- - Test antibodies to kinases, such as c-mos, for ability to prevent
interaction of the kinases with screen positive TCMs in the above
mentioned in vitro assays.
- - Develop other reagents necessary to determine the molecular
interaction of additional TCMs, favorably screened by Paracelsian,
Inc,. for activity on the cell signaling pathway.
DESCRIPTION OF OTHER AGREEMENTS AND INTELLECTUAL PROPERTY OF THE
PARTIES
OTHER CRADAs BETWEEN PARACELSIAN AND NIH: none
RELATED PATENTS/PATENT APPLICATIONS of PARACELSIAN:
"Use of Androgapholide Compounds to Treat or Prevent Pathogenicity of
Diseases"
Inventor: John G. Babish
US applications: 08/349,989 filed December 6, 1994 08/551,418 filed
Nov 1, 1995
WO 96/17605 published June 13, 1996 and filed December 6, 1995.
"Products for Measuring Cell Growth and Propensity and Methods for
Their Use"
Inventors: John G. Babish, Xinfang Ma, Joseph A. Rininger and Brian
E. Johnson
US applications 08/007,636 filed January 21, 1993; 08/075,744 filed
June 11, 1993
WO 9417413 (published August 4, 1994; filed January 21, 1994
RELATED PATENTS/PATENT APPLICATIONS OF NIH
None identified
MATERIAL TRANSFER AGREEMENT:
1-06222-96
Provider: NCI; Recipient: Paracelsian
Material: Transfected Human T cell lines stably expressing the HIV-1
envelope, tat, and rev proteins."
Project: Pharmacologic methods, including agents derived from
Traditional Chinese Medicines for reducing HIV-1 cytopathicity as
specified in CRADA LOI # 344
MTA Executed: April 10, 1996
CONFIDENTIAL DISCLOSURE AGREEMENTS:
Subject: Andrographolide and a proprietary screening technology
Effective Date: August 25, 1995
Subject: Kinases and therapeutic inhibitors of cellular kinases
involved in Human Immunodeficiency Virus growth.
Effective Date: September 4, 1995
Subject: Role of certain signal transduction pathways in malignant
cell growth and in cell death"
Effective Date: July 2, 1996
LICENSES:
Paracelsian is currently negotiating the terms of a Biological
Material License with the Office of Technology Transfer, NIH, for the
use of cell lines HIVenv(2-8) and (2-2) developed by Dr. Cohen while
working for NIAID. These cell lines were created prior to the
effective date of the CRADA, and as such are not a Subject Invention
under the CRADA.
Abstract FOR PUBLIC RELEASE of the Research Plan of the CRADA
The principal goals of this proposed CRADA involve the screening of a
library of traditional Chinese medicines (TCMs) for their affects on
reducing HIV induced cytotoxicity and /or their ability to inhibit
cell growth in various tumor cell lines. It is hoped that this CRADA
will lead to new drug designs for future anti-HIV and anti-cancer
therapy.
Thus, the specific objectives of this CRADA will be:
1. To screen for unique pharmacological agents from a library of TCMs
for their capability of modulating a cell signaling pathway induced in
the cell lines HIVenv(2-2) and HIVenv(2-8) expressing HIV-1 envelope
proteins gp160, gp120 and/or gp41. This pathway is triggered coincident
with a GP120/41-dependent cell interaction with CD4+ T lymphocytes,
leading to depletion of the CD4+ T cells.
2. To screen for unique pharmacological agents from a library of TCMs
for their ability to modulate a cell signaling pathway within various
cancer cell lines, to promote cell death of the tumors. This signaling
pathway will have components which are in common with the pathway
discussed in #1 and limited to the following cell lines: human
pancreatic tumor cell lines ASPC-1, PANC1-60, and M776T; human Kaposi's
sarcoma cell line KSY-1 and related cells; human breast cancer cell
lines HTB 20, HTB 22, HTB 121, HTB 122, and HTB 126.
3. To develop an understanding of the molecular interactions of the
various screen-positive TCMs with the cell signaling pathways in the
cell. A detailed knowledge of these interactions will be useful for
potential future molecular modeling and design of improved
therapeutics.
References
1. Mordret, G. Biol. Cell (1993) 79, 193-207.
2. Gougeon, M-L and Montagnier, L. Science (1993) 260, 1269-1270.
3. Tani, Y., Tian, H., Lane, H. C. and Cohen, D.I., J. of Immunol. (1993)
151, 7337-7348.
4. Cohen, D.I., Wahl, L., Sharpe, S and Blatner, G. XI International
Conference on AIDS, Vancouver Cananda, July 7-11, 1996.
5. Kolesnitchenko, V. Wahl, L. M., Tian, H., et al., Proc.Natl Acad. Sci.
(USA), (1995) 92, 11889-11893.
APPENDIX B: CACR-0344
FINANCIAL AND STAFFING CONTRIBUTIONS OF THE PARTIES
The Laboratory of Tumor Cell Biology (LTCB),NCI
The LTCB will provide scientific staff and other support as necessary to
conduct the research outlined in Appendix A, Research Plan. Present
estimates are that Dr. Franchini will devote approximately 10% of her time,
and Dr. Cohen approximately 10% of his time.
Paracelsian, Inc.
Paracelsian will provide scientific staff and other support as necessary
to its research responsibilities outlined in Appendix A, Research Plan.
Present estimates are that Dr. Babish will devote approximately 10% of
his time. Other scientific and technical staff will contribute the balance
of the approximately two Paracelsian person years to be committed to this
CRADA research.
In addition, Paracelsian will provide financial support for personnel,
reagents and supplies, animal studies, equipment and travel to be
deposited to an NCI CAN account established for the administration of
this CRADA. No full-time tenured NCI employees will be supported under
this CRADA by Paracelsian.
A check in the amount of $73,400 will be provided to NCI by Paracelsian
upon execution of the CRADA. Three additional payments of $50,000 will
be made quarterly during the first year. A payment of $100,000 is due
on the one year anniversary of the execution of the CRADA, with three
additional payments of $50,000 made quarterly, during the second year.
(Total funds for Year 1 are $223,400; and for Year 2 are $250,000.)
Following the execution of the Letter of Intent, Paracelsian has been
paying the salaries of staff working at the Laboratory of Tumor Cell
Biology under Special Volunteer Agreements. It is the intention of LTCB,NCI
to assume responsibility for the salaries of these staff upon execution of
the CRADA using funds provided to the CRADA CAN. Should it be mutually
agreed that Paracelsian continue to fund these positions beyond December 1,
1996, the above payment schedule will be adjusted by amendment in accordance
with Paragraph 13.6 of the CRADA to offset these salary payments. The total
financial support provided by Paracelsian in funds provided to NCI as set
forth above, and for funds paid to staff working at LTCB,NCI shall not
exceed $500,000.
<PAGE>
APPENDIX C
EXCEPTIONS OR MODIFICATIONS TO THIS CRADA
There are no exceptions or modifications to this CRADA.
<PAGE>
EXHIBIT 10.9
Agreement, dated April 9, 1996, between the Registrant, East West
Herbs Limited, Robert E. Miller and A.E. Lyon
DATED April 9, 1996
PARACELSIAN INC
-and-
EAST WEST HERBS LIMITED
-and-
R E MILLER and A E LYON
SECURED LOAN AGREEMENT
Linnells
Greyfriars Court
Paradise Square
Oxford OX1 1BB
(Ref:COM.loan)
<PAGE>
THIS AGREEMENT is made the 9th day of April, 1996
BETWEEN
(1) "The Lender" PARACELSIAN INCORPORATED (a company
incorporated under the laws ofDelaware)whose principal office is at 222
Langmuir Laboratories Cornell Technology Park Ithaca NewYork 14850 USA
(2) "The Company" EAST WEST HERBS LIMITED(registered number
2241037) whoseregistered office of Langston Priory Mews Kingham Oxford
OX76UP
(3) "The Guarantor" ROBERT ERIC MILLER and ALICE ELIZABETH LYON
both of OldClock Cottage Swerford Oxfordshire OX74BQ
WHEREAS the Lender has been requested by the Guarantor to provide
financial facilities to theCompany which the Lender has agreed to
upon the terms and conditions hereinafter contained
NOW THIS DEED WITNESSES as follows:-
1. LOAN
The Lender shall lend to the Company and the Company at the
request of the Guarantor shall borrow from the Lender the sum of Three
Hundred and Forty Thousand US DOLLARS(US$340,000) which sumor part
thereof as is for the time being owing by the Company to the Lender
is hereinafter referred to as"the Loan" upon the terms hereinafter
mentioned
2. SECURITY
The Company shall contemporaneously with the advance of the Loan
execute and issue to the lender a fixedand floating debenture in the
form agreed between the parties on or before the date hereof
3. PURPOSE OF LOAN
The Loan shall be applied by the Company solely for the purpose of
providing working capital for the business of the Company
4. DRAW DOWN OF LOAN
The monies to be advanced to the Company shall be paid by one
instalment on the date of this Agreement
5. REPAYMENT OF LOAN
5.1 The Loan shall be repaid by eight equal instalments the
first instalment to be paid six onthsafter the first anniversary of
this Agreement and subsequent instalments at intervals of three
calendarmonths
5.2 Subject to Clause 7.2 the Company may at any time repay the
Loan in full or part thereof inmultiples of US$10,000 by giving to the
Lender at least three days written notice
6. EARLY REPAYMENT ON DEFAULT
6.1 The Loan and interest thereon under Clause 7.2 and other
sums payable by the Companyhereunder thereof shall be forthwith repaid
to the lender following written demand therefor if:-
6.1.1 The Company commits any material breach of the
provisions of this Agreementand in the case of a breach capable of
remedy fails to remedy the same within 30 days after receipt of a
written notice giving full particulars of the breach and requiring it
to be remedied
6.1.2 an encumbrancer takes possession or a Receiver is
appointed over any of the property or assets of the Company
6.1.3 The Company makes any voluntary arrangement withits
creditors
6.2 For the purpose of Clause 6.1.1 a breach shall be
considered capable of remedy if theCompany can comply with the
provision in question in all respects other than as time of
performance(provided that time of performance is not of the essence)
6.3 Any waiver by the Lender of a breach of any provisions of
this Agreement shall not beconsidered as a waiver of any subsequent
breach of the same or any other provision thereof
6.4 The rights to terminate this Agreement given by this Clause
6 shall be without prejudice to anyother right or remedy of the Lender
in respect of the breach concerned (if any) or any other breach
7. INTEREST ON LOAN
7.1 The period during which the Loan is outstanding will be
divided into successive periods ofthree months (each an "Interest
Period"). The first Interest period shall commence on the date hereof
andthe subsequent Interest Periods shall each commence on the expiry
of the preceding Interest Period
7.2 The rate of interest applicable to the Loan during each
Interest period shall be the LIBOR rate applicable to that Interest
Period
7.3 The LIBOR rate means the rate per annum at which domestic
sterling deposits are offered in the London inter-bank market for a
three month period at approximately 11.00 am on the first day of such
Interest Period
7.4 Interest on the Loan shall be payable in arrears on the last
day of each Interest Period or on the date of repayment of the Loan, if
earlier, in which case the interest shall be calculated down to the
date ofrepayment
7.5 The Company will make all payments under or in respect of
this facility for value on the duedate in US dollars to the Lender at:-
Paracelsian Inc
ABA Routing #
Account# #
Tompkins Ithaca
New York NY
Attention: Trust Department
or such other account as the Lender may from time to time instruct the
Company in writing. If any payment becomes due on a day which is not a
day on which banks are generally open for business in London, the due
date of such payment will be extended to the next business day
8. APPOINTMENT OF DIRECTORS
For so long as the Loan or any part thereof and any interest thereon
and any other sum payable by the Company to the Lender hereunder remains
outstanding the Company shall procure that a person nominatedby the
Lender ("the Nominated Director") shall be appointed to and shall not
be removed from the Board of Directors of the Company provided always
that:-
8.1 the Lender shall at any time be entitled by notice in
writing to the Company to remove its nominated director and by like
notice to appoint any other person as a director and
8.2 upon the Loan and all other sums payable by the Company to
the lender hereunder having been repaid or paid, as the case may be, the
Lender will procure the resignation forthwith of the Nominated Director
on terms acceptable to the Guarantor
9. GUARANTEE
9.1 In consideration of the Lender having agreed at the request
of the Guarantor to advance the Loan to the Company the Guarantor
hereby unconditionally and irrevocably guarantees to the Lender dueand
punctual payment and discharge by the Company of all sums due and
payable by the Company to the Lender under this Agreement including
the Loan, interest at the rate set out in Clause 7 together
withreasonable charges, expenses and costs properly incurred by the
Lender in connection with the enforcementor preservation of this
Agreement (hereinafter called "Indebtedness")
9.2 If the Company defaults in the payment of any Indebtedness
when due for more than 14 daysthe Guarantor's liability to the Lender
shall be discharged by the delivery to the Lender forthwith on
demandwithout set-off counterclaim or other deductions a duly executed
transfer together with relative share certificates off or the number of
fully paid ordinary shares of pounds sterling 1.00 each in the capital of the
Company determined by the following formula:-
x = y x 45,00033,200
340,000
where x = the number of shares to be transferred
y = the amount of the Loan in respect of the re-payment of
which the company is in default
9.3 The total liability of the Guarantor under this Agreement
shall not exceed the amount represented by the value from time to time
of 3022.1% of the issued fully paid ordinary shares in the capital of
the Company and as security for the obligations of the Guarantor
hereunder the Guarantor shall on the date of this Agreement deposit with
the Lender share certificates representing [33,200] fully paid ordinary
shares of pound sterling 1.00 each in the capital of the Company (hereinafter
called "the Security Shares")together with six duly executed blank stock
transfers
9.4 The Guarantor shall not be discharged by time indulgence
forbearance or any other concessions given to the Company or to any
third party by the lender or by anything the Lender may do or omit to do
or by any other dealing or thing which but for this provision would or
might discharge the Guarantor
9.5 The Guarantee herein contained shall:-
9.5.1 be in addition to and not in substitution for any
other guarantee or security held by theLender at any time for the
Indebtedness and the Lender may deal with any such other security as it
may think fit without affecting or releasing the obligations of the
Guarantor or either of them hereunder in anyway
9.5.2 be a continuing guarantee and shall not be discharged
by any intermediate settlementof the Indebtedness
9.5.3 remain in full force and effect until:-
(a) such time as the Indebtedness has been satisfied in full and no
further Indebtedness is capable of arising;
or (b) the Lender shall complete the purchase of the whole of the
issued share capital of the Company pursuant to an Option Agreement of
today's date and made between the Guarantor and others (1) the lender
(2) and the Company (3)whichever is the sooner
9.6 Until the Indebtedness shall have been satisfied in full:-
9.6.1 the Guarantor shall not claim or prove against the
Company in competition with theLender in respect of the discharge by
the Guarantor to the Lender of any liability hereunder; and
9.6.2 the Guarantor shall not claim or have the benefit of
any set-off counterclaim or proofagainst the Company or of any dividend
composition or payment by the Company or of any other securityto which
the Lender may be entitled in respect of the Indebtedness or any share
therein
9.7 The Guarantor hereby undertakes with the Lender as a
separate and independent stipulation that if any liability of the
Guarantor to the Lender pursuant to Clause 9.1 above is not
recoverable by the Lender pursuant to that Clause on the footing of a
guarantee by reason of any legal limitation disability orincapacity or
the unenforceability for any reason of his Guarantee and/or the
discharge of any indebtednessor any other fact matter or circumstance
whether known to the Lender or not such liability shall nevertheless be
recoverable from the Guarantor as sole or principal debtor in respect
thereof and shall be discharged by the Guarantor to the Lender upon
demand made pursuant to Clause 9.2 by way of indemnity against the
Company's failure to perform and satisfy the Indebtedness
9.8 The Guarantee herein contained shall bind the personal
representatives or the successors in titleof the Guarantor and shall
not in any way be affected or released by the death or insolvency of
theGuarantor
9.9 In the event of any alteration in the capital structure of
the Company (whether by way of a bonus issue arising on a capitalisation
of profits or reserves a share issue for cash or for a
consideration other than cash a reduction of capital or otherwise
whatsoever) taking place or in the event of the Company subdividing or
consolidating its ordinary share capital or in the event of the grant
by the Company of any option or other right in relation to shares in
its capital the number of Security Shares shall be adjusted insuch manner
(if any) as the parties hereto may agree in writing or in default of agreement
as the auditors ofthe Company acting as expert and not as arbitrator shall
certify in writing to be fair and reasonable and whose certificate shall
be final and binding upon the parties hereto
10. NOTICES
10.1 Any notice or other document to be given hereunder shall
bedelivered or sent by first class post (or if outside the United
Kingdom Air Mail) or telex or facsimile transmission to the party to be
served at the party's registered office or last known address or such
other address as the party shall notify in accordance herewith
10.2 Any notice or other communication given by or to any party
in accordance with this Agreement may be given by or to that party's
solicitors in accordance with the provisions of the preceding sub-clause
of this Agreement
10.3 Any such notice or document shall be deemed to have been
served if delivered at the time of delivery or if posted at the
expiration of 48 hours (108 hours if sent to or from an address outside
theUnited Kingdom) after the envelope containing the same shall have
been put into the post or if sent by telex or facsimile transmission at
the expiration of 12 hours after receipt of the same has been
automatically acknowledged to the sender thereof and in proving such
service it shall be sufficient to prove that delivery was made or that
the envelope containing such notice or document was properly addressed
and posted as a prepaid first class or air mail letter or that the telex
or facsimile transmission was properly addressed and posted as a prepaid
first class or airmail letter or that the telex or facsimile
transmission was properly addressed and acknowledged as the case may be
provided that a copy of such telex or facsimile transmission is
delivered or sent by post in manner aforesaid within twenty four hours
of such telex or facsimile being automatically acknowledged
11. GOVERNING LAW AND JURISDICTION
This Agreement shall be governed by and construed under English Law and
each of the parties heretohereby submits to the non-exclusive
jurisdiction of the English courts for the purposes of any claim or
matter arising under or in connection with this Agreement
12. COSTS
The costs and expenses incurred by the Lender in connection with the
negotiation and preparation of this Agreement in the sum of US$10,000
shall be paid by the Company tothe Lender on the date hereof
13. INTERPRETATION
13.1 Any reference in this Agreement to "writing" or cognate
expressions includes a reference totelex cable facsimile transmission
or comparable means of communication
13.2 Any reference in this Agreement to any provision of a
statute shall be construed as a referenceto that provision as amended
re-enacted or extended at the relevant time
13.3 In this Agreement words importing the masculine gender shall
be deemed and taken to includethe feminine or neuter gender and the
singular to include the plural and agreements or undertakings madeby
two or more persons shall be deemed to be made by such persons
jointly and severally
13.4 The headings in this Agreement are for convenience only and
shall not affect its interpretation
IN WITNESS whereof the parties to this Deed have executed it as a deed
on or before the date first before written and have given authority
to their respective solicitors to date anddeliver the same and (if
appropriate) a duplicate or counterpart thereof such dating being
conclusive proofof delivery on the date first before written
EXECUTED as a Deed by PARACELSIAN )
)
INCORPORATED )
)
acting by its President and Vice-President)
EXECUTED as a deed by EAST WEST )
)
HERBS LIMITED acting by:- )
Director
Director/Secretary
SIGNED as a Deed and DELIVERED )
)
by the said ROBERT ERIC MILLER )
)
in the presence of:- )
SIGNED as a Deed and DELIVERED )
)
by the said ALICE ELIZABETH LYON )
)
in the presence of:- )
<PAGE>
EXHIBIT 10.10
Option Agreement, dated April 9, 1996, relating to the purchase of
East West Herbs Limited, Re: Robert E. Miller and Others (defined
therein) and Registrant and East West Herbs Limited
DATED April 9, 1996
R E MILLER and others
-and-
PARACELSIAN INC
-and-
EAST WEST HERBS LIMITED
O P T I O N A G R E E M E N T
relating to purchase of East West Herbs Limited
Linnells
Greyfriars Court
Paradise Square
Oxford OX1 1BB
(Ref:COMP.sharesal)
<PAGE>
THIS AGREEMENT is made the 9th day of April, 1996
BETWEEN:-
(1) "The Vendors" THE SEVERAL PERSONS whose names and
addresses are set out in Schedule 1
(2) "The Purchaser" PARACELSIAN INCORPORATED (a company
incorporated under the laws of
Delaware) whose principal office is
at 222 Langmuir Laboratories Cornell
Technology Park Ithaca New York
14850 USA
(3) "The Company" EAST WEST HERBS LIMITED (company
registration number 2241037) whose
registered office is at Langston
Priory Mews Kingham Oxfordshire OX7
6UP
WHEREAS
A. The Company is a private company with limited liability of which
short particulars are contained in Part I of Schedule 2
B. The Vendors wish to grant to the Purchaser an option to purchase
all the Shares of the Company on the terms and conditions
hereinafter mentioned
NOW IT IS HEREBY AGREED as follows:-
1. INTERPRETATION
In this Agreement and in the Schedules unless the context otherwise
requires the following words and expressions shall bear the following
meanings:-
1.1 "the Accounts" the audited balance sheet as at the
Accounts Date and the audited profit
and loss account for the period
ended on the Accounts Date of each
Group Company including in the case
of the Company the audited
consolidated balance sheet as at
that date and the notes and
Auditors' and Directors' Reports in
relation thereto
1.2 "the Accounts Date" the 31st day of March 1995
1.3 "the Business Plan" means a memorandum prepared by or on
behalf of the Company a copy of
which is annexed to the Disclosure
Letter at Section 2 of the Agreed
Bundle (as such expression is
defined in the Disclosure Letter
1.4 "the Management Accounts" means the balance sheet of the
Company made up as at 29th February
1996 and the trading and profit and
loss account of the Company for the
period of 11 months ended on that
date
1.5 "the Auditors" Messrs Leigh Carr of 27 Blandford
Street London W1H 4EN
1.6 "CA 1985" the Companies Act 1985
1.7 "Completion" the completion of the sale and
purchase of the Shares
1.8 "Condition" the condition precedent to
Completion set out in Clause 5
1.9 "Consideration Shares" the shares to be issued to the
Vendors on Completion pursuant to
Clause 4.2.2
1.10 "the Directors" the persons listed as such in Part
I of Schedule 2
1.11 "Disclosure Letter" the letter of even date herewith
from the Vendors to the Purchaser
(or their respective Solicitors) in
the agreed terms
1.12 "the Gains Tax Act" the Taxation of Chargeable Gains Tax
Act 1992
1.13 "Group Company" or
"Group Companies" means in relation to the Company,
the Company and its Subsidiary or
Subsidiaries for the time being (if
any) and, in relation to the
Purchaser, the Purchaser and its
subsidiaries or holding company (as
such terms are defined in section
736 of CA 1985) or another
subsidiary of such holding company
1.14 "Indemnities" the indemnities given by the Vendors
to the urchaser pursuant to Clause
7.1.1 in respect of the liabilities
costs claims and expenses referred
to in Schedule 3
1.15 "Issue Price" means the value ascribed to each of
the Consideration Shares pursuant to
Clause 4.2.2
1.16 "Mr Miller" Robert Eric Miller of Old Clock
Cottage, Swerford, Oxon, OX7 4BQ
1.17 "Notice" means notice exercising the Option
served pursuant to Clause 2.3
hereof
1.18 "Option" means the right granted pursuant to
Clause
1.19 "Option Period" means the period of twelve months
commencing on the date hereof and
ending at 17.00 on the day which is
the first anniversary of the date
hereof
1.20 "Price" the consideration for the Shares to
be sold pursuant to this Agreement
1.21 "the Properties" the properties described in
Schedule 5
1.22 "the Purchaser's Solicitors" Messrs Linnells of Greyfriars Court
Paradise Square Oxford OX1 1BB
1.23 "the Vendors' Solicitors" Messrs Cole and Cole of Buxton Court
3 West Way Oxford OX2 OSZ
1.24 "Service Agreement" the Service Agreement between Mr
Miller and the Company in the agreed
terms
1.25 "the Shares" all of the issued Ordinary Shares of
pounds sterling 1 each in the capital of the
Company comprising at the date of
this Agreement 150,000 Ordinary
Shares of pounds sterling 1 each in the
capital of the Company of which 74,100 are
fully paid and 75,900 are nil paid
and all of which are beneficially
owned by and registered in the names
of the Vendors together with any
further shares stock or other
securities in the Company or in any
other company which are derived from
such Shares or which are distributed
by the Company in respect of such
Shares and any shares stock and
other securities for the time being
representing the same by reason of
any alteration in the share capital
of the Company or any amalgamation
reorganisation or reconstruction of
the Company
1.26 "Subsidiary" or
Subsidiaries" a subsidiary or subsidiaries of the
Company as defined in Section 736 of
CA 1985 and East West Herbs Pty
Limited brief particulars of which
are given in Part II of Schedule 2"
1.27 "Taxation" all taxes howsoever called and
includes (without limitation)
corporation tax, income tax, surtax,
supertax, special charge, special
contribution, profit tax, excess
profits tax, excess profits duty,
capital gains tax, betterment levy,
development gains tax, land tax,
development land tax, value added
tax, purchase tax, customs and other
import duties, capital duty, stamp
duty, stamp duty reserve tax, estate
duty, capital transfer tax, inheritance tax,
petroleum revenue tax, licence royalties,
national insurance contributions, social
security contributions, selective
employment tax, general uniform
business and water rates and
any payment whatsoever which the
Company may be or become bound to
make to any person (whether in
respect of the liability of the
Company or of any other person) as a
result of the operation of any
enactment in relating to taxation
and all penalties, charges and
interest relating to any claim or
assessment for taxation levied,
assessed or imposed by governmental
(whether central or local)
authorities and other agencies or
bodies having lawful authority in
whatever country so to do
1.28 "Taxes Act 1988" Income and Corporation Taxes Act 1988
1.29 "the Warranties" the warranties undertakings and
representations contained in
Schedule 4
1.30 "the Warrantors" Mr Miller Albert S Humphrey Alice
Elizabeth Lyon and William Ahern
1.31 References to statutory provisions shall be construed as
references to any statutory modification or re-enactment thereof
(whether before on or after the date hereof) for the time being in
force and to any former statutory provision replaced (with or
without modification) by the provision referred to and shall
include all statutory instruments or orders from time to time made
pursuant thereto
1.32 References to persons shall include references to unincorporated
associations to the singular shall include references to the
plural and to the masculine shall include references to the
feminine and vice versa
1.33 Agreements undertakings or covenants given by two or more persons
together shall be deemed to be given by such persons jointly and
severally, save as otherwise stated
1.34 References to a document being "in the agreed terms" means in the
form of a draft agreed between the parties hereto and signed for
the purposes of identification by their respective Solicitors and
a list of documents "in the agreed terms" is set out in Schedule 8
1.35 References to Clauses and Schedules are to Clauses of and
Schedules to this Agreement
1.36 The headings in this Agreement and the use of underlining are
included for convenience only and shall not affect the
interpretation or construction of this Agreement
1.37 Words and expressions defined in CA 1985 bear the same meaning in
this Agreement
1.38 The expressions "the Vendors" and "the Warrantors" includes the
personal representatives of any of the Vendors or any of the
Warrantors respectively
1.39 Where the context admits "the Company" includes each Group
Company so that this Agreement shall apply to each Group Company
as if it were the Company and without prejudice to the generality
of the foregoing the Warranties shall apply to and shall be given
in respect of each of the Subsidiaries
2. OPTION
2.1 In consideration of the sum of Twenty Thousand US dollars
($20,000) paid by the Purchaser to the Vendors (the receipt of
which the Vendors hereby acknowledge) the Vendors hereby grant to
the Purchaser the right exercisable at any time during the Option
Period to purchase the Shares in consideration of the Price upon
the terms and subject to the conditions of this Agreement
2.2 The Option shall be exercisable only in respect of all the Shares
2.3 The Option shall be exercisable at any time during the Option
Period by a Notice in writing served upon the Vendors and if un-exercised
at the end of the Option Period the Option shall lapse
2.4 If the Option is exercised as herein provided the sum referred to
in Clause 2.1 hereof shall be deemed to have been paid on account
of the Price
2.5 The sum referred to in Clause 2.1 shall be paid to the Vendors
absolutely and shall be refundable to the Purchaser only in
accordance with the provisions of Clause 7.7
2.6 If any offer is made by the Company or by any third party to all
or any of the Vendors prior to the exercise or expiry of the
Option to purchase any or all of the Shares the Purchaser shall be
entitled to exercise the Option at any time up to the last
business day before the expiration of the offer and the Vendors
shall immediately upon the offer being made give written notice
to the Purchaser of the offer
2.7 Time shall be of the essence for the purposes of this Clause
3. SALES OF SHARES
3.1 If the Option is duly exercised each of the Vendors shall with
full title guarantee sell and the Purchaser shall purchase free
from all liens charges rights of pre-emption encumbrances and
equities and together with all dividends interest bonuses
distributions or other rights attaching thereto the number of
Shares in the capital of the Company set opposite his name in
Schedule 1
3.2 The Purchaser shall not be obliged to complete the purchase of
any of the Shares unless the purchase of all the Shares is
completed simultaneously
3.3 Before Completion the Vendors shall exercise their powers as
directors and/or shareholders of the Company so far as they are
able to procure that East West Herbs Pty Limited (registered in
Australia) shall become a wholly owned subsidiary of the Company
4. CONSIDERATION
4.1 The Price for the sale of the Shares shall be the sum of Three
Million One Hundred and Eighty Thousand US dollars ($3,180,000)
payable to the Vendors in the amounts set out opposite their
respective names in Schedule 1 hereto
4.2 The Price shall be satisfied by:-
4.2.1 the payment by the Purchaser to the Vendors on Completion
of the sum of Seven Hundred and Eighty Thousand US dollars
($780,000) in cash and
4.2.2 the issue to the Vendors by the Purchaser on Completion of
the Consideration Shares, being that number of fully paid
shares of $0.01 each in the Common Stock of the Purchaser
rounded to the nearest whole number as shall have the
value on Completion of Two Million Four Hundred Thousand
US dollars ($2,400,000) on the basis that the the Issue
Price shall be $2.75 or if greater the average of the bid
and asked closing price of such Common Stock as reported
on the NASDAQ small cap market arithmetically averaged
over each of the 15 trading days prior to Completion
4.3 Each of the Vendors acknowledges and represents to the Purchaser
that he or she:-
4.3.1 is acquiring the Consideration Shares for such Vendor's
own account with the intention of holding the
Consideration Shares for investment with no present
intention of allowing others to participate in such
investment or of reselling such Consideration Shares;
4.3.2 shall not make any sale transfer or other disposition of
the Consideration Shares without registration under the
United States of America Securities Act of 1933 as amended
("the 1933 Act") and applicable state securities laws
unless an exemption from registration is available under
those laws;
4.3.3 understands that none of the Consideration Shares has been
registered under the 1933 Act or any state securities laws
in reliance on exemptions therefrom and that the
Consideration Shares cannot be resold or otherwise
disposed of unless they are subsequently registered under
the 1933 Act and applicable state securities laws or an
exemption from registration is available
4.3.4 The certificate(s) representing the Consideration Shares
will bear the following legend until either (i) such
securities have been registered under the 1933 Act and
effectively disposed of in accordance with such
registration statement or (ii) in the opinion of counsel
reasonably satisfactory to the Purchaser such
Consideration Shares may be sold without registration
under the 1933 Act:-
"The Securities represented by this Certificate have
not been registered under the Securities Act of 1933
as amended ("the Act") or applicable state securities
laws and may not be offered sold transferred pledged
hypotheticated or otherwise disposed of except
pursuant to an effective registration statement under
the Act or in a transaction which, in the opinion of
Counsel to the holder hereof in form and substance
satisfactory to Counsel to the Corporation, is exempt
from registration under the Act and any applicable
state security laws"
4.4 The Purchaser warrants that the Consideration Shares when issued
will be duly authorised validly issued fully paid and non-assessable and
that all corporate action necessary for the
issuance of the Consideration Shares will have been duly and
properly taken and that no consents or waivers (including the
consent of the shareholders of the Purchaser) are required in
connection with the issuance of the Consideration Shares
5. CONDITION
The sale and purchase of the Shares is conditional upon:-
5.1 the Purchaser exercising the Option
5.2 the Purchaser delivering to the Vendors on or before Completion a
Registration Rights Agreement in the agreed terms duly executed by
the Purchaser
6. RESTRICTIONS
The Vendors shall procure that until the exercise or expiry of the
Option the Company shall not without the Purchaser's consent:-
6.1 issue cancel sub-divide reclassify purchase redeem grant any
option over or register the transfer of any share made other than
in accordance with Clause 7.4.1 in or increase or reduce the
capital or capitalise any amount standing to the credit of the
Company
6.2 declare any dividend bonus or distributions
6.3 cause or permit any alteration to the Articles of Association of
the Company or any regulations or resolutions inconsistent with
them to be adopted
6.4 make any substantial change in the nature of its business
6.5 pass any resolution for the voluntary winding up of the Company
6.6 enter into any transaction that is not in the normal and ordinary
course of conducting its business or enter into any transaction
which is not at arms length or on arms length terms
6.7 cease to trade or change the nature or character of the business
or transfer its business or undertaking or any part thereof to any
other person
6.8 change its auditor
6.9 charge its undertaking and assets or any part thereof
6.10 borrow any money or undertake any obligation except in the usual
and ordinary course of the business of the Company and except for
further bank borrowing of up to pounds sterling 300,000
6.11 appoint any person to hold the office of director of the Company
other than a person retiring by rotation or other than to fill a
vacancy
6.12 pay any remuneration or bonus to the Directors or the Vendors
except in the usual and ordinary course of the business of the
Company
7. WARRANTIES
7.1 Subject to the exceptions limitations provisions and restrictions
in this Clause the Warrantors:-
7.1.1 covenant with the Purchaser to indemnify and keep
indemnified the Purchaser and its successors and assigns
free from all liability in respect of the liabilities
claims costs and expenses referred to but subject as
mentioned in Schedule 3 and
7.1.2 save as fairly and accurately disclosed in the Disclosure
Letter undertake with and warrant and represent to and for
the benefit of the Purchaser that the Warranties in
Schedule 4 are true and accurate in all respects at the
date of this Agreement
7.2 The benefit of the Warranties may not be assigned by the Purchaser
except after Completion to a Group Company provided that on any
such assignee ceasing to be a Group Company the Purchaser shall
procure that the benefit of the Warranties is assigned to the
Purchaser or another Group Company
7.3 The Purchaser is entering this Agreement and will exercise the
Option in reliance upon each of the Warranties which the
Warrantors acknowledge (but on no other representations or
warranties made by the Warrantors or on their behalf to the
Purchaser)
7.4 Each of the Vendors hereby undertakes represents and warrants to
the Purchaser that:-
7.4.1 he shall not prior to the exercise or expiry (whichever is
the sooner) of the Option transfer dispose of charge
pledge or encumber in any way his interest in any of the
Shares except by a transfer of the entire legal and
beneficial interest therein in which case the Vendor in
question will procure that before any person (other than
an existing shareholder) is registered as a holder of any
share in the company such person shall enter into a Deed
of Adherence in the agreed terms and the Shares shall upon
Completion be sold free of any liens charges or
encumbrances
7.4.2 he will procure that he shall not, and shall exercise his
votes as a member and/or director of the Company to
procure so far as he is able that the Company shall not
before Completion knowingly do any act or make any
omission which would constitute a breach of any of the
Warranties if the same were repeated at Completion
7.4.3 he will forthwith notify the Purchaser in writing of any
matter or thing which may arise after the date hereof and
prior to Completion which is to his knowledge (or would
after the lapse of time become) a breach of the Warranties
7.5 Each of the Warrantors hereby undertakes represents and warrants
to the Purchaser that in relation to any of the Warranties which
are qualified by the expression "so far as the Warrantors are
aware" or which refer to the knowledge information or belief of
the Warrantors that he has made all reasonable enquiries into the
subject matter of that Warranty
7.6 If there shall be any material breach of the Warranties before
Completion other than a breach fairly and accurately disclosed in
the Disclosure Letter or if there is any material breach or
non-fulfilment before Completion of any of the provisions on the
part of the Vendors contained in this Agreement which (being
capable of remedy) is not remedied prior to Completion then (in
addition and without prejudice whatever to any other rights or
remedies available to the Purchaser in respect thereof) the
Purchaser shall be at liberty without any liability whatever to
the Vendors to terminate this Agreement and (after the exercise
of the Option) not to complete the purchase of the Shares by
giving notice to that effect to the Vendors' or their Solicitors
7.6 If this Agreement is terminated pursuant to Clause 7.6 hereof by
reason of any matter or thing arising or known to the Warrantors
or any of them on or prior to the date of this Agreement the
Vendors shall forthwith repay to the Purchaser the sum referred to
in Clause 2.1 hereof
7.7 From Completion the Disclosure Letter shall be read and construed
as if any further disclosure made in writing by the Vendors or the
Warrantors to the Purchaser on or prior to Completion in respect
of any matter or thing arising or known to the Warrantors or any
of them after the date of this Agreement had been made on the date
of this Agreement and for the avoidance of doubt the Purchaser
shall be bound by such disclosure if it shall choose not to
exercise any right to terminate this Agreement (and not to
complete the purchase of the Shares) under Clause 7.6
7.9 The Purchaser undertakes with the Warrantors that if it receives
any information in writing (save from its professional advisers)
whereby the Warranties are not true and accurate in all material
respects it will as soon as reasonably practicable provide the
Warrantors with a copy of such information and subject thereto no
information of which the Purchaser may have notice actual
constructive or implied) other than that fairly and accurately
disclosed in the Disclosure Letter shall prejudice any claim by
the Purchaser under the Warranties or operate to reduce any amount
recoverable by the Purchaser
7.10 The Warranties shall remain in full force and effect after
Completion
7.11 Each of the Warranties shall be construed as a separate and
independent warranty and shall not be limited by reference to any
other
7.12 The Warrantors undertake that in the event of the Purchaser making
any claim against the Warrantors in respect of the Warranties the
Warrantors will not make any claim against the Company or any of
its officers or employees in connection therewith (other than any
such officer or employee who is named herein as a Vendor)
7.13 If the sale and purchase of the Shares is completed then in
respect of any breach of any of the Warranties the Warrantors
hereby agree with the Purchaser to pay to the Purchaser:
7.13.1 the amount necessary to put the Company and each of the
Subsidiaries into the position which would have existed
if the Warranties had been true when given; and
7.13.2 all reasonable costs and expenses incurred in connection
therewith by the Company or each of the Subsidiaries
7.14 The liability of the Warrantors under this Agreement shall not be
affected by the transfer of any of the Shares held by them at the
date hereof
8. LIMITATION ON WARRANTY LIABILITIES
8.1 Notwithstanding anything in this Agreement to the contrary the
Warrantors shall not be liable for any claim or claims under the
Indemnities or in respect of a breach of the Warranties by the
Warrantors unless:
8.1.1 written particulars thereof giving full details of the
specific matters in respect of which such claim is made
shall have been given to the Warrantors within a period of
six years after Completion in respect of claims relating
to the Indemnities and twelve months after Completion in
respect of claims relating to the Warranties; and
8.1.2 the amount of all claims brought in accordance with the
foregoing shall exceed US$70,000 in aggregate in which
event all of such amount shall be subject to such claims
8.1.3 the amount of each individual claim exceeds $3,000
8.2 The maximum aggregate liability of the Warrantors in respect of
all claims in relation to the Warranties and under the Indemnities
(including any such claim made by the Company) shall not exceed a
sum equal to the total consideration received under Clause 4 by
the Warrantors and/or by any person to whom the Warrantors may
have transferred any of the Shares pursuant to Clause 7.4.1
8.3 The total liability of each Warrantors shall not in any event
exceed the amount of the consideration received under Clause 4 by
that Warrantor and/or by any person to whom that Warrantor may
have transferred any of the Shares pursuant to Clause 7.4.1
8.4 In the event that the liability of a Warrantor exceeds the amount
of cash consideration received by that Warrantor under Clause
4.2.1 and/or by any person to whom that Warrantor may have
transferred any of the Shares pursuant to Clause 7.4.1 the balance
shall be satisfied, at the election of the Warrantor, either in
cash or by the transfer by the Warrantor to the Purchaser of that
number of Consideration Shares as shall have a value equivalent to
the value of the balance of the liability outstanding against that
Warrantor on the basis that the value of each Consideration Share
shall be deemed to be the Issue Price
8.5 Any sums expended by the Warrantors in satisfaction of any claim
for breach of Warranty or a claim made under the Indemnities shall
be deemed to be paid as a reduction in the Price
8.6 The Warranties are given subject to matters fairly and accurately
disclosed in the Disclosure Letter
8.7 The Warrantors shall not be liable for any claim under the
Indemnities or in respect of a breach of the Warranties
8.7.1 where a claim is in respect of any liability for Taxation
which arises out of the ordinary course of trading of the
Company since the Accounts Date;
8.7.2 which arises or to the extent that any such claim is
increased as a result only of any increase in rates of
Taxation or any other change in the law made after the
date hereof with retrospective effect;
8.7.3 where the claim would not have arisen but for a voluntary
act or omission which could have been avoided made by the
Purchaser or any of its subsidiaries or the Company after
Completion otherwise than in the ordinary course of
business and which the Purchaser ought reasonably to have
been aware could give rise to a claim;
8.7.4 where an amount payable in respect of a claim is increased
by reason of the Purchaser or the Company failing after
due warning to act in accordance with the written
instructions or request of the Warrantors in respect of
that claim to the extent of such increase;
8.7.5 where the claim is in respect of stamp duty or stamp duty
reserve tax on the transfer of the Shares to the Purchaser
pursuant to this Agreement;
8.7.6 where a claim would not have arisen but for any change in
the accounting policy or practice of the Purchaser or the
Company introduced or having effect after the Accounts
Date;
8.7.7 to the extent that the amount by which any provisions for
Taxation (including deferred tax), bad or doubtful debts
or contingent or other liabilities contained in the
Accounts or the Management Accounts has proved at the
date of the relevant claims to be in excess of the matter
for which such provision was made; or
8.7.8 to the extent that the amount by which any Taxation for
which the Company is or may be liable to be assessed or
accountable is reduced or extinguished as a result of the
matter giving rise to such claim
8.7.9 to the extent that a specific provision or reserve
therefor has been made in the Accounts or the Management
Accounts
8.8 If the Purchaser shall make a claim under this Agreement and under
the Indemnities in respect of the same liability the Purchaser
may not recover more than the full amount of such liability
8.9 Notification of claims by the Purchaser shall be made to the
Warrantors as soon as reasonably practicable after the facts
giving rise to any such claim come within the knowledge of the
Purchaser and in any event in respect of a claim under the
Indemnities no later than seven days from the date of receipt of
any notice or other communication from the Inland Revenue by the
Purchaser or the Company
8.10 The Purchaser shall procure that the Company shall observe the
terms of this Clause as if it were a party hereto
8.11 Where the Purchaser or the Company has any claim against any third
party in relation to any matter in respect of which there shall
have been a breach or alleged breach of the Warranties or the
Indemnities or where the Purchaser or the Company receives any
claim from a third party which may result in the Purchaser having
a claim against the Warrantors in respect of the Warranties or the
Indemnities:-
8.11.1 the Warrantors shall be entitled (subject to providing the
Purchaser or the Company such security for costs as they
shall reasonably require) to take any action and require
the Purchaser and the Company to take any action they may
reasonably request to prosecute or resist such claim as
the case may be in the name of the Purchaser or the
Company (as appropriate) but at the expense of the
Warrantors and the Warrantors shall further be entitled
at their own expense to have the conduct of any appeal
dispute application for deferment and other forms of
objection compromise or defence thereof and of any
incidental negotiations and the Purchaser shall and shall
procure that the Company shall give the Warrantors all
co-operation access and assistance for the purpose of
considering prosecuting or resisting as the case may be
such claims as they may reasonably require
8.11.2 The amount of any liability of the Warrantors shall be
reduced by the amount recovered from the said third party
in respect of the claim against it
8.12 In the event of the Warrantors or any of them having paid to the
Purchaser an amount in respect of a claim under the Warranties or
Indemnities and subsequent to the date of making such payment the
Purchaser or the Company receives from a third party a sum which
is directly referable to that payment then the Purchaser shall
forthwith repay or procure the repayment by the Company to the
relevant Warrantors of so much of the amount paid by the third
party (less the reasonable costs of recovery of such sum,
including any related liability to Taxation) as does not exceed
the sum paid in cash by the Warrantors or any of them to the
Purchaser
8.13 Where a breach of any of the Warranties or Indemnities shall be in
respect of a matter where the Company shall be insured against any
loss or damage arising therefrom, neither the Company nor the
Purchaser shall make any claim against the Warrantors or any of
them under the Warranties or Indemnities without first procuring
that the Company shall make a claim against its insurers for
compensation for such loss or damage suffered and thereafter any
claim against the Warrantors shall be limited (in addition to all
other limitations on the Warrantors' liability elsewhere referred
to herein) to the amount by which the amount of the loss or damage
suffered by the Purchaser or the Company as a result of such
breach shall exceed the compensation paid by the said insurers to
the Company or the Purchaser together with such amount as may be
necessary to compensate the Purchaser for any increase in the
costs of obtaining and/or maintaining insurance for the Company in
consequence of such claim having been made. For the avoidance of
doubt the provisions of this Clause 8.13 shall not preclude the
Purchaser giving notice of any matters to which this Clause
relates under Clause 8.1 hereof prior to such insurance claim
being made or resolved
8.14 The Purchaser undertakes to retain or to procure the retention by
the Company of all such books records accounts correspondence and
other papers of the Company as are likely to be material in the
context of the liability of the Warrantors under the Warranties or
the Indemnities during the subsistence of the liability of the
Warrantors under the Warranties or (as the case may be) the
Indemnities
8.15 Any payments made to the Company in respect of the Indemnities
shall be inclusive of Value Added Tax
8.16 If the Inland Revenue brings into charge to tax any sum paid to
the Purchaser and/or the Company in respect of a breach of the
Warranties or pursuant to a claim made under the Indemnities then
the sum so paid shall be grossed up by such amount as is necessary
to ensure that the amount of the sum so paid shall after deduction
of any tax so chargeable equal the sum otherwise payable
8.17 If the Purchaser is entitled to make a claim in respect of any
act event or default both under the Warranties and under the
Indemnities the claim shall first be made under the Warranties and
any amount payable to the Purchaser under the Indemnities shall be
reduced to the extent of the claim
9. REMEDIES
9.1 Save as expressly provided in this Agreement any breach by the
Warrantors and/or the Vendors of any terms of this Agreement shall
give rise only to an action for damages and shall not entitle the
Purchasers to rescind this Agreement
9.2 The Purchaser may release or compromise the liability of any of
the Vendors hereunder or grant to any of the Vendors time or
other indulgence and it shall not thereby be under any obligation
to make any such release compromise or grant in relation to the
remaining Vendors
9.3 No failure to exercise and no delay in exercising on the part of
any party to this Agreement any right or remedy in respect of any
part of this Agreement or the Indemnities shall operate as a
waiver of such rights or remedy nor shall a single or partial
exercise of such rights or remedy prejudice the exercise of any
other right or remedy
10 . VENDORS' UNDERTAKINGS PENDING COMPLETION
From the exchange of this Agreement until Completion the Vendors shall
exercise their powers as directors and/or shareholders of the Company
so far as they are able to procure that the Company shall carry on its
business in the normal and ordinary course and as a going concern and
(without prejudice to the generality of the foregoing) in particular
shall procure that the Company will:-
10.1 maintain its trade and trade connections;
10.2 maintain its policies of insurance;
10.3 not purchase or acquire nor sell or dispose of any asset otherwise
than in the ordinary course of business;
not enter into any agreement or other commitment otherwise than
in the ordinary course of business; and
10.4 not declare or pay any dividend or other distribution nor pay or
agree to pay any management fees (whether or not in the ordinary
course of business) without the consent in writing of the
Purchaser
11. COMPLETION
11.1 In the event that the Condition is fulfilled Completion shall take
place at the offices of the Purchaser's Solicitors 28 days after
the date of service of the Notice (or on the next succeeding
business day if Completion would not otherwise fall on a business
day)
11.2 At Completion the Vendors shall procure the delivery to the
Purchaser of:
11.2.1 duly executed transfers in favour of the Purchaser or its
nominee of all the Shares;
11.2.2 the share certificates representing the Shares (or an
express indemnity in a form satisfactory to the Purchaser
in the case of any found to be missing);
11.2.3 the Registration Rights Agreement in the agreed terms duly
executed by the Vendors
11.2.4 the Certificates of Incorporation Common Seals Minute
Books Statutory Registers and Share Certificate Books of
the Company each duly made up to date;
11.2.5 the resignation of the Auditors containing the statement
referred to in Section 394 CA 1985 confirming that there
are no circumstances connected with their resignation
which they consider should be brought to the notice of the
members or creditors of the Company;
11.2.6 duly executed transfers in favour of the Purchaser or
its nominee of all the issued shares of each of the
Subsidiaries not registered in the name of the Company;
11.2.7 the share certificates representing the shares referred
to in Clause 11.2.5 (or an indemnity in a form
satisfactory to the Purchaser in the case of any found to
be missing);
11.2.8 the title deeds to the Properties which the Purchaser
shall hold as agent for the Company
11.3 The Vendors shall procure that a Board meeting of the Company
shall be held at which it shall be resolved that:-
11.3.1 if so required by the Purchaser prior to Completion Alice
Elizabeth Lyon shall resign her office as Secretary of the
Company and William Ahern and Albert S Humphrey shall
each resign their offices as Directors and each shall
deliver to the Purchaser an acknowledgement executed as a
deed in the agreed terms that he has no claim against the
Company for loss of office
11.3.2 such persons as the Purchaser shall nominate prior to
Completion shall be appointed officers of the Company;
11.3.3 the registered office of the Company shall be changed to
such place as the Purchaser may nominate prior to
Completion
11.3.4 the transfers referred to in Clause 11.2.1 shall (subject
only to the same being duly stamped) be approved for
registration and that the Purchaser and its nominees (if
any) be entered in the Company's Register of Members as
the holders of the Shares;
11.3.5 all authorities to the bankers of the Company shall be
revoked or amended (as the Purchaser directs) and
authority shall be given to such persons as the Purchaser
may nominate to operate the Company's bank accounts; and
11.3.6 the resignation of the Auditors shall be accepted
11.4 The Vendors shall procure that a board meeting of each of the
Subsidiaries is held dealing with the matters specified in Clause
11.3 as if references therein to "the "Company" were to the
Subsidiary but on the basis that the reference in Clause 11.3.4 to
Clause 11.2.1 were to Clause 11.2.5 (transfer of shares in the
Subsidiaries)
11.5 Mr Miller shall enter into the Service Agreement
11.6 Upon completion of all the matters referred to in Clauses 11.2 to
11.5 inclusive (failing which the Purchaser shall not be obliged
to complete this Agreement) the Purchaser shall
11.6.1 deliver to the Vendors' Solicitors (as agents for the
Vendors) a banker's draft for US$780,000
11.6.2 satisfy the balance of the Price by complying with the
provisions of Clause 4.2.2 and by delivering share
certificates duly issued and authorised fully paid and
non-assessable
and the receipt of the Vendors' Solicitors shall be a sufficient
discharge to the Purchaser therefor
12. LOANS AND UNPAID SHARES
12.1 At or before Completion the Vendors will discharge all
indebtedness and pay all uncalled share capital due from the
Vendors (or any firm company or business in which any of the
Vendors is interested) to the Company (with the exception of any
trade debts incurred in the ordinary course of business which
shall be satisfied in accordance with the terms stated in the
Disclosure Letter or if none are so stated within 30 days of
invoice)
12.2 The Purchaser shall procure that at or before Completion all
indebtedness due from the Company to the Vendors (full particulars
whereof have been provided to the Purchaser in writing prior to
the date hereof) shall be discharged (with the exception of any
trade debts which will be dealt with in accordance with Clause
12.1)
12.3 The Purchaser shall procure that within 30 days after Completion
it shall lend to the Company on such terms as may be agreed
between the Company and the Purchaser the sum of pounds sterling 300,000
by way of additional working capital
13. RELEASES
13.1 The Vendors shall procure that prior to or at Completion the
Company shall be released from all guarantees and indemnities
given by it of which full details are set out in the Disclosure
Letter in respect of obligations of the Vendors and pending such
release the Vendors shall indemnify the Company against all
liabilities in respect thereof
13.2 The Purchaser will use all reasonable endeavours to procure that
with effect from Completion the Vendors shall be released from all
guarantees and indemnities given by the Vendors in respect of
obligations of the Company and of which full details have been
notified to the Purchaser or the Purchaser's solicitors in writing
prior to the date hereof and pending such release shall indemnify
the Vendors against all liabilities in respect thereof
13.2 The Purchaser shall use all reasonable endeavours to procure that
with effect from Completion Mr Miller is released from all
liability to the Landlord of Units 21 and 22 Langston Priory Mews
Kingham Oxfordshire under a lease dated 26 February 1991 made
between Turngallant Limited (1) and the Company and Mr Miller (2)
and pending such release shall indemnify Mr Miller against all
liabilities in respect thereof
14. RESTRICTIONS ON VENDORS
14.1.1 Mr Miller hereby undertakes and covenants with the
Purchaser (for the benefit of the Purchaser and as trustee
for the benefit of the Company and its successor in title
to the business) that he shall not:-
14.1.1 for a period of three years from Completion be directly or
indirectly interested or concerned in or assist in
carrying on any business undertaking company or firm
carrying on business in (the United Kingdom) or any part
thereof for the import and export and sale of herbs or any
business which is otherwise competitive with any of the
respective businesses carried on by the Company at the
date hereof provided that nothing herein contained shall
prevent him from:-
(a) being the holder of or from being beneficially
interested in any class of securities in any company
if such class of securities is listed and dealt in on
the Stock Exchange or any other recognised investment
exchange where Mr Miller (together with his spouse and
children) neither holds nor is beneficially interested
in more than a total of five per centum of any single
class of the securities in that company
(b) continuing to carry on or be interested or concerned
in any other business which is at the date hereof
carried on by him or in which he is concerned or
interested
14.1.2 for a period of three years from Completion (other than on
behalf of the Company) either on his own account or on
behalf of any other person firm or company solicit orders
or contracts for goods of similar type to those being
manufactured or dealt in or for services similar to those
being provided by the Company at the date hereof from any
person firm or company who or which is at Completion or
has been at any time within the twelve months prior to
Completion a customer of or supplier to the Company; or
14.1.3 for a period of three years from Completion either on his
own account or on behalf of any other person firm or
company solicit the employment for the purposes of a
similar business to that carried on by the Company at
Completion of any person who is at Completion or who has
within the six months prior to Completion been an officer
or employee of the Company (provided that the placement by
Mr Miller of any advertisement for staff in any newspaper
or magazine shall not of itself be treated as a breach of
this Clause 14.1.3); or
14.1.4 at any time hereafter in relation to a trade or business
competitive or likely to be competitive with that carried
on by the Company at Completion use or (insofar as he can
reasonably do so) allow to be used (other than by the
Company) any trade name used by the Company at Completion
or any other name intended or likely to be confused
therewith
14.2 William Ahern (in this Clause referred to as "Mr Ahern") hereby
undertakes and covenants with the Purchaser (for the benefit of
the Purchaser and as trustee for the benefit of the Company and
its successor in title to the business) that he shall not for a
period of one year from Completion (other than on behalf of the
Company) either on his own account or on behalf of any other
person firm or company solicit orders or contracts for goods of
similar type to those being manufactured or dealt in or for
services similar to those being provided by the Company at the
date hereof from any person firm or company who or which is at
Completion or has been at any time within the twelve months prior
to Completion a customer of or supplier to the Company other than
a customer in Italy, Spain or Portugal or a supplier who is listed
in Schedule 9 and save in the case of suppliers, with the previous
written consent of the Purchaser, such consent not to be
unreasonably withheld or delayed
14.3 The Vendors hereby undertake and covenant with the Purchaser (for
the benefit of the Purchaser and as trustee for the benefit of the
Company and its successor in title to the business) that they
shall not at any time hereafter make use of or disclose or divulge
to any third party (other than as required by law or to his
professional advisers) any information of a secret or confidential
nature relating to any business of the Company save insofar as
they may prove the same has become a matter of public knowledge
(otherwise than by reason of a breach by any of them of this
Clause)
14.4 The restrictions contained in Clause 14.1 Clause 14.2 and 14.3
have been carefully considered by the covenantors who accept that
they are reasonable and necessary for the proper protection of the
goodwill of the businesses of the Company and of the Purchaser but
in the event that any such restriction shall be found to be
unenforceable for whatever reason but would be valid if some part
thereof were deleted or the period or area of application reduced
such restriction shall apply with such modification as may be
necessary to make it valid and effective and the remaining
restrictions shall continue to bind the relevant covenantor
15. FURTHER ASSURANCE
15.1 The Vendors shall do all necessary acts within their power for
effectively vesting the Shares in the Purchaser or its nominees
from Completion and shall each exercise their powers as directors
and/or shareholders to procure the convening of all such meetings
and the giving or passing of all such waivers and shall do or
procure all such other acts and things as shall be necessary
under CA 1985 or the Articles of Association of the Company or
otherwise to give effect to the provisions of this Agreement
15.2 The Purchaser shall do all necessary acts within their power for
effectively vesting the Consideration Shares in the Vendors or
their nominees from Completion
15.3 In consideration of each of the other Vendors entering into this
Agreement each of the Vendors hereby waives all rights of
pre-emption which he may have (whether under the Company's
Articles of Association or otherwise) in respect of the transfer
to the Purchaser or its nominees of the Shares or any of them
16. CONTINUING OBLIGATIONS AND ASSIGNMENTS
16.1 The Warranties and each of the obligations undertaken or given by
the Warrantors and the Vendors respectively pursuant to this
Agreement excluding any obligation fully performed at Completion
shall continue in full force and effect notwithstanding Completion
taking place and be binding on the estates and personal
representatives of the Warrantors and the Vendors
16.2 If the Shares shall at any time be sold or transferred by the
Purchaser to a Group Company of the Purchaser the benefit of each
of the said obligations shall be assignable to the purchaser or
transferee of the Shares and such purchaser or transferee shall be
entitled to enforce each of the Warranties against the Warrantors
and each of the obligations against the Vendors as if it were
named herein as the Purchaser provided that on any such assignee
ceasing to be a Group Company of the Purchaser the Purchaser shall
procure that the benefit of the Warranties and the said
obligations is assigned to the Purchaser or another Group Company
of the Purchaser
16.3 Save as aforesaid none of the rights or obligations hereunder may
be assigned or transferred to any other person without the consent
of all the parties to this Agreement
17. ANNOUNCEMENTS
No announcement concerning this sale and purchase or any ancillary
matter shall be made before or after Completion by any party hereto
other than as required by law without the prior written approval of the
other parties (such approval not to be unreasonably withheld)
18. COSTS
Each party hereto shall pay the costs and expenses incurred by him in
connection with the entering into and completion of this Agreement
19. NOTICES
19.1 Any notice or other document to be given hereunder shall be
delivered or sent by first class post (or if outside the United
Kingdom Air Mail) or telex or facsimile transmission to the party
to be served at the party's registered office or last known
address or such other address as the party shall notify in
accordance herewith
19.2 Any notice or other communication given by or to any party in
accordance with this Agreement may be given by or to that party's
solicitors in accordance with the provisions of the preceding
sub-clause of this Agreement
19.3 Any such notice or document shall be deemed to have been served if
delivered at the time of delivery or if posted at the expiration
of 48 hours (108 hours if sent to or from an address outside the
United Kingdom) after the envelope containing the same shall have
been put into the post or if sent by telex or facsimile
transmission at the expiration of 12 hours after receipt of the
same has been automatically acknowledged to the sender thereof and
in proving such service it shall be sufficient to prove that
delivery was made or that the envelope containing such notice or
document was properly addressed and posted as a prepaid first
class or air mail letter or that the telex or facsimile
transmission was properly addressed and posted as a prepaid first
class or air mail letter or that the telex or facsimile
transmission was properly addressed and acknowledged as the case
may be provided that a copy of such telex or facsimile
transmission is delivered or sent by post in manner aforesaid
within twenty four hours of such telex or facsimile being
automatically acknowledged
20. PROPER LAW
This Agreement shall be governed by and construed in accordance with
English Law and the parties hereby submit to the non-exclusive
jurisdiction of the English courts
21. REGISTRATION
No provisions of this Agreement or any agreement or arrangement of
which it forms part which is subject to registration (if such be the
case) under the Restrictive Trade Practices Acts 1976 and 1977 shall
take effect until the day after particulars of such agreement have been
furnished to the Director General of Fair Trading pursuant to Section
24 of the Restrictive Trade Practices Act 1976 which (if necessary)
the parties shall furnish within 3 months of the date hereof
22. WHOLE AGREEMENT
This Agreement (together with the documents referred to in this
Agreement) constitutes the whole agreement between the parties hereto,
each of whom acknowledges that there are no representations,
agreements, terms or conditions relating to the sale of the Sale Shares
save as are contained in this Agreement or in any documents referred to
in this Agreement and no variations to this Agreement shall be
effective unless made in writing and signed by all the parties.
23. COUNTERPARTS
This Agreement may be executed in any number of counterparts.
IN WITNESS whereof the parties to this Agreement have executed it under
hand on or before the date first before written and have given
authority to their respective Solicitors to date and deliver the same
and (if appropriate) a duplicate or counterpart thereof such dating
being conclusive proof of delivery on the date first before written
SCHEDULE 1
(The Vendors)
Name Address Number Consider-
of ation
Shares US $
Robert Eric Miller Old Clock Cottage, 92,728 1,965,833.60
Swerford, Oxon,
OX7 4BQ
William Ahern 31 Rua Poco Novo 12,800 271,360.00
Cascais 2765
Portugal
Guendolin Crawford The Old House, 7,000 148,400.00
Urquhart Church Street,
Kingham Oxon OX76YA
Richard John Bruce 1 Fowler Road 1,000 21,200.00
Kingham Oxon OX76YU
Barbara Pamela Clark Barn Cottage, 35 500 10,600.00
South Street
Middle Barton
Chipping Norton
Oxon OX7 7BU
Alexander Peter 109 Abingdon Road 15,000 318,000.00
Galitzine London W8
Anabella Holliday 124 North Street, 1,500 31,800.00
Middle Barton Oxon
OX7 7DA
Albert S Humphrey 4030 Charlotte St 5,100 108,120.00
Kansas City,MO
64110, USA
Alice Elizabeth Lyon Old Clock Cottage, 12,872 272,886.40
Swerford, Oxon,
OX7 4BQ
Susan Tyack 47 Hailey Avenue, 500 10,600.00
Chipping Norton,
Oxon OX7 5HG
Anne Wilkinson Cedarhurst, Wyck 1,000 21,200.00
Beacon, Bourton on
the Water Glos
GL54 2NE
---------- ---------------
150,000 3,180,000.00
SCHEDULE 2
PART 1
(Details of the Company)
Registered Number 2241037
Date of Incorporation 6th April 1988
Registered Office Langston Priory Mews, Kingham
Oxfordshire OX7 6UP
Directors William Ahern
Albert S Humphrey
Robert Eric Miller
Secretary Alice Elizabeth Lyon
Accounting Reference Date 31st March
Auditors Leigh Carr of 27 Blandford
Street London W1H 4EN
Bankers Coutts & Co of 440 Strand
London WC2R 0QS
VAT registration number GB 448 6730 19
Tax District and Reference Oxford 2, Reference 185 11850
26524
PART II
(Details of the Subsidiaries)
Name :East West Herbs Pty Limited
Australian Company Number :066444148
Date of Incorporation :16 March 1995
Registered Office :Phipson Nominees Pty
Limited, 10th Floor,
National Mutual Centre, 15
London Circuit, Canberra,
Australian Capital Territory
2601, Australia
Directors :Alice A Elizabeth Lyon
Robert Eric Miller
Auditors :None
Bankers :None
Authorised Share Capital :$10,000,000
Issued Share Capital :$2
Shareholders :Alice Elizabeth Lyon
Robert Eric Miller
VAT Number :Not applicable
Tax District and Reference :Not applicable
Name :East West Herbs (USA) Limited
Employer Identification Number :13 - 3846274
Date of Incorporation :13th February 1995
Registered Office :400 Madison Avenue, Suite 1005
New York 10017
Directors :Robert Miller and William Ahern
Secretary :Anastacia White
Accounting Reference Date :
Auditors :
Bankers :Wells Fargo
Authorised Share Capital :$30
Issued Share Capital :$0.01
Shareholder :East West herbs Limited
VAT Number :N/A
Tax District and Reference :N/A
SCHEDULE 3
(The Indemnities - Clause 7.1.1 )
1. Tax
Any claim for Taxation or settlement of or any depletion in the value
of the assets of the Company in connection with any claim for Taxation
in respect of any act omission or event before Completion
2. Penalties and Costs
All penalties imposed and costs and expenses incurred by the Company
and the Purchaser or any of them in connection with any claim relating
to the matters in paragraph 1 of this Schedule or any of them and in
the event of the Purchaser becoming aware of any claim relevant for the
purpose of this Schedule of which the Vendors may not be aware the
Purchaser shall procure that notice thereof is given to the Vendors and
as regards any relevant claim the Purchaser shall or shall procure that
the Company at the request of the Vendors takes such action as the
Vendors may reasonably require to avoid dispute resist appeal
compromise or defend the claim and any adjudication in respect thereof
but subject to the Purchaser being fully and effectually indemnified
and secured by the Vendors against all losses (including any interest
and additional taxation) costs damages and expenses which may be
thereby incurred.
SCHEDULE 4
(Warranties and Undertakings - Clause 7.1.2)
GENERALLY
1. The Accounts
1.1 The Accounts:-
1.1.1 show a true and fair view of the state of affairs profit
and loss and assets and liabilities of the Company as at
the Accounts Date and
1.1.2 have been prepared in accordance with current accounting
standards and practices; make proper provision for all
actual and contingent liabilities including without
limitation tax and bad or doubtful debts as at the Accounts Date
1.1.3 are not affected by any extraordinary exceptional or non-recurring
item
1.2 Since the Accounts Date there has been no material reduction in
the net assets position of the Company as represented by the
Accounts or in the share capital
1.3 The Company has at all times kept and maintained and will prior to
the completion of this Agreement keep and maintain in accordance
with the requirements of the Companies Act and good business
practice and proper accounting principles and current standard
accounting practices proper books of account and accounting
records
1.4 All accounting information records documents books and papers
relating to the business and affairs of the Company are and will
remain until completion of this Agreement in the possession of the
Company
2. Management Accounts
True copies of the Management Accounts prepared by the Company in
respect of the business carried on by the Company since the Accounts
Date and annexed hereto have been prepared in accordance with
generally accepted accounting principles and to the best of the
Warrantors' knowledge and belief reflect the state of affairs of the
business of the Company in all material respects and adequately
disclose all assets and liabilities of the Company at the relevant
balance sheet date to which they relate and apply bases and policies of
accounting which have been consistently applied in the Accounts save
that such Management Accounts have not been audited by the Auditors
3. Business Plan
So far as the Warrantors are aware all facts stated in the Business
Plan were as at its date and remain true and accurate in all material
respects. All estimates, opinions and projections contained therein
were as at such date and remain honestly made or held and fairly based
upon facts which were and are within the knowledge of the Warrantors or
which they reasonably believe to be true and were and are bona fide and
reasonably arrived at on the basis of proper and reasonable assumptions
and so far as the Warrantors are aware there were and are no other
material facts the omission of which would or might make misleading any
statement therein whether of fact or opinion or the disclosure of which
could reasonably be expected to affect the decision of the Purchaser to
enter into the Option Agreement.
4. Assets
4.1 The method of valuing stock and work in progress and the basis of
depreciation adopted by the Company in respect of each of the
fixed assets of the Company shown in the Accounts and the
Management Accounts was the same as that adopted in the balance
sheets for the two financial years preceding the Accounts Date and
the rate of depreciation shown in the Accounts and the Management
Accounts for each such asset is sufficient to write down the value
of such asset to nil not later than the end of its useful working
life
4.2 The stock of raw materials packaging materials and finished goods
now held are not excessive and are adequate in relation to the
current trading requirements of the businesses of the Company and
none of such stock is obsolete unusable or unmarketable in
relation to the current business of the Company and no contracts
are outstanding which are likely to result in the foregoing not
being true
4.3 The stock-in-trade of the Company is in reasonably good condition
and is capable of being sold by the Company in the ordinary course
of its business in accordance with its current price list without
rebate or allowance to a purchaser
4.4 The plant machinery equipment vehicles and other equipment used
in connection with the business of the Company:
4.4.1 are in a reasonably good and safe state of repair and
condition and satisfactory working order and have been
properly maintained
4.4.2 are not expected to require replacements or additions at
a cost in excess of pounds sterling 5,000 within twelve months from
the date of this Agreement
4.5 All the stock-in-trade of the Company and those of its other
assets and undertakings which are of an insurable nature are and
have at all material times been insured in amounts representing
their full replacement or reinstatement value against fire and
other risks normally insured against by persons carrying on the
same business as that carried on by the Company
4.6 The Company is now and has at all material times been adequately
covered against accident damage injury third party loss (including
product liability) loss of profits and other risks normally
insured against by persons carrying on the same business as that
carried on by the Company
4.7 All insurances are currently in full force and effect and nothing
has been done or omitted to be done which could make any policy of
insurance void or voidable or so far as the Warrantors are aware
which is likely to result in an increase in premium
4.8 No claim is outstanding or may be made under any of the insurance
policies and so far as the Warrantors are aware no circumstances
exist which are likely to give rise to a claim
5. Shares
5.1 No person has the right to call for the issue of any shares in the
capital of the Company
5.2 None of the Shares is subject to any charge lien encumbrance
option claim or title adverse to that of the Vendors and the
Vendors have the complete interest right power and authority to
sell and transfer the Shares
5.3 The Company has not repaid or agreed to repay or redeemed or
agreed to redeem or capitalised or agreed to capitalise any
shares and has not been engaged in any demerger within or as
referred to in section 213 of the Taxes Act
6. Title and Value of Assets
6.1 Neither the Company nor the Vendors have done or omitted to do or
are aware of anything save as disclosed in the Disclosure Letter
which would materially reduce the value of the assets of the
Company or any of them as contained or referred to in the Accounts
and the Management Accounts and
6.2 The Company has absolute title free from any adverse claim to such
assets and does not have any assets subject to any lien charge
claim encumbrance letting rental lease purchase hire purchase or
other agreement other than those mentioned in Schedule 7 to this
Agreement
6.3 All the assets of the Company are free from any defect except only
fair wear and tear
7. Contracts
7.1 An Agreement dated the 2nd November 1994 made between the Company
(1) and Giovanni Maciocia C.Ac (Nanjing) (2) for the production
and distribution of 36 herbal products is in full force and effect
and the Company is not in default of any of the provisions thereof
and the Warrantors know of no circumstance likely to give rise to
such a default
7.2 The Company has not entered into any long term or abnormal
contract or undertaken any obligations whatsoever except such as
are usual and necessary in the ordinary and proper course of its
business or except as hereinafter referred to or as are referred
to in the Accounts or the Management Accounts
8. Trading matters
8.1 The Company is not or has not agreed to become a member of any
joint venture consortium partnership or other unincorporated
association
8.2 There are no claims pending or threatened or so far as the
Warrantors are aware capable of arising against the Company by an
employee or workman or third party in respect of any accident or
injury which are not fully covered by insurance
8.3 No power of attorney given by the Company is in force
8.4 Save for the Directors there are no outstanding authorities
(express or implied) by which any person may enter into any
contract or commitment to do anything on behalf of the Company
8.5 The Disclosure Letter contains accurate particulars of all
subsisting contracts to which the Company is a party at the date
of this Agreement
8.6 The Company is not or will not by reason simply of the lapse of
time become in default in respect of any obligation or restriction
binding upon it
8.7 So far as the Warrantors are aware the Company has not
manufactured sold or supplied products which are or were or will
become in any material respect faulty or defective or which do
not comply in any material respect with any warranties or
representations expressly or impliedly made by it or with all
applicable regulations and standards in respect thereof
8.8 The Company is not subject to any liability or obligation (save
as may be implied by law) to service repair maintain take back or
otherwise do or not do anything in respect of any goods or
products that have been or are hereafter delivered by it
8.9 The Company is not a party to nor has its profits or financial
position during the three years prior to the date hereof been
affected by any contract or arrangement which is not of an
entirely arm's length nature
8.10 The Company is not a party to or subject to any agreement
transaction obligation commitment understanding arrangement or
liability which:-
8.10.1 will require the Company to pay any commission finder's
fees royalty or similar payment or
8.10.2 in any way restricts the Company's freedom to carry on the
whole or any part of its business in any part of the
United Kingdom or elsewhere in such manner as it thinks fit
8.11 There are no arrangements and understandings (whether legally
enforceable or not) between the Company and any person who is a
director or shareholder or the beneficial owner of any interest in
the Company
9. Employees
9.1 There are no employees of the Company at the date hereof other
than:-
9.1.1 those whose main terms and conditions of employment are
mentioned in Schedule 6, and
9.1.2 casual workers at 3 Neal's Yard none of whom (so far as
the Warrantors are aware) have been continuously employed
by the Company for more than six months
9.2 Full particulars of all subsisting contracts of employment and
service agreements and other terms and conditions and statements
of employment have been disclosed to the Purchaser
9.3 There is not outstanding any claim in respect of dismissal or
redundancy of any employee of the Company
9.4 There has not been any increase in any fees commission emoluments
or payments paid or payable to any officer or servant or agent of
the Company since the Accounts Date
9.5 The Company does not employ any person except only as disclosed as
aforesaid and there are no consultancy agreements or arrangements
with anyone
10. Pension Scheme
The Company is not under any legal or moral liability or obligation or
a party to any ex-gratia arrangement or promise to pay pensions
gratuities superannuation allowances or the like or otherwise to
provide 'relevant benefits' within the meaning of Taxes Act 1988 s 612
to or for any of its past or present officers or employees or their
dependants; and there are no retirement benefit or pension or death
benefit or similar schemes or arrangements in relation to or binding on
the Company or to which the Company contributes
11. Debts
11.1 The Company has no outstanding debts or liabilities (contingent or
otherwise other than trade debts incurred in the ordinary course
of business) contracts or engagements otherwise than as provided
in the Accounts and/or the Management Accounts or disclosed to the
Purchaser
11.2 There are no liabilities of the Company (including contingent
liabilities) incurred since the date of the Management Accounts
which are outstanding on the part of the Company in excess of
$10,000
12. Financial position
12.1 Save for such changes as have arisen in the ordinary course of
business or by reason of fluctuations in market values of
investments or changes in market conditions or disclosed in the
Management Accounts the Vendors have no reason to believe that the
aggregate trading results of the Company as disclosed in the
Accounts have deteriorated since the Accounts Date
12.2 The Company does not have any estate or interest in land other
than the Properties
12.3 So far as the Warrantors are aware and subject to the Company
using reasonable endeavours therefor the debtors of the Company
will meet their obligations in ordinary and due course within the
terms of trade of the Company free from any counterclaim deduction
or set-off
12.4 No expenditure has been incurred by the Company which will not be
wholly deductible against corporation tax
12.5 The Company has at all times been a trading company
12.6 The Company has conducted its trade only in the United Kingdom
12.7 Save for the Subsidiaries the Company has not had at any time any
subsidiary within the meaning of Section 736 of the Companies Act
and has never been a member of any group of companies
12.8 The Company has not been entitled whether as legal or beneficial
owner at any time to any shares in any other company
12.9 The purchase of the Company by the Purchaser will not so far as
the Warrantors are aware cause any person who normally does
business with the Vendor not to continue to do so on substantially
the same basis as previously
13. Capital transactions
The Company has not entered into any capital transactions involving
more than $15,000 in aggregate except as provided in the Management
Accounts or as expressly referred to in this Schedule or as disclosed
to the Purchaser either as vendor or purchaser since the Accounts Date
14. Returns, documents and legislation
All returns particulars resolutions and other documents statutorily
required to be delivered by the Company to the Registrar compliance of
Companies have been duly delivered to such Registrar and the Directors
have kept all statutory registers minutes and records fully and
effectually in accordance with the Companies Act and there are no
omissions therefrom and there has not been any default in connection
with any such documents or records so far as the Warrantors are aware
and the Company has complied with all Acts of Parliament and
legislation thereunder affecting the Company its employees assets and
the business and is not in breach of any provision thereof
15. Notices
There are no outstanding notices served on the Company materially and
adversely affecting its assets or any of them
16. Litigation
16.1 The Company is not engaged in any litigation industrial dispute or
arbitration proceedings except as already disclosed and no
proceedings or prosecutions are pending or threatened and so far
as the Warrantors are aware there are no facts or matter
(including but without limitation Completion) likely to give rise
thereto and the Company is not in default in respect of any
material obligation whether contractual statutory or municipal
16.2 The Company is not the subject of any investigation or enquiry
pending or threatened nor has it given any agreement or
undertaking in connection with any such matter as aforesaid and so
far as the Warrantors are aware the Company is free to carry on
the business without any restriction or adverse claim except only
as applicable generally by statute and has so far as the
Warrantors are aware obtained all licences consents permissions
and agreements relevant to carrying on the business
17. Tax returns
The Company will not submit a draft of any tax return or agree any tax
computation or computation intended to be made or agreed with the
Inland Revenue to the Purchaser before making or submitting the same as
aforesaid and will not make any tax return after the date hereof
without the consent in writing of the Purchaser
18. Disclosures
The Vendors will forthwith disclose in writing to the Purchaser any
matter which may arise and become known to them between the date hereof
and Completion which is inconsistent with any of the warranties or
indemnities contained or referred to in this Agreement and which is
material to be known by a transferee for value of any share in the
Company
TAXATION
19. Provisions
19.1 Full provision or reserve has been made in the Accounts for all
tax liable to be assessed on the Company or for which it is
accountable in respect of income profits or gains earned accrued
or received on or before the Accounts Date or any event giving
rise to taxation on or before the Accounts Date including
distributions made down to such date or provided for in the
Accounts
19.2 Proper provision has been made in the Accounts for deferred
taxation in accordance with current standard accounting practices
and generally accepted accountancy principles
19.3 The Company has not at any time been engaged in any transaction
the main or only purpose of which was the avoidance or reduction
of any liability to tax or could lead to the cancellation of any
tax advantage or could be claimed to be an artificial transaction
for tax purposes
20. Returns
The Company has properly and punctually made all returns (subject to
paragraph 17 of this Schedule) and provided all information required
for tax purposes since incorporation until the Accounts Date as to
which there are no outstanding requirements from the Inland Revenue or
other taxation authority and none of such returns is the subject of any
back dating claim appeal or dispute by the Inland Revenue or any other
authority concerned and the Vendors are not aware that any dispute is
likely
21. Payment of tax
The Company has duly and punctually paid all tax which it has become
liable to pay and is not under any liability to make any reimbursement
or indemnity in respect of any taxation or to pay any penalty or
interest in connection with any claim for tax
22. PAYE
The Company has properly operated the Pay As You Earn system deducting
tax as required by law from all payments to or treated as made to
employees and ex-employees of the Company prior to the date hereof and
accounted to the Inland Revenue for all tax so deducted and all tax
chargeable on benefits provided for persons employed at any time by the
Company
23. Payments under deduction
All payments by the Company to any person which as far the Warrantors
are aware ought to have been made under deduction to tax have been so
made and the Company has (if required by law so to do) accounted to the
Inland Revenue for the tax so deducted
24. Migration
The Company has not without the prior consent of the Treasury entered
into any of the transactions specified in Section 765 of the Taxes Act
or changed its residence whereby it is liable for any charge to tax or
unrealised gains.
25. Group income
25.1 Particulars of any elections made in respect of the Company under
Section 47 of the Taxes Act have been disclosed to the Purchaser
and any such elections are now in force
25.2 The Company has not paid any dividend without advance corporation
tax or made any payment without deduction of income tax in the
circumstances specified in sub-section (4) of that Section
26. Group relief
Particulars of any arrangement and agreements relating to group relief
(as defined by the Taxes Act Section 402) to which the Company is or
has been a party have been disclosed to the Purchaser and the Company
has received all payments due to it under any such arrangement or
agreement for surrender of group relief made by it and any claim for
relief whether for any losses or otherwise or for any allowances as
deductions or repayment has not been and will not be made by any
company which was at any time or is the holding company of or connected
with the Company pursuant to Sections 240 and 402 to 412 of the Taxes
Act or otherwise without limitation so as to affect the Company
27. Surrender of Advance Corporation Tax
There has been disclosed to the Purchaser particulars of all
arrangements and agreements to which the Company is or has been a party
relating to the surrender of advance corporation tax made or received
by the Company under Section 240 of the Taxes Act and:-
27.1 the Company has not paid nor is liable to pay for the benefit of
any advance corporation tax which is or may become incapable of
set-off against the Company's liability to corporation tax and
27.2 the Company has received all payments due to it under such
arrangements or agreements for all surrenders of advance
corporation tax made by it
28. Shortfall
28.1 The Company is not a close investment holding company as defined
by Section 13A of the Taxes Act
28.2 The Company has never received any intimation pursuant to
paragraphs 13 to 17 in Schedule 19 to the Taxes Act that the
Inland Revenue intends to make any apportionments for any
accounting reference period ending on or before the date of the
Accounts and any information and particulars supplied to the
Inland Revenue under the said paragraphs were such as to make full
and accurate disclosure of all facts and considerations material
to be known by the Inland Revenue
29. Base values
If each of the capital assets of the Company were disposed of for a
consideration equal to the book value of that asset in or adopted for
the purpose of the Accounts or the Management Accounts no liability to
corporation tax on chargeable gains or balancing charge in connection
with the Capital Allowances Act 1990 or Section 810(4)(b) of the Taxes
Act would arise (and for this purpose there shall be disregarded any
relief and allowances available to the Company other than amounts
falling to be deducted from the considerations receivable under Section
38 of the Gains Tax Act and all capital allowances available to the
Company have or will be made prior to the date hereof and there is no
reason for any such allowances to be reduced postponed or disallowed
30. Roll-over
The Company has not made any claim under Sections 152 to 161 of the
Gains Tax Act and no such claim has been made by any other Company
which affects or could affect the amount or value of the consideration
for the acquisition of any asset by the Company taken into account in
calculating liability to corporation tax on chargeable gains on a subsequent
disposal
31. Depreciatory transactions
No loss which might accrue on the disposal by the Company of any share
in or security of any company is liable to be reduced by virtue of any
depreciatory transaction within the meaning of Sections 280 and 281 of
the Income and Corporation Taxes Act 1970 nor is any expenditure on any
shares or security liable to be reduced under Section 125 of the Gains
Tax Act
32. Straightline growth and chargeable debts
No asset owned by the Company is subject to paragraphs 16 19 20 or 21
in Schedule 2 of the Gains Tax Act and no gain chargeable to
corporation tax will accrue to the Company on the disposal of any debt
owing to the Company not being a debt on a security
33. Chargeable policies
The Company has not acquired benefits under any policy of assurance
otherwise than as original beneficial owner
34. Claims by the company
The Company has not made any claim under any of the following:-
34.1 Section 279 of the Gains Tax Act (assets situated outside the
United Kingdom)
34.2 Section 280 of the Gains Tax Act (tax on chargeable gains payable
by instalments)
34.3 Section 242 of the Taxes Act (surplus franked investment income)
34.4 Section 584 of the Taxes Act (unremittable income arising outside
the United Kingdom)
34.5 Section 24 of the Gains Tax Act (assets of negligible value)
34.6 Section 48 of the Gains Tax Act (contingent consideration becoming
irrecoverable)
and the Company has not made any claim for or received the benefit of
any deduction reduction set-off exemption repayment allowance relief
benefit or payment in respect of any tax under any statutory provision
or other concession without limitation as to the statutory provisions
or any of them mentioned in this Agreement which could or might be
effectively withdrawn postponed restricted or otherwise lost as a
result of any cost omission event or circumstances arising at any time
after Completion and details of all claims for relief as to trading
stock prior to the coming into operation of Section 48 of the Finance
Act 1984 have been disclosed to the Purchaser
35. Stamp duty
The Company has not obtained relief from Stamp Duty relief under
Section 55 of the Finance Act 1927 (reconstruction and amalgamations)
or under Section 42 of the Finance Act 1930 (relief between associated
companies) or under paragraph 10 of the 19th Schedule to the Finance
Act 1973 or Sections 75 76 and 77 of the Finance Act 1986
36. First business loans etc.
The Company has not expended or applied any sum liable to be regarded
as income available for distribution pursuant to paragraphs 8 or 9 in
Schedule 19 to the Taxes Act and is not bound (contingently or
otherwise) to expend or apply any such sum
37. Tax losses carry forward
There has not been any major change in the business of and the Company
within the meaning of Section 245 or 768 of the Taxes Act
38. Gifts
38.1 The Company has not been engaged in any transaction not being at
arm's length within Section 770 of the Taxes Act or Sections 125
or 282 of the Gains Tax Act and the Company is not liable to be
assessed to corporation tax on chargeable gains or to capital
transfer tax as donor or donee of any gift or transferor or
transferee of value
38.2 The Company has not been a party to associated operations in
relation to a transfer of value within the meaning of Section 268
of the Inheritance Tax Act 1984.
38.3 No asset owned by the Company is liable to be subject to any sale
mortgage or charge by virtue of Section 212(l) of the Inheritance
Tax Act 1984.
38.4 There are no circumstances which could give rise to any claim for
estate duty payable by the Company
39. Intra group transfer
The Company has not acquired any asset (past or present) from any other
company then belonging to the same group of companies as the Company
within the meaning of Section 272 of the Income and Corporation Taxes
Act 1970 as applied in Section 347(5) of the Taxes Act
40. Loans to participators
The Company has not and will not be deemed to have made any loan or
advance to a participator or an associate of a participator so as to
become liable to make any payment under Sections 419 or 422 of the
Taxes Act
41. Distributions
Subject as hereinafter provided no distribution within the meaning of
Sections 209 to 211 or 254 of the Taxes Act has or is deemed to have
been made by the Company except dividends shown in its audited accounts
nor is the Company bound to make any such distribution provided always
that in respect of any qualifying distribution made to the Company
since the Accounts Date and prior to Completion the Company will be
entitled to a full set-off of its corresponding payment of ACT under
either Section 239(l) of the Taxes Act or Section 239(3) thereof
insofar as there is no set-off under the said Section 239(l) or any
such set-off is restricted
42. Payment to employees
The Company has not made any payment to or provided any benefit for any
officer or employee or ex-officer or ex-employee of the Company which
is not allowable as a deduction in calculating the profits of the
Company for taxation purposes and interest has not been paid to any
director or other officer so as to result in any liability under
Section 187 of the Taxes Act
43. National insurance etc.
The Company has paid all national insurance and graduated pension
contributions for which it is liable and has kept proper books and
records relating to the same
44. Value added tax
The Company:-
44.1 has complied with all statutory provisions and regulations
relating to Value Added Tax Act 1994 for which the Company is
liable and has not been required to give any security therefor
44.2 is not and has not been for value added tax purposes a member of a
group of companies
45. Companies stamp duty
The Company has complied with the provisions of the Finance Act 1973
relating to stamp duty and has duly paid all stamp duty which it was
liable to pay
AS TO THE PROPERTIES
46. Title
46.1 The Company has a good and marketable title to each of the
Properties free from all charges encumbrances wayleaves profits a
prendre easements exceptions reservations options and adverse
interests whatsoever and has not agreed to grant or create any
such things as aforesaid save as disclosed in the Disclosure
Letter
46.2 The information relating to the Properties contained in Schedule 5
is true and complete in all respects
47. Leases
47.1 The Company has taken all necessary action to secure the
rights available to it in respect of the Properties under
Part II of the Landlord & Tenant Act 1954
47.2 The Company has paid the rent and observed and performed
the covenants on the part of the tenant and the conditions
contained in any leases (which expressions in this Clause
48 includes underleases) under which the Properties are
held, and the last demand (or receipts for rent if issued)
were unqualified, and all the leases are valid and in full
force
47.3 All licences, consents and approvals required from the
landlords and any superior landlords under any leases of
the Properties have been obtained and the covenants on the
part of the tenant contained in the licences, consents and
approvals have been duly performed and observed
47.4 There are no rent reviews under the leases of the
Properties held by the Company in progress
47.5 No obligation necessary to comply with any notice or other
requirement given by the landlord under any leases of the
Properties is outstanding and unobserved or unperformed
47.6 There is no obligation to reinstate any of the Properties
by removing or dismantling any alteration made to it by
the Company or any predecessor in title to the Company
48. Compliance
Save as disclosed in the Disclosure Letter the Company and every person
in possession or occupation with of the Properties has complied with
all restrictions covenants restrictions agreements stipulations
declarations and conditions affecting the Properties and every part
thereof and the Company is not aware of any breach thereof
49. Possession
The Company has not at any time agreed to part with any estate or
interest or the possession of the Properties or any part thereof and
there are no subsisting claims thereto or any notices affecting the
same with which the Company has not complied and on Completion the
Company will have vacant possession of the whole of the Properties save
as disclosed in the Disclosure Letter
50. Registration of title
The title to the Properties are not registered at HM Land Registry
51. Outgoings
The Properties are not subject to any outgoings monetary claims charges
or liabilities other than non-domestic business and water rates except
as disclosed to the Purchaser
52. User
52.1 The use of each of the Properties is the permitted use under the
Town and Country Planning Act 1990 as amended
52.2 Planning Permission has been obtained or is deemed to have been
granted for the purpose of the Town and Country Planning Act 1990
as amended with respect to the development of the Properties and
no permission has been suspended or called in and no application
for planning permission is awaiting decision
52.3 The Company has complied and is complying with
52.3.1 all permissions orders and regulations applicable to the
Properties
52.3.2 all agreements under Section 106 of the Town and Country
Planning Act 1990
52.4 Consent has been obtained under the Building Regulations for all
works alterations and improvements to the Properties
52.5 All fire regulations local and other bye laws and Section 38 of
the Highways Act 1980 and the Public Health Acts the Factory Acts
and the Offices Shops and Railway Premises Act 1963 have been
fully complied with
52.6 So far as the Warrantors are aware, the Company has complied with,
and the Warrantors are aware of no previous breach of, any
legislation and common law relating to environmental matters,
including (but without limitation):
52.6.1 waste;
52.6.2 contaminated land;
52.6.3 discharges to (i) land (ii) ground and surface water and
(iii) sewers;
52.6.4 emissions to air;
52.6.5 noise;
52.6.6 dangerous, hazardous or toxic substances and materials;
52.6.7 nuisance;
52.6.8 health and safety;
and the Warrantors are not aware of any actions, claims or
proceedings nor have they any other reason to believe that the
Company has any liability in relation to such matters.
53. Listing
There are no buildings on the Properties or any part thereof which are
listed as being of special historic or architectural importance and
none of the Properties are located in a Conservation Area or subject to
any rights of common or affected by any past or present mining
operations
54. Utilities
The buildings and other structures on the Properties are supplied with
gas water electricity and drainage directly to or into mains as the
case may be without crossing any land other than the Properties and so
far as the Warrantors are aware the buildings and all other structures
on the Properties do not include any high alumina cement blue asbestos
calcium chloride accelerator wood wool slabs used as permanent
shuttering or other poisonous or noxious or harmful or deleterious
material
55. Other property
The Company has never been a tenant or licensee of any property
whatsoever or held any interest under any lease or assignment thereof
of an estate or interest in land
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 5
(The Properties)
<S> <C> <C> <C> <C> <C> <C> <C>
Premises Date of Term Current Next Current Insurance Repairs
Lease Rent Rent Service
(pounds Reviews Charge
sterling)
(1) Units 21 26.2.1991 11 years 1.12.1993 and As defined Landlord Tenant
& 22 from every third in Lease insures repairs
Langston 1.12.1989 anniversary (none Tenant interior and
Priory Mews thereof demanded) reimburses service charge
Kingham in respect of
Oxfordshire external parts
(2) Unit 25 27.4.1995 from 3,000 pa 1.12.1996 and as defined Landlord
and Units 27.4.1995 to (Unit 25) 1.12.1999 in lease insures
7 - 10 30.11.2000 6,000 pa (none Tenant
Langston (Units 7- demanded) reimburses
Priory Mews 10)
Kingham
Oxfordshire
(3) 3 Neal's 31.5.1994 3 years from none 1,000 per
Yard 13 September annum
London WC2 1992
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE 6
(Employees)
<S> <C> <C> <C> <C>
Date
Name/Location Date of Employ- Annual Benefits
Birth/Age ment Salary
Commenced (British
pounds)
Langston Priory Mews
Robert Eric Miller 29.09.50 06.04.88 72,000
William Ahern 21.05.57 18.07.94 3,600
Albert Humphrey 02.02.26 18.07.94 Nil
Susan Tyack 16.06.65 05.05.87 11,115
Philip Howells 20.03.64 02.01.88 11,115
Anabella Holliday 09.10.47 01.08.90 8,951.28
Paul Sparling 18.03.54 10.09.90 9,590.88
Bruce Rowland 20.05.39 08.04.91 11,115
Richard Bruce 06.11.90 16.09.91 8,268
Reg Thomas 10.08.55 21.09.92 8,268
Sheila Salmon 06.01.50 02.01.90 11,368.50
Margaret Millard 19.04.43 23.06.88 4,694.52
Shouming Zhong 18.10.43 05.12.91 19,848 27 per week travel allowance
Yu Hongwen 23.05.53 24.08.92 15,714 27 per week travel allowance
Alice Elizabeth Lyon 19.07.63 05.01.94 15,900
3 Neal's Yard
Yu Qin Shen 53 21.02.92 12,987 36 per week travel allowance
Andrew Gordon 26 05.01.94 12,250
Lucy Leon 04.01.94 4.24 per hour
Peter Fulcher 30 06.07.94 4.24per hour
Annalise Garrett 23 21.08.94 4.24per hour*
Yu Zhong 25 19.08.94 6.25 per hour
6400 Hollis Street, Suite 14
Anastacia White 43 09.95 $42,984
Jonah Chaffee 25 09.95 $21,000
Andrew Miller 24 01.96 $21,000
* or 6.25 per hour if working on the second floor of the shop
</TABLE>
SCHEDULE 7
(Leasing/Hiring and other Agreements)
Date of Vehicle/ Rental
Agreement Owner/Lessor Equipment (exclusive of
VAT)
28.06.94 Neopost Limited Scare and 353.60 per
Equipment quarter
17.01.95 Anglo Leasing plc Sharp Copier SF2022 513.43 per
plus equipment quarter
05.01.96 Pallas Services Sharp Copier SF2022 1,776.81 per
Limited plus equipment and quarter
bin sorter
27.01.95 Pallas Services Sharp Fax F04800 357 per
Limited quarter
24.04.95 Anglo Leasing plc Bin Sorter 77.82 per
quarter
09.02.94 GE Capital Motor Subaru Inipreza 266.63 /month
Finance Limited Reg. No. L669 TKV including VAT
01.12.94 United Dominions Subaru Legacy 381.28 /month
Trust Limited Reg. No. M496 6HP including VAT
SCHEDULE 8
(Documents in The Agreed Terms)
1. Disclosure Letter
2. Service Agreement
3. Resignations
4. Deed of Adherence
5. Registration Rights Agreement
SCHEDULE 9
(List of Suppliers with whom William Ahern deals direct)
Supplier Goods Supplied
Helio Medical Supplies Acupuncture Needles
Gourmet Mushrooms Medicinal Mushrooms
Mycoherb Medicinal Mushrooms
Evergreen Inc Red Algae
SIGNED as a deed and DELIVERED )
)
by the said ROBERT ERIC MILLER )
)
in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said WILLIAM AHERN )
)
in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said GUENDOLIN CRAWFORD )
)
URQUHART in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said RICHARD JOHN BUNCE )
)
in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said BARBARA PAMELA CLARK )
)
in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said ALEXANDER PETER )
)
GALITZINE in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said ANABELLA HOLLIDAY )
)
in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said ALBERT S )
)
HUMPHREY in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said ALICE ELIZABETH LYON )
)
in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said SUSAN TYACK )
)
in the presence of )
SIGNED as a deed and DELIVERED )
)
by the said ANNE WILKINSON )
)
in the presence of )
THE COMMON SEAL of EAST WEST )
)
HERBS LIMITED )
)
was hereunto affixed in the )
)
presence of:- )
Director
Secretary
EXECUTED as a Deed by PARACELSIAN )
)
INCORPORATED )
)
acting by its President and Vice-President )
<PAGE>
EXHIBIT 10.11
Exclusive Licensing Agreement, dated April 1, 1996, between
Calbiochem-Novabiochem International and the Registrant
Exclusive Licensing Agreement
between
Calbiochem-Novabiochem International (CNI)
and
Paracelsian
1. PREAMBLE
Subject matter of this agreement is the Assay for cdkl, components,
improvements and equivalents, the patent(s) covering this assay and the
know how and information on the manufacture, significance and
performance of the assay, hereinafter referred to as "Documentation".
2. RECITALS
a) Paracelsian having its principal office at 222 Langmuir
Laboratories, Cornell Technology Park, Ithaca, NY 14850,
represents and warrants that it has the right to license the
rights in the patent applications and know how and information
covering this technology and that it is not aware of any right
that would inhibit any licensee of these rights to commercialize
the ASSAY.
b) Calbiochem-Novabiochem International (hereinafter referred to as
"CNI") a Delaware corporation having its principal place of
business at 10394 Pacific Center Court, San Diego, California
92121 is desirous of obtaining an exclusive license for the
commercial and scientific use of the ASSAY, and the sale and
distribution of the ASSAY.
In consideration of the mutual benefits to be derived hereunder,
Calbiochem Novabiochem International and Paracelsian agree as follows:
3. DEFINITIONS
"LICENSED PRODUCTS" shall mean the cdkl ASSAY and components to be
used as a research test kit for determining cdk1 levels in cell o
serum. Paracelsian reserves the right to market any assay not included
as part of the LICENSEE PRODUCTS.
"RESEARCH PRODUCT" shall mean any product not approved by the
Federal Drug Administration.
"AFFILIATE" shall mean any corporation or other business entity
controlled by or in common control of the one of the parties. "Control"
as used herein means the ownership directly or indirectly of fifty
percent (50%) or the maximum interest permitted by local law of the
voting stock of a corporation or a fifty percent (50%) or greater
interest in the income of such corporation or other business entity or
the ability otherwise of CNI or Paracelsian to secure that the affairs
of such corporation or other business entity are managed in accordance
with its wishes. CNI and Paracelsian shall include any and all of the
AFFILIATES, unless otherwise provided.
"NET SALES" shall mean actual billings of CNI on sales to third
parties for LICENSED PRODUCTS less the following deductions, where
applicable:
(i) Discounts, allowed and taken, in amounts customary in the
trade;
(ii) Sales, excise value added and/or use taxes or duties imposed
upon and with specific reference to particular sales-,
(iii)Amounts allowed or credited on returns, rebates or retroactive
price reductions; and
(iv) Outbound transportation prepaid or allowed.
"Exclusive License" shall mean that Paracelsian shall not issue a
license to a third party for the LICENSED PRODUCTS for the same use as
provided above.
4. GRANT OF LICENSE
Paracelsian hereby grants to CNI on the terms and conditions
hereinafter stated an exclusive world-wide license to make, have made,
use, sell and have solid LICENSED PRODUCTS as RESEARCH PRODUCTS under
any patents that may issue thereof reissues or extensions thereof, to
use the ASSAY as well as the Documentations throughout the world for a
cdk1 ASSAY and any know-how or components supplied by Paracelsian to be
used as RESEARCH PRODUCTS. This license shall continue until five (5)
years from the date of this agreement unless sooner terminated as
herein provided and shall be prolonged automatically for another five
years unless terminated in writing (Section 12). Paracelsian reserves
the right to make and use the LICENSED PRODUCT for research and to
market or license the rights to market any assay not included as part
of the LICENSED PRODUCTS.
Each LICENSED PRODUCT sold shall include a statement that the product
may only be used for purposes that do not require Federal Drug
Administration approval.
CNI Agrees to use its best efforts to bring LICENSED PRODUCTS to market
and to promote sales thereof. Such efforts shall be at least equal to
commercially reasonable efforts for promotion, sales and quality
control and CNI's efforts for its other products.
5. ROYALTIES
In consideration for the license granted in Section 4, CNI agrees to
pay Paracelsian:
a) An initial license fee of five thousand dollars ($5,000) shall be
paid upon execution of this Agreement.
b) A royalty of five percent (5%) on the first one million dollars
($1,000,000) of NET SALES of CNI or its Affiliates of a LICENSED
PRODUCT and a royalty of ten percent (10%) on NET SALES over one
million dollars ($1,000,000).
c) If CNI is required to take a license under an issued patent or
other proprietary right in any country in order to market a
LICENSED PRODUCT, CNI will pay a royalty rate that is reduced by
1/2 of the royalty rate of the other license, but in no event less
than three percent (3%) on the NET SALES in that country.
d) It is understood that a LICENSED PRODUCT may be sold in a
combination package, composite or kit containing other non-licensed
products or items. In such event, NET SALES, for
purposes of determining royalty payments on the combination
package, shall be calculated by the following applicable method:
(i) By multiplying the NET SALES of that combination package
by the fraction A/B, where A is the price per unit, during the royalty
paying period in question, of the LICENSED PRODUCTS when sold
separately, and B is the price per unit, during the royalty paying
period in question, of the combination package.
(ii) In the event that no such separate sales are made of the
LICENSED PRODUCTS during the royalty paying period in question, the
price per unit from the most recent royalty paying period shall be
used.
(iii) NET SALES for the purposes of determining royalty
payments shall be never be less than the formula (2 x C), where C is
the standard fully absorbed cost to CNI of the LICENSED PRODUCTS, such
costs being determined by using CNI's standard accounting procedures
which shall be in accordance with the generally accepted practice.
e) Nothing contained herein shall obligate CNI to pay royalties more
than once in respect of NET SALES of any LICENSED PRODUCTS or to
pay a higher or multiple royalties for any reason, including
whether the sales of any LICENSED PRODUCTS are covered by the
CLAIMS of more than one patent owned or controlled by Licensor.
f) If Paracelsian shall, at any time during the term of this
Agreement, grant to any other licensee a royalty that is lower
than that contained herein, Paracelsian shall so notify CNI and
CNI shall be entitled to have such more favorable royalty was
granted.
6. TERMS OF PAYMENT
Payment of the royalties shall be due no later than sixty (60) days
after the close of each quarter fiscal year of CNI.
7. RECORDS
CNI shall keep accurate records on books of account showing the
quantities and NET SALES prices of the LICENSED PRODUCTS. Any
certified or chartered public accountant authorized in writing by
Paracelsian shall be given access to such records and books at all
reasonable times. Within sixty (60) days after March 31, June 30,
September 30 and December 31, CNI shall deliver to Licensor a true and
accurate report stating for the preceding three (3) calendar months (a)
NET SALES, (b) the royalties payable thereon and (c) the amount of any
credit taken against royalties payable, if any, not otherwise taken in
computing NET SALES. Except as otherwise provided, simultaneously with
the delivery of each such report, CNI shall pay to Licensor the
provided, simultaneously with the delivery of each such report, CNI
shall pay to Licensor the amount, if any, due for the period of such
report. If no payments are due, it shall be so reported.
All amounts payable hereunder by CNI shall be payable in United States
funds; provided, however, that if any payment on account of NET SALES
is received by CNI in a foreign currency, such amount shall be
converted monthly to United States funds at the rate set internally by
CNI's international finance department providing exchange rates for
translation of end of the month balance sheets and following month
income statements.
8. SUBLICENSES
CNI shall retain control over the ASSAY in its possession and shall not
give it or sublicense it to any third party or entity without prior
specific written permission from Paracelsian.
9. LIABILITY
Paracelsian's liability, in contract, tort or otherwise under or in
relations to the agreement, shall be limited to the amount of monies
actually received from CNI under this agreement. In no event shall
Paracelsian be liable for any indirect or consequential losses
(including, without limitation, loss of profits or use) CNI shall keep
Paracelsian fully indemnified at all times against all liabilities,
claims proceedings (whether civil or criminal), penalties, fines or
other sanctions, judgments, suits, actions, losses, damages
obligations, disbursements, costs and expenses which may at any time be
incurred by or imposed against Paracelsian arising in connection with
the manufacture, control possession, ownership, use, sale or other
disposition by CNI of ASSAY.
CNI hereby agrees to indemnify, hold harmless and defend Paracelsian,
its directors, officers, employees, agents and affiliates against any
damages and legal expenses arising out of lawsuits or any other damage
claim resulting from CNI's activities.
10. REPRESENTATIONS AND WARRANTIES
Paracelsian represents and warrants that it has the right to license
the rights in the patent applications and know how and information
covering this technology and that it is not aware of any right that
would inhibit any licensee of these rights to commercialize ASSAY.
Paracelsian and CNI each represent and warrant to the other that they
have the full power an authority to enter into this Agreement, and that
entering into this Agreement will not contravene, conflict with or
violate the terms of any law, rule, regulation, order or agreement by
which the party may be bound.
11. USE OF NAME
CNI shall use the name of Paracelsian in any advertising, packaging
including customary technical literature and other promotional material
in connection with the sale of Licensed Product pursuant to this
Agreement.
12. INFORMATION
Paracelsian agrees to provide CNI with technical information and
scientific references as needed to market product and to answer
customer's questions related to the product.
CNI agrees to provide Paracelsian with copies of any information that
it receives regarding the efficacy, quality or reliability of the
LICENSED PRODUCTS.
Both parties agree to keep any confidential information disclosed by
either party confidential for at least two years past the termination
of this agreement unless directed to release the information by a court
of law or a lawful subpoena. Confidential Information shall include,
but not be limited to, information relating to: financial information,
manufacturing, research or testing methods, marketing and customer
information, and Documentation and other information related to a cdk1
Assay. Confidential Information shall not include information that: 1)
must be disclosed for the marketing or sale of a LICENSED PRODUCT: 2)
was in the Recipient's possession before disclosure by the Disclosing
party; 3) which is or becomes public through no wrongful action of the
Receiving party; 4) is rightfully received by the Receiving party from
another source without an obligation to the Disclosing party.
Paracelsian specifically reserves the right to disclose information
relating to: 1) the formation of a business relationship between the
parties; 2) the total amount received in royalties under this
Agreement; and 3) the efficacy, quality or reliability of any LICENSED
PRODUCT.
13. TERMINATION
If CNI fails to pay the royalties payable under the terms hereof, or
violates or fails to keep or perform any other obligation, term or
condition hereof, Paracelsian may at its option terminate this
agreement by giving sixty (60) days written notice, sent by registered
mail, return receipt requested, specifying the default complained of,
provided, however, that if CNI shall within such sixty (60) days cure
the default complained of, then the notice shall cease to be operative
and this agreement shall continue in fall force and effect as though
such default has not occurred. CNI may terminate this Agreement at any
time upon sixty (60) days written notice to Licensor. Upon
termination, CNI will destroy or return the MATERIALS back to
Paracelsian. In such case, CNI shall, remain obligated for royalties
on the NET SALES sold before the effective date of termination under
this paragraph.
14. MISCELLANEOUS
Parties to this Agreement recognize and agree that each is operating as
an independent contractor and not as an agent of the, other. This
Agreement shall not constitute a partnership or joint venture, and
neither party may be bound by the other to any contract, arrangement or
understanding except as specifically stated herein.
All notices, payments, reports and the like required or permitted
hereunder shall be deemed given when mailed by registered or certified
mail, if to Paracelsian to:
Paracelsian
222 Langmuir Laboratories
Cornell Technology Park
Ithaca, New York 14850
ATTN: Keith A. Rhodes
President and CEO
and if to CNI to:
Calbiochem-Novabiochem International
10394 Pacific Center Court
San Diego, California 92121
ATTN: Dr. John T. Snow
Vice President, New Business Development
or to such other person or by such other means as to which the parties
may from time to time agree in writing.
The captions herein are for the convenience of the parties only.
This Agreement shall not be assignable by either party without prior
written consent of the other party, except that each party may assign
to an AFFILIATE or to a successor in ownership of all or substantially
all of the business assets to which the Agreement pertains which
successor shall expressly assume in writing performance of all the
terms and conditions of this Agreement to be performed by the assigning
party.
This Agreement contains the entire understandings of the parties and no
amendment may be made hereto without the express written consent of
each of the parties.
15. ARBITRATION AND APPLICABLE LAW
This Agreement shall be construed under the substantive laws of the
State of California, United States, without giving effect to choice of
law or conflict of law principles. In the event of any dispute or
controversy arising under this Agreement or the transactions
contemplated herein, the parties mutually consent to the jurisdiction
of the courts sitting in the State of California, United States.
16. COUNTERPARTS
For convenience of the parties hereto, this Agreement may be executed
in one or more counterparts, each of which shall be deemed an original
for all purposes.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers as of the date first written
below.
Calbiochem-Novabiochem Paracelsian
International
/s/Stelios B. Papadoupoulos 3/25/96 /s/Keith A. Rhodes 4/1/96
Signature Date Signature Date
Stelios B. Papadopoulos Keith A. Rhodes
Chairman and CEO President and CEO
<PAGE>
EXHIBIT 21
SUBSIDIARIES
OF
PARACELSIAN, INC.
Name State of Incorporation % Owned
---- ---------------------- -------
PARA Acquisition Corp. Delaware 100 %
<PAGE>
EXHIBIT 23.1
Consent of Arthur Andersen LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated November 30, 1995 on the consolidated
balance sheet of Paracelsian, Inc. (a Delaware corporation in the
development stage) and subsidiary as of September 30, 1995, and the
related consolidated statements of operations, stockholders' equity and
cash flows for each of the two years in the period ended September 30,
1995 and for the period from inception (April 15, 1991) to September 30,
1995 included in this Form 10-KSB, into the Company's previously filed
Registration Statement File No. 333-8333.
/s/Arthur Andersen LLP
Rochester, New York
December 30, 1996
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation
of our report dated November 30, 1995 on the consolidated balance sheet of
Paracelsian, Inc. (a Delaware corporation in the development stage) and
subsidiary as of September 30, 1995, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the two
years in the period ended September 30, 1995 and for the period from
inception (April 15, 1991) to September 30, 1995 included in this Form
10-KSB, into the Company's previously filed Registration Statement File
No. 333-14215.
/s/Arthur Andersen LLP
Rochester, New York
December 30, 1996
<PAGE>
EXHIBIT 23.2
Consent of KPMG Peat Marwick LLP
Independent Auditor's Consent
The Board of Directors
Paracelsian, Inc.
We consent to incorporation by reference in the Registration Statement
No. 333-8333 on Form S-3, and Registration Statement No. 333-14215 on
Form S-3, of Paracelsian, Inc. of our report dated November 22, 1996,
relating to the consolidated balance sheet of Paracelsian, Inc. and
subsidiary as of September 30, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the
year ended September 30, 1996, which report appears in the
September 30, 1996 annual report on Form 10-KSB of Paracelsian, Inc.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
New York, New York
December 27, 1996
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Financial data for fiscal year end 9/96
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 4,171,402
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,449,769
<PP&E> 384,790
<DEPRECIATION> 81,554
<TOTAL-ASSETS> 6,703,652
<CURRENT-LIABILITIES> 630,062
<BONDS> 0
0
0
<COMMON> 119,348
<OTHER-SE> 5,954,242
<TOTAL-LIABILITY-AND-EQUITY> 6,703,652
<SALES> 54,036
<TOTAL-REVENUES> 59,036
<CGS> 0
<TOTAL-COSTS> 4,335,896
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,201,764)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,201,764)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,201,764)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
