-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PzDECi6fWd2Y+31F233bwKy8FrJXPPM6UEyGfmu7XQHmzmRrAgaPHLvjojxGZzBh O6OXSHMxD/wy++bfqxqOeg== 0000950152-97-003408.txt : 19970501 0000950152-97-003408.hdr.sgml : 19970501 ACCESSION NUMBER: 0000950152-97-003408 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19970131 FILED AS OF DATE: 19970430 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: POLYDEX PHARMACEUTICALS LTD/BAHAMAS CENTRAL INDEX KEY: 0000317158 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08366 FILM NUMBER: 97591338 BUSINESS ADDRESS: STREET 1: 421 COMSTOCK ROAD STREET 2: SCARBOROUGH CITY: ONTARIO CANADA M1L 2 STATE: A6 BUSINESS PHONE: 4167552231 MAIL ADDRESS: STREET 1: MARK GASARCH, ESQ STREET 2: 1285 AVENUE OF THE AMERICAS, 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 10-K 1 POLYDEX 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 31, 1997 Commission file number: 1-8366 POLYDEX PHARMACEUTICALS LIMITED (Exact Name of Registrant as Specified in Its Charter) Commonwealth of the Bahamas None (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 421 Comstock Road, Scarborough, Ontario, Canada M1L 2H5 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (416) 755-2231 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Shares, $.00167 Par Value Boston Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Same Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ] The aggregate market value of the Registrant's voting stock held by non-affiliates of the Registrant, computed by reference to the average bid and ask prices of such stock as of March 31, 1997: $15,836,322 The number of Common Shares outstanding as of March 31, 1997: 28,252,182 Documents Incorporated By Reference Portions of the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 1997, are incorporated by reference into Part II. Portions of the Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 19, 1997, are incorporated by reference into Part III. 2 PART I ITEM 1. BUSINESS Introduction - ------------ Polydex Pharmaceuticals Limited (the "Registrant") was incorporated under the laws of the Commonwealth of the Bahamas on June 14, 1979 as Polydex Chemicals Limited, and changed its name on March 28, 1984. The address of its statutory office in the Bahamas is c/o Higgs & Johnson, 83 Shirley Street, Nassau, Bahamas: telephone (242) 322-8571. The Registrant's current business is conducted through two of its subsidiaries, Polydex Chemicals (Canada) Limited, a wholly-owned Canadian corporation incorporated in 1969, which itself conducts its business through its wholly-owned subsidiary, Dextran Products Limited ("Dextran Products") (incorporated in Ontario in 1966) and Chemdex, Inc. ("Chemdex"), a 90% owned Kansas corporation incorporated in 1987. On November 30, 1992, Chemdex acquired from Continental Grain Company 100% of the issued and outstanding share capital of Veterinary Laboratories Inc. ("Vet Labs"), a Kansas corporation, which previously had been wholly-owned by the Registrant. On December 1, 1992, Vet Labs and Sparhawk Laboratories Inc. ("Sparhawk") entered into a joint venture (the "Sparhawk Joint Venture") for the purpose of manufacturing and selling veterinary pharmaceutical products. Sparhawk is an affiliated company owned primarily by the management of the Sparhawk Joint Venture. The Registrant controls the Sparhawk Joint Venture through its control of the board of directors. On May 9, 1995, the Registrant acquired from its then Chairman (now Vice-Chairman), Thomas C. Usher, a 90% interest in Novadex International Inc. ("Novadex International"), a Bahamas corporation. The principal asset of Novadex International is a patent, developed by Mr. Usher, for the use of Cellulose Sulphate in a number of applications, including the development of a new contraceptive gel. General - ------- The current business of the Registrant is the manufacture and sale of Dextran and several of its derivatives, including Iron Dextran and Dextran Sulphate, veterinary pharmaceutical products and other specialty chemicals, and cosmetic raw materials, with some related research and development. Dextran, a generic name applied to certain synthetic compounds formed by bacterial growth on sucrose, is a polymer or giant molecule. The name Polydex combines the words "polymer" and "dextran." Description, Usage and Regulated Aspects of the Products - -------------------------------------------------------- The operations of the Registrant are presently carried on through Dextran Products and Vet Labs. These subsidiaries operate principally in one industry: the manufacture of veterinary pharmaceutical products. -2- 3 Dextran Products manufactures and sells Dextran and several of its derivatives. Vet Labs develops, manufactures and sells veterinary pharmaceutical products. Iron Dextran - ------------ A. Description ----------- Iron Dextran is a derivative of Dextran produced by complexing Iron with Dextran. Iron Dextran is injected into most pigs at birth as a treatment for anemia. B. Regulation and Usage -------------------- Sales presently are being made by the Registrant in the following countries, which have approved the use of Iron Dextran for animals or which require no approval or accept the Canadian registration: Canada (registration number R625), Denmark, France, Switzerland, Hong Kong, Germany, the Netherlands, Finland, Ecuador, Thailand, Hungary, Malaysia, the Philippines, Japan, Brazil, Korea, Spain, Sweden, Israel, New Zealand, Mexico, Costa Rica, and Australia. In the United States, sale for veterinary use requires the approval of the U.S. Food and Drug Administration (the "FDA"). Chemdex has FDA approval for veterinary use of Iron Dextran in the United States. For classification purposes, the Registrant treats these sales of the Iron Dextran raw materials as sales of Iron Dextran. Dextran Sulphate - ---------------- A. Description ----------- Dextran Sulphate is a specialty chemical which finds use in research applications of the pharmaceutical industry and other centers of chemical research. B. Regulation and Usage -------------------- The Dextran Sulphate manufactured by the Registrant is sold in Australia, Switzerland, France, the Netherlands, New Zealand and the United States, where it is used in limited quantities in the manufacture of film, as well as analytical chemical applications. This usage requires no regulatory approval. -3- 4 Veterinary Products - ------------------- A. Description ----------- The Registrant manufactures tablets and boluses, internal and external solutions, ointments, powders and sterile injectable products. B. Regulation and Usage -------------------- The products are sold in the United States and are used by large animal veterinarians and by farmers for the treatment of various diseases and conditions that affect farm animals. The Vet Labs facility is regulated and inspected by the FDA and the U.S. Drug Enforcement Agency. Sales, Distribution and Reliance Upon Foreign Countries - ------------------------------------------------------- Iron Dextran and Dextran Sulphate - --------------------------------- The Registrant sells Iron Dextran and Dextran Sulphate throughout the world on a non-exclusive basis. For the fiscal year ended January 31, 1997, approximately 12% of the total sales of Iron Dextran were to one customer. No other customer accounted for 10% or more of total sales. This customer is a supply house, and management believes that the loss of this customer would not have a material adverse effect upon Dextran Products' results of operations, since management believes that customers of the supply house would either do business with the Registrant through another distributor or supply house, or directly. The Registrant has not changed its mode of distribution of Iron Dextran or Dextran Sulphate during the past eleven fiscal years. The Registrant distributes its product through sales agents, operating on an exclusive and non-exclusive basis, throughout the world. These agents are paid a sales commission, usually 3%. Orders are forwarded to the Registrant's manufacturing facilities in Scarborough, Ontario, Canada where they are processed and shipped. The Canadian Embassies and Consulates in various countries also assist the Registrant by making available information regarding the Registrant and its products. Veterinary Products - ------------------- All of the sales of Vet Labs for the fiscal year ended January 31, 1997 were within the United States. Distribution is achieved through private label buying groups who then distribute to their own distributors and through full service independent distributors who purchase products under Vet Labs' house labels. Private label products accounted for approximately 80% of sales, with house label sales contributing approximately 18%. In addition, Vet Labs also does "contract filling" for other industry companies. Four customers (all private label buying -4- 5 groups) accounted for 55% of sales at Vet Labs, with individual customer shares ranging from 12% to 16%. The loss of any one or more of these customers could have a material adverse effect upon Vet Labs' results of operations. Working Capital Requirements - ---------------------------- There are no special inventory requirements or credit terms extended to customers that would have a material adverse effect on the Registrant's working capital. Patents, Trademarks and Licenses - -------------------------------- Iron Dextran - ------------ Effective February 1, 1995, the Registrant entered into an agreement with Novadex Inc., an affiliated company, whereby Novadex Inc. granted the Registrant the exclusive worldwide license to use a certain process developed by Novadex Inc. for producing Iron Dextran. This process allows the Registrant to produce Iron Dextran at a lower cost than would otherwise be possible. The term of the license agreement is 10 years. The Registrant pays a license fee based on production volumes. The technology in the field of Dextran and its derivatives is undergoing continuous expansion and development. The manufacture of Dextran and its derivatives may be achieved by different processes and variations (including glycoside, which is in the public domain). Therefore, the Registrant does not believe that this license gives it any substantial competitive advantage. Dextran Sulphate - ---------------- This material was patented under U.S. patent number 4,855,410 in August, 1989 and has been tested with other drugs for efficacy in controlling the HIV virus. At this time research has been halted so that the Registrant can focus its resources on cystic fibrosis and Cellulose Sulphate. Once these projects have been completed, the Registrant expects to return its attention to Dextran Sulphate. Veterinary Products - ------------------- Vet Labs holds a New Animal Drug Application from the FDA for the production of both 10% Bulk Iron Hydrogenated Dextran and 10% Injectable Iron Hydrogenated Dextran. Elastin and Collagen - -------------------- These materials were patented under U.S. patent numbers 4,659,740 and 4,784,986 on April 21, 1987 and November 15, 1988, respectively. The patents cover a process whereby the materials are modified in such a way as to penetrate the skin and act as a hydrating agent. -5- 6 Cellulose Sulphate - ------------------ During the fiscal year ended January 31, 1996, a patent for a new method of manufacture of Cellulose Sulphate was purchased for $1 million. The process was patented under U.S. patent number 5,378,828 in June of 1995. Prior to development of the patented process, the manufacture of the compound required the use of dangerous and environmentally sensitive chemicals. The new method is safer, and appears to produce a more consistent product. Cellulose Sulphate appears to have applications in film manufacture and capsule production and is presently being investigated in conjunction with the Rush Institute of the University of Chicago as a potential contraceptive which also has antiviral capabilities. With regard to the latter application, the Registrant is looking to perform human clinical trials and to this end most of the animal toxicology work necessary for the filing of an Investigation New Drug (IND) has been completed. The IND will be filed when all of such work is complete. Cystic Fibrosis - --------------- Effective April 1, 1994, the Registrant entered into a Research Agreement (the "UBC Research Agreement") with an affiliated company and the University of British Columbia ("UBC"). On April 1, 1996, the UBC Research Agreement was amended and expanded to include a number of Canadian hospitals. Under the terms of the UBC Research Agreement, the Registrant has agreed to provide equipment and funding in return for continuing research on cystic fibrosis to be carried out in connection with two patents issued in 1996. U.S. patent number 5,441,938 is held jointly by UBC and the Registrant, whereas U.S. patent number 5,514,665 is held by UBC and licensed to the Registrant. In conjunction with the UBC Research Agreement, UBC granted the Registrant, through a sub-licensing agreement with an affiliated company, an exclusive worldwide license to manufacture, distribute and sell products derived or developed from the research performed. The Registrant will pay a quarterly royalty, based on sales. Status of New Products or Industry Segments - ------------------------------------------- There has been no public announcement of, and no information otherwise has been made public about, a new product or industry segment that would require the investment of a material amount of the assets of the Registrant or that otherwise is material. Suppliers and Sales - ------------------- Iron Dextran and Dextran Sulphate - -------------------------------- With regard to its basic raw materials, the Registrant utilizes one basic supplier for its sugar requirements and one basic supplier for its Iron. Both of these materials, as well as others used by the Registrant, are readily available from numerous suppliers at competitive prices in the market. The Registrant has no long-term contracts with any of its suppliers. -6- 7 The Registrant is dependent upon a single source for a certain raw material used in the production of Dextran Sulphate. Such supply was adequate in fiscal 1997 and no shortages are anticipated in the near term. However, any curtailment in availability of such raw material could be accompanied by production or other delays as well as increased raw material costs, with consequent adverse effect on the Registrant's results of operations. Veterinary Products - ------------------- Raw materials are readily available from a variety of suppliers at competitive prices in the market. The Registrant has no long-term contracts with any of its suppliers. Backlog and Seasonality - ----------------------- The Registrant's backlog as at January 31, 1997 was approximately $700,000, whereas backlog as at January 31, 1996 was approximately $800,000. All of these orders are expected to be filled within the current fiscal year. The Registrant's business is not seasonal to any material extent. Competition - ----------- The Registrant is the only Canadian manufacturer of Iron Dextran and, as a result of its acquisition of Vet Labs, the Registrant is also the only manufacturer in the United States. There exist several European sources of Iron Dextran. However, the only other major supplier of Iron Dextran is located in Denmark. Dextran Sulphate is also manufactured by several manufacturers in the U.S. and Europe. With regard to Iron Dextran and Dextran Sulphate, the Registrant competes on the basis of quality, service and price. The Registrant currently produces approximately 50 veterinary products including analgesics, anti-diarrheals, topical antiseptics, nutritional supplements, local and general anesthesia agents and euthanizing agents. Primary market segments include beef and dairy cattle, swine, equine and to a small extent, companion animals (dogs and cats). With the exception of Iron Dextran, the product offering is generic or non-licensed (non NADA). As such, all products are subject to numerous competitors. In addition to competing on the basis of quality, service and price, the Registrant differentiates itself from its competitors through its ability to supply multiple product dosage forms (i.e., injectables, boluses, tablets, liquids and powders) and provide customers with technical and regulatory support and assistance from in-house quality control and regulatory departments. Research and Development - ------------------------ During the fiscal years ended January 31, 1997, 1996, and 1995, the Registrant expended $92,063, $314,149, and $270,488, -7- 8 respectively, on research and development relating primarily to cystic fibrosis and Cellulose Sulphate. Environmental Compliance - ------------------------ The Registrant believes that it is in substantial compliance with all existing applicable foreign, federal, state and local environmental laws and does not anticipate that such compliance will have a material effect on its future capital expenditures, earnings or competitive position. Governmental Contracts - ---------------------- No portion of the Registrant's business is subject to renegotiation of profits or termination of contract or subcontracts at the election of the U.S. Government. Employees - --------- As of March 31, 1997, the Registrant employed 79 employees, of whom 64 were engaged in production, 2 in research and development, 9 in administration and 4 in marketing and sales activities. Of such employees, 53 were employed by Vet Labs and 26 by Dextran Products. None of the Registrant's employees are covered by collective bargaining agreements. Management considers its relations with employees to be good. Recent Developments -- New Products - ----------------------------------- Activated Collagen and Elastin - ------------------------------ Collodex, a modified collagen, has been formulated by the Registrant as a principal ingredient of a cosmetic skin cream. During fiscal 1997, the Registrant engaged several marketing companies for the promotion of this product, however, efforts by these companies met with limited success. At the present time, minor sales are being made to cosmetic manufacturers in the Pacific Rim with the potential for increased sales in the future. In addition, two U.S. marketing companies have expressed an interest in promoting the product and the Registrant expects that one of these companies will start advertising the product on the Internet shortly. Elastin, a material with similar applications, has been developed by the Registrant. It has not been commercialized, however, pending the launch of Collodex and no sales are expected to occur in the current fiscal year. Cystic Fibrosis - --------------- Cystic fibrosis is a genetic disease which causes a cascade of effects, the most severe being a build up of mucus in the lungs. This mucus is difficult to remove and also permits the colonization of bacteria which then cause secondary infections -8- 9 and often death. Recent research has shown that a special form of Dextran is effective in preventing the colonization of bacteria in the mouth and in stimulating the macrophages in the lungs to remove the bacteria present and lessen secondary infections. This research is being done by the Registrant in collaboration with the University of British Columbia, where in vitro studies are being performed. Further animal work is being planned prior to the commencement of human clinical trials. Cellulose Sulphate - ------------------ Production of this product was halted in 1989 when the customer found a substitute. However, interest in the industrial use of Cellulose Sulphate has been revived and samples have been supplied, but it is difficult to predict if sales will occur this year. Research is also underway in the United States to evaluate the use of this material as a contraceptive gel with antiviral capabilities. The Registrant is in preliminary discussions with certain companies to fund the further research necessary to commercialize this Cellulose Sulphate product, however, the results of their discussions are indeterminable at this time. The Registrant cannot predict which, if any, of these new products might generate revenues for the Registrant, or when any such revenues might occur, if at all. Segmented Information - --------------------- The information regarding the geographic distribution of revenue, operating results and assets set forth in Note 14 to the Registrant's Consolidated Financial Statements included in the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 1997 is incorporated herein by reference. ITEM 2. PROPERTIES ---------- The Registrant's wholly-owned subsidiary, Polydex Chemicals (Canada) Limited, maintains its executive and sales offices and its manufacturing plant of approximately 30,000 square feet in Scarborough, Ontario, Canada. The Registrant operates a fermentation plant in Scarborough, Ontario, Canada, having the capacity to produce both 10% and 20% Iron Dextran at the rate of up to 10,000 litres a week (there are 1.057 quarts in one litre). Present production is approximately 8,000 litres a week. Complexing of the Iron Dextran takes place in Scarborough, Ontario, Canada. Dextran Sulphate presently is manufactured at the Registrant's plant in Scarborough, Ontario, Canada where reactors and spray drying equipment are available. The Registrant presently manufactures approximately 500 kilos of Dextran Sulphate per quarter (there are 2.2 pounds in one kilo), and has the capacity to manufacture 500 kilos per month simultaneously with the 10,000 litres per week of Iron Dextran. -9- 10 Through its subsidiary Vet Labs, the Registrant manufactures tablets and boluses, internal and external solutions, ointments, powders and injectable products. The manufacturing facility is located on 8 acres of land in Lenexa, Kansas. The plant is 55,000 square feet with separate production areas for each of the above product groups. The plant has the capacity to manufacture 200,000 boluses per day, 4,000 gallons of liquids per day, 1,500 pounds of powder per day and 1,000 gallons of injectable products per day. The facility is currently running at approximately 50% of capacity. Each of the properties described above is owned by the Registrant. Management believes that the Registrant's facilities are adequate for its present requirements. These facilities have additional capacity for expansion of production of existing and new products. The Registrant considers its current equipment to be in good condition and suitable for the operations involved. ITEM 3. LEGAL PROCEEDINGS ----------------- On May 23, 1996, FMMG, Inc. ("FMMG") filed suit against the Registrant in the United States District Court for the Southern District of Florida seeking damages for the alleged breach of an option given by the Registrant in favor of FMMG and another company with respect to 160,000 shares of common stock in Novatek International, Inc. previously held by the Registrant. The Registrant has challenged the jurisdiction of the U.S. District Court by a motion to dismiss. Should the motion to dismiss be denied, the Registrant intends to vigorously defend the action. Discovery on the merits has been stayed pending resolution of the motion to dismiss; accordingly, it is not possible at this point in time to accurately predict the likelihood of an unfavorable outcome or the magnitude of any potential damages. On November 19, 1992, Joseph Valaderes filed suit against the Government of Canada and the Canadian Broadcasting Corporation in the Ontario Court (General Division) seeking Canadian $2,900,000 in the aggregate, plus pre and post judgment interest and costs, in connection with a television broadcast in 1989. On July 21, 1995, Mr. Valaderes filed an amended claim to include Dextran Products as a defendant. The Registrant intends to vigorously defend the action, however, the ultimate outcome at this stage of the proceedings is not determinable at this time. There are no other material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the Registrant or any of its subsidiaries is a party, or to which any of the their property is subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ---------------------------------------------------- No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the Registrant's fourth quarter ended January 31, 1997. -10- 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS --------------------------------------------------------------------- The information contained under the caption "Market for the Company's Common Stock and Related Security Holder Matters" in the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 1997 is incorporated herein by reference. The following information is provided in addition to the information incorporated by reference as mentioned above. There are no governmental laws, decrees or regulations in the Commonwealth of the Bahamas applicable to the Registrant that restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends or other payments to nonresident holders of the Registrant's Common Shares. Also, U.S. holders of the Registrant's Common Shares are not subject to taxes under Bahamian law. ITEM 6. SELECTED FINANCIAL DATA ----------------------- The information required under this item is included under the caption "Financial Highlights" in the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 1997 and is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- The information required under this item is included under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 1997 and is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- The Registrant's Consolidated Financial Statements are included in the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 1997 and are incorporated herein by reference. Supplementary financial information is not required. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- Not applicable. -11- 12 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT -------------------------------------------------- The information required under this item is incorporated herein by reference from the material contained under the captions "Board of Directors", "Proposals","Executive Officers" and "Section 16(a) Beneficial Ownership Reporting Compliance" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year. ITEM 11. EXECUTIVE COMPENSATION ---------------------- The information required under this item is incorporated herein by reference from the material contained under the captions "Board of Directors", "Board Meetings and Committees", "Compensation of Executive Officers" and "Company Stock Performance" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT -------------------------------------------------------------- The information required under this item is incorporated herein by reference from the material contained under the caption "Ownership of Voting Securities" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ---------------------------------------------- The information required under this item is incorporated herein by reference from the material contained under the caption "Transactions With the Company" in the Registrant's definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, not later than 120 days after the end of the fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ---------------------------------------------------------------- (a) The following documents are filed as a part of this Annual Report on Form 10-K: (1) Financial Statements included in the Registrant's Annual Report to Shareholders for the fiscal year ended January 31, 1997 and incorporated by reference from Exhibit 13 filed herewith -12- 13 Auditors' Report to the Shareholders -- Ernst & Young LLP Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Financial Statement Schedules Auditors' Report to Shareholders - KPMG Peat Marwick Thorne All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore, have been omitted. (3) Exhibits 3.1 Memorandum of Association of Polydex Pharmaceuticals Limited, as amended 3.2 Articles of Association of Polydex Pharmaceuticals Limited, as amended 10.1 Employment Agreement between Polydex Pharmaceuticals Limited and Thomas C. Usher, dated December 22, 1993 10.2 Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher, dated December 22, 1993 10.3 Employment Agreement between Polydex Pharmaceuticals Limited and Natu Patel, dated February 12, 1990 10.4 Research Agreement among Dextran Products Limited, Canadian Microbiology Consortium, British Columbia's Children's Hospital and the University of British Columbia, dated April 1, 1996 10.5 Joint Venture Agreement among Chemdex, Inc., Veterinary Laboratories Inc. and Sparhawk Laboratories, Inc., dated December 1, 1992 10.6 Manufacturing Agreement among Sparhawk Laboratories, Inc., Agri-Laboratories, Ltd. and Veterinary Laboratories Inc., dated September 23, 1996 10.7 Marketing Proposal between Polydex Pharmaceuticals Limited and Trident Group, dated March 1, 1997 10.8 Stock Sale and Purchase Agreement among Polydex Pharmaceuticals Limited, Chemdex, Inc. and Continental Grain Company, dated October 30, 1992, as amended on November 22, 1996 -13- 14 13 Annual Report to Shareholders for the fiscal year ended January 31, 1997 (only those portions incorporated herein by reference) 21 Subsidiaries of Polydex Pharmaceuticals Limited 23 Consent of Ernst & Young LLP 27 Financial Data Schedule (b) Reports on Form 8-K No current reports on Form 8-K were filed by the Registrant during the fourth quarter ended January 31, 1997. -14- 15 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 30, 1997 POLYDEX PHARMACEUTICALS LIMITED By: /s/ George G. Usher ----------------------------------- George G. Usher, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Date: April 30, 1997 /s/ George G. Usher -------------------------------------- George G. Usher, Director, President and Chief Executive Officer (Principal Executive Officer) Date: April 30, 1997 /s/ Sharon Wardlaw -------------------------------------- Sharon Wardlaw, Treasurer, Secretary and Chief Financial and Accounting Officer (Principal Financial and Accounting Officer) Date: April 30, 1997 /s/ Joseph Buchman -------------------------------------- Joseph Buchman, Director Date: April 30, 1997 /s/ Alec Keith -------------------------------------- Alec Keith, Director Date: April 30, 1997 /s/ Natu Patel -------------------------------------- Natu Patel, Director Date: April 30, 1997 /s/ Ruth L. Usher -------------------------------------- Ruth L. Usher, Director Date: April 30, 1997 /s/ Thomas C. Usher -------------------------------------- Thomas C. Usher, Director 16 AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the consolidated balance sheets of Polydex Pharmaceuticals Limited as at January 31, 1996 and 1995 and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended January 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free to material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 1996 and 1995, and the results of its operations and the changes in its financial position for each of the years in the three-year period ended January 31, 1996, in accordance with accounting principles generally accepted in the United States of America. KPMG Chartered Accountants Toronto, Canada April 30, 1996 17 EXHIBIT INDEX ------------- Exhibit Number Exhibit Description - -------------- ------------------- 3.1 Memorandum of Association of Polydex Pharmaceuticals Limited, as amended 3.2 Articles of Association of Polydex Pharmaceuticals Limited, as amended 10.1 Employment Agreement between Polydex Pharmaceuticals Limited and Thomas C. Usher, dated December 22, 1993 10.2 Employment Agreement between Polydex Pharmaceuticals Limited and George G. Usher, dated December 22, 1993 10.3 Employment Agreement between Polydex Pharmaceuticals Limited and Natu Patel, dated February 12, 1990 10.4 Research Agreement among Dextran Products Limited, Canadian Microbiology Consortium, British Columbia's Children's Hospital and the University of British Columbia, dated April 1, 1996 10.5 Joint Venture Agreement among Chemdex, Inc., Veterinary Laboratories Inc. and Sparhawk Laboratories, Inc., dated December 1, 1992 10.6 Manufacturing Agreement among Sparhawk Laboratories, Inc., Agri-Laboratories, Ltd. and Veterinary Laboratories Inc., dated September 23, 1996 10.7 Marketing Proposal between Polydex Pharmaceuticals Limited and Trident Group, dated March 1, 1997 10.8 Stock Sale and Purchase Agreement among Polydex Pharmaceuticals Limited, Chemdex, Inc. and Continental Grain Company, dated October 30, 1992, as amended on November 22, 1996 13 Annual Report to Shareholders for the fiscal year ended January 31, 1997 (only those portions incorporated herein by reference) 21 Subsidiaries of Polydex Pharmaceuticals Limited 23 Consent of Ernst & Young LLP 27 Financial Data Schedule EX-3.1 2 EXHIBIT 3.1 1 Exhibit 3.1 COMMONWEALTH OF THE BAHAMAS -------------- The Companies Act COMPANY LIMITED BY GUARANTEE AND HAVING A CAPITAL DIVIDED INTO SHARES -------------- MEMORANDUM OF ASSOCIATION OF POLYDEX CHEMICALS LIMITED 1. The name of the Company is POLYDEX CHEMICALS LIMITED. 2. The registered office of the Company will be situate in the Island of New Providence, one of the islands of the Commonwealth of the Bahamas. 3. The objects for which the Company is established are: (1) to carry on the manufacture and sale of patent medicines, medicinal and pharmaceutical preparations, and generally to carry on the business of manufacturers, buyers and sellers, at wholesale and at retail, of all kinds of preparations and chemicals whatsoever; to carry on all or any of the businesses of chemists, chemical manufacturers, exporters and importers, at wholesale or at retail or on a commission basis; to buy and acquire from any person, firm or corporation any recipes, formulae or other information, whether patented or not, for the manufacture and preparation of any pharmaceutical articles or specialties; 2 and as wholesalers only and not as retailers, to carry on the business of manufacturers of drugs and medicines; (2) To purchase or otherwise acquire, on such terms and in such manner as the regulations of the Company from time to time provide any shares or interests in the Company. (3) to engage in and carry on research of all kinds including, without limiting the generality of the foregoing, chemical, mechanical and industrial research, and to enter into contracts for or otherwise undertake research of all kinds on behalf of other persons, firms or corporations; (4) to promote, institute, enter into, carry on, assist or participate in any and every description of financial, commercial, mercantile, industrial, manufacturing, mining and agency business, works, contracts, undertakings and operations of all kinds; (5) to carry on a general financial agency, investment, underwriting and brokerage business, and to act as agents and brokers for the purchase, sale, improvement and management of any property, business or undertaking; (6) to subscribe for, underwrite, and acquire by purchase, exchange or other legal title, and hold either absolutely, or as holder by way of collateral security, or otherwise, and to sell with or without guarantee, assign, transfer and otherwise dispose of and deal in the stocks, bonds, debentures, shares, scrip and securities of any government, any municipal and school corporation, any banking, public utility, commercial and industrial company or corporation; (7) to carry on the business of capitalists and financiers in all its branches; 2 3 (8) to undertake the office of receiver, treasurer, registrar or auditor, and to keep for any company, government authority, or body, any register relating to any stocks, funds, shares or securities, or to undertake any duties, in relation to the registration of transfers, the issue of certificates or otherwise; (9) to carry on the business of an investment company in all its branches and, in particular (but without limitation to the generality of the foregoing words), to acquire and hold shares, stocks, debentures, debenture stock, bonds, notes, obligations and securities whether or not involving unlimited liability, of or issued or guaranteed by any company or corporation constituted or carrying on business in any part of the world and whether public or private, and also to acquire and hold debentures, debenture stock, bonds, notes, obligations and securities, not involving unlimited liability, of or issued or guaranteed by any government, sovereign ruler, commissioners, public body or authority, national, municipal, local or otherwise, or any agency of any such authority, or any international body or authority whatsoever; (10) to apply for purchase or otherwise acquire, and to protect and renew in any part of the world any patents, patent rights, brevets d'invention, trade marks, designs, licences, concessions, and the like, conferring any exclusive or non-exclusive or limited right to their use, or any secret or other information as to any invention, which may seem capable of being used for any of the purposes of the Company, or the acquisition of which may seem calculated directly or indirectly to benefit the Company, and to use, exercise, develop or grant licences and charge royalties in respect of, or otherwise turn to account the property, rights or information so 3 4 acquired and to expend money in experimenting upon, testing or improving any such patents, inventions or rights; (11) to act as managers for and to render services to other persons, firms, companies and corporations in connection with any property or business of any nature and generally to carry on the business of a management company in all its branches; (12) to produce, manufacture, adapt, prepare, distribute, buy, sell, rent, lease, let on hire, import, export and otherwise deal in, either as principal or as agent and either at wholesale or at retail, goods, wares, products, materials, articles and merchandise of every nature and kind whatsoever, (13) to do a general commission merchant's and selling agent's business; to buy, sell, and otherwise dispose of, hold, own, manufacture, produce, export and import, and deal in, either as principal or agent, and upon commission or otherwise, all kinds of personal property whatsoever, without limit as to amount; to make and enter into all manner and kinds of contracts, agreements, and obligations by or with any person or persons, company or companies, for the purchasing, acquiring, manufacturing, repairing, selling, and dealing in any article of personal property of any kind or nature whatsoever, and generally with full power to perform any and all acts connected with the same or arising therefrom or incidental thereto, and all acts proper or necessary for the purpose of the business, or conducive to its best interests; (14) to purchase, take on lease or in exchange, or otherwise acquire and hold any lands in The Commonwealth of the Bahamas, or elsewhere, and any estate or interest therein, and any rights over or connected with any such lands, and to pay for the 4 5 same in cash, or in the shares or other securities of the Company or otherwise as the Company may see fit; (15) to purchase for investment or resale, and to deal in land and other property of any tenure and any interest therein, and to make advances upon the security of land or other property, or interest therein, and to deal in, traffic by way of sale, mortgage, lease, exchange or otherwise with land and house property and any other property whether real or personal and generally to carry on the business of real estate agents and dealers in all its branches; (16) to lay out land for building purposes, and in connection therewith to grade, fill, develop and to subdivide the same into residential or business lots, or partly residential and partly business lots; to sell such lots, and/or to build on, improve, let on building leases, advance money to persons building on, and otherwise develop the same, in such manner as may seem expedient to advance the Company's interests; to construct roads, streets, avenues, or highways, upon or through its lands; to extend, continue, or connect such roads, streets, avenues, or highways upon or through other real property to be acquired; to lay out and establish such roads, streets, avenues or highways and the extensions, continuations, or connections thereof; and to construct drains or sewers and such bridges or culverts as may be necessary to maintain the grades of, or for the extension, continuation, or connection of the roads, streets, avenues, or highways so laid out, and to provide and maintain water, electrical and all other utility services; 5 6 (17) to appropriate any part or parts of the Company's property for the purpose of and to build or let shops, offices, and other places of business and to use or lease any part of the property of the Company not required for the purposes aforesaid for any purpose for which it may be conveniently used or let; (18) to carry on the business of a storekeeper in all its branches, and in particular to buy, sell, manufacture, and deal in goods, stores, consumable articles, chattels and effects of all kinds, both wholesale and retail, and to transact every kind of agency business, and generally to engage in any business or transactions which may seem capable of being profitably dealt with in connection with any of the said businesses; (19) to buy, sell, manufacture, alter, repair, improve, import, exchange, hire, let on hire, manipulate, treat, prepare for market, export and generally deal in plant, machinery, apparatus, tools, utensils, commodities, products, materials, merchandise, articles, and things whatsoever which may be found convenient in carrying out any of the objects of the Company, and generally to carry on business as merchants, commission merchants, agents, importers, and exporters; (20) to invest, re-invest and deal with the moneys and funds of the Company not immediately required upon such securities and in such manner as may from time to time be determined; (21) to remunerate any person or company for services rendered, or to be rendered, in or about the formation or promotion of the Company or the conduct of its business; 6 7 (22) to draw, make, accept, endorse, discount, execute and issue promissory notes, bills of exchange, bills of landing, warrants, debentures, and other negotiable or transferable instruments; (23) to sell, lease or otherwise dispose of the assets, property and undertaking of the Company or any part thereof for such consideration of the Company may think fit, and in particular for shares, debentures, bonds, mortgages or other securities of any other company; (24) to lend and advance money or give credit to such persons and on such terms as may seem expedient, and in particular to shareholders, directors or officers of the Company, customers and others having dealings with the Company, and to give guarantees or become security for any such persons; (25) to carry on any other business (whether manufacturing or otherwise) which may seem to the Company capable of being conveniently carried on in connection with the above, or calculated directly or indirectly to enhance the value of or render profitable any of the Company's property or rights; (26) to acquire and undertake the whole or any part of the business, property and liabilities of any person or company carrying on any business which this Company is authorized to carry on, or possessed of property suitable for the purpose of this Company; (27) to enter into partnership or any arrangement for sharing profits, union of interests, cooperation, joint adventure, reciprocal concession, or otherwise, with any person or company carrying on or engaged in, or about to carry on or engage in, any business or transaction which the Company is authorized to carry on or engage in, 7 8 or any business or transaction capable of being conducted so as directly or indirectly to benefit the Company; and to lend money to, guarantee the contracts of, or otherwise assist any such person or company and to take or otherwise acquire shares and securities of any such company, and to sell, hold, re-issue, with or without guarantee, or otherwise deal with the same; (28) to enter into any arrangement with any governments or authorities, supreme, municipal, local or otherwise, that may seem conducive to the Company's objects, or any of them, and to obtain from any such government or authority any rights, privileges and concessions which the Company may think it desirable to obtain and carry out, exercise and comply with any such arrangements, rights, privileges and concessions; (29) to conduct its business in foreign countries, and to have one office, or more than one office, and to keep the books of the Company outside of the Bahamas, except as otherwise may be provided by law; (30) (i) to procure the Company to be registered or recognized in any part of the world outside of The Commonwealth of the Bahamas; (ii) to procure for the Company incorporation, or constitution of a like nature, or as a Societe' Anonyme in any foreign country or to procure continuance of the Company under any Canadian or other foreign law. (31) from time to time to provide for the management of the affairs of the Company abroad in such manner as the Company may think fit, and in particular to appoint any person or persons to be the Attorney or Attorneys or Agent or Agents of the 8 9 Company with such powers (including power to sub-delegate) and upon such terms as may be thought fit; (32) to construct, maintain, and alter any buildings, or works, necessary or convenient for the purposes of the Company; (33) to borrow or raise or secure the payment of money, in such other manner as the Company shall think fit, and, in particular, by the issue of debentures or debenture stock perpetual or otherwise, bonds, mortgages or other securities, charged upon all or any of the Company's property (both present and future), including its uncalled capital, and to purchase, redeem or pay off any such securities; (34) to obtain any provisional order or Act of the Legislature for enabling the Company to carry any of its objects into effect, or for effecting any modifications of the Company's constitution, or for any other purposes which may seem expedient, and to oppose any proceedings or applications which may seem calculated directly or indirectly to prejudice the Company's interests; (35) to sell, improve, manage, develop, exchange, lease, mortgage, dispose of, turn to account, or otherwise deal with all or any part of the property and rights of the Company; (36) to distribute in specie by way of dividend or otherwise, among the shareholders, customers, or employees of the Company, any shares or securities, belonging to the Company or any property or assets of the Company; (37) to amalgamate with any other company having objects altogether or in part similar to those of this Company; 9 10 (38) to invest the capital of the Company, accretions to capital and the income of the Company or such part thereof as the directors of the Company may determine in real estate, mortgages, bonds, stocks, shares and other securities, and from time to time to change said investment by sale, exchange or otherwise, and to invest the proceeds of any sale or sales in other investments of a like nature, and to lend money on any personal property; (39) to acquire any such investments as aforesaid by purchase, original subscription, tender, participation in syndicates or otherwise, and whether or not fully paid up, and to make payments thereof as called up or in advance of calls or otherwise, and to underwrite subscriptions for the same, conditionally or otherwise; (40) to issue paid up shares, debenture stock, debentures, bonds or other securities of the Company in payment or part payment of any property, shares, stocks, debentures, debenture stock, bonds, obligations or other securities, rights and easements which may be acquired by the Company and with the approval of the shareholders or their duly appointed attorney or agent for any services rendered to and work done for the Company and in or towards the payment or satisfaction of debts and liabilities owing by the Company; (41) to advance money and to guarantee any obligations and contracts of or otherwise assist and aid in any way any company or corporation any of whose shares, stocks, debentures, debenture stock, bonds, obligations or other securities are held by the Company; (42) to adopt such means of making known the products and business of the Company as may seem expedient, and in particular by advertising in the press, over the 10 11 radio, by circulars, by purchase and exhibition of works of art or interest, by publication of books and periodicals, and by granting prizes, rewards and donations; (43) to do all or any of the above acts and things and to have and exercise all or any of the above powers in the same manner and with the same force and effect as if the Company were an individual or as principals, agents, attorneys, contractors, trustees or otherwise and either alone or in conjunction with others; and (44) generally to do all such other things as are incidental or conducive to the attainment of the above objects or any of them. None of the above sub-clauses or the objects therein specified or the powers thereby conferred, shall be deemed subsidiary or auxiliary merely to the objects mentioned in the first sub-clause or any subsequent sub-clause of this clause, but the Company shall have full power to exercise all or any of the powers conferred by any part of this clause in any part of the world, and notwithstanding that the business, undertaking, property, or acts proposed to be transacted, acquired, dealt with or performed do not fall within the objects of the first sub-clause or any subsequent sub-clause of this clause. 4. Each member of the Company undertakes to contribute to the assets of the Company in the event of the same bing wound up during the time that he is a member, or within one year afterwards, for payment of the debts and liabilities of the Company contracted before the time at which he ceases to be a member, and of the costs, charges and expenses of winding up the Company, and for the adjustment of the rights of the contributories amongst themselves, such amount as may be required not exceeding ten cents. 11 12 WE, the several persons whose names and addresses are subscribed, are desirous of being formed into a Company in pursuance of this Memorandum of Association. NAMES, ADDRESSES AND DESCRIPTIONS NO. OF SHARES TAKEN OF SUBSCRIBERS BY EACH SUBSCRIBER Carey Leonard Attorney at Law Nassau, Bahamas Carol Ann Weatherford Secretary Nassau, Bahamas Joan Mackey Secretary Nassau, Bahamas Cypriana Burrows Secretary Nassau, Bahamas Donna Wright Secretary Nassau, Bahamas DATED this 12th day of June, 1979. Witness to the above Signatures - /s/ Sean McWeeney 12 13 COMMONWEALTH OF THE BAHAMAS New Providence I, Sean McWeeney of Nassau, Bahamas make oath and say that I was present and saw: Carey Leonard Carol Ann Weatherford Joan Mackey Cypriana Burrows Donna Wright all of the said Island of New Providence sign and as and for their Act execute the foregoing Memorandum of Association dated the 12th day of June A.D. 1979 for the purposes therein mentioned; and that I subscribed my name as the witness to the due execution thereof. SWORN to this 13th day of June A.D. 1979 /s/ Sean McWeeney Before me, NOTARY PUBLIC. 13 14 MINUTES of an extraordinary meeting of the shareholders of POLYDEX CHEMICALS LIMITED (the "Corporation") held at the offices of the Corporation, 284 Bay Street, Nassau, Bahamas, on the 30th day of December, 1983, at the hour of 1:30 o'clock in the afternoon (Nassau time). The Chairman of the Board of directors, Mr. Thomas C. Usher, took the chair and, with the consent of the meeting, U.S. counsel to the Company, Mr. Mark Gasarch, acted as Secretary of the meeting. With the consent of the meeting, Mr. Mark Gasarch also acted as Scrutineer. The Chairman stated that the notice calling the meeting and the accompanying proxy statement and form of proxy had been mailed to all shareholders of the Corporation and that additional copies of such material were available at the meeting. With the consent of the meeting, the reading of the notice of the meeting was dispensed with. The Chairman further stated that there had been filed with him by the Secretary of the meeting proof of service of such notice, proxy statement and form of proxy. A copy of such notice, proxy statement and form of proxy with proof of service was directed to be annexed as Schedule A to these minutes. The Scrutineer then reported that there was a quorum of shareholders present and the report of the Scrutineeer setting form the number of shares represented in person or by proxy at the said meeting was directed to be annexed as Schedule B to these minutes. The Chairman declared that the requisite quorum of shareholders was present at the meeting and declared the meeting to be properly constituted. 1 15 CHANGE OF NAME -------------- The Chairman then stated that the meeting has been called for the purpose, among others, of considering and, if approved, confirming as a special resolution the resolution passed at the Extraordinary General Meeting of the shareholders held on the 15th day of December, 1983 to change the name of the Corporation to Polydex Pharmaceuticals Limited. On motion duly made and seconded the following resolution was placed before the meeting: BE IT RESOLVED that the name of the Corporation be changed to POLYDEX PHARMACEUTICALS LIMITED. A vote having been taken on the foregoing resolution on a show of hands, the Chairman signed a ballot and declared that the resolution had been confirmed by at lease a majority of the votes cast at the meeting and accordingly declared that the resolution respecting the change in the name of the Corporation to Polydex Pharmaceuticals Limited had been passed as a special resolution of the Corporation. AMENDMENT TO THE ARTICLES OF THE CORPORATION TO UNPAIR ITS COMMON SHARES FROM THE PREFERENCE SHARES OF POLYDEX CHEMICALS (CANADA) LIMITED ------------------------------------------------------- The Chairman then stated that the meeting had been called also for the purpose of considering and, if approved, confirming as a special resolution the resolution passed at the Extraordinary General Meeting of the shareholders held on the 15th day of December, 1983 authorizing an certain amendments to the Articles of the Corporation to unpair its common shares from the preference shares of Polydex Chemicals (Canada) Limited. 2 16 On motion duly made and seconded the following resolution was placed before the meeting: BE IT RESOLVED (a) that the Articles of Association be amended by the deletion therefrom of the following: 1. From Article 7, beginning in the third line thereof, of the words: "... and may be printed or reproduced on the reverse side of the share certificate for the Class A Preference Shares of Polydex Chemicals (Canada) Limited." 2. Article 12(b) in its entirety. (b) that all certificates issued in respect of the shares of the Corporation be cancelled and that there be issued in lieu thereof to the holders thereof new Certificates in a form to be approved by the Directors. A vote having been taken on the foregoing resolution on a show of hands, the Chairman signed a ballot and declared that the resolution had been confirmed by at least a majority of the votes cast as the meeting and accordingly declared that the resolution respecting the amendment to the Articles of the Corporation to unpair its common shares from the preference shares of Polydex Chemicals (Canada) Limited had been passed as a special resolution of the Corporation. As a final matter, the Chairman informed the meeting that Polydex Chemicals (Canada) Limited had on the 12th of December, 1983 approved the unpairing and their shareholders had given their authorization for the amendment of that Company's articles. The Chairman stated that accordingly the matters resolved at the Corporation's meeting on the 15th of December, 1983 and at this meeting would be effectuated as soon as the Board of the Corporation issued or 3 17 caused the issue of the appropriate certificates in respect of such matters and the Chairman indicated it was expected that the Board would issue such certificates so that the matters would or could become effective on the 2nd of April, 1984. There being no further business, on motion duly made, seconded and carried, the meeting then terminated. /s/ T. C. Usher /s/ M. Gasarch - -------------------------- ------------------------------- Chairman of the meeting Secretary of the meeting 4 18 MINUTES of an extraordinary meeting of the shareholders of POLYDEX CHEMICALS LIMITED (the "Corporation") held at the offices of the Corporation, 284 Bay Street, Nassau, Bahamas, on the 15th day of December, 1983, at the hour of 4:00 o'clock in the afternoon (Nassau time). The Chairman of the Board of directors, Mr. Thomas C. Usher, took the chair and, with the consent of the meeting, U.S. counsel to the Company, Mr. Mark Gasarch, acted as Secretary of the meeting. With the consent of the meeting, Mr. Mark Gasarch also acted as Scrutineer. The Chairman stated that the notice calling the meeting and the accompanying proxy statement and form of proxy had been mailed to all shareholders of the Corporation and that additional copies of such material were available at the meeting. With the consent of the meeting, the reading of the notice of the meeting was dispensed with. The Chairman further stated that there had been filed with him by the Secretary of the meeting proof of service of such notice, proxy statement and form of proxy. A copy of such notice, proxy statement and form of proxy with proof of service was directed to be annexed as Schedule A to these minutes. The Scrutineer then reported that there was a quorum of shareholders present and the report of the Scrutineeer setting form the number of shares represented in person or by proxy at the said meeting was directed to be annexed as Schedule B to these minutes. The Chairman declared that the requisite quorum of shareholders was present at the meeting and declared the meeting to be properly constituted. 1 19 CHANGE OF NAME -------------- The Chairman then stated that the meeting had been called for the purpose, among others, of considering and, if approved, passing a special resolution authorizing a change in the name of the Corporation to Polydex Pharmaceuticals Limited. The Chairman further stated that a copy of the proposed special resolution was annexed as Schedule A to the notice calling this meeting. On motion duly proposed as a special resolution and seconded the following resolution was placed before the meeting: WHEREAS it is considered to be in the best interests of the Corporation to change its name as herein provided; NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION AS FOLLOWS: (a) that the name of the Corporation be changed to POLYDEX PHARMACEUTICALS LIMITED, (b) that the change of name shall take effect only if: 1. All three resolutions substantially in the form set forth in the proxy materials of the Corporation dated October 31, 1983 are properly approved and, where necessary, confirmed by the members of the Corporation, 2. The shareholders of Polydex Chemicals (Canada) Limited approve the unpairing of the Preference Shares of Polydex Chemicals (Canada) Limited from the Common Shares of the Corporation, and 3. The shareholders of Polydex Chemicals (Canada) Limited authorize an amendment to the Articles of that Corporation to reduce the appraised amount of all of the Preference Shares to U.S. $0.24, and (c) that any one director or officer of the Corporation be and he is hereby authorized and directed to execute under the seal if required and deliver, for and on behalf of the Corporation, all documents and to do all things necessary or desirable to effect the implementation of the change of name and verify or certify that the conditions have been satisfied and that the resolution for the change of name has been effectuated. 2 20 A vote having been taken on the foregoing resolution on a show of hands, the Chairman signed a ballot and declared that the resolution had been passed by at least three-fourths (3/4 of the votes cast at the meeting. INCREASE IN THE NUMBER OF DIRECTORS ----------------------------------- The Chairman then stated that the meeting had been called also for the purpose, among others, of considering and, if approved, passing an ordinary resolution authorizing an increase in the maximum number of directors of the Corporation from six to fifteen. The Chairman further stated that a copy of the proposed resolution was annexed as Schedule A to the notice calling this meeting. On motion duly made and seconded the following resolution was placed before the meeting: WHEREAS it is considered to be in the best interests of the Corporation to increase the maximum number of Directors as herein provided; NOW THEREFORE BE IT RESOLVED AS AN ORDINARY RESOLUTION AS FOLLOWS: (a) that the maximum number of directors permitted by Article 53 of the Articles of Association be increased from six to fifteen, (b) that the increase in numbers shall take effect only if: 1. All three resolutions substantially in the form set forth in the proxy materials of the Corporation dated October 31, 1983 are properly approved and, where necessary, confirmed by the members of the Corporation, 2. The shareholders of Polydex Chemicals (Canada) Limited approve the unpairing of the Preference Shares of Polydex Chemicals (Canada) Limited from the Common Shares of the Corporation, and 3 21 3. The shareholders of Polydex Chemicals (Canada) Limited authorize an amendment to the Articles of that Corporation to reduce the appraised amount of all of the Preference Shares to U.S. $0.24, and (c) that any one director or officer of the Corporation be and he is hereby authorized and directed to execute and deliver, for and on behalf of the Corporation, all documents and to do all things necessary or desirable to effect the implementation of the increase in maximum of Directors, and verify or certify that the conditions have been satisfied and that the resolution for the increase in number has been effectuated. A vote having been taken on the foregoing resolution on a show of hands, the Chairman signed a ballot and declared that the resolution had been passed by at least a majority of the votes cast at the meeting and accordingly declared that the resolution respecting the increase in the maximum number of directors of the Corporation from six to fifteen had been passed as an ordinary resolution of the Corporation. AMENDMENT TO THE ARTICLES OF THE CORPORATION TO UNPAIR ITS COMMON SHARES FROM THE PREFERENCE SHARES OF POLYDEX CHEMICALS (CANADA) LIMITED ------------------------------------------------------- The Chairman then stated that the meeting had been called for the further purpose, among others, of considering and, if approved, passing a special resolution authorizing an amendment to the Articles of the Corporation to unpair its common shares from the preference shares of Polydex Chemicals (Canada) Limited. The Chairman further stated that a copy of the proposed special resolution was annexed as Schedule A to the notice calling this meeting. On motion duly proposed as a special resolution and seconded the following resolution was placed before the meeting; WHEREAS it is considered to be in the best interests of the Corporation to amend its Articles as herein provided; 4 22 NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION AS FOLLOWS: (a) that the Articles of Association be amended by the deletion therefrom of the following: 1. From Article 7, beginning in the third line thereof, of the words: ".... and may be printed or reproduced on the reverse side of the share certificate for the Class A Preference Shares of Polydex Chemicals (Canada) Limited." 2. Article 12(b) in its entirety. (b) that all certificates issued in respect of the shares of the Corporation be cancelled and that there be issued in lieu thereof to the holders thereof new Certificates in a form to be approved by the Directors. (c) that the amendmend to the Articles and the cancellation and issue of certificates shall take effect only if: 1. All three resolutions substantially in the form set forth in the proxy materials of the Corporation dated October 31, 1983 are properly approved and, where necessary, confirmed by the members of the Corporation, 2. The shareholders of Polydex Chemicals (Canada) Limited approve the unpairing of the Preference Shares of Polydex Chemicals (Canada) Limited from the Common Shares of the Corporation, and 3. The shareholders of Polydex Chemicals (Canada) Limited authorize an amendment to the Articles of that Corporation to reduce the appraised amount of all of the Preference Shares to U.S. $0.24, and (d) That any one director or officer of the Corporation be and he is hereby authorized and directed to execute under the seal if required and deliver, for and on behalf of the Corporation all documents and to do all things necessary or desirable to effect the amendment to the Articles of Association of the Corporation as described herein, including the execution and delivery of a Certificate in prescribed form to the appropriate regulatory authorities in the Bahamas, and otherwise to effect the implementation of these resolutions and to unpair the transfer of shares of the Corporation. 5 23 A vote having been taken on the foregoing resolution on a show of hands, the Chairman signed a ballot and declared that the resolution had been passed by at least three-fourths (3/4) of the votes cast as the meeting. There being no further business, on motion duly made, seconded and carried, the meeting then terminated. /s/ T. C. Usher /s/ M. Gasarch - --------------------------- ------------------------------ Chairman of the meeting Secretary of the meeting 6 EX-3.2 3 EXHIBIT 3.2 1 Exhibit 3.2 CERTIFIED COPY OF CORPORATE RESOLUTION OF POLYDEX PHARMACEUTICALS LIMITED Registration No.: 24,178 I, Sarah M. Lobosky, Assistant Secretary of Polydex Pharmaceuticals Limited, DO HEREBY CERTIFY that the following is a true and correct copy of resolutions passed by a majority vote of the Shareholders of Polydex Pharmaceuticals Limited (the "Company") at a meeting held on the Twenty-ninth day of September, A.D., 1995; RESOLVED: 1. That the authorized share capital of the Company be increased from US$81,650.00 divided into 40,000,000 Common Shares of $0.0016 (the 6 recurring) par value each, 1,000,000 "A" Preferred Shares of $0.01 par value each and 2,994,000 "B" Preferred Shares of $0.0016 (the 6 recurring) par value each to US$91,650.00 divided into 40,000,000 Common Shares of $0.0016 (the 6 recurring) par value each, 1,000,000 "A" Preferred Shares of $0.01 par value each and 8,994,000 "B" Preferred Shares of $0.0016 (the recurring) par value each. 2. That the Articles of Association of the Company be amended by the deletion of the first paragraph of Article 2(a) in its entirety and the substitution therefor of the following new first paragraph of Article 2(a): SHARE CAPITAL 2 (a) The Capital of the Company is $91,650.00 in the currency of the United States of America divided into 1,000,000 "A" Preferred Shares of $0.01 par value each, 8.994,000 "B" Preferred Shares of $0.0016 (the 6 recurring) par value each and 40,000,000 Common Shares of $0.0016 (the 6 recurring) par value each and such A Preferred Shares shall confer upon their holders the following rights, that is: Dated the 27th, day of February A.D., 1996. POLYDEX PHARMACEUTICALS LIMITED By: Sarah M. Lobosky Assistant Secretary 1 2 CERTIFIED COPY OF CORPORATE RESOLUTION OF POLYDEX PHARMACEUTICALS LIMITED Registration No.: 24,178 I, Sarah M. Lobosky, Assistant Secretary of Polydex Pharmaceuticals Limited, DO HEREBY CERTIFY that the following is a true and correct copy of a resolution passed by a majority vote of the Shareholders of Polydex Pharmaceuticals Limited (the "Company") at a meeting held on Twentieth day of July, A.D., 1994: RESOLVED THAT the Articles of Association of the Company be amended in the following respects: 1 (a) That the following words be inserted at the end of Article 54 which shall continue: "...and may determine in what rotation such increased or reduced number is to go out of office." (b) That Article 66 be re-designed as Article 66A. (c) That the following new Articles 66B and 66C be inserted after Article 66A: 66B. At the Annual General Meeting to be held in 1994, the Members shall appoint up to one-third of the complement of the Board for one year term, up to one-third of the complement of the Board for a two year term and up to one-third of the complement of the Board for a three year term to the intent that there shall be rotation of the Directors on a three year cycle. Consequently, at the Annual General Meeting to be held in 1995, the Directors appointed in 1994 for one year shall retire and they or their successors shall be reappointed or appointed and the case may be for a three year term; at the annual General Meeting to be held in 1996 the Directors appointed in 1994 for a two year term shall retire and they or their successors shall be reappointed or appointed as the case may be for a three year term; and at the Annual General Meeting to be held in 1997 and in each subsequent year the Director (or Directors, up to one-third of the complement of the Board) who have been longest in office (being those then completing their three year term) shall retire. 66C. Notwithstanding the provisions of Article 66A, a retiring Director shall hold office until the dissolution or adjournment of the meeting at which his successor is elected. (d) That the following words be inserted at the end of Article 68 which shall continue: "........and so that where an appointment is made to a casual vacancy the term of the appointment shall not exceed the term for which the predecessor would have held office if he had continued for his full term." 2. That any one director or officer of the Company be and he is hereby authorized and directed to execute and deliver, for and on behalf of the Company, all documents and to do all things necessary or desirable to effect the amendment to the Articles of Association of the Company as described herein, including the execution and delivery of Articles of Amendment in prescribed form to the appropriate regulatory authorities in The Bahamas, and otherwise to effect the implementation of this resolution. Given under the Common Seal of the Company of this 26 day of August 1994; /s/ Sarah Lobosky Assistant Secretary 2 3 CERTIFIED COPY OF CORPORATE RESOLUTION OF POLYDEX PHARMACEUTICALS LIMITED Registration No.: 24,178 I, Sarah M. Lobosky, Assistant Secretary of Polydex Pharmaceuticals Limited, DO HEREBY CERTIFY that the following is true and correct of resolutions passed by a majority vote of the Shareholders of Polydex Pharmaceuticals Limited (the "Company") at a meeting held on the Thirteenth day of October, A.D. 1993: RESOLVED: 1. That the capital of the Company be increased from US$64,990.00 divided into 30,000,000 Ordinary shares of $0.0016 each (the 6 recurring), 1,000,000 A preferred shares of $0.001 each and 2,994,000 B preferred shares of $0.0016 each (the 6 recurring) to US$81,650.00 divided into 40,000,000 Ordinary shares of $0.0016 each (the 6 recurring), 1,000,000 A preferred shares of $0.01 each and 2,994,000 B preferred shares of $0.0016 each (the 6 recurring). 2. That the Articles of Association of the Company be amended by the deletion of the first paragraph or Article 2(a) in its entirety and the substitution therefor of the following new first paragraph of Article 2(a): SHARE CAPITAL 2(a) The Capital of the Company is $81,650.00 in the currency of the United States of America divided into 1,000,000 A Preferred Shares of $0.01 each, 2,994,000 B Preferred Shares of $0.0016 (the 6 recurring) each and 40,000,000 Ordinary Shares of $0.0016 (the 6 recurring) each and such A Preferred Shares shall confer upon their holders the following rights, that is: Dated the Seventh day of December, A.D., 1993. POLYDEX PHARMACEUTICALS LIMITED By: Sarah M. Lobosky, Assistant Secretary 3 4 CERTIFIED COPY OF CORPORATE RESOLUTION OF POLYDEX PHARMACEUTICALS LIMITED Frank J. Cooney, Secretary of Polydex Pharmaceuticals Limited, does hereby certify that the following is a true and correct copy of a resolution passed by a majority vote of the Shareholders of Polydex Pharmaceuticals Limited (the "Corporation") at a meeting held on August 20, 1990: BE IT RESOLVED THAT the capital of the Company be increased from US $49,990.00 divided into 21,000,000 Ordinary shares of $0.0016 each (the 6 recurring), 1,000,000 A preferred shares of $0.01 each and 2,994,000 B preferred shares of $0.0016 each (the 6 recurring) to US $64,990.00 divided into 30,000,000 Ordinary shares of $0.0016 each (the 6 recurring), 1,000,000 A preferred shares of $0.01 each and 2,994,000 B preferred shares of $0.0016 each (the 6 recurring). POLYDEX PHARMACEUTICALS LIMITED By, Frank J. Cooney, Secretary (Corporate Seal) Boynton Beach, Florida July 22, 1991 4 5 THE COMPANIES ACT COMPANY LIMITED BY GUARANTEE AND HAVING A CAPITAL DIVIDED INTO SHARES SPECIAL RESOLUTIONS OF POLYDEX PHARMACEUTICALS LIMITED At the Annual General Meeting of the Members of the Company duly convened and held at the offices of the Company, Second Floor, 284 Bay Street, Nassau, Bahamas on the 14th day of September, 1987 the following Resolution was duly passed as a Special Resolution:- RESOLUTION The Special Resolution attached hereto as Schedule A was passed, At an Extraordinary General Meeting of the Members of the Company duly convened and held at the same place on the 30th day of September, 1987 the following Resolution was duly passed as an Ordinary Resolution:- RESOLUTION The Special Resolution attached hereto as Schedule A, previously passed, was confirmed. Dated the 30th day of September, A.D. 1987. Secretary SCHEDULE A Special Resolution Reclassifying the Capital of the Company into Ordinary (Common) and Preferred Shares. RESOLVED: 1. That the authorized capital of the Company of US$49,990.00 presently divided into 29,994,000 shares of $0.0016 (the 6 recurring) be restructured to comprise more than one class, 2. That the shares in the capital of the Company which are presently issued and outstanding being 14,294,603 in number be classified as Ordinary shares. 3. That the shares in the capital of the Company which are presently unissued being 15,699,397 in number be classified as follows: - (1) 6,705,397 shares thereof as Ordinary Shares; (2) 6,000,000 shares thereof as A Preferred Shares; and (3) 2,994,000 shares thereof as B Preferred Shares. 4. That pursuant to the provisions of Article 18 (b) of the Articles of Association of the Company the said 6,000,000 shares of par value $0.0016 (the 6 recurring) each presently unissued, now classified as A Preferred Shares, be consolidated such that for every 6 shares thereof 1 share of par value $0.01 be obtained, 5. That the Articles of Association of the Company be amended by the deletion of Article 2 in its entirety and the substitution therefor of the following new Article. SHARE CAPITAL 2 (a) The capital of the Company is $49,990.00 in the Currency of the United States of America divided into 1,000,000 A Preferred Shares of $0.01 each, 2,994,000 B Preferred Shares of $0.0016 (the 6 recurring) each and 21,000,000 Ordinary Shares of $0.0016 (the 6 recurring) each and such A Preferred Shares shall confer upon their holders the following rights, that is; 1. the right out of the profits of the Company resolved under the Articles of Association to be distributed to a fixed cumulative preferential dividend at the percentage rate per annum on the capital for the time being paid up thereon as shall be determined by resolution of the Board of Directors prior to the issue thereof; 2. the right of ranking in a winding up as regards return of capital and payment of arrears of dividend down to the commencement of the winding up (whether earned or declared or not) in priority to the Ordinary Shares but shall not confer the right to any further participation in profits or assets; and 3. the right, upon terms and conditions to be fixed by the Company's Board of Directors, to convert all or part of their A Preferred Shares into Ordinary Shares of the Company. And the holder thereof shall be subject to the following, that is (i) the right of the Company to require the holder to convert part or the whole of A Preferred Shares held by him into Ordinary Shares in accordance with the provisions of the next following paragraph (b) of this Article; and (ii) the right of the Company to redeem part or the whole of the A Preferred Shares held by him on the terms set out in the next following paragraph (c) of this Article. 5 6 (b) The Company shall be entitled from time to time and at any time prior to the commencement of the winding-up of the Company to convert part or the whole of the A Preferred Shares into Ordinary Shares by notice to the holders thereof stating that it thereby converts the number of shares specified in the said notice. The notice shall take effect ten (10) days after same being sent certified mail, return receipt requested, postage prepaid to all holders thereof and thereupon the A Preferred Shares comprised in the notice shall be automatically converted into and thenceforth be called and known as Ordinary Shares which will rank pad passu in all respects with the remaining Ordinary Shares. All rights to the accruing preference dividend on such shares shall be extinguished and the shares shall participate in full in all dividends declared on the Ordinary Shares thereafter except in respect of the financial year immediately preceding the financial year in which the conversion was effected and on the footing that the shares had at all times from and including the commencement of the financial year in which the same were converted Into Ordinary Shares. Forthwith upon any such conversion the Company shall issue to the holder a new certificate for the Shares so converted as Ordinary Shares comprised in the the Certificates required by the notice to be deposited at the office of the Company. (c) The Company shall be entitled from time to time and at any time prior to the commencement of the winding up of the Company to redeem part or the whole of the A Preferred Shares by notice the holders thereof and on such terms as shall be determined by resolution of the Board of Directors prior to the issue thereof. (d) Upon any increase of capital the Company is at liberty to issue any new shares with any preferential deferred qualified or special rights, privileges or conditions attached thereto. (e) the whole of the unissued Shares of the Company for the time being shall be under the control of the Directors who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such times as the Directors think fit and by resolution prior to their issue shall determine provided that no share shall be issued until it is fully paid. 6. That any one director or officer of the Company be and he is hereby authorized and directed to execute and deliver, for and on behalf of the Company, all documents and to do all things necessary or desirable to effect the amendment to the Articles of Association of the Company as described herein, including the execution and delivery of Articles of Association in prescribed form to the appropriate regulatory authorities in the Bahamas, and otherwise to effect the implementation of this resolution. 6 7 The Companies Act COMPANY LIMITED BY GUARANTEE AND HAVING A CAPITAL DIVIDEND INTO SHARES ARTICLES OF ASSOCIATION of POLYDEX CHEMICALS LIMITED 1. In the interpretation of these presents, unless there be something in the subject or context inconsistent therewith: "The Act: or "the Statute" means The Companies Act of The Bahamas as amended from time to time; "Special Resolution: and "Extraordinary Resolution" have the meanings assigned thereto respectively by the Act; "the Directors" means the Directors for the time being; "the Office" means the registered office for the time being of the Company; "the Register" means the register of members to be kept pursuant to The Companies Act; "month" means calendar month; " in writing" and "written" include printing, lithography and other modes of representing or reproducing words in a visible form. Words importing the singular number only include the plural number and vice versa; 7 8 "Secretary" shall include any person appointed by the Directors to perform any of the duties of the Secretary, and where any person is appointed to act as an Assistant Secretary, shall include such person; "member" and "shareholder" means a registered holder for the time being of an issued share of the Company and any person, firm or corporation who presents a transfer of shares to the Company for registration or on whose behalf such a transfer is so presented shall be deemed to have agreed to become a member of the Company; "Treasurer" shall mean any person appointed by the Directors to perform any of the duties of the Treasurer, and where any person is appointed to act as an Assistant Treasurer, shall include such person. Words importing persons include corporations. SHARE CAPITAL 2. (a) the capital of the Company is fifty thousand dollars ($50,000.00) in the currency of the United States of America divided into five million (5,000,000) shares of a par value of one dollar ($0.01) each, with power to divide the shares in the capital for for the time being into several classes, and to attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions, whether as to voting or otherwise; and (b) the whole of the unissued shares of the Company for the time being shall consist of one class of shares and shall be under the control of the Directors who may allot or otherwise dispose of the same to such persons on such terms and conditions and at such times as the Directors think fit provided that no share shall be issued until it is fully paid. SHAREHOLDERS 3. Save as herein otherwise provided, the Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not, except as ordered by a Court of competent jurisdiction or as by the Act required, be bound to recognize any equitable or other claim to or interest in such share on the part of any other person and the Company shall not be bound to see the execution of any trust whether express or implied or constructive in respect of any share. 4. If several persons are registered as joint holders of any shares the first named upon the Register shall, as regards service of notices, be deemed the sole owner thereof. Any of such persons may give effectual receipt for dividends. 5. For the purposes of the quorum, joint holders of any voting shares shall be considered as one number. SHARE CERTIFICATES 6. Every registered holder of any share shall be entitled without payment to receive within two months after allotment or registration of transfer one certificate for all shares of any one class held by such person, or several certificates each for one or more of his shares of any one class. Where a member transfers part only of the shares comprised in the certificate shall be cancelled and a new certificate for the balance of such shares issued in lieu thereof without charge. 7. Share certificates (and the form of share transfer thereon) shall be in such form as the Directors may from time to time approve and may be printed or reproduced on the reverse side of the share certificates for the Class A preference shares of Polydex Chemicals (Canada) Limited. Every certificate shall be issued under the seal of the Company which may be a facsimile and shall be signed by the Chairman of the Board (if any), the Vice-Chairman (if any), the President or a Vice-President and the Secretary or an Assistant Secretary (if any) holding office at the time of signing and notwithstanding any change in the persons holding such offices between the time of actual signing and the issuance of any certificate and notwithstanding that the Chairman of the Board, the Vice-Chairman, the President or Vice-President or Secretary or Assistant-Secretary signing may not have held office at the date of the issuance of such certificate, any such certificate so signed and sealed shall be valid and binding upon the Company. Every certificate shall specify the number of shares to which it relates and shall state that such shares are fully paid. The Company 8 9 shall not be bound to register more than three persons as the joint holders of any shares (except in the case of executors or trustees or a deceased member) and the Company shall not be bound to issue more than one certificate for a share held jointly by several persons and delivery of a certificate to one joint holder shall be sufficient delivery to all. 8. Notwithstanding the provisions of clause 7 hereof, the signature of the Chairman of the Board, the Vice-Chairman, the President or Vice-President may be printed, engraved, lithographed or otherwise mechanically reproduced upon certificates for shares in the capital of the Company and certificates so signed shall be deemed to have been manually signed by the Chairman of the Board, the Vice-Chairman, the President or Vice-President whose signature is so printed, engraved, lithographed or otherwise mechanically reproduced thereon and shall be as valid to all intents and purposes as if they had been signed manually. Where the Company has appointed a transfer agent, the signature of the Secretary or Assistant-Secretary may also be printed, engraved, lithographed or otherwise mechanically reproduced and when countersigned by or on behalf of a transfer agent or branch transfer agent, share certificates so signed shall be as valid to all intents and purposes as if they had been signed manually. 9. In case of the defacement, destruction, theft or loss of a certificate for shares held by any shareholder, the fact of such defacement, destruction, theft or loss shall be reported to the Company or to a transfer agent or branch transfer agent of the Company, if any, with a statement verified by oath or statutory declaration as to the defacement, destruction, theft or loss and the circumstances concerning the same and with the request for the issuance of a new certificate to replace the one so defaced, destroyed, stolen or lost. Upon giving to the Company, (or if there be a transfer agent and/or branch transfer agent or agent and/or registrar and/or branch registrar or registrars, hereinafter in this paragraph collectively referred to as the "Company's transfer agents and registrars", then to the Company and the Company's transfer agents and registrars) of a bond of a surety company or other security approved by the Directors and in such form as is approved by the Directors or by the Secretary or the Treasurer of the Company indemnifying the Company and the Company's transfer agents and registrars, if any, against all loss, damage or expense to which the Company and/or the Company's transfer agents and registrars, may be put or be liable to by reason of the issuance of a new certificate to such shareholder, a new certificate may be issued in replacement of the one defaced, destroyed, stolen or lost if such issuance is order and authorized by the Chairman of the Board of Directors (if any) or the President or the Secretary or the Treasurer of the Company or by resolution of the Directors. 10. All transfers of shares may be effected by transfer in such form as the Directors may approve. 11. The instrument of transfer of a share shall be executed by the transferor or by the transferor's attorney duly authorized and, if required by the Directors, the transferee, and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. 12. The Directors shall refuse to permit the registration of a transfer of fully paid shares into the name of a transferee where the necessary Exchange Control approval has not been obtained. The Directors may also refuse to permit the registration of a transfer of fully paid shares registered in the name of a member who is indebted to the Company provided that such shares are not at such time listed on a stock exchange located any where in North America and recognized by the law of the country of location. b) The transfer of shares of the Company shall be restricted in that until Polydex Chemicals (Canada) Limited, a corporation continued under the Canada Business Corporations Act by articles of continuance redeems or purchases for cancellation all the issued and outstanding 8% non-cumulative, redeemable non-voting Class A preference shares without nominal or par value in the capital stock of the said corporation, no transfer or other disposition of any common share of a par value of U.S. $.01 the Company shall be effective unless a simultaneous transfer or disposition is made by the same transferor's to the same transferee of an equal number of Class A preference shares of Polydex Chemicals (Canada) Limited. 13. The Directors may decline to recognize any instrument of transfer, unless the instrument of transfer is deposited at the Office or if there be a transfer agent and/or a branch transfer agent or agents and/or registrar and/or branch registrar or registrars at any of the offices thereof or at such other place or places as the Directors may appoint, accompa- 9 10 nied by the certificate for the shares to which the instrument of transfer relates and such other evidence as the Directors may reasonably require to show the right of the transferor's to make the transfer and, if the instrument of transfer is executed by an attorney on the transferor's behalf, the authority of the attorney so to do. All instruments of transfer may be retained by the Company following registration. 14. The Directors may by resolution close the Register and the branch register or registers, if any, for a period of time not exceeding forty-eight hours, exclusive of Saturdays and holidays, immediately preceding any meeting of the members. TRANSMISSION OF SHARES 15. In case of the death of a shareholder, the survivors or survivor where the deceased was a joint holder, and the executors or administrators of the estate of the deceased where he was a sole or only surviving holder, shall be the only person recognized by the Company as having any title to his interest in the shares. 16. Any person becoming entitled to a share in consequence of the death or bankruptcy of a member (upon supplying to the Company such evidence as the Directors may reasonably require to show his title to the share) may, subject as hereinafter provided, either be registered himself as holder of the share upon giving notice to the Company of his desire to be so registered, or transfer such share to some other person. All the limitations, restrictions and provisions contained herein relating to the right to transfer and the registration of transfers of shares shall be applicable to any such notice or transfer as aforesaid as if the death or bankruptcy of the member had not occurred and the notice or transfer were a transfer executed by such member. 17. Save as otherwise provided herein, a person becoming entitled to a share in consequence of the death or bankruptcy of a member (upon supplying to the Company such evidence as the Directors may reasonably require to show his title to the share) shall be entitled to the same dividends and other advantages to which he would be entitled if he were the registered holder of the share except that he shall not be entitled in respect thereof to exercise any right conferred by membership in relation to meeting of the Company until he shall have been registered as a member in respect of the share. ALTERATION OF CAPITAL 18. The members may by Ordinary Resolution: a) increase the authorized capital of the Company by the creation of new shares of such amount as may be deemed expedient; all new shares shall be subject to the provisions contained herein with reference to allotment, lien, transfer, transmission and otherwise; b) consolidate and divide all or any of the share capital into shares of larger amount than its existing share; c) convert all or any of the paid-up shares into stock and re-convert that stock into paid-up shares of any denomination; d) subdivide the shares or any of them into shares of smaller amount than is fixed by these Articles of Association, so however that in the subdivision the proportion between the amount paid and the amount (if any) unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; or e) cancel any shares belonging to the company (including shares which at the date of the passing of the resolution in that behalf have not been taken or agreed to be taken by any person) and diminish the amount of its share capital by the amount of the shares so cancelled; f) reduce the shares or the share capital of the Company. 19. When authorized by the Directors, the Company may: a) accept from any shareholder a donation of his shares without any repayment of capital in respect thereof; and b) notwithstanding subclause 18 (f), purchase or otherwise acquire shares issued by it, provided that the Company shall not make any payment to or otherwise acquire shares issued by it if there are reasonable grounds for believing that: 10 11 (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of the Company's assets would after the payment be less than the aggregate of its liabilities and paid-up capital of all classes. c) Notwithstanding subclause 18(f) and subclause 19(b) the Company may purchase or otherwise acquire shares issued by it to (i) settle or compromise a debt or claim asserted by or against the Company; (ii) eliminate fractional shares; or (iii) fulfill the terms of a non-assignable agreement under which the corporation has a option or is obliged to purchase shares owned be a director, an officer or an employee of the Company provided that the Company shall not make any payment to purchase or acquire under this subclause shares issued by it if there are reasonable grounds for believing that (iv) the Company is, or would after the payment, be unable to pay its liabilities as they become due; or (v) the realizable value of the Company's assets would, after the payment, be less than the aggregate of its liabilities and the amounts required for payment on a redemption or in a liquidation of all shares the holders of which have a right to be paid prior to the holders of the shares to be purchased or acquired. Where the Company accepts from any shareholder a donation of his shares without any repayment of capital in respect thereof or purchases or otherwise acquires any of the Company's shares in accordance with subclauses 19 (b) or 19 (c) above, the Directors may: (i) cancel the shares at such time as they determine, in which case the authorized and issued capital of the Company are thereby decreased and these Articles of Association are amended accordingly; or (ii) resell the shares at such time and price and on such terms as they determine. 20. The Directors may from time to time at their discretion, raise or borrow or secure the payment of any sum or sums of money on the credit of the Company for the purposes of the Company. 21. The Directors may raise or secure the payment or repayment of such money in such manner and upon such terms and conditions in all respects as they think fit and in particular by the issue of bonds, mortgages, debentures or debenture stock perpetual of otherwise, notes or other obligations of the Company charged upon all or any part of the property of the Company (both present and future). 22. Debentures, debenture stock and other securities may be made assignable, free from any equities, between the Company and the person to whom the same may be issued. 23. The Directors may from time to time authorize one or more directors, officers or employees of the company or other persons, whether connected with the the Company or not, to sign, execute and give on behalf of the Company all documents, agreements and promises necessary or desirable for the purposes set out in sections 20, 21 and 22 and to draw, make, accept, endorse, execute and issue cheques, promissory notes, bills of exchange, bills of lading and other negotiable or transferable instruments and the same and all renewals thereof or substitution therefor so signed shall be binding upon the Company. GENERAL MEETINGS OF MEMBERS 24. The first annual general meeting of members shall be held at such time (not being more than twelve months) after the registration of the Company as the subscribers to the Memorandum of Association may determine in the City of Nassau in the Island of New Providence or at such other place as may be prescribed by the subscribers to the Company's Memorandum of Association. 25. Subsequent annual general meetings of the members shall be held in each and every year at such time (within a period of not more than eighteen months after the holding of the last preceding annual general meeting) at the Office of the Company or at such other place as may be prescribed by the Directors. 11 12 26. All other general meetings of the members of the Company are sometimes herein referred to as extraordinary general meetings. 27. The Directors may whenever they think fit, and shall on requisition in accordance with the provisions of the next succeeding paragraph hereof, proceed to convene an extraordinary general meeting. 28. The holders of not less than 5% of the issued shares of the Company that carry the right to vote at a meeting sought to be held may in writing signed by the addressed to the Secretary and sent by registered post to or left at the Office requisition an extraordinary general meeting of the Company and shall specify a resolution or resolutions to be proposed at such extraordinary general meeting as a special resolution or otherwise and may require that a memorandum not exceeding 200 words in length and approved by the requisitions be prepared at the Company's expense and enclosed with each notice of extraordinary general meeting so convened. Upon receipt of the requisition, the Directors shall forthwith call an extraordinary general meeting of the members for the transaction of the business stated in the requisition. If the Directors do no within twenty-one days from the date of the receipt of the requisition call and hold such meeting, any of the requisitionists may call such meeting which shall be held within sixty days from the date of the deposit of the requisition. Any reasonable expenses incurred by the requisitionists by reason of the failure of the Directors to call such meeting shall be paid to the requisitions by the Company. 29. Twenty-one days' notice at the least (exclusive of the day on which it is given and inclusive of the day for which it is given) of all general meetings of members specifying the place, the day and the hour of meeting and in case of special business the general nature of such business shall be given to the members in manner hereinafter mentioned or in such manner, if any, as may be prescribed by the members in general meeting; but the non-receipt of such notice by any member shall not invalidate the proceedings at any meeting. 30. (a) Every notice calling a general meeting shall specify the place and the day and the hour of the meeting and other shall appear with reasonable prominence in every such notice a statement that a member entitled to attend and vote is entitled to appoint a proxy to attend and vote instead of him and that a proxy need not be a member of the Company. (b) In the case of an annual general meeting, the notice shall also specify the meeting as such. (c) In the case of any annual general meeting at which business other than routine business is to be transacted, the notice shall specify the general nature of such business and in the case of any extraordinary general meeting the notice shall specify the general nature of all of the business to be transacted; and in each case, if any resolution is to be proposed as a Special Resolution, the notice shall contain a statement to the effect. (d) General meetings of members may be held without previous notice if all members entitled to be present are present in person or by proxy or waive notice of such meeting in writing. Any member may waive notice of a general meeting by an instrument in writing signed by him or by telegram, cable or telex before, at or after such meeting. 31. Routine business shall mean and include only business transacted at an annual general meeting of the following general nature, that is to say: (a) receiving and considering the financial statements and the report of the auditors thereof; (b) appointing the auditors and fixing the remuneration for the auditors or determining the manner in which such remuneration is to be fixed; (c) electing or appointing directors. 32. When all members entitled to be present and vote sign either personally or by proxy the minutes of an annual general or an extraordinary general meeting, the same shall be deemed to have been duly held notwithstanding that 12 13 members have not actually come together or that there may have been technical defects in the proceedings and a resolution in writing signed by all the members aforesaid shall be as valid and effectual as if it had been passed at a meeting of the members duly called and constituted. PROCEEDINGS AT GENERAL MEETINGS 33. No business shall be transacted at any general meeting of the members unless a quorum is present. Except as otherwise required by law, a quorum for the transaction of business shall be two persons present and holding or repre- senting by proxy not less than one share each. 34. The Chairman of the Board of Directors, failing whom the Vice-Chairman of the Board of Directors, failing whom the President, failing whom a Vice-President of the Company, shall preside as Chairman at a general meeting. If there be no such Chairman of the Board, Vice-Chairman of the Board, President or Vice-President present at any meeting within fifteen minutes after the time appointed for holding the meeting who is willing to act, the Directors present shall choose one of their number (or, if no Director be present or if all the Directors present decline to take the chair, the members present shall choose one their number) to be Chairman of the meeting. 35. The Chairman may, with the consent of the meeting, adjourn any meeting from time to time and from place to place but no business be transacted at any adjourned meeting other than the business left unfinished at the meeting from which the adjournment took place. 36. When a meeting is adjourned for thirty days or more, notice of the adjourned meeting shall be given as in the case of an original meeting. Save as aforesaid, it shall not be necessary to give any notice of an adjournment or of the busi- ness to be transacted at an adjourned meeting. 37. At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless a poll is (before or on the declaration of the result of the show of hands) demanded by either the Chairman of the meeting or any member present in person or by proxy and entitled to vote. A demand for a poll may be withdrawn. Unless a poll be so demanded (and the demand be not withdrawn) a declaration by the Chairman of the meeting that a resolution has been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in the minute book, shall be conclusive evidence of the fact without proof of the number or proportion of the votes recorded for or against such resolution. 38. If a poll is duly demanded and the demand is not withdrawn, the poll shall be taken in such manner as the Chairman of the meeting may direct, and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded. The Chairman of the Meeting may (and if so directed by the meeting shall) appoint scrutineers and may adjourn the meeting to some place and time fixed by him for the purpose of declaring the result of the poll. 39. In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the Meeting at which the show of hands takes place or at which the poll is demanded shall be entitled to a casting vote. 40. Upon a poll being demanded on any question, the same shall be taken forthwith. VOTES OF MEMBERS 41. Subject to any special rights or restrictions as to voting attached by or in accordance with these Articles to any class of shares, on a show of hands every member who is present in person shall have one vote and on a poll every member who is present in person or by proxy shall have one vote for every share of which he is the holders. 42. Where there are joint registered holders of any share, any one of such persons may vote at any meeting of members, either personally or by proxy, in respect of such share as if he were soley entitled thereto; and if more than one 13 14 of such joint holders be present at any such meeting personally or by proxy, that one of the said persons so present whose name stands first on the register in respect of such shares shall alone be entitled to vote in respect thereof. Several executors or administrators of a deceased member in whose sole name any shares stand shall for the purposes of this Article be deemed joint holders thereof. 43. A member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote, whether a show of hands or on a poll by his committee, curator bonis or other person in the nature of a committee or curator bonis appointed by such court, provided that such evidence as the Directors may require of the authority of the person claiming to vote shall have been deposited at the Office not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting. 44. No objection shall be raised as to the admissibility of any vote except at the meeting or adjourned meeting at which the vote objected to is or may be given or tendered, and every vote not disallowed at such meeting shall be valid for all purposes. Any such objection shall be referred to the Chairman of the meeting whose decision shall be final and conclusive. 45.On a poll votes may be given either personally or by proxy, and a person entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way. 46. A proxy need not be a member of the Company. 47. Any instrument appointing a proxy shall be in the following form with such variations (if any) as circumstances may require or the Directors may approve:- "POLYDEX CHEMICALS LIMITED" "I/We, "of " "a member of the above-named Company, hereby "appoint "of "as my/our proxy to act and vote for me/us on "my/our behalf at the (Ordinary, Extraordinary or "adjourned, as the case may be) Meeting of the "Company to be held on the day of "and at every adjournment thereof. "As witness may hand this day of, 19 ." 48. A instrument appointing a proxy must be produced at the meeting or must be left at the office or such other place, if any, as is specified for that purpose in the notice convening the meeting. 49. An instrument appointing a proxy shall be deemed to include the right to demand or join in demanding a poll and shall, unless the contrary is stated thereon, be valid as well for any adjournment of the meeting as for the meeting to which it relates. 50. A vote given in accordance with the terms of an instrument of proxy or of a power of attorney shall not be valid if the appointor shall be present at the meeting but shall be valid notwithstanding the previous death or incapacity of the transfer of the share in the Company in respect of which the vote is given, provided that no intimation in writing of the death, revocation or transfer shall have been received at the office before the meeting. 51. Any corporation which is a member of the Company may by resolution of its Directors or other governing body 14 15 authorize such person as it thinks fit to act as its representative at any meeting of the Company or any class of members of the Company, and the person so authorized shall be entitled to exercise the same powers on behalf of such corporation as the corporation could exercise if it were an individual member of the Company. VARIATION OF RIGHTS 52. Whenever the capital of the Company is divided into different classes of shares, the special rights attached to any class may, subject to the provisions of the Act, be varied or abrogated, either with the consent in writing of the holders of three-fourths of the issued shares of the class, or with the sanction of an Extraordinary Resolution passed at a separate general meeting of such holders (but not otherwise), and may be so varied or abrogated whilst the Company is a going concern or in contemplation of a winding-up. To every such separate general meeting all the provisions of these Articles relating to general meetings of the Company, or to the proceedings thereat, shall apply mutatis mutandis. The necessary quorum shall be two persons holding or representing by proxy at least one share of the class outstanding each. If at any such separate general meeting a quorum is not present within half an hour of the time appointed the meeting shall stand adjourned until the same day in the next week at the same time and place or to such other day, time and place as the Directors may determine, and at such adjourned meeting of such holders a quorum shall be two persons present holding or representing by proxy at least one share of the class outstanding each. The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided by the terms of issue, be deemed to be modified by the creation or issue of further shares ranking pari passu therewith. DIRECTORS 53. Subject as hereinafter provided the Directors shall not be less than three nor more than six in number. The first Directors shall be appointed at the first general meeting of the members and their number shall be within the limits above-mentioned. The Company may by ordinary resolution from time to time increase or reduce the maximum or minimum number of Directors. 54. The ordinary remuneration of the Directors shall from time to time be determined by the Directors. 55. The Directors may repay to any Director all such reasonable expenses as he may incur in attending and returning from meetings of the Directors, or of any committee of the Directors, or general meetings, or otherwise in or about the business of the Company. 56. Any Director who is appointed to any office or to any executive office including the office of President or Vice-President or who serves on any committee or who otherwise performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director, may be paid such extra remuneration by way of salary or otherwise as the Directors may determine. 57. The Directors shall have power and be deemed always to have had power to pay and agree to pay pensions or other retirement, superannuation, death or disability benefits to or to any person in respect of any Director or ex-Director who may hold or have held any executive office or any office of profit under the Company and for the purpose of providing any such pensions or other benefits to contribute to any scheme or fund or to pay premiums. 58. A Director of the Company who is in any way directly or indirectly interested in a contract or transaction or a proposed contract or transaction with the Company shall disclose the nature and extent of his interest at a meeting of the Directors of the Company. In the case of a proposed contract or transaction, the declaration shall be made at the meeting of the Directors at which the question of entering into the contract or transaction is first taken into consideration or, if the Director is not at the date of that meeting interested in the proposed contract or transaction, at the next meeting of the Directors held after he becomes so interested. In a case where the Director becomes interested in a contract or transaction after it is made, the declaration should be made a the first meeting of the Directors held after he becomes so interested. A general notice given to the Directors of the Company by a director to the effect that he 15 16 is a shareholder or member of or otherwise interested in any other company or is a member of a specified firm and is to be regarded as interested in any contract or transaction made with such other company or firm, shall be deemed to be a sufficient declaration of interest in relation to a contract or transaction so made, but no such notice is effective unless it is given at a meeting of the Directors, or the Director takes reasonable steps to make sure that it is brought up at the next meeting of the Directors after it is given. If a director has made a declaration of his interest in a contract or transaction or proposed contract or transaction in compliance with this paragraph and has not voted in respect thereof, and if he is acting honestly and in good faith, he is not accountable to the Company or to any of its members or creditors for any profit realized from the contract or transaction, and the contract or transaction, if it is in the best interest of the Company, is not voidable only by reason of holding that office or of the fiduciary relationship established thereby. Notwithstanding anything in this paragraph, a director is not accountable to the Company or to any of its members or creditors for any profit realized from such contract or transaction and the contract or transaction if it is in the best interests of the Company, is not by reason only of his interest therein voidable, if it is confirmed by an Ordinary Resolution of the members duly called for that purpose and if his interest in the contract or transaction is declared in reasonable detail in the notice calling the meeting. OFFICERS AND EXECUTIVE DIRECTORS 59. The officers of the Company shall consist of a President and Secretary (or one or more Assistant Secretaries) and may also comprise a Chairman of the Board, a Vice-Chairman of the Board, one or more Vice-Presidents, a Treasurer (or one or more Assistant Treasurers) or any combination of the aforesaid offices and such other officers as the Directors may determine. The officers shall be appointed by the Directors and shall hold office at the will of the Directors who may remove an officer at any time. The Directors shall have power from time to time to appoint an officer or officers to fill an office becoming vacant or to appoint an additional officer to a new office. 60. None of the officers (except the Chairman of the Board who must be a Director) need be a member or Director. 61. Any person may hold more than one such office. 62. (a) The officers shall perform such duties as may from time to time be prescribed by the Directors. (b) The Chairman of the Board, whom failing the Vice-Chairman of the Board, whom failing the President, shall be the chief executive officer of the Company, responsible for carrying out the policy decisions made by the Directors. He shall not originate policy and his powers of executing decisions of the Board shall be collateral with and not to the exclusion of the powers of the Directors. (c) The Secretary shall convene meetings of the members and Directors and shall attend the meetings and keep minutes thereof. He shall keep the corporate records. 63. (a) The Director may from time to time appoint one or more of their body to be holder of any executive office, including the office of Managing or Joint Managing Director, on such terms and for such period as they may determine. (b) The appointment of any Director to the office of Managing or Joint Managing Director shall be subject to termination if he ceases from any cause to be a Director, but without prejudice to any claim he may have for damages for breach of any contract of service between him and the Company. 64. The Directors may entrust to and confer upon the Managing Director any of the powers exercisable by them as Directors upon such terms and conditions and with such restrictions as they think fit, and either collaterally with or to the exclusion of their own powers, and may from time to time revoke, withdraw, alter or vary all or any of such powers. APPOINTMENT AND RETIREMENT OF DIRECTORS 16 17 65. The office of a Director shall be vacated in any of the following events, namely: (a) If he becomes prohibited by law from acting as a Director. (b) If he resigns by writing under his hand left at the Office. (c) If he becomes bankrupt or has an adjudication order made against him or compounds with his creditors generally. (d) If he becomes of unsound mind. 66. The members in annual general meeting shall elect directors to serve on the board of directors until their successors are elected and qualified or until their earlier removal or retirement. 67. The Company may by Ordinary Resolution remove any Director before the expiration of his period of office, notwithstanding any provision of these Articles or any agreement between the Company and such Director, but without prejudice to any claim he may have for damages for breach of any such agreement. The Company may by a like resolution appoint another person in place of a Director so removed from office. In default of such appointment the vacancy so arising may be filled by the Directors as a casual vacancy. 68. The Directors shall have power at any time and from time to time to appoint any person to be a Director either to fill a casual vacancy or as an additional Director, but so that the total number of Directors shall not at any time exceed the maximum number fixed by or in accordance with these Articles. PROCEEDINGS OF DIRECTORS 69. The Directors may meet together for the dispatch of business, adjourn and otherwise regulate their meetings as they think fit. Meetings of the Directors may be held anywhere in the world. Questions arising at any meeting shall be determined by a majority of votes. In case of an equality of votes the Chairman shall not have a second or casting vote. A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Directors. It shall be necessary to give two days' notice (exclusive of the day on which it is served or deemed to be served and inclusive of the day for which it is given) of a meeting of Directors to every Director but such notice may be waived by any Director by an instrument in writing signed by him or by telegram, cable or telex before, at or after such meeting. 70. The quorum necessary for the transaction of the business of the Directors may be fixed by the Directors, and unless so fixed at any other number shall be two. A meeting of the Directors at which a quorum is present shall be competent to exercise all powers and discretions for the time being exercisable by the Directors. 71. The continuing Directors may act notwithstanding any vacancies, but if and so long as the number of Directors is reduced below the minimum number fixed by or in accordance with these Articles the continuing Directors or Director may act for the purpose of filling up such vacancies or a summoning general meetings of the Company, but not for any other purpose. If there be no Directors or Director able or willing to act, then any two members may summon a general meeting for the purpose of appointing Directors. 72. The Directors may choose one of their number to be Chairman of the Board who shall preside at their meetings. In the absence of the Chairman of the Board, if any, the Vice-Chairman of the Board, if any (if he shall be a Director), or in his absence, the President (if he shall be a Director) shall preside at meetings of Directors provided always that nothing shall prevent the Vice-Chairman of the Board or President from being chosen Chairman of the Board. If at any meeting there is no Chairman of the Board or Vice-Chairman of the Board in existence, or if neither the Chairman of the Board nor the Vice-Chairman of the Board nor the President be present within fifteen minutes after the time appointed for the holding the same, the Directors present may choose one of their number to be Chairman 17 18 of the meeting. 73. A resolution in writing signed by all the Directors shall be as effective as a resolution passed at a meeting of the Directors duly convened and held, and may consist of several documents in the like form, each signed by one more of the Directors. 74. All acts done by any meeting of Directors, or by any person acting as a Director, shall as regards all persons dealing in good faith with the Company, notwithstanding that there was some defect in the appointment or continuance in office of any such Director, or person acting aforesaid, or that they or any of them were disqualified or had vacated office, or were not entitled to vote, be as valid as if every such person had been duly appointed and was qualified and had continued to be a Director and had been entitled to vote. BORROWING POWERS 75. The Directors may; (a) borrow money on the credit of the Company; (b) issue, sell or pledge debt obligations of the Company; or (c) charge, mortgage, hypothecate or pledge all or any currently owned or subsequently acquired real or personal, moveable or immovable property of the Company, including book debts, rights, powers, franchises and undertaking, to secure any debt obligations or any money borrowed, or other debt or liability of the Company. GENERAL POWERS OF DIRECTORS 76. The business of the Company shall be managed by the Directors, who may pay all expenses incurred in forming and registering the Company, and may exercise all such powers of the Company as are not by the Statute or by these Articles required to be exercised by the Company in general meeting, subject nevertheless to any regulations of these Articles, to the provisions of the Statue, and such regulations, being not consistent with the aforesaid regulation or provisions, as may be prescribed by Special Resolution of the Company, but no regulation so made by the Company shall invalidate any prior act of the Directors which would have been valid if such regulation had not been made. The general powers given by this Article shall not be limited or restricted by any special authority or power given to the Directors by any other Article. 77. The Directors may from time to time and at any time by power of attorney under the seal appoint any company, firm or person or any fluctuating body of persons, whether nominated directly or indirectly by the Directors, to be the Attorney of Attorneys of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Directors under these Articles) and for such period and subject to such conditions as they may think fit, and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such Attorney as the Directors may think fit, and may also authorize any such Attorney to subdelegate all or any of the powers, authorities and discretions vested in him. 78. All cheques, promissory notes, drafts, bills of exchange, and other negotiable or transferable instruments, and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed, or otherwise executed, as the case may be, in such manner as the Directors shall from time to time by resolution determine. 79. Contracts, documents or instruments in writing requiring the signature of the Company may be signed by the Chairman of the Board, Vice-Chairman of the Board, the President or a Vice-President or a Director and by the Secretary or another Director and all contracts, documents or instruments in writing so signed shall be binding upon the Company without further authorization or formality. The Directors are authorized from time to time by resolution to appoint any officer or officers or any other person or persons on behalf of the Company either to sign contracts, 18 19 documents or instruments in writing. The term "contracts, documents or instruments in writing" as used in this Article shall include deeds, mortgages, hypothecs, charges, conveyances, transfers and assignments of property, real or personal, immovable or movable, agreements, releases, receipts and discharges for the payment of money or other obligations, conveyances, transfers and assignments of shares, warrants, bonds, debentures or other securities and all paper writings. In particular, without limiting the generality of the foregoing, the Chairman of the Board, Vice-Chairman of the Board, the President or a Vice-President or a Director together with the Secretary or another Director are authorized to sell, assign, transfer, exchange, convert or convey all shares, bonds, debentures, rights, warrants or other securities owned by or registered in the name of the Company and to sign and execute (under the seal of the Company or otherwise) all assignments, transfers, conveyances, powers of attorney and other instruments that may be necessary for the purpose of selling, assigning, transferring, exchanging, converting or conveying any such shares, bonds, debentures, rights, warrants or other securities. SEAL 80. The Directors shall provide for the safe custody of the seal, which shall only be used by the authority of the Directors or of a committee of the Directors authorized by the Directors in that behalf, and every instrument to which the seal shall be signed by the Chairman of the Board, Vice-Chairman of the Board, President or a Vice-President or a Director and shall be countersigned by the Secretary or another Director. 81. The Company may exercise the powers conferred by the Companies Seals Act (Bahama Islands). AUTHENTICATION OF DOCUMENTS 82. Any Director or the Secretary or any person appointed by the Directors for the purpose shall have power to authentic ate any documents affecting the constitution of the Company and any resolutions passed by the Company or the Directors, and any books, records, documents and accounts relating to the business of the Company, and to certify copies thereof or extracts therefrom as true copies or extracts; and where any books, records, documents and accounts are elsewhere than at the Office the local manager or other officers of the Company having the custody thereof shall be deemed to be a person appointed by the Directors as aforesaid. 83. A document purporting to be a copy of a resolution of the Directors or an extract from the minutes of a meeting of the Directors which is certified as such in accordance with the provisions of the last preceding Article shall be conclusive evidence in favour of all persons dealing with the Company upon the faith thereof that such resolution has been duly passed or, as the case may be, that such extract is a true and accurate record of a duly constituted meeting of the Directors. Where a resolution purports to have been signed by all of the Directors or by all of the members, as the case may be, the signatures to such resolution are admissible in evidence as prima facie proof of the signatures of such Directors or members, as the case may be, that they purport to represent and are admissible in evidence as a prima facie proof that the signatures to the resolution were of all the Directors or all of the members entitled to vote at meetings of the Directors or members, as the case may be, at the date that the resolution purports to have been signed. Where minutes of all proceedings at a meeting of Directors or shareholders purport to have been signed by the Chairman of the meeting at which the proceedings where had or by the Chairman of the next succeeding meeting, such minutes are admissible in evidence as prima facie proof of the proceedings. CUSTODY OF SECURITIES 84. All securities owned by the Company shall be lodged (in the name of the Company) with a bank or trust company or in a safety deposit box or, if so authorized by a resolution of the Directors, with such other depositaries or in such other manner as may be determined from time to time by the Directors. All securities belonging to the Company may be issued and held in the name of a nominee or nominees of the Company (and if issued or held in the names of more than one nominee shall be held in the name of the nominees jointly with right to survivorship) and shall be endorsed in blank with endorsement guaranteed in order to enable transfer thereof to be completed and registration 19 20 thereof to be effected. DIVIDENDS 85. The Directors may by resolution declare dividends either out of the capital or the profits of the Company. 86. If and so far as in the opinion of the Directors the profits of the Company justify such payments, the Directors may pay the fixed dividends on any class of shares carrying a fixed dividend expressed to be payable on fixed dates on the half-yearly or other dates prescribed for the payment thereof and may also from time to time pay interim dividends of such amounts and on such dates as they think fit. 87. Subject to the provisions of the Statute, where any asset, business or property is bought by the Company as from a past date whether such date be before or after the incorporation of the Company upon the terms that the Company shall as from that date take the profits and bear and losses thereof, such profits or losses may, at the discretion of the Directors, in whole or in part be carried to revenue account and treated for all purposes as profits or losses of the Company. Subject as aforesaid, if any shares or securities are purchased cum dividend or interest, such dividend or interest may at the discretion of the Directors be treated as revenue, and it shall not be obligatory to capitalize the same or any part thereof. 88. No dividend or other moneys payable on or in respect of a share shall bear interest as against the Company. 89. The Directors may retain the dividends payable upon shares in respect of which any person is under the provisions as to transmission of shares hereinbefore contained entitled to become a member, or which any person is under those provisions entitled to transfer, until such person shall become a member in respect of such shares or shall transfer the same. 90. The payment by the Directors of any unclaimed dividend or other moneys payable on or in respect of a share into a separate account shall not constitute the Company a trustee in respect thereof and any dividend unclaimed after a period of six years from the date of declaration of such dividend shall be forfeited and shall revert to the Company. 91. The Directors may be resolution declare and pay a dividend in whole or in part by the distribution of specific assets, and in particular of paid-up shares or debentures of any other company or in any one or more such ways; and the Directors may fix the value for distribution of such specific assets or any part thereof and may determine that cash payments shall be made to any members upon the footing of the value so fixed in order to adjust the rights of all parties and may vest any such specific assets in trustees as may seem expedient to the Directors. 92. Any dividend or other moneys payable in cash on or in respect of a share may be paid by cheque or warrant sent through the post to the registered address of the member or person entitled thereto, or, if two or more persons are registered as joint holders of the share or are entitled thereto in consequence of the death or bankruptcy of the holder, to any one such persons or to such person at such address as such person or persons may by writing direct. Every such cheque or warrant shall be made payable to the order of the person whom it is sent or to such person as the holder or joint holders or person or persons entitled to the share in consequence of the death or bankruptcy of the holder may direct and payment of the cheque if purporting to be paid by the bank on which it is drawn shall be a good discharge to the Company. Every such cheque or warrant shall be sent at the risk of the person entitled to the money represented thereby. 93. If two or more persons are registered as joint holders of any share, or are entitled jointly to a share in consequence of the death or bankruptcy of the holder, any one of them any give effectual receipts for any dividend or other moneys payable on or in respect of the share. RESERVE 20 21 94. The Directors may from time to time set aside out of the profits of the Company and carry to reserve such sums as they think proper which, at the discretion of the Directors shall be applicable for any purpose to which the profits of the Company may properly be applied, and pending such application may either be employed in the business of the Company or be invested. The Directors may divide the reserve into such special funds as they think fit, and may consolidate into one fund any special funds or parts of any special funds into which the reserve may have been divided. The Directors may also without placing the same to reserve carry forward any profits. MINUTES AND BOOKS 95. The Directors shall cause minutes to be made and kept in books to be provided for the purpose: (a) of all appointments of officers made by the Directors; (b) of the names of the Directors present at each meeting of Directors and of any committee of Directors; (c) of all resolutions and proceedings at all meetings of the Company and of any class of members of the Company and of the Directors and of committees of Directors. 96. The Directors shall duly comply with the provisions of the Statute and in particular the provisions in regard to keeping a Register of Directors and Managers, a Register of Members, and a Register of mortgages and charges, and in regard to the production and furnishing of copies of such Registers and of any Register of holders of debentures of the Company. 97. Any Register, index, minute book, book of account or other book required by these Articles or the Statutes to be kept by or on behalf of the Company unless required by the Statutes to be kept at the Office may be kept at such place or places as the Directors may from time to time determine and may be kept either by making entries in bound books or by recording them in any other manner. In any case in which bound books are not used, the Directors shall take adequate precautions for guarding against falsification and for facilitating it discovery. ACCOUNTS 98. (a) The Directors shall cause to be kept proper books of account in which are set out all financial and other transactions of the Company including, without limiting the generality of the foregoing, with respect to: (i) all sums of money received and expended by the Company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases by the Company; (iii) the assets and liabilities of the Company; (iv) all other transactions affecting the financial position of the Company. (b) For the purposes of the foregoing, proper books of accounts shall not be deemed to be kept with respect to the matters aforesaid if there are not kept such books as are necessary to give a true and fair view of state of the Company's affairs and to explain its transactions. 99. The books of account shall be kept at the Office, or at such other place as the Directors think fit, and shall always be open to the inspection of the Directors. No member (other than a Director) shall have any right of inspecting any account or book or document of the Company, except as conferred by statute or authorized by the Directors. 100. The Directors shall at some date not later than eighteen months after the incorporation of the Company and 21 22 subsequently once at least in every year lay before the Company in general meeting: (a) financial statements relating to the period covered by the latest completed financial year, and made up of a statement of profit and loss, a statement of surplus and a statement of source and application of funds, made up to a date not earlier than the date of the meeting by more than six months; (b) a balance sheet as at the end of such period; and (c) the report of the auditor to the shareholders. Every statement of profit and loss to be laid before the Company in general meeting shall be drawn up so as to present fairly the results of the operation of the Company for the period covered by the statement. Every statement of surplus to be laid before the Company in general meeting shall be drawn up so as to present fairly the transactions reflected in statement. The statement of source and application of funds to be laid before the Company in general meeting shall be drawn up so as to present fairly the information shown therein for the period. The balance sheet to be laid before the Company in general meeting shall be drawn up so as to present fairly the financial position of the Company as at the date to which it is made up. 101. The Company shall, twenty-one days or more before the date of the general meeting at which the financial statements are to be laid before the Company, send by prepaid mail to each member at his latest address as shown on the Register, a copy of the financial statements and a copy of the auditor's report. AUDITORS 102. The Company may at each annual general meeting appoint an Auditor or Auditors to hold office from the conclusion of that, until the conclusion of the next annual general meeting. At any annual general meeting a retiring Auditor, however appointed, shall be re-appointed without any resolution being passed unless: (a) he is not qualified for re-appointment; or (b) a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be re-appointed; or (c) he has given the Company notice in writing of his unwillingness to be re-appointed. 103. The Auditor shall make a report to the members on the accounts examined by him, on every balance sheet and on every statement of profit and loss, statement of surplus and statement of source and application of funds to be laid before the Company in general meeting during his tenure of office, and his report, which shall be open to inspection by any member shall contain statements as to whether in his opinion the financial statements referred to therein present fairly the financial position of the Company and the results of its operations for the period under review in accordance with generally accepted accounting principles applied on a basis consistent with that of the preceding period, and shall also contain such statements as he considers necessary: (a) if he has not obtained all the information and explanations which to the best of his knowledge and belief were necessary for the purpose of his audit; (b) if in his opinion, proper books of account have not been kept by the Company, so far as appears from his examination of their books, and proper returns adequate for the purpose of his audit have not been received from branches not visited by him; 22 23 (c) (i) if the Company's balance sheet and statements of profit and loss, surplus and source and application of funds dealt with by the report are not in agreement with the books of accounts and returns; (ii) if in his opinion and to the best of his information and according to the explanations given to him, the said accounts do not give the information re-required by these presents in the manner so required and do not give a true and fair view, in the case of the balance sheet, of the state of the Company's affairs as at the date thereof, and in the case of the statements of profit and loss, surplus and source and application of funds, of the information shown therein of the Company for the period dealt with therein. 104. All acts done by any person acting as an Auditor shall as regards all persons dealing in good faith with the Company, be valid, notwithstanding that there was some defect in his appointment or that he was at the time of his appointment not qualified for appointment. 105. The Auditor shall be entitled to attend any general meeting and receive all notices of and other communications relating to any general meeting which any member is entitled to receive, and to be heard at any general meeting on any part of the business of the meeting which concerns him as Auditor. NOTICES 106. Any notice or document may be sent to or served on any member or Director either personally or by sending it through the post in a prepaid letter or by telegram, cable or, telex addressed to such member or Director at his registered address, or to the address, if any, supplied by him to the Company as his address for the service of notices. Where a notice or other document is served by post, service shall be deemed to be effected at the time when the letter containing the same is posted, and where severed by telegram, cable or telex, when the same is transmitted and in proving such service it shall be sufficient to prove that such notice was properly addressed, and posted or transmitted as the case may be. Provided that, for the purpose of serving notice of any meeting of members of the Company on any member whose address as aforesaid is outside the Bahama Islands, such method of posting is adopted as would in the ordinary course result in such member receiving such notice at such address not less than fourteen days in advance of the date fixed for the meeting but the Company shall not be accountable for any accidental omission by any such member to receive any such notice. 107. In respect of joint holdings all notices shall be given to that one of the joint holders whose name stands first in the Register, and notice so given shall be sufficient notice to all the joint holders. 108. A person entitled to a share in consequence of the death or bankruptcy of a member, upon supplying to the Company such evidence as the Directors may reasonably require to show his title to the share, and upon supplying also an address for the service of notices, shall be entitled to have served upon him at such address any notice or document to which the member but for his death or bankruptcy would be entitled, and such service shall for all purposes be deemed a sufficient service of such notice or document on all persons interested (whether jointly with or as claiming through or under him) in the share. Save as aforesaid, any notice or document delivered or sent by post to, or left at the registered address of any member in pursuance of these Articles shall, notwithstanding that such member be then dead or bankrupt and where or not the Company has notice of his death or bankruptcy, be deemed to have been duly served in respect to any share registered in the name of such member as sole or joint holder. 109. A member who has not supplied to the Company a registered address or an address for the service of notices shall not be entitled to receive notices from the Company. WINDING UP 110. If the Company shall be wound up (whether the liquidation is voluntary, under supervision, or by the Court) the Liquidator may, with the authority of a Special Resolution, divide among the members in specie or kind the whole or any part of the assets of the Company and whether or not the assets shall consist of property of one kind or shall con- 23 24 sist of properties of different kinds, and may for such purpose set such value as he deems fair upon any one or more class or classes of property and may determine, how such division shall be carried out as between the members or different classes of members. The Liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the Liquidator with the like authority shall think fit, and the liquidation of the Company may be closed and the Company dissolved. INDEMNITY 111. Subject to the provisions of the Statute, every Director or officer of the Company or other person who has undertaken or is about to undertake any liability on behalf of the Company or any company controlled by it and their heirs, executors and administrators and estate and effects, respectively, shall from time to time and at all times be indemnified and saved harmless out of the funds of the Company, from and against: (a) all costs, charges and expenses whatsoever which such Director, officer or other person sustains or incurs in or about any action, suit or proceeding which is brought, commenced or prosecuted against him, for or in respect of any act, deed, matter or thing whatsoever, made, done or permitted by him in or about the execution of the duties of his office or in respect of any such liability; (b) all other costs, charges and expenses which he sustains or incurs in or about or in relation to the affairs thereof, except such costs, charges or expenses as are occasioned by his own wilfulness, neglect or default. The amount for which such indemnity is provided shall immediately attach as a lien on the property of the Company and shall have priority over any claims of the Company or any member. 112. No Director or officer shall be liable for the acts, receipts, neglects, or defaults of any other Director or officer, or for joining in any receipt or other act for conformity, or for any loss or expense incurred by the Company as a result of insufficiency or deficiency of title to any property acquired by order of the Directors for or on behalf of the Company, or for the insufficiency or deficiency of any security in or upon which any of the moneys of the Company shall be advanced or invested, or for any loss or damage arising out of the bankruptcy, insolvency or tortious or criminal act or omission of any person with whom any moneys, securities or effects shall be deposited, or for any loss occasioned by an error of judgment, omission, default, or oversight on his part, or for any other loss, damage or misfortune whatever which shall happen in the execution of his office or in relation thereto, except the same shall happen through his own dishonesty. IN WITNESS WHEREOF we, the Subscribers to the Articles of Association have hereunto subscribed our names this 12th day of June A.D. 1979. Carey Leonard Carol Ann Weatherford Joan Mackey Cypriana Burrows Donna Wright Signed by the Subscribers to the Articles of Association in the presence of: /s/ Sean McWeeney COMMONWEALTH OF THE BAHAMAS New Providence I, Sean McWeeney of Nassau, Bahamas make oath and say that I was present and saw: Carey Leonard Carol Ann Weatherford Joan Mackey Cypriana Burrows Donna Wright all of the said Island of New Providence sign and as and for their Act execute the foregoing Articles of Association dated the 12th day of June A.D. 1979 for the purposes therein mentioned; and that I subscribed my name as the witness to the due execution thereof. SWORN to this 13th day of June A.D. 1979 Before me, R.D. Seligman NOTARY PUBLIC 24 EX-10.1 4 EXHIBIT 10.1 1 EXHIBIT 10.1 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this 22nd day of December, 1993 between POLYDEX PHARMACEUTICALS LIMITED, a Bahamas corporation (the "Employer") and THOMAS C. USHER (the Employee"). R E C I T A L S A. The Employer presently is engaged in the business of the research, development, manufacture and sale of dextran and certain of its derivatives and various specialty chemicals (the "Business"). B. The Employee has certain unique skills and business experience which he wishes to continue to devote to the Employer. C. The Employee has heretofore served the Employer as its Chairman and Chief Executive Officer, but without written employment agreement. D. The Employer desires to employ the Employee pursuant to a written employment agreement and the Employee desires to be so employed by the Employer. E. This Agreement, after careful review and consideration, has been approved by the Employer's board of directors (the "Board"). NOW THERFORE, in consideration of the premises together with other good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed as follows: 1. Recitals and Effective Date: The foregoing recitals are true and correct, and are incorporated herein by reference. The effective date of this Agreement shall be December 22, 1993 (the "Effective Date"). 2. Employment of the Employee: Subject to the terms and conditions contained herein, and unless sooner terminated as hereinafter provided, the Employer agrees to employ Employee, and Employee agrees to serve as an employee of the Employer, for a term of employment commencing on February 1, 1994 (the "Commencement Date") and ending five years from that date, (the "Term"). This Agreement shall renew thereafter for similar terms of five (5) years each unless either party gives the other one year's prior written notice of intent not to renew prior to the expiration of the then current term. 3. Duties of the Employee: During the Term, the Employee shall have the following powers and duties: 3.1 Employee will have the powers and duties of the Chairman of the Board and Chief Executive Officer of the Employer, as set forth in the Employer's by-laws, as amended (subject to the direction of the Board, which direction shall be pursuant to reasonable policies adopted by the Board from time to time and communicated by written notice to Employee). Employee shall principally be responsible for assisting the Board in the development of long-term goals and strategic planning, a marketing plan and new research, product development and venture opportunities, and shall coordinate and supervise the implementation of these goals, policies and activities. As Chairman of the Board, Employee also shall serve as Chairman, ex officio, of all committees of the Board. 3.2 During the Term, Employee shall devote most of his business time, attention, effort and skill to the business affairs and interests of the Employer. It is furthermore understood and agreed that Employee may serve or continue to serve on the boards of directors of and hold any other offices or positions in companies or organizations as Employee may desire, provided such position will not present any significant con- 2 flict of interest with the Employer or materially affect the performance of Employee's duties pursuant to this Agreement. If any potential conflict of interest arises, Employee shall present the position and circumstances to a meeting of the Board, which shall determine if a conflict exists. Nothing contained herein shall prohibit Employee from managing his personal, financial, and less active business affairs to the extent such affairs do not contravene any of the foregoing provisions. Notwithstanding anything to the contrary contained herein, the Employee shall the right and the authority to delegate responsibility to one or more personnel if he deems such delegation appropriate, and is hereby authorized to hire, on behalf of Employer, additional agents, employees and other representatives who are in his opinion necessary to handle the Employer's affairs. 3.3 During the Term, the Employer agrees to cause Employee to be elected as the Chief Executive Officer and Chairman of the Board of the Employer, and as a director on the Board. 4. Compensation: During the Term, as compensation for the services to be rendered by Employee, the Employer shall pay Employee the following amounts: 4.1 Base Salary: Each twelve month fiscal period commencing February 1st of one year, and ending January 31st of the next, is called herein a "Fiscal Year". During the Fiscal Year beginning on the Commencement Date and ending January 31, 1995, Employee shall be paid at the annual rate of $120,000.00 (U.S. Funds), payable in equal monthly installments (the "Base Salary"). 4.2 Increase in Base Salary: During the balance of the Term, and for each renewal Term, the Employee shall be entitled to increase in the Consumer Price Index for all Urban Consumers and Urban Wage Earners U.S. City Average issued by the United States Department of Labor Bureau of Labor Statistics, or its successor index ("CPI") over the preceding calendar year. 5. Fringe Benefits: During the Term, Employee shall be entitled to: 5.1 Business Expenses: Employee is authorized to incur reasonable expenses to execute and/or promote the Business of the Employer, including but not limited to expenses for entertainment, travel and similar items. Employer will reimburse Employee for all such expenses incurred on behalf of Employer. 5.2 Automobile: Employer shall furnish the Employee with Six Hundred ($600) Dollar (U.S. Funds) per month automobile allowance with which Employee shall pay the costs and expenses (inclusive of liability and casualty insurance) of an automobile to be used by Employee in the performance of his duties as are or may be customary for executives in the community who perform similar duties. Provided, however, that in lieu of the automobile allowance Employer may provide Employee with an appropriate automobile satisfactory to Employee for his use in discharging his duties hereunder. 5.3 Health, Medical, and Dental Insurance: Employee shall be provided with hospital, major medical, and dental insurance reasonably satisfactory to the Employee and his family dependents with full medical and dental coverage. Said policy shall be chosen by the Employee. Employee may request that Employer satisfy this paragraph 5.3 by reimbursing Employee for payments made by Employee under the existing plans which presently cover Employee. 5.4 Vacation: The Employee shall be entitled to four weeks paid vacation annually. 5.5. Employer Benefit Plans: Employee shall be entitled to participate in any and all plans, arrangements or distributions maintained by the Employer pertaining to or in connection with any pension, profit sharing, stock options and/or similar benefits for its regular employees and/or for its executives, as determined by the Board or committees thereof pursuant to the governing instruments which establish and/or determine 2 3 eligibility and other rights of the participants and beneficiaries under such plans or other benefits programs. 6. Rights of Indemnification: (a) Subject to the provisions of the Employer's Certificate of Incorporation and Bylaws, each as amended from time to time, the Employer shall indemnify the Employee to the fullest extent permitted by The Companies Act of the Commonwealth of the Bahamas, as amended from time to time, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorney's fees) incurred or paid by the Employee in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Employee of services for, or the acting by the Employee as a director, officer or employee of the Employer, or any other person or enterprise at the Employer's request. Upon request of the Employee, all costs and expenses of indemnification required hereunder shall be paid in advance. (b) The Employer shall use its best efforts to obtain and maintain in full force and effect during the Term directors' and officers' liability insurance policies providing full and adequate protection to the Employee for is capacities, provided that the Board of Directors of the Employer shall have no obligation to purchase such insurance if, in its opinion, coverage is available only on unreasonable terms. 7. Stock Options: The Employer hereby grants to the Employee options (the "Stock Options") to purchase 2,500,000 shares of the common stock of the Employer (the "Options Shares") exercisable over a six-year period regardless of whether the Employee is working for, or employed by the Employer. Said Stock Options shall be assignable and transferrable without any limitations whatsoever. The Employer and Employee hereby agree that as of the date of this Agreement, all 2,500,000 shares shall be and are hereby declared to be vested and immediately exercisable. The exercise price (the "Option Price") for the Option Shares shall be Two Dollars and Twenty-Five ($2.25) cents (U.S. Funds) per share, which Option Price is the closing price of the Employer's common stock as of the date of this Agreement, and is the fair market value of the Option Shares. Stock Options are cumulative. The Stock Options shall be exercisable from time to time in whole or in part without affecting the remainder of the Stock Options during the term of the exercisability and any renewal or extension thereof and for six years from the date of this Agreement. 7.1 Exercise of Stock Options: Stock Options may be exercised by written notice directed to the Employer or such other person as may be designated by the Employer accompanied by a check payable to the Employer in payment of the option price for the option shares. The Employer shall make immediate delivery of the purchased option shares, fully paid and nonassessable, registered in the name of the Employer subject to a restrictive legend set forth on the purchased Option Shares certificate as follows: The shares of stock represented by this Certificate have not been registered under the Securities Act of 1993, as amended ("Act"), or the securities laws of any other jurisdiction and may not be sold, transferred, pledged, hypothecated or otherwise disposed of in any manner unless they are registered under such Act and the securities laws of any applicable jurisdictions or unless pursuant to an exemption therefrom. 7.2 Reclassification, Consolidation or Merger: If and to the extent that the number of issued and outstanding shares of common stock of the Employer shall be increased or reduced by a change of par value, split-up, reclassification, distribution of a dividend payable in stock, issuance of convertible debentures,warrants or similar transactions, the number of shares subject to the Stock Options and the Option Price per share shall be proportionately adjusted to protect the Employee from dilution. If the Employer is reorganized or consolidated or merged with another corporation, the Employee shall be entitled to receive options covering shares of such reorganized, consolidated, or merged company in the same proportion, at an equivalent price, and subject to the same conditions. For purposes of the preceding sentence, the excess of the aggregate fair market value of the shares subject to the option immediately after the reorganization, consol- 3 4 idation or merger over the aggregate option price of such shares shall not be more than the excess of the aggregate fair market value of all shares subject to the Stock Options immediately before such reorganization, consolidation or merger over the aggregate option price of such shares, and the new option or assumption of the old Stock Options shall not give Employee additional benefits which he did not have under the old Stock Options, or deprive him of benefits which he had under the old Stock Options. If there is a purchase of stock of the Employer by a party who is not an affiliate of the Employer that causes a change in control of the Employer (as defined hereinafter), the Employer or purchasing entity shall purchase the Options Shares which have not been registered on the same basis as all other shares. 8. Death During Employment: If Employee dies during the Term of the Agreement, the Employer will pay to the Employee's surviving spouse, for the balance of her life, an amount equal to two-thirds (2/3) of the Base Salary which would otherwise be payable to the Employee. Furthermore, the Employee's surviving spouse or the Employee's estate, if otherwise provided, shall obtain all rights in vested stock options plus the right to exercise the stock options on 100% of the non-vested stock options, together with the sales rights of such stocks and/or stock options that have been granted to the Employee hereunder. 9. Disability: If Employee suffers from a disability as hereinafter defined, his employment hereunder may, after notice is hereinafter provided , at the option of the Employer, be deemed terminated. In such event, the Employer will pay the Employee the Base Salary, Bonus, and all fringe benefits otherwise payable to him for a period of one year after the date upon which the Board deems the Employee to be disabled hereunder (the "Disability Wage"). The Employer shall have the right, however, to set off against the amount of the Disability Wage payable to the Employee all amounts which may be received by Employee during such one-year period pursuant any disability insurance which the Employee may have. The Employer shall have no further wage obligations to the Employee or his estate except as otherwise provided in this Agreement. For this purpose, the terms "disability" and "disabled" are defined as Employee's inability for a period of 180 days in a 360 day period to perform his duties under this Agreement. If there is a dispute as to the existence of the Employee's disability, then said dispute shall be submitted to binding arbitration as provided hereafter. 10. Termination of Employment: 10.1 Termination by the Employee: Employee my voluntarily resign at any time upon 60 days prior written notice to the Employer. In such event, and not including circumstances described in Paragraph 12 below, Employee shall be entitled solely to the amounts specified in Section 11.1 of this Agreement. 10.2 Termination by the Employer: Employee's employment may be terminated by the Employer at any time, upon notice to Employee for "Cause". For this purpose, the term "Cause" is defined as: a. Breach. A material violations by Employee of his duties as an employee of the Employer which are demonstrably willful and deliberate on his part and which are not remedied in a reasonable period of time (not to exceed 30 days) after receipt of written notice from the Employer; b. Conviction: A conviction of Employee for a felony crime involving baseness, vileness, depravity or moral turpitude that would negatively impact on the Employer and/or the Employee's performance hereunder; c. Fraud. The commission or participation of Employee in an act or acts of personal dishonesty intended to result in his personal enrichment at the expense of the Employer which is not remedied in a reasonable period of time after receipt of written notice from the Employer; and d. Chemical Dependency: Dependence by Employee upon an illegal substance, including but not limited to, marijuana, cocaine, heroin, and all other illegal substances and/or dependence by Employee upon the use 4 5 of alcohol, which, in any case, in the opinion of both Employee's family physician and a physician chosen by the Employer, materially impairs Employee's ability to perform his duties hereunder, which dependence is not cured or rehabilitated within six months of receipt of written notice from the Employer to the Employee. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board (which Board must consist of at least four members at such time, including the Employee), at a meeting of the Board held for the purpose (after at least seven days prior written notice to the Employee and an opportunity for him, together with his counsel, to be heard before said Board), finding that in the good faith opinion of said Board the Employee was guilty of conduct set forth above in subsections (a), (b), (c) or (d) above and specifying the particulars thereof in detail. In the event that the Board shall consist of less than four members, the affirmative vote of at least two-thirds of the entire membership of the Board will be required for purposes of this Section. 10.3 Notice of Termination: Any termination by the Employer pursuant to Section 9 (Disability) or 10.2 (Cause), or by the Employee pursuant to Section 12 (Good Reason), shall be communicated by written Notice of Termination to the other party or parties hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the employment of the Employee under the provision so indicated. 10.4 Date of Termination: For purposes of this Agreement, "Date of Termination" shall mean: (i) if this Agreement is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Employee shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period); (ii) if the Employee's employment is terminated under Section 12 (Good Reason) below, the date specified in the Notice of Termination; and (iii) if the Employee's employment is terminated for any other reason, the date of which a Notice of Termination is given; provided that if within thirty (30) days after any Notice of Termination is given the party or parties receiving such Notice of Termination notifies the other party or parties that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided, however, that the Employee's action is finally adjudicated or arbitrated in his favor and against the Employer or that the Employee's action is settled by written agreement of the parties in the Employee's favor. 11. Payments Upon Termination: 11.1 Termination by the Employer for Cause, Resignation or by Mutual Agreement. If Employee and the Employer mutually agree to the termination of this Agreement, if Employee voluntarily resigns, except as provided in Paragraph 12 below, or if Employee is terminated by the Employer for Cause, then Employee shall be entitled only to a pro rata portion of the Base Salary together with accrued vacation to such date, all Stock Options available under this Agreement, and all applicable reimbursements from the Employer due under Paragraph 5 hereof. 11.2 Termination for Reasons other than Termination by the Employer for Cause, Resignation, Mutual Agreement, Death or Disability. For any form of termination other than that described in the preceding sec- 5 6 tion or in sections 8 or 9, including if the Employee shall terminate his employment for Good Reason, as herein defined, or if the Employer shall terminate the Employee without Cause, but only if the Employee as a Director of the Employer, shall have voted to oppose the termination, then the Employer shall pay the Employee the following amounts: (i) The Employee's full Base Salary (and any annual increases) through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) A lump sum payment of Five Hundred Thousand ($500,000) Dollars. (iii) All Option Shares shall be exercisable for a period of five years from the Date of Termination. (iv) The Employer shall also pay all indemnity payments and all legal fees and expenses incurred by the Employee as a result of such termination (including all such fees and expenses, if any incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). The Employee shall not be required to mitigate the amount of any payment provided for in this section 11.2 by seeking other employment or otherwise. 12. Good Reason. The Employee may terminate his employment for Good Reason. For purposes of this Agreement "Good Reason" shall mean: (i) without the express written consent of Employee, the assignment to him or any duties grossly inconsistent with his positions, duties, responsibilities and status with the Employer, or a change in his reporting responsibilities, titles, or offices, or any removal of him from or any failure to re-elect him to any of such positions, except because of the termination of his employment for Cause, Disability or Death; (ii) a reduction by the Employer in his Base Salary as in effect on the date hereof, or as the same my be increased from time to time; or the failure by the Employer to increase such Base Salary each year as provided for in this Agreement; (ii) the failure by the Employer to continue in effect any Employer-sponsored benefit or compensation plan, pension plan, life insurance plan, medical and dental plan, personal accident plan or disability plan in which the Employee is participating (or plans providing him with substantially similar benefits), the taking of any action by the Employer which would adversely affect his participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Employer to make any of the payments called for in Section 5 hereof; (iv) the failure of the Employer to obtain the assumption of an agreement to perform this Agreement by any successor as contemplated in Section 17 below; (v) a "Change in Control" of the Employer as defined in Section 13 below; or (vi) the purported termination of the Employee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements subparagraph (f) below, and for purposes of this Agreement, no such purported termination shall be effective. 13. Change in Control (a) For purposed of this Agreement, a "change in control of the Employer" shall mean a change in control of the nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 6 7 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that, without limitation, such a change of control also be deemed to have occurred; (i) if any "person" (as such term is used in Sections 13(d) and 14(d) (2) of the Exchange Act) is or become the beneficial owner, directly or indirectly by acquisition, or otherwise, or securities of the Employer representing twenty-five (25%) percent or more of the combined voting power of the Employer's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Employer cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Employer's shareholders, or each new director, was approved by a vote of at least three-fourths (3/4) of the directors then still in office who were directors at the beginning of the period. (b) If any of the events described in this Section 13 hereof constituting a change in control of the Employer shall have occurred, the Employee shall be entitled to the benefits provided in Section 11.2. 14. Reporting Obligation: The Employer and the Employee hereby agree that the Employee shall only be responsible to, and shall be required to report only to the Employer's Board. 15. Restrictive Covenant: As a inducement for the Employer to enter into this Agreement and provided that the Employer is in good standing under the terms of this Agreement, Employee agrees that for the longer of the period of Employee's employment with the Employer or the period that Employee serves as a director on the Board of the Employer and for a period of one year thereafter, Employee shall not either directly as an owner, partner, shareholder, agent, director, employee, independent contractor, representative, consultant or otherwise within the States of Florida or Kansas or the Canadian provinces of Ontario or British Columbia or in other areas where the Employer then carries on its business either (1) engage in any business which competes with the existing business of the Employer or any of its affiliates or (2) solicit employees of the Employer to perform services for another business. Notwithstanding the foregoing provisions of this Agreement, Employee may own shares of common stock of the Employer; or own shares of stock in any corporation whose shares of stock are registered under Section 12 of the Securities Exchange Act of 1934 as amended, and which is engaged in the business which is in competition with the business then engaged by the Employer and its affiliates, provided that the acquisition of said shares of stock is for investment purposes only, and that Employee shall not own, directly or indirectly, 5% or more of the issued and outstanding shares of any class of stock or such corporation. 16. Notices: Any notice, request, demand, offer, payment or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been delivered and given for all purposes if written, and (1) if delivered personally or by courier or delivery service to the address set forth below at the time of such delivery, (b) if sent by registered or certified United States mail, postage and charges prepaid, addressed to the intended recipient, at the address specified below, effective upon receipt or refusal. If to the Employer: Polydex Pharmaceuticals Limited 421 Comstock Road, Scarborough,Ontario CANADA MIL 2H5 with a copy to: Peter Higgs, Esq. Higgs & Johnson Sandringham House 83 Shirley Street 7 8 Nassau, Bahamas If to the Employee: Thomas C. Usher Kwan-Yin Club Nassau, Bahamas with a copy to: Thomas C. Usher 14125 30th Avenue South Surrey, British Columbia CANADA V4P 2J4 Any party may change the address to which notices are to be mailed by giving five (5) days prior notice as provided herein to all other parties. Commencing on the day after the receipt or refusal of such notice, such newly designated address shall be such person's address for purposes of all notices or other communications required or permitted to be given pursuant to this Agreement. 17 . Successors: (a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place. Failure to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to compensation from the Employer in the same amount and on the same terms as he would be entitled hereunder if the Employee had terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this section, "Employer" shall mean the Employer as hereinbefore defined, and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 17 or which otherwise becomes bound by all the terms and provisions of the Agreement by operation of law. 18. Construction of Agreement: 18.1 Bahamas Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of the Bahamas, and all of its provisions shall be administered according to and it validity shall be determined under the laws of the Commonwealth of the Bahamas without reference to Bahamian law provisions regarding conflicts of law. 18.2 Gender and Number. Whenever appropriate, references in this Agreement in any gender shall be construed to include all other genders, references in the singular shall be construed to include the plural, and references in the plural shall be construed to include the singular, unless the context clearly indicates to the contrary. 18.3 Certain Words. The words "hereof", "herein", "hereunder", and other similar compounds of the word "here" shall mean and refer to the entire Agreement and not to any particular article, provision or paragraph unless so required by this Agreement. 18.4 Captions. Section and paragraph headings, titles or captions contained in this Agreement are inserted only as a matter of convenience and/or reference, and they shall in no way be construed as limiting, 8 9 extending, defining or describing either the scope or intent of this Agreement or any provision hereof. 18.5 Counterparts. This Agreement may be executed in one or more counterparts, and any such counterpart shall, for all purposes, be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 18.6 Severability. The invalidity of unenforceability of any provision hereunder (or any portion of such a provision) shall not affect the validity or enforcability of the remaining provisions (or remaining portions of such provisions) of this Agreement. 19. Miscellaneous; 19.1 Entire Agreement. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof, and supersedes and revokes any and all prior existing agreements, written or oral, relating to the subject matter hereof, and this Agreement shall be solely determinative of the matters addressed herein. 19.2 Waiver. Either the Employer or Employee may, at any time or times, waive (in whole or in part) any rights or privileges to which he or it may be entitled hereunder. However, no waiver by any party of any condition or of the breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach in other instances, or as a waiver of any other condition or of any breach of any other terms, covenants, representations of warranties contained in this Agreement, and no waiver shall be effective unless it is in writing and signed by the waiving party. 19.3 Attorney's Fees. If either party shall be required to retain the services of an attorney to enforce any of his or its rights hereunder, the prevailing party shall be entitled to receive from the other party all costs and expenses including (but not limited to) court costs and attorney's fees (whether in a court of original jurisdiction or one or more courts of appellate jurisdiction), incurred by him or it in connection therewith. 19.4 Venue. Any litigation arising hereunder shall be instituted only in Palm Beach County, Florida, the place where this Agreement was executed, and all parties hereto agree that venue shall be proper in said county for all such legal or equitable proceedings. 19.5 Assignment. The rights and obligations of the parties under this Agreement shall inure to the benefit of and shall be binding upon their successors, assigns, and/or other legal representatives. This Agreement shall not be assignable by the Employer, except as provided herein by Employee. The services of Employee are personal and his obligations may not be delegated by him except as otherwise provided herein. 19.6 Amendment. This Agreement may not be amended, modified, superseded or canceled, and any of the matters, covenants, representation, warranties or conditions hereof may not be waived, except by a written instrument executed by the Employer and Employee or, in the case of a waiver, by the party to be charged with such waiver. 19.7 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association with the American Arbitration Association, Boynton Beach, Florida, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction over the parties. The dispute will be resolved by a panel of three arbitrators if the dollar amount in question that is being arbitrated exceeds $100,000.00. 9 10 IN WITNESS WHEREOF, the Employer and Employee have caused this Agreement to be executed on the day and year first above written. WITNESS: "Employer" /s/ Sharon Wardlaw POLYDEX PHARMACEUTICALS LIMITED a Bahamas corporation /s/ George Usher /s/ Larry Schaun By: George Usher, President "Employee" /s/ Thomas C. Usher 10 EX-10.2 5 EXHIBIT 10.2 1 EXHIBIT 10.2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") made and entered into this 22nd day of December, 1993 between POLYDEX PHARMACEUTICALS LIMITED, a Bahamas corporation (the "Employer") and GEORGE USHER (the Employee"). R E C I T A L S A. The Employer presently is engaged in the business of the research, development, manufacture and sale of dextran and certain of its derivatives and various specialty chemicals (the "Business"). B. The Employee has certain unique skills and business experience which he wishes to continue to devote to the Employer. C. The Employee has heretofore served the Employer as its President and Chief Operating Officer, but without written employment agreement. D. The Employer desires to employ the Employee pursuant to a written employment agreement and the Employee desires to be so employed by the Employer. E. This Agreement, after careful review and consideration, has been approved by the Employer's board of directors (the "Board"). NOW THERFORE, in consideration of the premises together with other good and valuable consideration, the receipt of which is hereby acknowledged, it is agreed as follows: 1. Recitals and Effective Date: The foregoing recitals are true and correct, and are incorporated herein by reference. The effective date of this Agreement shall be December 22, 1993 (the "Effective Date"). 2. Employment of the Employee: Subject to the terms and conditions contained herein, and unless sooner terminated as hereinafter provided, the Employer agrees to employ Employee, and Employee agrees to serve as an employee of the Employer, for a term of employment commencing on February 1, 1994 (the "Commencement Date") and ending five years from that date, (the "Term"). This Agreement shall renew thereafter for similar terms of five (5) years each unless either party gives the other one year's prior written notice of intent not to renew prior to the expiration of the then current term. 3. Duties of the Employee: During the Term, the Employee shall have the following powers and duties: 3.1 Employee will have the powers and duties of the President and Chief Operating Officer of the Employer, as set forth in the Employer's by-laws, as amended (subject to the direction of the Board, which direction shall be pursuant to reasonable policies adopted by the Board from time to time and communicated by written notice to the Employee). Employee shall principally be responsible for the daily operations of all aspects of the Employer and of all of its subsidiaries. Employee shall also serve as a Director of the Employer. 3.2 During the Term, Employee shall devote most of his business time, attention, effort and skill to the business affairs and interests of the Employer. It is furthermore understood and agreed that Employee may serve or continue to serve on the boards of directors of and hold any other offices or positions in companies or organizations as Employee may desire, provided such position will not present any significant conflict of interest with the Employer or materially affect the performance of Employee's duties pursuant to this Agreement. If any potential conflict of interest arises, Employee shall present the position and circumstances to a meeting of the Board, which shall determine if a conflict exists. Nothing contained herein shall prohibit Employee from managing his personal, financial, and less active business affairs to the extent such 2 affairs do not contravene any of the foregoing provisions. Notwithstanding anything to the contrary contained herein, the Employee shall the right and the authority to delegate responsibility to one or more personnel if he deems such delegation appropriate, and is hereby authorized to hire, on behalf of Employer, additional agents, employees and other representatives who are in his opinion necessary to handle the Employer's affairs. 3.3 During the Term, the Employer agrees to cause Employee to be elected as the Chief Operating Officer and President of the Employer, and as a director on the Board. 4. Compensation: During the Term, as compensation for the services to be rendered by Employee, the Employer shall pay Employee the following amounts: 4.1 Base Salary: Each twelve month fiscal period commencing February 1st of one year, and ending January 31st of the next, is called herein a "Fiscal Year". During the Fiscal Year beginning on the Commencement Date and ending January 31, 1995, Employee shall be paid at the annual rate of $65,000.00 (U.S. Funds), payable in equal monthly installments (the "Base Salary"). 4.2 Increase in Base Salary: During the balance of the Term, and for each renewal Term, the Employee shall be entitled to increase in the Consumer Price Index for all Urban Consumers and Urban Wage Earners U.S. City Average issued by the United States Department of Labor Bureau of Labor Statistics, or its successor index ("CPI") over the preceding calendar year. 5. Fringe Benefits: During the Term, Employee shall be entitled to: 5.1 Business Expenses: Employee is authorized to incur reasonable expenses to execute and/or promote the Business of the Employer, including but not limited to expenses for entertainment, travel and similar items. Employer will reimburse Employee for all such expenses incurred on behalf of Employer. 5.2 Automobile: Employer shall furnish the Employee with Six Hundred ($600) Dollar (U.S. Funds) per month automobile allowance with which Employee shall pay the costs and expenses (inclusive of liability and casualty insurance) of an automobile to be used by Employee in the performance of his duties as are or may be customary for executives in the community who perform similar duties. Provided, however, that in lieu of the automobile allowance Employer may provide Employee with an appropriate automobile satisfactory to Employee for his use in discharging his duties hereunder. 5.3 Health, Medical, and Dental Insurance: Employee shall be provided with hospital, major medical, and dental insurance reasonably satisfactory to the Employee and his family dependents with full medical and dental coverage. Said policy shall be chosen by the Employee. Employee may request that Employer satisfy this paragraph 5.3 by reimbursing Employee for payments made by Employee under the existing plans which presently cover Employee. 5.4 Vacation: The Employee shall be entitled to four weeks paid vacation annually. 5.5. Employer Benefit Plans: Employee shall be entitled to participate in any and all plans, arrangements or distributions maintained by the Employer pertaining to or in connection with any pension, profit sharing, stock options and/or similar benefits for its regular employees and/or for its executives, as determined by the Board or committees thereof pursuant to the governing instruments which establish and/or determine eligibility and other rights of the participants and beneficiaries under such plans or other benefits programs. 6. Rights of Indemnification: 2 3 (a) Subject to the provisions of the Employer's Certificate of Incorporation and Bylaws, each as amended from time to time, the Employer shall indemnify the Employee to the fullest extent permitted by The Companies Act of the Commonwealth of the Bahamas, as amended from time to time, for all amounts (including without limitation, judgments, fines, settlement payments, expenses and attorney's fees) incurred or paid by the Employee in connection with any action, suit, investigation or proceeding arising out of or relating to the performance by the Employee of services for, or the acting by the Employee as a director, officer or employee of the Employer, or any other person or enterprise at the Employer's request. Upon request of the Employee, all costs and expenses of indemnification required hereunder shall be paid in advance. (b) The Employer shall use its best efforts to obtain and maintain in full force and effect during the Term directors' and officers' liability insurance policies providing full and adequate protection to the Employee for is capacities, provided that the Board of Directors of the Employer shall have no obligation to purchase such insurance if, in its opinion, coverage is available only on unreasonable terms. 7. Stock Options: The Employer hereby grants to the Employee options (the "Stock Options") to purchase 2,500,000 shares of the common stock of the Employer (the "Options Shares") exercisable over a six-year period regardless of whether the Employee is working for, or employed by the Employer. Said Stock Options shall be assignable and transferrable without any limitations whatsoever. The Employer and Employee hereby agree that as of the date of this Agreement, all 2,500,000 shares shall be and are hereby declared to be vested and immediately exercisable. The exercise price (the "Option Price") for the Option Shares shall be Two Dollars and Twenty-Five ($2.25) cents (U.S. Funds) per share, which Option Price is the closing price of the Employer's common stock as of the date of this Agreement, and is the fair market value of the Option Shares. Stock Options are cumulative. The Stock Options shall be exercisable from time to time in whole or in part without affecting the remainder of the Stock Options during the term of the exercisability and any renewal or extension thereof and for six years from the date of this Agreement. 7.1 Exercise of Stock Options: Stock Options may be exercised by written notice directed to the Employer or such other person as may be designated by the Employer accompanied by a check payable to the Employer in payment of the option price for the option shares. The Employer shall make immediate delivery of the purchased option shares, fully paid and nonassessable, registered in the name of the Employer subject to a restrictive legend set forth on the purchased Option Shares certificate as follows: The shares of stock represented by this Certificate have not been registered under the Securities Act of 1993, as amended ("Act"), or the securities laws of any other jurisdiction and may not be sold, transferred, pledged, hypothecated or otherwise disposed of in any manner unless they are registered under such Act and the securities laws of any applicable jurisdictions or unless pursuant to an exemption therefrom. 7.2 Reclassification, Consolidation or Merger: If and to the extent that the number of issued and outstanding shares of common stock of the Employer shall be increased or reduced by a change of par value, split-up, reclassification, distribution of a dividend payable in stock, issuance of convertible debentures, warrants or similar transactions, the number of shares subject to the Stock Options and the Option Price per share shall be proportionately adjusted to protect the Employee from dilution. If the Employer is reorganized or consolidated or merged with another corporation, the Employee shall be entitled to receive options covering shares of such reorganized, consolidated, or merged company in the same proportion, at an equivalent price, and subject to the same conditions. For purposes of the preceding sentence, the excess of the aggregate fair market value of the shares subject to the option immediately after the reorganization, consolidation or merger over the aggregate option price of such shares shall not be more than the excess of the aggregate fair market value of all shares subject to the Stock Options immediately before such reorganization, consolidation or merger over the aggregate option price of such shares, and the new option or assumption of the old Stock Options shall not give Employee additional benefits which he did not have 3 4 under the old Stock Options, or deprive him of benefits which he had under the old Stock Options. If there is a purchase of stock of the Employer by a party who is not an affiliate of the Employer that causes a change in control of the Employer (as defined hereinafter), the Employer or purchasing entity shall purchase the Options Shares which have not been registered on the same basis as all other shares. 8. Death During Employment: If Employee dies during the Term of this Agreement, the Employer will pay to the Employee's surviving spouse the Base Salary which would otherwise be payable to the Employee for a period of not less than six months after the date in which Employee's death occurred. Furthermore, the Employee's surviving spouse or the Employee's estate, if otherwise provided, shall obtain all rights in vested stock options plus the right to exercise the stock options on 100% of the non-vested stock options, together with the sales rights of such stocks and/or stock options that have been granted to the Employee hereunder. 9. Disability: If Employee suffers from a disability as hereinafter defined, his employment hereunder may, after notice is hereinafter provided, at the option of the Employer, be deemed terminated. In such event, the Employer will pay the Employee the Base Salary, Bonus, and all fringe benefits otherwise payable to him for a period of one year after the date upon which the Board deems the Employee to be disabled hereunder (the "Disability Wage"). The Employer shall have the right, however, to set off against the amount of the Disability Wage payable to the Employee all amounts which may be received by Employee during such one-year period pursuant any disability insurance which the Employee may have. The Employer shall have no further wage obligations to the Employee or his estate except as otherwise provided in this Agreement. For this purpose, the terms "disability" and "disabled" are defined as Employee's inability for a period of 180 days in a 360 day period to perform his duties under this Agreement. If there is a dispute as to the existence of the Employee's disability, then said dispute shall be submitted to binding arbitration as provided hereafter. 10. Termination of Employment: 10.1 Termination by the Employee: Employee my voluntarily resign at any time upon 60 days prior written notice to the Employer. In such event, and not including circumstances described in Paragraph 12 below, Employee shall be entitled solely to the amounts specified in Section 11.1 of this Agreement. 10.2 Termination by the Employer: Employee's employment may be terminated by the Employer at any time, upon notice to Employee for "Cause". For this purpose, the term "Cause" is defined as: a. Breach. A material violations by Employee of his duties as an employee of the Employer which are demonstrably willful and deliberate on his part and which are not remedied in a reasonable period of time (not to exceed 30 days) after receipt of written notice from the Employer; b. Conviction: A conviction of Employee for a felony crime involving baseness, vileness, depravity or moral turpitude that would negatively impact on the Employer and/or the Employee's performance hereunder; c. Fraud. The commission or participation of Employee in an act or acts of personal dishonesty intended to result in his personal enrichment at the expense of the Employer which is not remedied in a reasonable period of time after receipt of written notice from the Employer; and d. Chemical Dependency: Dependence by Employee upon an illegal substance, including but not limited to, marijuana, cocaine, heroin, and all other illegal substances and/or dependence by Employee upon the use of alcohol, which, in any case, in the opinion of both Employee's family physician and a physician chosen by the Employer, materially impairs Employee's ability to perform his duties hereunder, which dependence is not cured or rehabilitated within six months of receipt of written notice from the Employer to the 4 5 Employee. Notwithstanding the foregoing, the Employee shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than three quarters (3/4) of the entire membership of the Board (which Board must consist of at least four members at such time, including the Employee), at a meeting of the Board held for the purpose (after at least seven days prior written notice to the Employee and an opportunity for him, together with his counsel, to be heard before said Board), finding that in the good faith opinion of said Board the Employee was guilty of conduct set forth above in subsections (a), (b), (c) or (d) above and specifying the particulars thereof in detail. In the event that the Board shall consist of less than four members, the affirmative vote of at least two-thirds of the entire membership of the Board will be required for purposes of this Section. 10.3 Notice of Termination: Any termination by the Employer pursuant to Section 9 (Disability) or 10.2 (Cause), or by the Employee pursuant to Section 12 (Good Reason), shall be communicated by written Notice of Termination to the other party or parties hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the employment of the Employee under the provision so indicated. 10.4 Date of Termination: For purposes of this Agreement, "Date of Termination" shall mean: (i) if this Agreement is terminated for Disability, thirty (30) days after Notice of Termination is given (provided that the Employee shall not have returned to the performance of his duties on a full-time basis during such thirty (30) day period); (ii) if the Employee's employment is terminated under Section 12 (Good Reason) below, the date specified in the Notice of Termination; and (iii) if the Employee's employment is terminated for any other reason, the date of which a Notice of Termination is given; provided that if within thirty (30) days after any Notice of Termination is given the party or parties receiving such Notice of Termination notifies the other party or parties that a dispute exists concerning the termination, the Date of Termination shall be the date on which the dispute is finally determined by a binding and final arbitration award or by a final judgment, order or decree of a court of competent jurisdiction (the time for appeal therefrom having expired and no appeal having been perfected); provided, however, that the Employee's action is finally adjudicated or arbitrated in his favor and against the Employer or that the Employee's action is settled by written agreement of the parties in the Employee's favor. 11. Payments Upon Termination: 11.1 Termination by the Employer for Cause, Resignation or by Mutual Agreement. If Employee and the Employer mutually agree to the termination of this Agreement, if Employee voluntarily resigns, except as provided in Paragraph 12 below, or if Employee is terminated by the Employer for Cause, then Employee shall be entitled only to a pro rata portion of the Base Salary together with accrued vacation to such date, all Stock Options available under this Agreement, and all applicable reimbursements from the Employer due under Paragraph 5 hereof. 11.2 Termination for Reasons other than Termination by the Employer for Cause, Resignation, Mutual Agreement, Death or Disability. For any form of termination other than that described in the preceding section or in sections 8 or 9, including if the Employee shall terminate his employment for Good Reason, as herein defined, or if the Employer shall terminate the Employee without Cause, but only if the Employee as a Director of the Employer, shall have voted to oppose the termination, then the Employer shall pay the 5 6 Employee the following amounts: (i) The Employee's full Base Salary (and any annual increases) through the Date of Termination at the rate in effect at the time Notice of Termination is given. (ii) A lump sum payment of Five Hundred Thousand ($500,000) Dollars. (iii) All Option Shares shall be exercisable for a period of five years from the Date of Termination. (iv) The Employer shall also pay all indemnity payments and all legal fees and expenses incurred by the Employee as a result of such termination (including all such fees and expenses, if any incurred in contesting or disputing any such termination or in seeking to obtain or enforce any right or benefit provided by this Agreement). The Employee shall not be required to mitigate the amount of any payment provided for in this section 11.2 by seeking other employment or otherwise. 12. Good Reason. The Employee may terminate his employment for Good Reason. For purposes of this Agreement "Good Reason" shall mean: (i) without the express written consent of Employee, the assignment to him or any duties grossly inconsistent with his positions, duties, responsibilities and status with the Employer, or a change in his reporting responsibilities, titles, or offices, or any removal of him from or any failure to re-elect him to any of such positions, except because of the termination of his employment for Cause, Disability or Death; (ii) a reduction by the Employer in his Base Salary as in effect on the date hereof, or as the same my be increased from time to time; or the failure by the Employer to increase such Base Salary each year as provided for in this Agreement; (ii) the failure by the Employer to continue in effect any Employer-sponsored benefit or compensation plan, pension plan, life insurance plan, medical and dental plan, personal accident plan or disability plan in which the Employee is participating (or plans providing him with substantially similar benefits), the taking of any action by the Employer which would adversely affect his participation in or materially reduce his benefits under any of such plans or deprive him of any material fringe benefit enjoyed by him, or the failure by the Employer to make any of the payments called for in Section 5 hereof; (iv) the failure of the Employer to obtain the assumption of an agreement to perform this Agreement by any successor as contemplated in Section 17 below; (v) a "Change in Control" of the Employer as defined in Section 13 below; or (vi) the purported termination of the Employee's employment which is not effected pursuant to a Notice of Termination satisfying the requirements subparagraph (f) below, and for purposes of this Agreement, no such purported termination shall be effective. 13. Change in Control (a) For purposed of this Agreement, a "change in control of the Employer" shall mean a change in control of the nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended ("Exchange Act"); provided that, without limitation, such a change of control also be deemed to have occurred; 6 7 (i) if any "person" (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or become the beneficial owner, directly or indirectly by acquisition, or otherwise, or securities of the Employer representing twenty-five (25%) percent or more of the combined voting power of the Employer's then outstanding securities; or (ii) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Employer cease for any reason to constitute at least a majority thereof, unless the election or the nomination for election by the Employer's shareholders, or each new director, was approved by a vote of at least three-fourths (3/4) of the directors then still in office who were directors at the beginning of the period. (b) If any of the events described in this Section 13 hereof constituting a change in control of the Employer shall have occurred, the Employee shall be entitled to the benefits provided in Section 11.2. 14. Reporting Obligation: The Employer and the Employee hereby agree that the Employee shall only be responsible to, and shall be required to report only to the Employer's Board. 15. Restrictive Covenant: As a inducement for the Employer to enter into this Agreement and provided that the Employer is in good standing under the terms of this Agreement, Employee agrees that for the longer of the period of Employee's employment with the Employer or the period that Employee serves as a director on the Board of the Employer and for a period of one year thereafter, Employee shall not either directly as an owner, partner, shareholder, agent, director, employee, independent contractor, representative, consultant or otherwise within the States of Florida or Kansas or the Canadian provinces of Ontario or British Columbia or in other areas where the Employer then carries on its business either (1) engage in any business which competes with the existing business of the Employer or any of its affiliates or (2) solicit employees of the Employer to perform services for another business. Notwithstanding the foregoing provisions of this Agreement, Employee may own shares of common stock of the Employer; or own shares of stock in any corporation whose shares of stock are registered under Section 12 of the Securities Exchange Act of 1934 as amended, and which is engaged in the business which is in competition with the business then engaged by the Employer and its affiliates, provided that the acquisition of said shares of stock is for investment purposes only, and that Employee shall not own, directly or indirectly, 5% or more of the issued and outstanding shares of any class of stock or such corporation. 16. Notices: Any notice, request, demand, offer, payment or communication required or permitted to be given by any provision of this Agreement shall be deemed to have been delivered and given for all purposes if written, and (1) if delivered personally or by courier or delivery service to the address set forth below at the time of such delivery, (b) if sent by registered or certified United States mail, postage and charges prepaid, addressed to the intended recipient, at the address specified below, effective upon receipt or refusal. If to the Employer: Polydex Pharmaceuticals Limited 421 Comstock Road, Scarborough,Ontario CANADA MIL 2H5 with a copy to: Peter Higgs, Esq. Higgs & Johnson Sandringham House 83 Shirley Street Nassau, Bahamas If to the Employee: George Usher 7 8 RR 3, King, Ontario CANADA L0G 1K0 Any party may change the address to which notices are to be mailed by giving five (5) days prior notice as provided herein to all other parties. Commencing on the day after the receipt or refusal of such notice, such newly designated address shall be such person's address for purposes of all notices or other communications required or permitted to be given pursuant to this Agreement. 17 . Successors: (a) The Employer will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Employer, by agreement in form and substance satisfactory to the Employee, to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Employer would be required to perform it if no such succession had taken place. Failure to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Employee to compensation from the Employer in the same amount and on the same terms as he would be entitled hereunder if the Employee had terminated his employment for Good Reason, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed the Date of Termination. As used in this section, "Employer" shall mean the Employer as hereinbefore defined, and any successor to its business and/or assets as aforesaid which executes and delivers the agreement provided for in this Section 17 or which otherwise becomes bound by all the terms and provisions of the Agreement by operation of law. 18. Construction of Agreement: 18.1 Bahamas Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of the Bahamas, and all of its provisions shall be administered according to and it validity shall be determined under the laws of the Commonwealth of the Bahamas without reference to Bahamian law provisions regarding conflicts of law. 18.2 Gender and Number. Whenever appropriate, references in this Agreement in any gender shall be construed to include all other genders, references in the singular shall be construed to include the plural, and references in the plural shall be construed to include the singular, unless the context clearly indicates to the contrary. 18.3 Certain Words. The words "hereof", "herein", "hereunder", and other similar compounds of the word "here" shall mean and refer to the entire Agreement and not to any particular article, provision or paragraph unless so required by this Agreement. 18.4 Captions. Section and paragraph headings, titles or captions contained in this Agreement are inserted only as a matter of convenience and/or reference, and they shall in no way be construed as limiting, extending, defining or describing either the scope or intent of this Agreement or any provision hereof. 18.5 Counterparts. This Agreement may be executed in one or more counterparts, and any such counterpart shall, for all purposes, be deemed an original, but all such counterparts together shall constitute but one and the same instrument. 18.6 Severability. The invalidity of unenforceability of any provision hereunder (or any portion of such a provision) shall not affect the validity or enforceability of the remaining provisions (or remaining portions of 8 9 such provisions) of this Agreement. 19. Miscellaneous; 19.1 Entire Agreement. This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof, and supersedes and revokes any and all prior existing agreements, written or oral, relating to the subject matter hereof, and this Agreement shall be solely determinative of the matters addressed herein. 19.2 Waiver. Either the Employer or Employee may, at any time or times, waive (in whole or in part) any rights or privileges to which he or it may be entitled hereunder. However, no waiver by any party of any condition or of the breach of any term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall be deemed to be or construed as a further or continuing waiver of any such condition or breach in other instances, or as a waiver of any other condition or of any breach of any other terms, covenants, representations of warranties contained in this Agreement, and no waiver shall be effective unless it is in writing and signed by the waiving party. 19.3 Attorney's Fees. If either party shall be required to retain the services of an attorney to enforce any of his or its rights hereunder, the prevailing party shall be entitled to receive from the other party all costs and expenses including (but not limited to) court costs and attorney's fees (whether in a court of original jurisdiction or one or more courts of appellate jurisdiction), incurred by him or it in connection therewith. 19.4 Venue. Any litigation arising hereunder shall be instituted only in Palm Beach County, Florida, the place where this Agreement was executed, and all parties hereto agree that venue shall be proper in said county for all such legal or equitable proceedings. 19.5 Assignment. The rights and obligations of the parties under this Agreement shall inure to the benefit of and shall be binding upon their successors, assigns, and/or other legal representatives. This Agreement shall not be assignable by the Employer, except as provided herein by Employee. The services of Employee are personal and his obligations may not be delegated by him except as otherwise provided herein. 19.6 Amendment. This Agreement may not be amended, modified, superseded or canceled, and any of the matters, covenants, representation, warranties or conditions hereof may not be waived, except by a written instrument executed by the Employer and Employee or, in the case of a waiver, by the party to be charged with such waiver. 19.7 Arbitration. Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association with the American Arbitration Association, Boynton Beach, Florida, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction over the parties. The dispute will be resolved by a panel of three arbitrators if the dollar amount in question that is being arbitrated exceeds $100,000.00. IN WITNESS WHEREOF, the Employer and Employee have caused this Agreement to be executed on the day and year first above written. WITNESS: "Employer" POLYDEX PHARMACEUTICALS LIMITED a Bahamas corporation /s/ Thomas Usher By: Thomas C. Usher, Chairman 9 10 "Employee" /s/ GEORGE USHER 10 EX-10.3 6 EXHIBIT 10.3 1 Exhibit 10.3 MEMORANDUM OF AGREEMENT made between: NATU PATEL 9767 Sun Pointe Drive Boynton Beach, Florida 33437 (hereinafter called the "Executive") and POLYDEX PHARMACEUTICALS LIMITED a Bahamian Corporation (hereinafter called "POLYDEX" while Polydex and all of its Affiliates, as that term is defined in the Federal Securities Laws, are herein after called the "COMPANY") NOW THEREFORE THIS AGREEMENT WITNESSETH that in consideration of the foregoing, the mutual covenants and agreements herein contained and for other good and valuable consideration, it is hereby agreed as follows: 1. The Executive will serve Polydex in the capacity of Vice President of Polydex and shall perform such duties and exercise such powers as may from time to time be determined by its President. 2. The Executive shall also serve as an officer of any Affiliate of Polydex, if required by its President. 3. The employment of the Executive hereunder shall be for a period of five (5) years commencing January 1, 1990 and continuing through December 31, 1994 and thereafter from year to year unless and until terminated as hereafter provided. 4. The employment of the Executive hereunder may be terminated as follows: (a) Notwithstanding anything herein to the contrary, Polydex may terminate Employee's employment hereunder upon the occurrence of any of the following: i) The conviction of Employee of a crime involving fraud, larceny or misappropriation funds; ii) After 60 days' written notice to the Employee, upon a material breach by Employee of any of the terms and conditions of this Agreement which breach remains unremedied by Employee during such 60 day notice period and provided however, that such written notice by Polydex describes in reasonable detail the facts constituting the aforesaid breach; (b) by six month's notice in writing given by either party to the other, which notice in writing may be given at any time after June 30, 1994. This contract is deemed to continue beyond the termination date unless otherwise terminated as herein provided or renewed. The provision for notice of termination contained in this subparagraph shall apply only at the end of the original term of this agreement or during any continuation thereafter due to failure to terminate pursuant to this provision; (c) if the Executive shall by reason of illness or mental or physical disability fail for any three consecutive calendar months in any 12 month period of for four months in aggregate in any 12 month period to perform his duties hereunder, then by three month's notice in writing from the Company to the Executive. Provided, however, that if Executive shall have resumed his duties hereunder on a full time basis prior to the expiration of said three month period this Agreement shall remain in full force and effect. 2 5. Upon any notice being given pursuant to Clause (a) of Paragraph 4 or upon the expiration of the said period of six months referred to in Clause (b) of Paragraph 4 or upon the expiration of the said period of three months referred to in Clause (c) of Paragraph 4, as the case may be, this Agreement and the employment of the Executive hereunder shall be wholly terminated, except Paragraph 10 which shall continue in full force and effect. 6. (a) The Executive shall devote a substantial portion of his time, attention and ability to the business and affairs of the Company. (b) The Executive shall well and faithfully serve the Company during the continuance of his employment hereunder and use, his best efforts to promote the interests of the Company. (c) The Executive agrees that he will during the term of his employment hereunder, so long as the Board of Directors of Polydex may so desire, serve Polydex as a Director without additional remuneration other than the general director's fee (if any) payable by virtue of holding the office of director. 7. The basic remuneration of the Executive for his services hereunder shall be at the rate of $93,000.00 U.S. per year payable in biweeky installments for the year ending December 31, 1990. Polydex and the Executive agree to renegotiate Executive's salary at the end of each calendar year thereafter. Should Polydex and Executive not agree to a new salary, the salary shall automatically increase by the increase in the Consumer Price Index for the calendar year at a minimum. 8. The Executive shall be reimbursed for all reasonable traveling and other reasonable out-of-pocket expenses actually and properly incurred by him in connection with his duties hereunder provided that for all such reasonable expenses the Executive shall furnish to Polydex statements and vouchers on a monthly basis. Polydex shall during the term of the employment of the Executive hereunder provide the Executive an automobile allowance or car of a reasonable value to be agreed between Executive and Polydex. 9. (a) During the employment of the Executive hereunder the Executive shall from time to time be entitled to vacations of 4 weeks in each calendar year. Such vacations shall be taken at such times as the President may from time to time determine having regard to the operations of the Company. (b) Executive and his family shall be included in a group insurance policy of the form carried by Company as a whole. 10. (a) The Executive acknowledges that in the course of carrying out, performing and fulfilling his responsibilities to the Company hereunder he will have access to and will be entrusted with detailed confidential information and trade secrets relating to the present and contemplated services, techniques and modes of merchandising, marketing techniques, manufacturing procedures, industrial designs, tools, dies, inventions and routines concerning the customers of the Company, their names, addresses, tastes and preferences, the cyclical and other particular business requirements, the disclosure of any which confidential information and trade secrets to competitors of the Company or to the general public would be highly detrimental to the best interests of the Company. The Executive further acknowledges that in the course of performing his obligations to the company hereunder he will be the principal representative of the Company to many of the customers of the Company as as such will be significantly responsible for maintaining or enhancing the goodwill of the Company with such customers. The Executive acknowledges and agrees that the right to maintain the confidentiality of such confidential information and trade secrets, and the right to preserve its goodwill, constitute proprietary rights which the Company is entitled to protect. (b) Accordingly, the Executive covenants and agrees with the Company that: (i) he will not, either during the term of his employment by the Company or at any time thereafter, disclose 2 3 any of such detailed confidential information and trade secrets to any person nor shall he use the same for any purpose other than the purpose other than those of the Company the private affairs of the Company or any other information which he may acquire during the course of his employment hereunder with relation to the business and affairs of the Company; and (ii) he will not, except as an officer and/or executive of the Company, at any time within the period of two years following the termination of his employment hereunder, either individually or in partnership or jointly or in conjunction with any person or persons, firm, associations, syndicate, company or corporation, as principal agent, shareholder, or in any other manner whatsoever, carry on or be engaged in or concerned with or interested in, or advise, lend money to, guarantee the debts or obligations of, or permit his name or any part thereof to be used or employed by or associated with, any person or persons, firm, association, syndicate, company or corporation engaged in or concerned with or interested in, any business of the character described in the first sentence of Clause (a) of the paragraph or any other business now or at any time during the course of the employment of the Executive hereunder carried on by the Company: (A) within any municipality, district, county, province, state or other jurisdiction within which customers of the Company (with respect to which the Executive has acquired detailed confidential information and trade secrets of the character described above or to whom the Executive has been the principal representative of the Company at any time) carry on business; or (B) within Canada, or (C) within Canada and the United States of America. (c) If any covenant or provision of this Clause is determined to be void or unenforceable in whole or in part, it shall not be deemed to affect or impair the validity of any other covenant or provision and Sections (A), (B), and (C) of the Sub-Clause (ii) of the Paragraph are hereby declared to be separate and distinct covenants. 11. Polydex hereby agrees to grant to the Executive the option to purchase 50,000 common shares without par value (hereinafter referred to as the "Polydex Stock") at a purchase price of US $0.75 per share as follows: (i) No more than 25,000 shares of the Polydex Stock may be purchased in the first twelve month period and no more than 40,000 shares may be purchased in the first twenty-four month period of this Agreement; and (ii) All options unexercised expire automatically at the earlier of (a) the termination of the Executive's employment with Polydex or (b) the fifth anniversary date of the commencement date of this Agreement. The aforesaid shares of the Polydex Stock shall be issued against payment therefore, by cash as certified check in U.S. funds. 12. Any notice in writing required or permitted to be given to the Executive hereunder shall be sufficiently given if delivered to the Executive personally or mailed registered mail, postage prepaid, addressed to the Executive at 9767 Sun Pointe Drive, Boynton Beach, Florida 33437. Any such notice mailed as aforesaid shall be deemed to have been received by the Executive on the third business day following the date of mailing. Any notice in writing required or permitted to be given to Polydex or to the Company hereunder shall be given by registered mail, postage prepaid, addressed to the Company at 1401 Neptune Drive, Boynton Beach, Florida 33426. Any such notice mailed as aforesaid shall be deemed to have been received by Polydex and/or the Company on the third business day following the date of mailing. Any such address for the giving of notices hereunder may be changed by notice in writing given hereunder. 13. Any and all previous agreements, written or oral, between the parties hereto or on their behalf relating to the employment of the Executive by Polydex are hereby terminated and cancelled and each of the parties hereto hereby releases and forever discharges the other of and from all manner of actions, causes of 3 4 action, claims and demands whatsoever under or in respect of all such agreements, except that unexpired options to purchase common shares of Polydex previously granted by Polydex to the Executive shall remain in full force and effect. 14. Except as otherwise provided in Paragraph 11, the (b) As used herein, "Pre-Tax Net Income shall mean the annual net operating income of Chemdex, before all extraordinary items and before deduction of or allowance for federal, state or local income taxes or any other tax measured by the income of Chemdex and without giving effect to any accrual for bonuses. Pre-Tax Net Income shall be determined in accordance with generally accepted accounting principles consistently applied, subject to and in accordance with the following: (i) all gains or losses realized on the sale or other disposition of any capital assets shall be excluded; (ii) interest or investment income shall be excluded; and (iii) fees payable by Polydex on behalf of Chemdex for allocable audit, legal and other expenses for the benefit of Chemdex shall not be excluded. (c) Within 60 days after the end of each fiscal year during the term, Chemdex shall prepare a draft statement of the bonus, if any, due Employee hereunder for such year, including a calculation, in summary form, of Pre-Tax Net Income for such year, and shall deliver copies of the same to Employee and to the independent public accountants regularly retained by Chemdex. Within 30 days after his receipt of the statement, Employee shall notify Chemdex and such accountants in writing of any disputed items or adjustments in such bonus statement, and the basis therefor. Any such dispute shall be resolved by such accountants not later than 90 days after the end of such fiscal year, and Chemdex shall pay Employee the amount of such bonus within ten days following the final determination thereof hereunder by Employee, or by such accountants, as the case by be. Any such determination of bonus amounts made in accordance with this paragraph (b), absent manifest error, shall be final and binding upon Chemdex and Employee. 5. This agreement shall terminate at such time as the employment agreement between Employee and Polydex shall terminate as hereinbefore described. IN WITNESS WHEREOF, this agreement is executed and accepted this 12th day of February, 1990 to be effective January 1, 1990. /s/ Brigitte U. Cooney /s/ Natu Patel POLYDEX PHARMACEUTICALS LIMITED By: /s/ T.C. Usher CHEMDEX INCORPORATED By: /s/ T.C.Usher ASSIGNMENT OF SERVICES THIS AGREEMENT made as of the 1st day of January, 1990, by and between NATU PATEL, hereinafter called "Employee", POLYDEX PHARMACEUTICALS LIMITED, a Bahamian Corporation, hereinafter called "Polydex", and CHEMDEX, INC., a Kansas Corporation authorized to do business in the State of Florida, hereinafter called "Chemdex". WHEREAS, Polydex has entered into an Employment Agreement with Natu Patel effective January 1, 1990; and WHEREAS, Chemdex desires to have Natu Patel provide certain services to Chemdex and Polydex desires to assign to Chemdex the services of Natu Patel as needed; and 4 5 WHEREAS, Employee desires to assist in the assignment of services with certain additions; and WHEREAS, the parties wish to formalize the agreement for assignment of services by the execution of this Assignment. NOW, THEREFORE, the parties hereto agree that in consideration of the foregoing, the mutual covenants and agreements herein contained and for other good and valuable consideration; 1. Polydex does hereby assign the services of Employee to Chemdex, those services under agreement between Natu Patel and Polydex dated February 12, 1990. 2. Chemdex does hereby accept the assignment of services of Employee and does further agree to reimburse Polydex for Employee's salary based on the amount of Employee's time that he spends on behalf of Chemdex. Should there be a dispute as to the amount of time that Employee spends on matters relating to Chemdex, Chemdex shall be and does hereby agree to be solely liable for Employee's compensation. 3. Chemdex and Polydex agree that this is not an assignment of exclusive services and that Employee may still provide services to Polydex and its Affiliates, as that term is defined in the Federal Securities Laws, as Polydex shall determine necessary. 4. Chemdex does hereby agree that part and parcel of the compensation to Employee and an inducement to Employee will be an incentive bonus to be given to Employee on the following terms and conditions: (a) Employee shall be entitled to receive an annual bonus, for each full fiscal year of Chemdex during the term that Employee is assigned to Chemdex, in an amount equal to ten percent (10%) of the Pre-Tax Net Income (as hereinafter defined) of Chemdex for such year. Provisions of this Agreement shall inure to the benefit of and be binding upon the heirs, executors, administrators and legal personal representatives of the Executive and the successors and assigns of the Company, respectively. IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto this 12th day of February 1990, to be effective January 1, 1990. /s/ Brigitte U. Cooney /s/ Natu Patel POLYDEX PHARMACEUTICALS LIMITED By: /s/ Thomas C. Usher, Chairman 5 EX-10.4 7 EXHIBIT 10.4 1 Exhibit 10.4 RESEARCH AGREEMENT THIS AGREEMENT effective this 1st day of April 1996. BY AND BETWEEN DEXTRAN PRODUCTS LTD. 415 Comstock Road, Scarborough, Ontario M1L 2H4 (hereinafter referred to as "Dextran") AND CANADIAN MICROBIOLOGY CONSORTIUM INC. University of Calgary Health Sciences Centre Room 282 - Heritage Medical Research Building 3330 Hospital Drive NW Calgary, Alberta T2N 4N1 (hereinafter referred to as "CMCI") AND BRITISH COLUMBIA'S CHILDREN'S HOSPITAL a public hospital having its administrative offices at 4480 Oak Street, in the City of Vancouver, in the Province of British Columbia, V6H 3V4 (hereinafter referred to as "BCCH") AND THE UNIVERSITY OF BRITISH COLUMBIA University-Industry Liaison Office IRC 331 - 2194 Health Sciences Mall Vancouver, BC V6T 1Z3 (hereinafter referred to as "UBC") WITNESSETH: WHEREAS, CMCI is a non-profit society funded through the Canada's federal Network of Centres of Excellence Program which provides administrative and technical support for the Canadian Bacterial Diseases Network, a network of researchers at various Canadian institutions including, inter alia, UBC; WHEREAS, CMCI provided partial funding to support the macrophage antibacterial research program of Dr David Speert, a UBC researcher, through which research program Dr. Speert discovered the use of Dextran Sulphate as a potential prevention and treatment of Pseudomonas aeruginosa infections in patients with cystic fibrosis; 2 WHEREAS, UBC filed a U.S. patent application serial no. 07/887,496 on May 26, 1992 relating to the regulation of macrophage antibacterial activity (UILO Disclosure 92-034), and UBC and Novadex jointly filed a patent application in the United States on December 30, 1993 relating to the use of Dextran Sulphate to prevent Pseudomonas aeruginosa infections in vivo (UILO Disclosure 93-078) (hereinafter referred to collectively as the "Technology"); WHEREAS, UBC licensed the Technology to Novadex under two separate agreements both dated January 28, 1994 and both subsequently amended November 3, 1994; WHEREAS, a condition of such licensing of the Technology to Novadex was that Novadex enter into one or more written agreements with UBC whereby Novadex and/or its sublicensees would fund continued research at UBC in the uses of Dextran Sulphate; WHEREAS, UBC and Dextran Products Limited, a sublicensee of Novadex, entered into a research agreement Dextran Products Limited would fund research at UBC but the parties thereto terminated said agreement effective March 31, 1996, and UBC and Novadex wish to replace it, effective April 1, 1996 with this new agreement to which UBC, Dextran, CMCI and BCCH shall be parties and pursuant to which research will be conducted by Dr. Speert at BCCH with funding provided jointly by Dextran and CMCI; WHEREAS, the research program contemplated by this Agreement is of mutual interest and benefit to UBC, BCCH, CMCI, and Dextran, will further the instructional and research objectives of UBC in a manner consistent with its status as non-profit , tax-exempt, educational institution, and may derive benefits for the parties through inventions, improvements, and/or discoveries; NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree to the following: Article 1 - Definitions As used herein, the following terms shall have the following meanings: 1.1 "Principal Investigator" shall mean Dr. David Speert of UBC's Department of Paediatrics. 1.2 "Project" shall mean the description of the project as described in Appendix "A" hereof, which shall be carried out under the direction of the Principal Investigator. 1.3 "Contract Period" is April 1, 1996 through March 31, 1998. 1.4 "UBC Intellectual Property" shall mean individually and collectively all inventions, improvements, discoveries, knowledge, know-how, techniques, and/or data which are conceived and/or made (i) solely by one or more employees of UBC, or (ii) jointly by one or more employees of UBC and by one or more employees of any of the other parties hereto in performance of the Project, and which do not form part of the Technology (as defined in the license agreements dated January 28, 1994 and subsequently amended November 3, 1994). For greater certainty, UBC Intellectual Property does not include inventions, improvements, discoveries, knowledge, know-how, techniques, and/or data which are conceived and/or made by Dr. Donald Woods and/or Dr. Warren Finlay. 2 3 Article 2 - Research Work 2.1 UBC shall commence the performance of the Project promptly after the effective date of this Agreement and shall use reasonable efforts to perform the Project substantially in accordance with the terms and conditions of this Agreement. BCCH agrees to make its facilities available to the Principal Investigator for the purposes of the Project. Notwithstanding anything to the contrary in this Agreement, Dextran, CMCI, BCCH, and UBC may at any time amend the Project by mutual written agreement. 2.2 In the event that the Principal Investigator becomes unable or unwilling to continue Project, and a mutually acceptable substitute is not available, the parties to this Agreement shall each have the option to terminate said Project. In the event of termination pursuant to this Article 2.2, Dextran shall have the right to exercise its rights under Article 7 of this Agreement with respect to UBC Intellectual Property. Article 3 - Reports and Conferences 3.1 Written project reports shall be provided by UBC to Dextran every 3 months and a final report shall be submitted by UBC to Dextran with 60 days of the conclusion of the Contract Period or early termination of this Agreement, as the case may be. 3.2 During the term of this Agreement, representatives of UBC and CMCI will meet with representatives of Dextran at times and places mutually agreed upon to discuss the progress and results, as well as ongoing plans, or changes therein, of the Project. Article 4 - Costs, Billings, and Other Support 4.1 It is agreed to and understood by all parties that the cost to Dextran for the Contract Period is $198,720. Payment shall be made by Dextran to UBC according to the following schedule: (1) $24,840 upon execution of this Agreement (2) $24,840 on 1 July, 1996 (3) $24,840 on 1 October, 1996 (4) $24,840 on 1 January, 1997 (5) $24,840 on 1 April, 1997 (6) $24,840 on 1 July, 1997 (7) $24,840 on 1 October, 1997 (8) $24,840 on 1 January, 1998 UBC reserves the right to discontinue the work if Dextran fails to make any of the aforementioned payments within 30 days of the dates herein specified. 4.2 Except as may otherwise be agreed to in writing, UBC shall retain title to any equipment purchased with funds provided by Dextran under this Agreement. 4.3 Notwithstanding anything to the contrary herein, in the event of early termination of this Agreement by Dextran for any reason whatsoever or in the event of early termination of this Agreement by any other party hereto as a result of a breach of this Agreement by Dextran pursuant to Article 9 hereof, Dextran shall pay all costs accrued by UBC as of the date of termination, including non-cancellable obligations, which shall include all non-cancellable contracts, incurred prior to the effective date of termination. 3 4 Article 5 - Publicity 5.1 Dextran will not use the name of UBC, BCCH, or CMCI, nor of any member of UBC's, BCCH's, or CMCI's Project staff, in any publicity, advertising, or news release without the prior written approval of an authorized representative of UBC, BCCH, or CMCI, as the case may be. UBC, BCCH, and CHMI will not use the name of Dextran, nor of any employee of Dextran, in any publicity without the prior written approval of Dextran. In each case above, consent shall not be unreasonably withheld. Article 6 - Publications 6.1 Dextran recognizes that under UBC policy, the results of the Project must be publishable and agrees that researchers engaged in the Project shall not be restricted from presenting at symposia, national, or regional professional meetings, or from publishing in journals, theses, or dissertations, or otherwise of their own choosing, methods and results of the Project, provided however that Dextran and CMCI shall have been furnished copies of any proposed publication or presentation at least 3 months in advance of such proposed publication or presentation to a journal, editor, or other third party. Dextran and CHMI shall have 60 days after receipt of said copies within which to notify UBC that such proposed presentation or proposed publication should be delayed because it contains subject matter that should be patented in accordance with Article 7.3 hereof. In the event that Dextran or CMCI notifies UBC within the aforementioned time period, UBC and its researchers shall refrain from making such publication or presentation until UBC has filed a patent application pursuant to Article 7.3 hereof directed to the patentable subject matter contained in the proposed publication or presentation, or until 6 months have elapsed from the date of such notification, whichever is sooner. Article 7 - Intellectual Property 7.1 All rights and title to UBC Intellectual Property under Project shall belong to UBC and shall be subject to the terms and conditions of this agreement. 7.2 Rights to inventions, improvements and/or discoveries, whether patentable or copyrightable or not, relating to Project made solely by employees of Dextran shall belong to Dextran. Such inventions, improvements, and/or discoveries shall not be subject to the terms and conditions of this Agreement. 7.3 UBC will promptly notify Dextran and CMCI of any UBC Intellectual Property conceived and/or made during the Contract Period under Project. If Dextran directs that a patent application or application for other intellectual property protection be filed, UBC shall promptly prepare, file, and prosecute such Canadian and foreign application(s) in UBC's name. Dextran shall bear all costs incurred in connection with such preparation, filing, prosecution, and maintenance of Canadian and foreign applications(s) directed to said UBC Intellectual Property. Dextran and CMCI shall cooperate with UBC to assure that such application(s) will cover, to the best of Dextran's and CMCI's knowledge, all items of commercial interest and importance. While University shall be responsible for making decisions regarding scope and content of application(s) to be filed and prosecution thereof, Dextran and CMCI shall be given an opportunity to review and provide input thereto. UBC shall keep Dextran and CMCI advised to all developments with respect to such application(s) and shall promptly supply to Dextran and CMCI copies of all papers received and filed in connection with the prosecution thereof in sufficient time for Dextran and CMCI to comment thereon. 4 5 7.4 If Dextran chooses not to financially support the filing, prosecution, or maintenance of patent protection as set for in Article 7.3, or if Dextran decides to discontinue the financial support of the filing, prosecution, or maintenance of said protection, the rights granted pursuant to Article 8.1 hereof shall not apply to those patents obtained after Dextran elects not to or decides to discontinue the financial support of same. In such event, UBC shall be free to file or continue prosecution or maintain any such application(s), and to maintain any protection issuing thereon in Canada and in any foreign country at UBC's sole expense. Article 8 - Grant or Rights 8.1 UBC grants to Dextran the first option, at Dextran's sole selection, for either a non-exclusive, royalty-free license to the UBC Intellectual Property or, for consideration, an exclusive license to the UBC Intellectual Property with a right to sublicense on terms and conditions to be mutually agreed upon. Said option shall extend for a time period of one year from the date of termination of this Agreement. Article 9 - Term and Termination 9.1 This Agreement shall become effective upon the date first hereinabove written and shall continue in effect for the full duration of the Contract Period unless soon terminated in accordance with the provisions of the Article. The parties hereto may extend the term of this Agreement for additional periods as desired under mutually agreeable terms and conditions which the parties reduce to writing and sign. Any party hereto may terminate this agreement upon ninety (90) days prior written notice to the others. 9.2 In the event that any party hereto shall commit any breach of or default in any of the terms or conditions of this Agreement, and also shall fail to remedy such default or breach within thirty (30) days after receipt of written notice thereof from the one or more of the other parties hereto, the party giving notice may, at its option and in addition to any other remedies which it may have at law or in equity, terminate this Agreement by sending notice of termination in writing to the defaulting party to such effect and such termination shall be effective as of the date of receipt of such notice of termination. 9.3 Subject to Article 8, termination of this Agreement by either party for any reason shall not affect the rights and obligations of the parties accrued prior to the effective date of termination of this Agreement. No termination of this Agreement, however effectuated, shall affect the Dextran's or CMCI's rights and duties under Article 7 hereof, or release the parties hereto from their rights and obligations under Articles, 4, 5 , 6, 8, and 10. Article 10 - Independent Contractor 10.1 In the performance of all services hereunder: (a) UBC shall not be deemed to be and shall be an independent contractor and, as such, UBC shall not be entitled to any benefits applicable to employees of Dextran; (b) Neither party is authorized or empowered to act as agent for the other for any purpose and shall not on behalf of the other enter into any contract, warranty, or representation as to any matter. Neither shall be bound by the acts or conduct of the other. 5 6 Article 11 - Insurance 11.1 The parties acknowledge that UBC has liability insurance applicable to officers, employees, and agents while acting within the scope of their employment by UBC, and that UBC has no liability insurance policy as such that can extend protection to any other person. 11.2 Each party hereby assumes any risks of personal injury and property damage attributable to the negligent acts or omissions of that party and officers, employees, and agents thereof. Article 12 - Governing Law 12.1 This Agreement shall be governed and construed in accordance with the laws of the Province of British Columbia. Article 13 - Arbitration 13.1 In the event of any dispute arising between the parties concerning this Agreement or its enforceability, the same shall be settled by a single arbitrator pursuant to the provisions of the COMMERCIAL ARBITRATION ACT of British Columbia or any successor legislation then in force. Article 14 - Assignment 14.1 Subject to Article 14.2 hereof, this Agreement shall not be assigned by any party without the prior written consent of the other parties hereto, such consent not to be unreasonably withheld. 14.2 This Agreement is assignable to any division of Dextran, any majority stockholder of Dextran, and/or any subsidiary in which 51 percent or more of the outstanding stock is owned by Dextran. Article 15 - Agreement Modification 15.1 Any agreement to change the terms of this Agreement in any way shall be valid only if the change is made in writing and approved by mutual agreement of authorized representatives of the parties hereto. Article 16 - Notices 16.1 Notices, invoices, communications, and payments hereunder shall be deemed made if given by registered or certified envelope, postage prepaid, and addressed to the party to receive such notice, invoice, or communication at the address given below, or such other address as may hereafter be designated by notice in writing: Dextran: Mr. George Usher, President Dextran Products Ltd. 415 Comstock Road, Scarborough, Ontario M1L 2H4 6 7 BCCH: Dr. A.J. Tingle, Director of Research B.C. Research Institute for Child and Family Health 950 West 28th Avenue Vancouver, British Columbia V5Z 4H4 Phone: (604) 875-3194 Fax: (604) 875-2496 CMCI: Ms. Karen Corraini, Business Director Canadian Microbiology Corporation Inc. University of Calgary Health Sciences Centre Room 282 - Heritage Medical Research Building 3330 Hospital Drive NW Calgary, Alberta T2N 4N1 Phone: (403) 220-2562 Fax: (403) 283-5241 UBC: Mr. W.N. Palm, Director University-Industry Liaison Office I.R.C. Room 331 University of British Columbia Vancouver, B.C. V6T 1Z3 Phone: (604) 822-8580 Fax: (604) 822-8569 Principal Investigator: Dr. David Speert, Professor Division of Infectious and Immunological Diseases Department of Department of Paediatrics The University of British Columbia Research Centre, 950 West 28th Avenue Vancouver, BC V5Z 4H4 Phone: (604) 875-2438 Fax: (604) 875-2226 IN WITNESS WHEREOF, the parties have caused these presents to be executed in duplicate as of the day and year first above written. Dextran Products Ltd. The University of British Columbia By: G. Usher By: W.N. Palm Title: President Title: Director, UILO Date: October 31, 1996 Date: October 3, 1996 Witness: Sharon Wardlaw Witness: Hubert Lai Date: October 31, 1996 October 3, 1996 7 8 Canadian Microbiology Consoritium Inc. British Columbia Children's Hospital By: K. Corraini By : A.J. Tingle Title: Business Manager Title: Director of Research Date: Date: Witness: Witness: Date: Date: Read and understood: By: David Speert, M.D. Principal Investigator Date: 8 9 Appendix A Role of Dextran Sulphate and Glycoconjugaes in the Prevention and Therapy of Pseudomonas aeruginosa Infections in Patients with Cystic Fibrosis - Contract between Novadex Pharmaceuticals, UBC, BC Children's Hospital, and CMCI. Workplan and Budget Prepared by Dr. David Speert May 1, 1996 Workplan (April 1, 1996 to March 31, 1998) Dextran Antiadhesive Project April 1, 1996-June 30, 1996: In vitro mechanism of antiadhesive action; neonatal mouse studies (a) July 1, 1996-September 30, 1996: In vitro mechanism of antiadhesive action; neonatal mouse studies October 1, 1996-December 31, 1996:neonatal mouse studies January 1, 1997-March 31, 1997: neonatal mouse studies; rat lung distribution studies (b) April 1, 1997 -June 30, 1997: rat lung distribution studies; aerosol modelling (c) July 1, 1997-September 30, 1997: rat lung distribution studies: aerosol modelling October 1, 1997-December 31, 1997:Phase I clinical trial January 1, 1998-March 31, 1998: Phase I clinical trial Macrophage Phagocytosis Enhancement Project April 1, 1996-June 30, 1996:Evaluation of liposomal delivery of glucose in vitro July 1, 1996-September 30, 1996: Evaluation of liposomal delivery of glucose in vitro October 1, 1996-December 31, 1996: Evaluation of liposomal delivery of glucose in vitro January 1, 1997-March 31, 1997: Evaluation of liposomes in neonatal mouse model April 1, 1997-June 30, 1997: Evaluation of liposomes in neonatal mouse model July 1, 1997-September 30, 1997: Evaluation of liposomes in neonatal mouse model October 1, 1997-December 31, 1997: Evaluation of lipsome distribution in rat lung; aerosol modelling January 1, 1998-March 31, 1998:Evaluation of liposome distribution in rat lung; aerosol modelling (a) to be done in collaboration with Dr. Alice Prince (Columbia University); no funds requested (b) to be done in collaboration with Dr. Donald Woods (Univ. of Calgary); no funds requested (c) to be done in collaboration with Dr. Warren Finlay (Univ. of Alberta); no funds requested 9 10 Budget
Novadex Portion Year 1 Year 2 Personnel Dr. Simon Wong (Research Associate) 42,000 42,000 Dr. David Speert (Principal Investigator) 25,000 25,000 overhead @ 38% 25,460 25,460 Supplies Plasticware, culture media and chemicals 5,000 5,000 overhead @ 38% 1,900 1,900 subtotals $99,360 99,360 TOTAL 198,720 Other Sources of Funding Canadian CF Foundation, SPARx Project Budgetted 63,000 to be determined for the project MRC-UI Programme 11,371 4,738 Canadian Bacterial Diseases Network 65,268 65,268 12,866 subtotals 152,505 70,006 TOTAL 222,511 GRAND TOTAL $421,231
10 EX-10.5 8 EXHIBIT 10.5 1 Exhibit 10.5 AGREEMENT FOR THE OPERATION OF VETERINARY LABORATORIES, INC.'S LENEXA FACILITY AND SPARHAWK LAB OF K.C. AS A JOINT VENTURE THIS AGREEMENT is made this 1 day of December, 1992, by and between CHEMDEX, INC., a Kansas Corporation, (hereinafter "Chemdex"), VETERINARY LABORATORIES, INC., a Kansas Corporation, (hereinafter "Vet Labs"), and SPARHAWK LABORATORIES, INC., a Missouri Corporation, (HEREINAFTER SPARHAWK"), for the purpose of forming and operating a Joint Venture between Vet Labs and Sparhawk and authorizing the Joint Venture to Operate the Vet Labs' Lenexa facility and Sparhawk Laboratories facilities. WITNESSETH; In consideration of the terms, conditions, and covenants hereinafter set forth, the parties hereto mutually agree as follows: 1. Name. The veterinary pharmaceutical manufacturing facility presently located at 12340 Santa Fe Drive, Lenexa, Kansas, will continue to operate under the name of Veterinary Laboratories, Inc. (hereinafter "Vet Labs"). 2. Separate Legal Entity. (A) Vet Labs will remain a separate and distinct legal entity from Sparhawk and Vet Labs shall retain ownership of all licensing agreements for NADA and DEA products, as well as all lands, buildings, fixtures, equipment and all personal property presently located at 12340 Santa Fe Drive, Lenexa, Kansas, and all other assets of Vet Labs existing prior to the formation of the Joint Venture whether situated thereon or otherwise situated (hereinafter "Vets Labs' Facility" and/or "Vet Labs' Assets"), subject to the more specific terms of this Agreement. (B) Sparhawk will remain a separate and distinct legal entity from Vet Labs and Sparhawk shall retain ownership of all licensing agreements as well as all lands, building, fixtures, equipment and all personal property presently located at 22 N. 6th St., Kansas City, Kansas and all other assets of Sparhawk existing prior to the formation of the Joint Venture whether situated thereon or otherwise situated (hereinafter Sparhawk facility and/or Sparhawk assets), subject to the more specific terms of this Agreement. (C) As Vet Labs, Sparhawk and the joint venture are each separate legal entities, it is critical that the accounting system and records be maintained separately. 3. Joint Venture. The parties hereby form a Joint Venture (the "Joint Venture") to be governed by the terms and conditions set forth in this Agreement. 4. Name. The Joint Venture shall hereafter use the name "Vet/Sparhawk" or such other names as the Joint Venturers shall determine. 5. Purpose. The purpose of the Joint Venture is to manage the Vet Labs' Facility and Sparhawk Facility as a Joint Venture, with the Joint Venture providing day to day management, and personnel as set forth herein and Vet Labs contributing the use of the Vet Labs' Facility and Sparhawk contributing the use of the Sparhawk Facility. Vet Labs and Sparhawk hereby transfer unto the Joint Venture those current assets and liabilities set forth on Exhibit "A", a copy of which is attached hereto and made a part hereof by reference. 6. Management of Joint Venture. The Joint Venture shall be managed by a Policy Committee containing five(5) members, two (2) of which will be chosen by Sparhawk and three (3) of which will be chosen by the 2 Board of Directors of Vet Labs. 7. Officers of Vet Labs. Bert Hughes shall serve as President of Vet Labs And John Bascom shall serve as Vice President of Vet Labs, subject at all time to the control, discretion and supervision of the Board of Directors of Vet Labs, or until removal or resignation. 8. Day to Day Operation. Bert Hughes shall be designated as the person who has the daily management responsibilities of the Joint Venture, but subject to the direction, control and at the discretion of the Policy Committee of the Joint Venture or until removal or resignation. John Bascom shall assist Bert Hughes and work under his direction but also subject to the direction, control, and at the discretion of the Policy Committee, or until removal or resignation. 9. Authority to Conduct Business of Joint Venture. The Joint Venture as hereby authorized to make all purchases, sales and maintain all inventories and other accounts for the joint venture under the Sparhawk Labs and Vet Labs name. As hereinafter directed, only for the purpose of operating the Vet Labs' Facility and Sparhawk's Facilities. All operating cash accounts should be established by the joint venture and all costs of the joint venture should be disbursed from these accounts. Management of Sparhawk will coordinate the filing of all legal documents and forms necessary for the joint venture to operate. 10. Management of Vet Labs' Facility. a. The Joint Venture shall manage and conduct, subject to the general policy and supervision of the Policy Committee, the affairs of the Vet Labs' Facility, Sparhawk's Facilities and the Joint Venture (excluding general policy decisions, new investments, corporate reorganization, borrowing, corporate refinancing and the like, except as may be specifically authorized from time to time by the Board or Directors of respective entities and the Joint Venture Policy Committee) in accordance with the usual practice of trade and as further herein provided. b. Sparhawk shall have the right to determine and control all day-to-day management decisions relating to personnel at Joint Venture Sparhawk and the Vet Labs' Facility, including all hiring and termination of employees. All employees at the Vet Labs' Facility will accountable to and will report directly to Bert Hughes and/or John Bascom. Bert Hughes will be accountable to the Board of Directors and will report directly to the Board of Directors and/or its Representative. Sparhawk will hire and pay, on behalf of the Joint Venture and maintain responsibility for the supervision and direction of all employees. Joint will reimburse only direct labor expenses to Sparhawk. No override or other administrative costs may be charged by Sparhawk. All employees at the Vet Labs' Facility shall be considered employees of Sparhawk and Sparhawk will maintain all health insurance, pay workmen's compensation and payroll taxes, and charges associated with the Joint Venture. Sparhawk should set up a payroll account and all payroll and payroll related costs should be disbursed from this account. Sparhawk will then invoice and be reimbursed by the joint venture. The invoice should reflect a breakout of period and product cost. c. It is hereby acknowledged that Vet Labs is a wholly owned subsidiary on Chemdex. Joint Venture will counsel with Chemdex on any major issue and keep Chemdex informed of any regulatory or economic issue pertaining to Vet Labs, the Vet Labs' Facility or Sparhawk. d. All checks, notes and contracts, either issued by or binding the Joint Venture or Vet Labs, will require two (2) signatures, one from the designated signatory of Vet Labs (hereinafter "Vet Labs' Signatory") and the second from Sparhawk. e. At Sparhawk's option, the logo of Sparhawk may be printed on all paperwork together with the logo of Vet Labs. 2 3 f. All invoices and other paperwork must be addressed under Vet Labs' name only. The telephone will be answered as Vet Labs or such name as determine by a representative of the Policy Committee. g. Depreciation of plant equipment is calculated in accordance with Generally Accepted Accounting Principals and will be billed to the joint venture on a rate equal to the depreciation expense recorded in Sparhawk and Vet Labs. 11. Inspection and Audit. All documents pertaining in any way to the operation or finances of Vet Labs, Joint Venture, or Sparhawk, including, but not limited to, accounts payable, accounts receivable, and bank reconciliations and statements may be inspected and/or audited by the authorized representative of Chemdex (hereinafter "Chemdex' Representative") at any time. 12. Access/Concurrent Use. Chemdex or the Chemdex Representative shall have access to and use of Vet Labs' facilities as long as such use does not violate regulatory compliance guidelines and/or disturb normal production. 13. Production. a. All products manufactured at Vet Labs' or Sparhawk facilities will be labeled under the Vet Lab/Sparhawk private label or other private label, at the discretion of the Policy Committee. b. At its discretion, the Joint Venture will use its best efforts to manufacture all products currently or previous marketed, except for parenterals. Joint Venture shall commence production in an expeditious manner, subject to regulatory compliance. Sparhawk will use its best efforts to see that production is in strict compliance with regulatory guidelines. c. Joint Venture shall manufacture all products at either the Vet Labs facility, or Sparhawk's Kansas facilities currently in operation. No other production facilities shall be used without prior written consent of both Sparhawk and Vet Labs. All such products manufactured for the Joint Venture (at both locations) will be invoiced through Joint Venture only. A representative of Chemdex will be allowed to review such invoices, at the Joint Ventures facility and the Sparhawk facilities. d. When calculating profits of the Joint Venture, Sparhawk will not deduct any payments made to a Sparhawk shareholder as a dividend. e. Joint Venture agrees to manufacture Bulk Iron to meet the requirements of Chemdex, with no labor or other charge to Chemdex, except for costs of raw materials and packaging costs, freight in brokerage fees for the production of the Bulk Iron, which Chemdex shall pay. A separate contract to this effect will be executed by Chemdex and the Joint Venture. f. Sparhawk agrees to use its best efforts to validate the manufacture of 100 ml. glass or other injectable production upon completion of all process validations and other injectable production upon completion of all process validations and other regulator compliance. 14. Profit and Cost Participation. a. Pre-tax net profits or losses generated from the production of non-sterile products will allocated seventy percent (70%) to Sparhawk and thirty percent(30%) to Vet Lab. b. Vet Labs and Sparhawk shall share equally all pre-tax profits or losses for the sale of non-sterile and injectable (once sales of injectables has commenced). In this case, the above paragraph 14(a) shall not apply. 3 4 c. All tax profits generated from all Bulk Iron sales will be allocated to Chemdex. Bulk Iron sales and related raw material costs will be accounted for separately under Chemdex. d. Chemdex will supply all raw material for the production of Bulk Iron at its cost. e. Chemdex will sell Bulk Iron to the joint venture at the some price as other commercial account. f. Sparhawk management shall use its best effort to maintain adequate financing and positive cash flow in all operations. g. Sparhawk agrees not to charge Vet Labs or joint venture a management fee of any kind, but Bert Hughes and John Bascom will each be allowed to draw Forty Five Thousand Dollars ($45,000) per annum as their salaries from joint venture on a biweekly pay period. Salaries will not be raised without prior approval of Chemdex. Such approval shall not be unreasonably withheld. h. Vet Labs will not receive any supplement payment from the Joint Venture for the use of the Vet Labs' Facility until a total of Twenty Thousand Dollars ($20,000) net profit are generated per month. After monthly net profit (calculated prior to the profit (loss) participation at Section 14a and b) has attained Twenty Thousand Dollars ($20,000.00) supplemental bonus shall be charged in the following monthly amount thereafter: 1) Ten percent (10%) of profit between Twenty Thousand Dollars ($20,000.00) to Twenty Five Thousand Dollars ($25,000.00); 2) Fifteen percent (15%) of profit between Twenty Five Thousand One Dollars ($25,001.00) to Thirty Thousand Dollars ($30,000.00); 3)Twenty percent (20%) of profit between Thirty Thousand One Dollars ($30,001.00) to Thirty Five Thousand Dollars ($35,00.00); 4) Twenty five percent (25%) of profit between Thirty Five Thousand One Dollars ($35,001.00) to Forty Thousand Dollars ($40,000.00); and 5) Thirty percent (30%) of profit above Forty Thousand One Dollars($40,001.00). In any case, the maximum rent shall be Fifteen Thousand Dollars ($15,000.00) per month. 15. Option to Purchase. Vet Labs hereby grants unto Sparhawk the option to purchase forty percent (40%) of the assets held by Vet Labs. This option shall come into existence on the third (3rd) anniversary of the execution of this Agreement and shall remain in force through the Tenth (10th) anniversary of the execution of this Agreement at which time the option to purchase is terminated. The purchase price shall be determined to be the fair market value of the Vet Labs and Building and Equipment, plus the sum of One Million Dollars ($1,000,000.00) which shall be paid for goodwill and the acquisition of NANA's and licenses held by Vet Labs. The fair market value of the Vet Labs' Assets shall be calculated by a disinterested third (3rd) party or entity mutually acceptable to Vet Labs and Sparhawk. 16. Term. This Joint Venture shall continue for a period of ten (10) years from the date of this Agreement and thereafter until terminated by this Agreement. Upon termination, all rights to license agreements NADA and DEA products, and all other proprietary rights of Vet Labs, and Sparhawk including the Vet Labs and 4 5 Sparhawk Facility and Vet Labs, Sparhawk Assets, shall be retained by Vet Labs, and Sparhawk except as otherwise set forth herein. 17. Joint Venturer's Interest in Property. a. A Joint Venturer's "interest in the Joint Venture" includes its interest in the Joint Venture's capital, profits, losses and distributions, as well as its rights in specific Joint Venture property. b. The term "Joint Venturer" refers to each of Sparhawk and Vet Labs. 18. Principal Place of Business. The Joint Venture's principal place of business initially shall be at 12340 Santa Fe Drive, Lenexa, Kansas. 19. Capital Contributions. On or before closing, the Joint Venturers shall make initial capital contributions as follows: All accounts receivable, inventory, and cash according to the attached Exhibit "B". 20. Capital Accounts. A separate capital account shall be maintained to each joint venture. No joint venture shall be entitled to receive interest on its capital account balance. Each joint venturer's and transferee's allocated share of Joint Venture profits and losses shall be credited or debited to its capital account. All Joint Venture distributions of cash or property to any joint venturer or transferee shall be debited to the distributee's capital account, except distributions in repayment of loans made to the Joint Venture, salary payments, expense reimbursements and any other distributions which the joint venturers shall determine are not in reduction of the distributee's capital account. Capital accounts shall be maintained in the same proportion as the joint venture share in profit and losses. 21. Distributions. It is anticipated that the Joint Venture will retain earnings & cash. If from time to time the joint venturers shall determine that the Joint Venture has cash in excess of its needs, such excess cash shall be distributed to portion of capital accounts. 22. Additional Capital Contributions. Additional capital funded by Joint Venture shall be in the ratio of their respective capital accounts. 23. Profit and Loss Determination. Joint Venture profits and losses shall be determined at the end of each fiscal year by the use of generally accepted accounting principles. For the purpose of Joint Venture accounting and income tax reporting, the Joint Venture shall operate on a January 31 fiscal year. 24. Accounting Records and Bank Accounts. The Joint Venture shall maintain complete and accurate books and records of all Joint Venture transactions. Such books and records shall be open at any time for inspection by any Joint Venturer or Chemdex or its agent at such parties' expense. The Joint Venture shall prepare monthly a statement showing the financial condition of the Joint Venture and its profits and losses from operation. Copies of such statement shall be promptly furnished to each joint venturer and Chemdex. 25. Transfer or Joint Venturer's Interest. a. No Joint Venturer or transferee shall voluntarily or involuntarily transfer all or any portion of its interest in the Joint Venture without the prior consent of all of the Joint Venturers, and any act in violation of this restriction shall be null and void, except as otherwise provided by law. b. Upon dissolution or other cessation to exist as a legal entity of a Joint Venturer (but not upon a statutory merger or consolidation), or upon the bankruptcy or insolvency of a Joint Venturer, or upon any other involuntary transfer by operation of law or otherwise of all or any portion of a Joint Venturer's or transferee's interest in the Joint Venture, or if all or any portion of a Joint Venturer's or transferee's interest in Joint Venture, is deemed by law to have been transferred, the Joint Venture shall not be terminated and its tax year shall not close; rather, the trustee, receiver, court, agency, person, or other successor interest (a 5 6 "Transferee") of such Joint Venturer's or transferee shall succeed to such Joint Venturer's or transferee's interest in the Joint Venture's profits to the extent so transferred; provided such transferee shall be a mere transferee (and not a Joint Venturer) with respect to the interest so transferred. c. Any person who acquires by a transfer of all or any part of a Joint Venturer's or transferee's interest in the Joint Venture shall be subject to and bound by this Agreement as if it were an original party hereto; and no such person shall become an additional or substituted Joint Venturer. 26. Joint Venturer's Meetings; Policy Committee's Meetings. A meeting of the Joint Venturers may be called at any time by a Joint Venturer by giving each and every Joint Venturer written notice of the time and place of such meeting, which notice must be given to all Joint Venturers at least ten (10) days before the date of such meeting. Any such notice may be waived by the Joint Venturers entitled thereof by signing a written waiver of notice, either before or after the time of such meeting, and such waiver shall be deemed the equivalent of such Joint Venturer's receipt of timely formal notice of the meeting. A Joint Venturer's attendance in person or by representative at a meeting shall constitute such Joint Venturer's waiver of notice thereof unless the meeting is attended for the express purpose, stated at the opening of the meeting, or objecting to the transaction of any business because the meeting is not lawfully called. Each meeting of the Joint Venturers shall be held in Lenexa, Kansas, unless the Joint Venturers agree otherwise and at a reasonably convenient time and place. 27. Representations and Warranties of Sparhawk. Sparhawk represents and warrants to Vet Labs and Chemdex and to the Joint Venture as of the date hereof, and also as of the Closing, as follows: a. Sparhawk is a corporation duly organized and validly existing under the laws of the State of Missouri. Sparhawk has the full legal right, power and authority to enter into this Agreement and to perform its obligations hereunder. All actions necessary to authorize Sparhawk to enter into this Agreement to undertake its duties hereunder have been duly and properly taken. This Agreement is the legal, valid and binding obligation of Sparhawk, enforceable in accordance with its terms. b. The execution and delivery of this Agreement by Sparhawk and the performance of its obligations hereunder will not contravene or conflict with any law, order, rule or regulation presently in effect and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of Sparhawk pursuant to the terms of, any agreement or instrument to which Sparhawk is a party or by which it is bound or to which any of its property or assets are subject. Subject performance by Sparhawk will not violate any provision of its charter or bylaws. c. There are not actions, suits, claims, proceedings or investigations pending or threatened with respect to the business or properties of Sparhawk. d. Sparhawk has complied in all material respects with all laws, ordinances, licensing requirements, regulations and orders applicable to the business being conducted by it and has filed with the proper authorities all other required statements, returns and reports. 28. Chemdex and Vet Labs Representations and Warranties. Chemdex and Vet Labs represent and warrant to Sparhawk and the Joint Venture as follows: a. Vet Labs and Chemdex are corporations duly organized and validly existing under the laws of the State 6 7 of Kansas. Vet Labs and Chemdex have the corporate power to own and lease its properties and carry on its business as and where now presently being conducted. Vet Labs and Chemdex have the full legal right, power and authority to enter into this Agreement and to perform its obligations hereunder. All actions necessary to authorize Vet Labs and Chemdex to enter into this Agreement to undertake its duties hereunder have been duly and properly taken. This Agreement is the legal, valid and binding obligation of Vet Labs and Chemdex, enforceable in accordance with its terms. b. The execution and delivery of this Agreement by Vet Labs and Chemdex and the performance of its obligations hereunder will not contravene or conflict with any law, order, rule or regulation presently in effect and will not conflict with or result in a breach of any of the terms of provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon any of the property or assets of Vet Labs pursuant to the terms of, any agreement or instrument to which Vet Labs is a party or by which it is bound or to which any of its property or assets are subject. Such performance by Vet Labs and Chemdex will not violate any provisions of its charter or bylaws. c. There are no actions, suits, claims, proceedings or investigations pending or threatened with respect to the business or properties of Vet Labs and Chemdex which would affect their performance of their obligations under this Agreement. d. Vet Labs has complied in all material respects with all laws, ordinances, licensing requirements, regulations and orders applicable to the business being conducted by it and has filed with the proper authorities all other required statements, returns and reports. 29. Survival of Representations and Warranties. The statement, representation and warranties of the parties contained herein and in any exhibit attached hereto shall be deemed material and to have been relied upon by the parties hereto, notwithstanding any investigation made by the parties. All such statements, representations and warranties and the agreements of the parties contained herein shall continue in effect after execution of this Agreement and in the formation of the Joint Venture contemplated hereby at the Closing. The waiver of any misrepresentation or breach of any warranty shall not constitute a waiver of any other misrepresentation or a breach of warranty hereunder. Termination and Liquidation. a. The Joint Venture shall be terminated ten (10) years from the date of this Agreement, or upon the prior happening of any one of the following events: (1) The Joint Venture or the last remaining Joint Venturer becomes insolvent or generally fails to pay, or admits in writing its inability to pay, debts as they become due, or applies for, consents to or acquiesces in the appointment of a trustee, receiver, or other custodian for it or any of its property, or makes a general assignment for the benefit of creditors; or, in the absence of such application, consent or acquiescence, a trustee, receiver or other custodian is appointed for it or for a substantial part of its property and is not discharged within sixty (60) days; or any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is commenced in respect of the Joint Venture or the last remaining Joint Venturer, and if such case or proceeding is not commenced by the Joint Venture or such Joint Venturer, it is consented to or acquiesced in by the Joint Venture or such Joint Venturer, or remains for sixty (60) days undismissed; or the Joint Venture or the last remaining Joint Venturer takes any corporate action to authorize, or in furtherance of, any of the foregoing; or, (2) the determination of the Joint Venturers to terminate and liquidate the Joint Venture; or (3) the death, withdrawal or cessation to exist as a legal entity of the sole remaining Joint Venturer; or, 7 8 (4) the termination of the Joint Venture by operation of law or by judicial decree. b. Upon termination of the Joint Venture, the last remaining Joint Venturer (or, if no Joint Venturer is then remaining, the successor-in-interest of the last remaining Joint Venturer) shall make full account of the Joint Venture's property and liabilities, and shall commence to wind up the Joint Venture's affairs. The Joint Venture's property may be liquidated and its property or the proceeds thereof shall be applied and distributed, to the extent sufficient, as follows: First, all debts and liabilities of the Joint Venture and the expenses of liquidation shall be paid, except debts and liabilities owed to Joint Venturers (in their capacities such); Second, the person required by law to wind up the Joint Venture's affairs shall set up such reserves as such person may reasonably deem necessary for any contingent liabilities or obligations of the Joint Venture, provided that any such reserve shall be paid over by such person to an independent escrow agent, to be held by the agent or its successors for such period as such person shall deem advisable for the purpose of applying the reserves to the payment of the liabilities or obligations, and at the expiration of the period, the balance of such reserves, if any, shall be distributed as set out in the following clauses; Third, all debts and liabilities of the Joint Venture owed to the Joint Venturers or transferees (in their capacities as such) shall be paid. Fourth, the balance, if any shall be distributed to and among the Joint Venturers in accordance with the cash distribution percentages as provided herein. 31. Joint Venture Property. All property, real, personal, or mixed, from time to time owned by Joint Venturers shall determine that, for convenience, legal title to any such property shall be held in the name of one or more Joint Venturers; provided, all Joint Venture property held in the name of one or more Joint Venturers during the term of the Joint Venture shall be equitable land beneficially owned by the Joint Venture until termination and such nominee and trustee of the recorded legal title to such property for the Joint Venture's sole benefit, subject to the provisions of paragraph--. 32. Binding Effect. This Agreement shall be binding upon and enure to the benefit of the parties, their respective successors and assigns. 33. Amendment. This Agreement may be modified, amended, changed or canceled, nor any of its provisions waived, except by instrument in writing signed by all of the parties or except otherwise specifically agreed herein. 34. Law as to Construction. This Agreement shall be governed by and construed in accordance with the laws of the State of Kansas. 35. Notices. Any notices or other communication by either party shall be deemed to have been sufficiently given, for all purposes, if given by being deposited, postage prepaid, by certified mail, at a post office or letter box addressed as follows: a. To Vet Labs and Chemdex Attn: Natu Patel 1401 Neptune Drive Boynton Beach, FL 33426 b. To Sparhawk 8 9 Attn: Bert Hughes 22 North 6th Street Kansas City, KS 66101 IN WITNESS WHEREOF, the parties above have caused this agreement to be signed and acknowledged by duly authorized officers on the day and year first above written. CHEMDEX, INC. By: /s/ Natu Patel Its: Attest: CHEMDEX, INC. BY: /s/ Bascom Its VETERINARY LABORATORIES, INC. By: /s/ Natu Patel Its: Attest: VETERINARY LABORATORIES, INC. By: /s/ Bascom Its: SPARHAWK LABORATORIES, INC. By: /s/ Bert Hughes Its: ATTEST: SPARHAWK LABORATORIES, INC. By: /s/ Bascom Its: STATE OF MISSOURI ) ) ss. COUNTY OF PLATTE ) BE IT REMEMBERED, that on this 1st day of December, 1992 before me, the undersigned, a Notary Public in and for the County and State aforesaid, personally appears Natu Patel and , and of CHEMDEX, INC., who are known to me to be the persons who executed the above and foregoing instrument and acknowledge the execution of the same on behalf of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed by official seal on the day and year last above written. Cheryl Bascom NOTARY PUBLIC 9 10 CHERYL A. BASCOM Notary Public-State of Missouri Commissioned in Platte County My Commission Expires June 26, 1993 STATE OF MISSOURI ) )ss. COUNTY OF PLATTE ) BE IT REMEMBERED, that on this 1st day of December, 1992, before me, the undersigned, a Notary Public in and for the county and State asforesaid, personally appears Natu Patel and, and of, VETERINARY LABORATORIES, INC., A who are known to me to be persons who executed the above and foregoing instrument and acknowledged the execution of the same on behalf of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the day and year last above written. /s/ Cheryl Bascom NOTARY PUBLIC CHERYL A. BASCOM Notary Public - State of Missouri Commissioned in Platte County My Commission Expires June 26, 1993 STATE OF MISSOURI ) COUNTY OF PLATTE ) BE IT REMEMBERED, that on this 1st day of December, 1992, before me, the undersigned, a Notary Public in and for the County and State aforesaid, personally appears Bert Hughes and, and of SPARHAWK LABORATORIES, INC., who are known to me to be the persons who executed the above and foregoing instrument and acknowledged the execution of the same on behalf of said corporation. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the day and year last above written. /s/ Cheryl A. Bascom NOTARY PUBLIC CHERYL A. BASCOM Notary Public - State of Missouri Commissioned in Platte County My Commission Expires June 26, 1993 natu2 EXHIBIT "A" 10 11 (Current Assets and Liabilities of Vet Labs) EXHIBIT "B" (Capital Contributions) 11 EX-10.6 9 EXHIBIT 10.6 1 Exhibit 10.6 MANUFACTURING AGREEMENT THIS AGREEMENT is entered into this 23 day of September, 1996 by and between AGRI-LABORATORIES, LTD, a Delaware corporation (the "Company") and "SPARHAWK LABORATORIES, INC., a Missouri corporation ("SLI") and VETERINARY LABORATORIES, INC., a Kansas corporation ("VLI") (SLI and VLI shall jointly be referred to as the "Manufacturer"). WHEREAS, the Company is engaged in the wholesale distribution and resale of animal pharmaceuticals and other animal health products; and WHEREAS, Company is in the process of filing Applications for approval of New Animal Drugs ("NADA's") and Abbreviated Applications for the Approval of New Animal Drugs ("ANADA's") with the Food and Drug Administration (jointly the "Applications" or individually the "Application") under statutes regulating the production of animal drugs, approval of which will allow the Company to manufacture and distribute certain pharmaceutical products; and WHEREAS, the Company and the Manufacturer agree to enter into this Agreement to provide for the non-exclusive manufacture and supply by Manufacturer of Product (as defined herein) as set forth herein. NOW, THEREFORE, in consideration of the promises and covenants contained herein, and good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. DEFINITIONS 1.1 Products. "Product" shall mean the products listed on Exhibit "A" attached hereto and incorporated herein. Exhibit "A" may be revised, from time to time, by mutual written agreement of the parties. 1.2 Application. "Application" shall mean a NADA or an ANADA submitted to the Food & Drug Administration ("FDA") which application requests approval of Product as safe and effective by the FDA. 1.3 Approval. "Approval" shall mean approval of an Application by the FDA. 2. THE APPLICATION 2.1 Owner. The parties agree and acknowledge that Company is the owner of all Applications submitted for Product and is the owner of all Approvals received from the FDA. In no event is Manufacturer granted a license or proprietary rights to Product by this agreement. 2.2 Application Contents. Manufacturer agrees that Company may list the Manufacturer as manufacturer of a Product on the Company Applications and Manufacturer will furnish a full description of its facilities, controls and methods for manufacturing Product for inclusion on the Application. If requested, Manufacturer agrees to provide the Company written authorization to reference Manufacturer's master file. 2.3 Best Efforts. Each party agrees that it will use its best efforts to complete and submit an Application for Product on a timely basis following execution of this Agreement. 3. MANUFACTURING AGREEMENT 2 3.1 Engagement. As provided herein, Company hereby appoints and engages Manufacturer to manufacture the Product on a non-exclusive basis. Manufacturer agrees that the manufacture of Product shall be for the exclusive benefit of Company and agrees further that it shall not sell Product to any other purchaser without the Company's advance written consent. 3.2 Price. Company agrees to pay to Manufacturer for the manufacture of Product such amounts as are listed on Exhibit "B" attached hereto and made a part hereof. Exhibit "B" may be revised, form time to time, by mutual written agreement of the parties. 3.3 Trade Terms. Company agrees to pay all Manufacturer's invoices on a timely basis. A timely basis shall be deemed to be thirty (30) days after date of invoice provided invoices are received within five (5) days of date of invoice. If invoices are not received by Company within five (5) days of date of invoice, a timely basis for payment shall be deemed to be twenty-five (25) days after receipt by Company of each invoice. Manufacturer agrees that Company shall receive a discount of two percent (2%) of net invoice price if payment is made by the Company within ten (10) days of date of invoice. 3.4 Registration. Manufacturer shall provide necessary information to the Company to allow the Company to register Manufacturer's facility with the FDA as a manufacturer of Product and shall provide the Company all information necessary to comply with all reporting requirements of such a registered manufacturer. Manufacturer shall make its premises available for inspection as required by applicable statutes. 3.5 Quality Standards. All Product manufactured pursuant to this Agreement shall be manufactured in compliance with the Application and shall be in compliance with any and all requirements, ordinances and specifications of the FDA, the Department of Agriculture, and/or any state, federal or the appropriate government regulatory agency which shall, from time to time, regulate the Product, The quality of the Product shall also be in compliance with general industry standards regarding content, purity, shape, appearance, potency, shelf life and shall comply with Company' quality standards. The Product shall also comply with the chemical and other specifications established and/or identified by Company as set forth on Exhibit C hereto. 3.6 Delivery. Manufacturer shall deliver Product to Company within thirty (30) days (the "Lead Time") from Manufacturer's receipt of Company's purchase order, provided that said purchase has been forecast pursuant to Article 8 hereof. Manufacturer shall be responsible and pay for packaging and delivery of the Product and for all other steps needed to transport the Product to Company. Provided, however, the foregoing shall not restrict Manufacturer from shipping Product to Company earlier that such Lead Time if the Product is available for shipment and Company requests shipment prior to the Lead Time date established herein. 3.7 Nonperformance. In the event Company's purchase order has been forecast pursuant to Article 8 hereof and Manufacturer fails to deliver Product to Company within the Lead Time, the product fails to comply with the terms of this Agreement, or there has been breach of another provision of this Agreement, in addition to other remedies,Company shall have the right to cancel outstanding purchase orders with or without terminating this Agreement. 4. TERM OF AGREEMENT 4.1 Term of Agreement. The application of this Agreement to each particular Product listed on 2 3 Exhibit A shall terminate five (5) years after the particular Product has received Approval. The application of this Agreement with respect to each individual Product shall automatically renew for an additional five (5) year term unless either party shall have served written notice of non-renewal to the other party not less than ninety (90) days before the termination of the initial five (5) year period. Notwithstanding the above, in addition to all other remedies, either party may terminate its obligations under this Agreement by twenty (20) day advance written notice in the event of a material breach of the terms of this Agreement, if such breach is not cured within said period. 5. RISK OF LOSS AND INSURANCE 5.1. Risk of Loss. Unless Company elects to pick up Product from Manufacturer's dock, Manufacturer shall bear all risk of loss or damage to the Product in shipment to Company. Company shall bear all risk of loss of unloading, storage and handling of Product. 5.2 Insurance. Manufacturer shall carry product liability insurance on the Product in the amount of not less than $1,000,000.00 which insurance shall name the Company as an additional insured and/or co-insured. Company shall be given thirty (30) days advance written notice of any termination or cancellation of said insurance. Manufacturer shall provide proof of insurance within ten (10) days of the commencement of the term of this Agreement and at any time during the term of this Agreement upon request. 6. LABELING AND PACKAGING RESPONSIBILITY 6.1 Labeling Responsibility. All labels (including private labels, i.e. those labels containing names other than the Company's name) as specified by the Company will be purchased and applied to all Product by Manufacturer at Manufacturer's cost; provided that, with respect to private labels, the volume of each private label meets minimum private label quantities as jointly determined by Manufacturer and the Company for a twelve (12) month period. In the event the volume of Products using private labels does not meet the established minimum volume requirements, Manufacturer reserves the right to invoice the Company for the cost of purchasing the private labels. 6.2 Packaging. Manufacturer shall be required to deliver the Product in finished form, ready for sale by Company and packaged according to the Company's specifications which are listed on Exhibit "D" attached hereto and made a part hereof. Exhibit "D" may be revised, from time to time, by written notice from Company, provided that such notice does not materially increase the cost of such packaging. 7. ACCEPTANCE 7.1 Acceptance. The Product shall be received subject to Company's inspection during a thirty (30) day period after receipt. The Product may be returned to Manufacturer if found not to comply with the quality standards set forth in Article 3.5 hereof. In the event that the defect is not readily ascertainable by inspection, such Product may nonetheless be rejected by Company not later than ten (10) day after Company has discovered the defect. All claims for defect shall be reported in writing to Manufacturer as soon as possible. At the request of Manufacturer, Company shall provide Manufacturer with samples of the allegedly defective product. 8. PURCHASE FORECASTS 8.1 Annual Forecasts. Prior to the beginning of each calendar year, Company agrees to provide 3 4 Manufacturer with an annual forecast of Product purchases by quarter. 8.2 Quarterly Forecast. Company agrees that, at least once each ninety (90) days, it shall provide forecasts of the quantity of Product which it anticipates it will purchase from Manufacturer for the (90) day period thereafter. 8.3 Noncompliance with Estimates. The parties agree that Company's estimates are only estimates. All estimates shall be made in good faith in order to facilitate Manufacturer's manufacture and shipment of Product in compliance with this Agreement. 8.4 Minimum Purchase. Notwithstanding Paragraph 7.3 above, Company agrees that it will purchase the minimum of Product as set forth on Exhibit A. 9. BEST EFFORTS OF COMPANY 9.1 Marketing of Product. Company shall exert its best efforts to sell and achieve a market for the Product. 10. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION 10.1 Non-Disclosure. Unless granted written permission by Company, Manufacturer agrees not to directly or indirectly use or disclose Confidential Information (as hereinafter defined) obtained from Company or otherwise through the manufacturer of the Product for so long as said information retains the characteristics of Confidential Information as defined herein. 10.2 Confidential Information. Confidential Information means any information or compilations of information that derives independent economic value from not being generally known or readily ascertainable by proper means. Confidential Information includes, but is not limited to trade secrets, customer lists, manufacturing processes and Product ingredients, formulations, specifications, results of research and development whether complete or in process and other information which the Company deems as confidential. However, Manufacturer is not precluded from independently developing and marketing a particular Product if Company fails to purchase any of such Product within two (2) years following Approval of the Application for that Product and the listing and approval of Manufacturer under Company's ANADA or NADA. 10.3 Documents and Tangible Items. All documents and tangible items which contain or deal in any manner with Confidential Information are the property of Company and shall remain the exclusive property of Company along with all copies, records, abstracts, notes or reproductions of any kind made from or about the documents and tangible items or the information they contain. 10.4 Account for Profits. Manufacturer agrees that if it shall violate any of the covenants and agreements under this Article 10, Company shall be entitled to an accounting and repayment of all profits, compensation, commissions, remuneration or other benefit which Manufacturer has either directly or indirectly realized on its behalf or on behalf of another and/or may realize as a result of, growing out of or in connection with such violation. Such remedies shall be in addition to and not in limitation of any injunctive relief or any other remedies or rights to which Company is or may be entitled to at law or in equity or under this Agreement. 10.5 Reasonableness of Restrictions. Each party agrees that considering their relationship and the degree of their mutual reliance, and given the other terms of this Agreement that the restrictions set 4 5 forth in this Article are reasonable. Notwithstanding the foregoing, if any of the covenants set forth in this Article shall be held to be invalid or unenforceable, the remaining parts thereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts have not been included herein. 11. WARRANTIES 11.1 General. Manufacturer warrants that the Product will be of merchantable quality, free from defects in material, formulation and manufacture, fit for the purposes for which it is produced, in compliance with Company's packaging standards, in compliance with industry quality standards, in compliance with the quality standards set forth in Section 3.5 hereof and in compliance with the terms of this Agreement. Notwithstanding the foregoing. Manufacturer shall not be responsible for recommendations for use of the Product made by Company nor shall Manufacturer make any representation or warranty with regard to the results to be obtained by the Product. Company assumes all risks and liability associated with storage and handling of Product which complies at the time of delivery to Company with the quality standards identified herein. 11.2 Investigation. Manufacturer shall promptly investigate any and all Product complaints relating to quality, manufacture, defects in materials and workmanship, formulations, and/or packaging for the Product. Manufacturer shall immediately notify Company, in writing, of any Product complaints Manufacture has knowledge of or receives. The Company shall promptly investigate any and all complaints regarding storage and handling of the Product, and/or recommended uses of the Product. 12 INDEMNITY 12.1 Indemnity. Manufacturer agrees to indemnify and hold harmless Company, its officers, directors, employees, agents, members, distributors and representatives from all actions, claims, losses, damages or expenses allegedly arising out of any injury to person or property allegedly suffered as a consequence of the Product's manufacture. 12.2 Company's Inspection. Manufacturer shall, from time to time, during regular business hours, in a manner not to interfere with Manufacturer's business, grant permission and arrange for Company to enter the premises and plants of Manufacturer that manufacture the Product, for the purpose of inspecting such plants, equipment and operations to assure compliance with this Agreement. 13. MISCELLANEOUS 13.1 Entire Agreement. This Agreement constitutes the entire understanding between the parties hereto with respect to the subject matter hereof, and any modification of this Agreement shall be in writing and shall be signed by a duly authorized representative of each party. 13.2 Supersedes Prior Understandings. This Agreement shall be deemed to supersede any agreement heretofore entered into by and between Manufacturer and Company. 13.3 Governing Law. This Agreement shall be interpreted and construed, and the legal relationships created hereby shall be construed in accordance with the laws of the State of Missouri. 13.4. Default. No failure or omission by either of the parties hereto in performance of any non-monetary obligation contained in this Agreement shall be deemed a breach hereof if the same shall arise 5 6 from any causes beyond the control, and without fault or negligence of, such party, including, but not restricted to acts of God, acts of federal, state, local or foreign government or any agency thereof, request of any governmental authority or any officer, department, agency or instrumentality thereof, shortages of supply of Product or components to manufacture product, plant shut down by acts of any government, fire, storm, flood, earthquake, explosion, accident, acts of the public enemy, war, rebellion, insurrection, riot, sabotage, epidemic, quarantine, restrictions, strike, lockout, dispute with workmen, labor shortages, transportation embargoes or failures or delays in transportation, or exhaustion or unavailability or delays in the delivery of any transportation facility, product or material necessary to the performance hereof, except that all actions of Manufacturer's employees and agents are hereby deemed to be within Manufacturer's control. In the event of breach of this Agreement by either party, such party shall be liable for actual damages, but shall have no liability for incidental or consequential damages. 13.5 Successors and Assigns. The Agreement shall inure to the benefit of and be binding upon the permitted successors and permitted assigns of the parties hereto, but is shall not be assigned in whole or in part by either party without prior written consent of the other. Any purported assignment of this Agreement or any interest therein without the written consent of the other shall be void. Notwithstanding the aforementioned, Company may assign its rights and obligations herein to any affiliate or subsidiary in which Company owns a controlling interest. 13.6 Notices. All notices provided for by this Agreement shall be considered to have been received if sent by certified mail, return receipt requested, addressed as provided for herein. COMPANY: Agri-Laboratories Ltd. P.O. Box 3103, St. Joseph, Missouri 64503 WITH COPY TO: Leon I. Steinberg Esq. Maslon Edelman Borman & Brand a Professional Limited Liability Partnership 3300 South 7th Street Minneapolis, MN 55402 MANUFACTURER: Sparhawk Laboratories, Inc. and Veterinary Laboratories, Inc. 12340 Santa Fe Trail Drive Lenexa, KS 66215 Attn: Everett B. Hughes, President 13.7 Injunctive Relief. The parties agree that their respective obligations are unique and that monetary damages may not be sufficient to compensate for an alleged breach of this Agreement. The parties agree that each shall have the right to injunctive relief to enjoin or enforce the provisions of this Agreement. The right to injunctive relief and/or specific performance shall be cumulative and shall be in addition to all other rights and remedies at law or in equity. 13.8 Severability. If any portion or provision of this agreement shall be held unenforceable or illegal, the illegal or unenforceable provision shall be inoperable and the remaining provision of this Agreement shall be effective as if such unenforceable or illegal provision were not a part hereof. IN WITNESS WHEREOF, the parties execute this Agreement as of the date and year first above 6 7 written. AGRI-LABORATORIES, LTD. By: /s/ Dennis Feary Its President VETERINARY LABORATORIES, INC. By: /s/ Everett B. Hughes Its President SPARHAWK LABORATORIES, INC. By: /s/ Everett B. Hughes Its President 7 EX-10.7 10 EXHIBIT 10.7 1 Exhibit 10.7 PROPOSAL The Trident Group is pleased to submit the following proposal to Polydex: BACKGROUND Polydex has developed an iron/dextran product which they believe can significantly reduce the toxicity of iron found in current marketed products. Since there are some 50-60 deaths from iron poisoning each year Polydex believes that the iron/dextran product has at least one significant advantage. Since Polydex has limited experience in the OTC market they have requested that Trident act as their new product development team to prepare the product for launch, and possibly to support the subsequent marketing. PROPOSAL Trident will provide and outsource as necessary all resources to develop an iron/dextran product for market. Trident will evaluate the market, develop concepts and names, source packaging and advertising agencies, and in general act as the marketing group for Polydex to insure a timely launch. In addition, we will develop launch plans and source distribution partners for the product. At Polydex's discretion Trident will continue to act as the marketing team during the marketing phase of the product. COST $20,000.00 per month plus 10% royalty on net sales. In addition, Polydex will pay for all agreed upon out of pocket expenses. TIMING Minimum of 12 months with an option to renew to manage the marketing phase. The project will begin on March 1, 1997. TERMS First payment due on March 1, 1997 with subsequent payments due the first day of each of the following months. /s/ Raymond C. Freisheim /s/ Alec D. Keith, Ph.D Director Chairman Trident Group Polydex Pharmaceuticals, Ltd. EX-10.8 11 EXHIBIT 10.8 1 Exhibit 10.8 STOCK SALE AND PURCHASE AGREEMENT Agreement, made this Thirtieth day of October, 1992 between Continental Grain Company, a corporation duly organized and validly existing under the laws of the State of Delaware, (hereinafter referred to as the "Seller"), with offices at 277 Park Avenue, New York, NY 10072, and Polydex Pharmaceutical, Limited a corporation duly organized and validly existing under the laws of Bahamas (hereinafter referred to as "Buyer") with offices at 415 Comstock Road, Scarborough, Ontario Canada, and Chemdex, Incorporated, a Kansas Corporation, ("Chemdex"). WHEREAS, Seller owns all the issued and outstanding shares ("Company Shares") of Veterinary Laboratories, Inc., a corporation organized under the laws of Kansas, engaged primarily in the manufacture and distribution of veterinary pharmaceutical (hereinafter referred to as "Company"); and WHEREAS, the Parties have reach an understanding with respect to the sale by Seller and purchase by Buyer of the Company Shares upon the terms and conditions hereafter set forth; NOW, THEREFORE, the parties agree as follows: 1. PURCHASE 1.1. Subject to the terms and conditions hereof, Seller shall sell to Buyer and Buyer shall purchase the Company Shares from the Seller for the purchase price provided in Section 2 hereof, Buyer has designated that its subsidiary, Chemdex Incorporated to take ownership of the Company Shares. 2. PURCHASE PRICE 2.1 The purchase price for the Company Shares shall be Three Million and Fifty thousand Dollars ($3,050,000.00) plus the cost of the working capital on hand at the Closing. "Working capital"is defined as current assets less current liabilities. Exhibit 1 lists specific accounts receivable and reserves to be excluded from the accounts receivable of the Company at the Closing Date and transferred to the Seller. 2.2 The purchase price shall be paid by Buyer at closing in the form of common stock of Buyer ("Buyer Shares") based on a stipulated market value of Two Dollars ($2.00) per share. Buyer and its primary shareholder shall provide Seller guaranties that Seller receive no less than Two Dollars ($2.00) per Buyer Share during an orderly disposition of such stock as more fully set forth hereinafter. 3. REPRESENTATIONS AND WARRANTIES OF SELLERS 3.1 As of the date hereof and as the date of closing (hereinafter called "Closing Date"), the Seller represents and warrants to Buyer, its successors and assigns as follows: 3.1.1. Seller has been duly incorporated and is validly existing and in good standing under the laws of the State of Delaware. 3.1.2 Seller is the sole, legal and beneficial owner of the Company Shares. 3.1.3 Seller has, without exception, good and marketable title to the Company Shares, free and clear 2 of all restrictions, liens, pledges, encumbrances, equities, options, calls and claims whatsoever, other than such claims as Buyer may assert hereunder. 3.1.4 Seller has the corporate power and all authorization and approval required by law to sell and transfer the Company Shares in the manner herein provided. 3.1.5 The execution and delivery of this Agreement by Seller, and the performance by it of the transactions contemplated hereby, have been duly and validly authorized by the Board of Directors of Seller, and this Agreement, in accordance with its terms, is binding on and enforceable against Seller except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the rights of creditors or by principles of equity (regardless of whether such enforcement is in a proceeding or equity or law). 3.1.6 The execution, delivery and performance of this Agreement does not and shall not at the time of Closing constitute a violation of, or a default by Seller under any mortgage, note, bond, indenture, trust agreement, certificate of incorporation or by-laws, license, permit, franchise, or other agreement, instrument or obligation to which the Seller, Company, or any of their respective subsidiaries or affiliates is a party or by which any of the Seller, Company, or any of their respective subsidiaries or affiliates is bound. 3.2 Company has been duly incorporated and is validly existing and in good standing under the laws of the State of Kansas with full power and authority to own or lease its properties and to conduct its business in each jurisdiction where such properties are located or such business is conducted, except for jurisdiction where individually, or in the aggregate, the failure to be qualified to transact business would not have a material effect on the Company. 3.2.1 The authorized capital stock of Company consists of One Hundred Thousand (100,000) shares of common stock, One Dollar par value, of which One Hundred Eleven (111) shares have been validly issued and fully paid. There are no other shares of Capital Stock issued by Company and no outstanding subscriptions, warrants, options, calls, rights, commitments, convertible securities, joint ventures, partnerships of other agreements to which Company is a party or by which it is bound, calling for the issuance of any capital stock or convertible securities of Company. 3.2.2 Company (a) is current in the filing of all requisite income, payroll, excise, sales, and other tax reports or returns required to be filed by or with respect to Company (which returns and reports correctly and adequately stated any type of information required to be reflected in such returns and reports; (b) has paid or caused to be paid, contested in good faith or adequately provided for in reserves shown on the books of account of Company, all taxes and assessments (including interest or penalties) due or to become due for any period before the Closing Date to any taxing authority; (c) has made all deposits required by law to be made by Company with respect to employees' withholding taxes, social security taxes and; (d) there are no outstanding deficencies or other assessments of tax, interest, or penalties have been made or to the knowledge of Seller, proposed, except as described in Exhibit 2. Company shall have an adequate reserve to cover real estate taxes, ad valorem taxes and sales taxes prorated to the Closing. 3.2.3 Company has good and marketable title to all its assets and properties, including those reflected on the Proforma Balance Sheet, attached hereto as Exhibit 3, and in each case such assets and properties are free and clear of all mortgages, liens (including any liens for delinquent taxes), security interests, options and encumbrances of any material nature. 2 3 3.2.4 Seller and Company have delivered to Buyer true and complete copies of all leases of real or personal property, contracts, agreements, franchises, and permits (collectively, the "Contracts") to which Company is a party or subject, all of which are in full force and effect and all of which are listed on Exhibit 4 hereof. (Such leases, contracts, et al valued at less than $5,000 annually need not be delivered and listed, provided such unlisted leases, contracts, et al do not aggregate in excess of $20,000 annually.) Company is not in default under any of the Contracts, nor has any other party to such Contracts committed a default as of the date hereof that is known to Seller. 3.2.5 Company is not a party to any agency, employment, or consulting agreement, union contract, pension, profit sharing, retirement, deferred compensation, bonus, stock purchase, hospitalization, insurance, or other plan, agreement, or arrangement. All insurance and pension policies comply with all ERISA and Department of Labor regulations. All of the individuals currently working at Company are employees of Seller, and not of the Company. 3.2.6 All inventories of the Company, including but not limited to raw materials, finished goods, and work in process, are consistently valued at the lower of cost (applied on a first in/first out basis) or market, are good and merchantable quality for the purposes for which intended, and usable or saleable in the ordinary course of business. Not withstanding the aforesaid, those inventories listed on Exhibit 5 shall be valued at one half cost. 3.2.7 There are not actions, suits, claims, labor grievances (whether or not arising under a collective bargaining agreement) or legal, administrative, or arbitration proceedings or investigations in which service of any pleading has been made upon Company, or, to the knowledge or Seller, threatened against, Company or any of its properties or assets, and there are no outstanding orders, writs, injunctions, or decrees of any court, governmental agency, or tribunal against, Company, except as scheduled on Exhibit 6. 3.2.8 Seller and Company have delivered to Buyer copies of all FDA 483 reports issued to Company in the last eighteen (18) months and have provided Buyer access to all of its FDA records. 3.2.9 Attached as Exhibit 7 hereto is a schedule of all material licenses, trademarks, NADA registration of the Company. Unless otherwise indicated on Exhibit 7, none of such licenses, Trademark and registrations have lapsed and none are subject to royalty payments to third parties, except for payment due Chemdex relating to iron dextran. 3.2.10. To the best of Seller's and Company's Knowledge, the operations of the Company during the period owned by Seller are in material compliance with all material Federal, State, and local laws and regulations, provided that Seller and Company make no representation or warranty with regard to FDA compliance issues. 4. REPRESENTATIONS AND WARRANTIES OF BUYER 4.1 Buyer represents and warrants to the Sellers with respect to itself as follows: 4.1.1. Buyer has been duly incorporated and is validly existing and in good standing under the laws of the Bahamas and has the corporate power to carry on its business as now conducted or as proposed to be conducted following the Closing Date. 4.1.2. Buyer has full legal right and power and all authorization and approval required by law to enter into this Agreement and to carry out its obligation in the manner herein provided. 3 4 4.1.3. The execution and delivery of this Agreement by Buyer, and the performance by it of the transactions contemplated hereby, have been duly and validly authorized by the Board of Directors of Buyer, and this Agreement, in accordance with its terms, is binding on and enforceable against Buyer, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general application relating to or affecting the rights of creditors or by principles of equity (regardless of whether such enforcement is in a proceeding or equity or law). 4.1.4 The execution, delivery and performance of this Agreement does not and shall not at the time of Closing constitute a violation of, or a default under, the articles of incorporation or other charter document or by laws of Buyer, license, permit, franchise, or other agreement, instrument or obligation to which Buyer or any of its subsidiaries or affiliates is a party or by which any of Buyer or its subsidiaries or affiliates is bound. 4.1.5. The authorized capital stock of Buyer consists of 1,000,000 A preferred shares, $.01 par value, of which no shares are issued and outstanding; 2,994,000 B preferred shares, $.0016 par value, of which no shares are issued and outstanding; and 30,000,000 common shares, $.00167 par value, of which 23,262,981 are issued and outstanding and 92,400 are held in treasury. All of the issued and outstanding shares of capital stock of Buyer are, and the Buyer Shares to be issued to Seller pursuant to this Agreement (whether in payment of the purchase price at the Closing or subsequently thereto to guaranty the stipulated market value of Two Dollars ($2.00) per share) will be,duly authorized, validly issued, fully paid and nonassessable and approved for listing on the National Association of Securities Dealers, Inc. Automated Quotation System ("NASDAQ") and on the Boston Stock Exchange, subject only to official notice of issuance. 4.2. Chemdex represents and warrants to the Seller with respect to itself as follows: 4.2.1. Chemdex will be duly incorporated and will be validly existing and in good standing under the laws of the Kansas and has the corporate power to carry on its business as now conducted or as proposed to be conducted following the Closing Date. 4.2.2. Chemdex will have full legal right and power and all authorization and approval required by law to enter into this Agreement and to carry out its obligations in the manner herein provided. 4.2.3. The execution and delivery of this Agreement by Chemdex, and the performance by it of the transactions contemplated hereby, will be duly and validly authorized by the Board of Directors of Chemdex, and this Agreement, in accordance with its terms, is binding on and enforceable against Chemdex, except to the extent that enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws of general applications relating to or affecting the rights of creditors or by principles of equity (regardless of whether such enforcement is in a proceeding or equity or law). 4.2.4. The execution, delivery and performance of this Agreement does not and shall not at the time of Closing constitute a violation of, or a default under, the articles of incorporation or other charter document or by-laws of Chemdex, License, permit, franchise,, or other agreement, instrument or obligation to which Chemdex or any of its subsidiaries or affiliates is a party or by which any of Chemdex or its subsidiaries or affiliates is bound. 4.3. Chemdex is acquiring the Company Shares solely for the purpose of investment and not with a 4 5 view to, or for sale in connection with, any distribution thereof. Buyer acknowledges that the Company Shares are not registered under the Securities Act or 1933 as amended (the "Securities Act") and that the Company Shares may not be transferred or sold except pursuant to the registration provisions of the Securities Act or pursuant to an applicable exemption therefrom and pursuant to state securities or blue sky laws and regulations as applicable. 5. THE CLOSING AND SUBSEQUENT EVENTS 5.1. The closing of the transactions under this Agreement (the "Closing") shall occur at the offices of Seller on or before November 30, 1992 or at such time and place as the parties mutually agree upon. 5.2. In the event of a breach of any representation or warranty which becomes known to Seller or to Buyer prior to the Closing Date, or if prior to the Closing Date it becomes known to Seller or to Buyer that any of such representations or warranties will not be true and correct as of the Closing Date, the party discovering the same shall give written notice thereof to the other party and that party shall have sixty (60) days following the date of such notice to cure the same. If defaulting party fails or refuses to cure such default within such sixty (60) day period to the other party's satisfaction, and unless such breach shall have been caused by defaulting party's fraud, willful misconduct, or by action taken in bad faith, the the sole remedy shall be to terminate this Agreement. 6. COVENANTS 6.1 Seller agrees that Buyer may, prior to the Closing Date, through Buyer's own representatives and in consultation with independence auditors, make such investigation of the properties and assets of Company and of the financial condition of Company as it deems necessary or advisable to familiarize itself with such properties, assets and other matters, and to satisfy itself that there has been no impairment in the fixed assets of the business. Buyer agrees to promptly notify Seller of the discovery of any breach of a representation of warranty made by Seller herein as a result of such investigation. Buyer shall, from and after the date hereof, have full access to the properties and the books and records of every kind of Company, and Seller and the officers of Company will furnish Buyer with such financial and operating data and other information as to the business and properties of Company as Buyer shall from time to time reasonably request; and the Seller will cause Company, its officers and employees to comply with all of the conditions of this Agreement relating to Company. 6.2. Seller shall use its best efforts to cause the Company to be operated in the ordinary course consistent with past practices. Seller shall allow a representative of Buyer to be present and observe all operations of Company prior to Closing, and Seller agrees to obtain the consent of Buyer prior to entering into any material contracts. Buyer desires that the Company solicit additional orders for those products listed on Exhibit 8. Buyer will be responsible for all such product orders to be manufactured or delivered after the Closing Date even if closing does no occur. 6.3. On or Before Closing , Seller shall have terminated any employee of Seller working at the Company and Buyer shall have the option, but not the obligation, to have the Company offer employment to such terminated employees upon such terms and conditions as Buyer shall choose. Seller shall be responsible for all costs and expenses, including accrued vacation, severance and ERISA liabilities for the terminated employees of Seller. 6.4. Prior to or on the Closing Date, Buyer shall authorize the issuance to Seller of such number of 5 6 common shares, $.00167 par value, of Buyer as shall be sufficient to satisfy the purchase price, based on the stipulated market value of Two Dollars ($2.00) per share. Buyer will agree to maintain such additional number or Buyer Shares as may be required to issue to Seller to guaranty Seller the stipulated market value of Two Dollars ($2.00) per share. 6.5. Within twenty (20) days after delivery by Seller of Company's audited financial statements as required by the Securities and Exchange Commission, Buyer shall take the actions set forth below with respect to that number of Buyer Shares referred to in Section 6.3: 6.5.1. Buyer shall prepare and file with the Securities and Exchange Commission a registration statement under the Securities Act with respect to the Buyer Shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus or any amendments or supplements thereto, Buyer shall furnish to Seller copies of all such documents proposed to be filed and shall provide Seller's counsel the opportunity to Participate in the preparation of such documents. 6.5.2 Buyer shall prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may necessary to keep such registration statement effective, current and in compliance with the provisions of the Securities Act to permit the disposition of all the Buyer Shares thereby to be sold by Seller on a time-to-time basis as set forth in such registration statement. 6.5.3. Buyer shall furnish to Seller such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary and supplemental prospectus) and such other documents as Seller may reasonably request in order to facilitate the disposition of the Buyer Shares owned by Seller. 6.5.4 Buyer shall use its best efforts to register or qualify the Buyer Shares under the securities or blue sky laws of such jurisdictions within the United States as Seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable Seller to consummate the disposition in such jurisdictions of the Buyer Shares (provided that Buyer will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (ii) subject itself to taxation in any such jurisdiction or(iii) consent to general service of process in any such jurisdiction). 6.5.5. Buyer shall notify Seller (during the period when a prospectus relating to the Buyer Shares is required to be delivered under the Securities Act) of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of Seller, Buyer shall promptly prepare a supplement of amendment to such prospectus so that, as thereafter delivered to the prospective purchasers of the Buyer Shares, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading. 6.5.6. Buyer shall cause the Buyer Shares to be listed on NASDAQ (on the National Market System if Buyer so qualifies), on the Boston Stock Exchange and on each other securities exchange on which similar securities issued by Buyer are then listed. 6.5.7. Buyer shall otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as 6 7 reasonably practicable, an earnings statement covering the period of at least twelve month beginning with the first day of Buyer's first full calender quarter after the effective date of the registration statement, which earnings statement and the delivery thereof shall satisfy the provisions of Section 11(a) of the Securities Act as further defined in Rule 158 thereunder. 6.5.8. Buyer shall, in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any of the Buyer Shares for sale in any jurisdiction, use its reasonable best efforts promptly to obtain the withdrawal of such order. 6.5.10. Buyer shall obtain a cold comfort letter, dated the effective date of such registration statement, from Buyer's independent certified public accountants in customary from and cover in such matter of the type customarily covered by cold comfort letters. 6.5.11. Buyer shall provide a legal opinion of Buyer's outside counsel with respect to the registration statement, each amendment and supplement thereto, the prospectus included therein (including the preliminary prospectus) and such other documents relating thereto in customary form and covering such matters of the type customarily covered by such legal opinions. 6.5.12. All expenses incident to the Buyer's performance of or compliance with this Section 6.4, including all registration and filing fees, fees and expenses associated with filings required to be made to lias the Buyer Shares on NASDAQ, the Boston Stock Exchange and on each other securities exchange on which similar securities issued by Buyer are then listed, fees and expenses to comply with state securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of all independent certified public accountants engaged by Buyers counsel for Buyer and any other persons retained by Buyer, shall be paid by Buyer. 6.5.1. In connection with the registration statements filed pursuant to this Section, Buyer agrees to indemnify, to the extent permitted by law, Seller, its officers and directors and each person who controls Seller (within the meaning of Section 15 of the Securities Act) against all losses, claims, damages, liabilities and expenses (including reasonable attorneys' fees and other costs and expenses incident to any claim,suit, action or proceeding) which arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in any registration statement, preliminary or final prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same arise out of or are based upon information furnished in writing to Buyer by Seller expressly for use therein. 6.5.2. In connection with the registration statement filed pursuant to this Section 6, Seller agrees to indemnify, to the extent permitted by law, each of Buyer's officers who shall have such registration statement, Buyer's directors and each person who controls the Buyer (within the meaning of Section 15 of the Securities Act) against all losses, claims, damages, liabilities and expenses (including reasonable attorney's fees and other costs and expenses incident too any claim , suit, action or proceeding) which arise out of or are based upon any untrue or alleged untrue statement of a material fact contained in the registration statement, preliminary or final prospectus or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in information furnished in writing to Buyer by Seller expressly for use therein. 7 8 6.5.3 Any person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (but any failure to so notify the indemnifying party shall not relieve it of any liability which it may otherwise have to any indemnified party unless such failure shall materially adversely affect the defense of such claim) and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claims, permit such indemnifying part to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without the consent of the indemnifying party (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for the indemnified party with respect to such claim. 6.5.4 The indemnification provided for under this Section 6.5 will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and will survive the transfer of the Buyer Shares. 6.6. At all times after Buyer has filed a registration statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Securities Exchange Act of 1934, as amended (the Exchange Act), Buyer will use its reasonable best efforts to file all reports required to be filed by it under the Securities Act and the Exchange Act rules and regulations of the Securities Exchange Commission thereunder, and will take such further action as Seller may reasonably request, all to the extent required to enable Seller to sell the Buyer Shares pursuant to Rule 144 adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission. 7. CONDITIONS 7.1 The obligation of Buyer to consummate the transactions contemplated by this Agreement is subject, at Buyer's option, to the fulfillment prior to or on the Closing Date of each of the following conditions, any one or more of which may be waived by Buyer: 7.1.1 All the representations and warranties of Seller to Buyer contained in this Agreement shall be true and correct in all material respects on the Closing Date as if made on and as of the Closing Date and Seller shall have furnished to Buyer a certificate signed by a Vice President of Seller to that effect. 7.1.2 Seller shall have performed and complied with all covenants, agreements and conditions required in this Agreement to be performed or complied with by it prior to or on the Closing Date; 7.1.3 Buyer shall have received from Seller, at Seller's expense, ALTA Form - Title Commitment showing that the real property is vested in fee simple in the Company subject only to: (i) such minor encumbrances or imperfections, if any, which are not substantial in nature or amount and which do not detract from the value of such real estate as presently used or which do not impair the operations of the Company as they are conducted on the Closing Date; (ii) liens of current state and local property taxes, not delinquent or subject to penalty; and (iii) the standard exceptions and exclusions as would be provided on a standard title commitment of 8 9 Ticor Title Company. 7.1.4 Sellers shall have delivered to Buyer, on or prior to the Closing Date, signed, undated resignations of the officers and directors of Company as of the Closing Date. 7.1.5 All Seller's employees working at Company shall be terminated by Seller, unless Buyer has indicated that such employee will not be offered employment by Buyer or Company post Closing. 7.1.6 Buyer and Sellers shall have completed a satisfactory physical count of inventory. 7.1.7 Sellers shall have delivered to Buyer stock certificates representing all of the Company Shares, which certificates shall be endorsed in blank. 7.1.8 Buyer shall have received the minute books of Company, which shall contain the Articles of Incorporation and all available minutes of meetings (or consents of actions in lieu thereof) of the directors and shareholders of Company, to the effect that, to the best of Sellers' knowledge, there are no other minutes of meetings (or consents in lieu thereof) of the directors and shareholders of the Company in existence. 7.1.9 Seller shall have provided to Buyer written confirmation in a form reasonably satisfactory to Buyer, that Seller will make best efforts to provide audited financial statements of the Company, which will be subject to a going concern qualification, for at least a two year period prior to October 31, 1992. 7.2 The obligation of Seller to consummate the transactions contemplated by this Agreement is subject, at its option, to the fulfillment prior to or on the Closing Date of each of the following conditions, any one of more of which may be waived by Seller: 7.2.1 All the representations and warranties of Buyer to Sellers contained in this Agreement shall be true and correct in all material respects as of the Closing Date as if made on and as of the Closing Date and Buyer shall have furnished to Seller a Certificate, signed by a Vice President of Buyer, to that effect. 7.2.2 Buyer shall have performed and complied in all material respects with all covenants, agreements and conditions required in this Agreement to be performed or complied with by it prior to or on the Closing Date and Buyer shall have furnished to Seller a Certificate, signed by a Vice President of Buyer, to that effect. 7.2.3 Seller shall have received, from T.C. Usher, the guarantee referred to in Section 8 hereof, in a form reasonably satisfactory to Seller. 7.2.4 Buyer shall have delivered to Seller sufficient Buyer Shares in Seller's name to satisfy purchase price set forth in Section 2. 8. Post Closing Covenants and Guarantees 8.1. In order to reduce the market impact which could be caused by Seller's sale of large quantities of Buyer's shares at one time, Seller agrees that it will not sell more than an average of 50,000 shares per month in any given six month period. 9 10 8.2 Buyer and its principal shareholder, T.C. Usher, guarantee that Seller will be able to sell Buyer Shares at an average price of $2.00 per share. 8.2.1 At the end of each six month period following the Closing, if Seller has not been able to sell an average of 50,000 Buyer Shares per month at a price average of $2.00 per share or greater, Buyer will issue to Seller additional shares of Buyer's stock, (such additional shares hereinafter referred to as "Issue B Shares"), to compensate Seller for the deficiency below the $2.00 per share guarantee. Buyer shall issue sufficient number of Issue B Shares in such that the proceeds of Buyer Shares sold by Seller during such six month period plus the market value of additional Issue B Shares will leave the Buyer in the same position as if it had sold Buyer Shares at an average price of $2.00 per share during such a six month period. 8.2.2 Buyer and Seller agree to review Seller's sale of Buyer Shares at the end of each six month period thereafter with the intent of issuing additional Issue B Shares as needed to preserve Seller's minimum sale price of $2.00 per share during the term of the agreement. If Seller's average price for Buyer Shares during such a six month period exceeds $2.00 per share, Seller agrees to return to Buyer sufficient Issue B Shares to reduce the average price to $2.00 per share. This obligation of Seller to return Issue B Shares shall only apply to the extent Seller has Issue B Shares, and shall not extend to other Buyer Shares held by Seller. 8.2.3 If after four years from the date of Closing, or such other period which is mutually agreed upon between Buyer and Seller, Seller has not been able to liquidate Buyer's shares and Issue B Shares at sufficient price to equal the amount of the original purchase price set forth in Section 2, T.C. Usher agrees to buy the remaining Buyer shares held by Seller at such price which will bring the total proceeds received by Seller from the sale of Buyer Shares an amount equal to the purchase price set forth in Section 2 hereof. If Seller does not exercise its option for sale of such shares to T.C. Usher pursuant to this provision within sixty days of such four year anniversary or such other mutually agreed upon date, both Buyer's and T.C. Usher's obligation to guarantee price shall cease. 8.3 Buyer agrees not to encumber, pledge or dispose of the assets of the Company, except for sales of inventory and product in the ordinary course of business, without the prior consent of Seller. Seller shall allow Buyer to pledge sufficient assets of the Company to secure a working capital loan not to exceed the sum of $500,000. In the event Buyer or T.C. Usher defaults on any of its obligations hereunder of if Seller has reasonable cause to believe that Buyer will not be able to reasonably fulfill its obligations hereunder, Seller shall be granted an immediate first security interest on all assets of the Company. At the Closing, Buyer shall provide Seller with fully execute security documents to be held by Seller in trust pursuant to this provision. 8.4 Seller shall file a short period federal and state income tax return for the period ending November 30, 1992, and Buyer shall file any necessary returns thereafter. 8.5 For a period of two (2) years from the Closing, Seller agrees that neither it nor its subsidiary companies shall engage in the United States in the manufacture, processing or marketing of iron dextran or other products manufactured or sold by the Company as set forth in Exhibit 8, except to the extent such products are marketed within the Seller's Wayne Feeds and Conti Vet distribution channels. 9. Indemnification 9.1 In addition to the indemnification set forth in Section 6.5.2, Seller hereby agrees to indemnify, 10 11 defend and hold harmless Buyer and its successors and assigns from and against any and all loss, liability, damage, deficiency or tax (including interest, penalties and reasonable attorneys' fees and disbursements) arising out of or due to a breach of any of the representations, warranties, agreements or undertakings of Seller which are contained in this Agreement, arising from a claim of defective product or a recall of products produced by the Company during the period owned by Seller, or otherwise arising as a result of the operation of the Company during the period it was owned by Seller or in any other document delivered pursuant to this Agreement. 9.2 In addition to the indemnification set forth in Section 6.5.1, Buyer agrees to indemnify, defend and hold harmless Seller and it successors and assigns from and against any and all loss, liability, damage deficiency (including interest, penalties and reasonable attorneys' fees and disbursements) arising out of or due to a breach of any of the representations, warranties, agreements or undertakings of Buyer which are contained in this Agreement or in any other document delivered pursuant to this Agreement or arising out of Buyer's operation of the Company post closing. 9.3 Promptly after the receipt by any party hereto of notice of any claim or the commencement of any action or proceeding, such party shall, if a claim with respect thereto is to be made against any party obligated to provide indemnification ("Indemnifying Party") pursuant thereto, give such Indemnifying Party written notice of such claim or the commencement of such action or proceedings. Such notice shall be a condition precedent to any liability of the Indemnifying of the Indemnifying Party under the Indemnifying Agreement contained herein. Such Indemnifying Party shall have the right, at its option, to compromise or defend, at its own expense and by its own counsel, any such matter involving the asserted liability of the party seeking indemnification. If any Indemnifying Party shall undertake to compromise or defend any such asserted liability, it shall promptly notify the party seeking indemnification of its intention to do so, or defense against, any such asserted liability. In any event, the indemnified party shall have the right to participate in the defense of such asserted liability. 9.4 The aggregate liability of Seller for indemnification shall not exceed Three MIllion Fifty Thousand Dollars ($3,050,000.00), and Seller shall have the right to satisfy its indemnification obligations by payment in the form of Buyer Shares. 9.5 The indemnification provided for in section 9.1 shall be subject to the following limitations: (i) Buyer shall not be entitled to receive any indemnification payments for any loss of less than $5,000; (ii) Buyer shall not be entitled to receive any indemnification payments for any losses until the aggregate amount of all losses (excluding those referred to in clause (i) above) equals $50,000 whereupon Buyer shall be entitled to receive indemnification for the aggregate amount of losses. 10. Jurisdiction 10.1 Each of Seller and Buyer, and their respective successors and assigns, without regard to domicile, citizenship or residence, hereby expressly and irrevocably subjects itself and its property to the non-exclusive jurisdiction of the United Stated District Court for Kansas in respect of any matter arising under or in connection with this Agreement, or to the jurisdiction of the courts of the State of Kansas if the United States District Court for Kansas lacks jurisdiction over such matter; service of process of the courts of the State of Kansas and any demand or notice may be made upon Seller, the Buyer, their respective successors and assigns by personal service upon them at any place where they may be found or by mailing copies of the same to each of them enclosed in registered or 11 12 certified mail cover addressed as set forth in Section 12 hereof. 11. Access to Records Buyer covenants that it will give Seller or its representatives, reasonable access to Company books and records for the purpose of responding and defending any tax audits or claims or for other similar reasons which are not detrimental to the Buyer. Publicity Neither Buyer nor Seller shall issue public releases or public announcements of any of the transactions contemplated by this Agreement except as may be mutually agreed to in writing in both Buyer and Seller, or as required in order to comply with applicable law or stock exchange rules and regulations, listing or similar agreements. 12. Notices Except as otherwise provided herein, any notices or other communications required or permitted hereunder shall be sufficiently given if delivered or if sent by registered or certified mail, postage prepaid, or by fax, and if to Buyer, addressed to as follows: Polydex Pharmaceuticals Limited 1401 Neptune Drive Boynton Beach, FL 33426 with copies to: Thomas C. Usher c/o Dextran Products 415 Comstock Road Scarborough, Ontario Canada M1L 2H4 Mark Gasarch 1285 Avenue of Americas, 3rd Floor New York, NY 10019 Fax#: 212-956-7216 Evans & Mullinix 1530 W. 87th, Suite 220 Lenexa, KS 66219 Fax #: 913-541-1010 or if to Seller, addressed as follows: Continental Grain Company 277 Park Avenue New York, NY 10172 ATTN:President, Milling Group Fax #: 212-207-2932 with a copy to: 12 13 Continental Grain Company 10 South Riverside Plaza Chicago, Illinois 60606 Attention: Gerard J. Schult Esq. Assistant General Counsel Fax#: 312-466-6574 or such other address as Sellers or Buyer shall have provided in writing to the other from time to time in accordance with this Section 11.2 . No change in such address shall be effective, insofar as any service of process is concerned, unless receipt of notice of such change shall have been acknowledged in writing by a duly authorized official of the other party hereto. Each such notice shall be deemed to have been given as of the date delivered or mailed, provided that in the case of facsimile notice, written conformation thereof is sent the same day. 13. Expenses The parties hereto shall each pay their own expenses incurred in connection with the authorization, preparation, execution and performance of the Agreement, including, without limitation, all fees and expenses of agents, representatives, counsel and accountants. 14. Governing Law This Agreement and the agreements delivered pursuant hereto shall be governed by and construed in accordance with the laws of the State of Kansas applicable to agreements made and to be performed entirely within such State. 15. Binding Effect; Amendment This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and assigns. Neither Seller nor Buyer may assign, transfer, create or divide any rights or obligations hereunder without the prior written consent of the other party. This Agreement shall not be amended, supplemented, or modified except by written instrument signed by the parties hereto. 16. Severability In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, but this Agreement shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein. 17. Counterparts This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all which together shall constitute one and the same instrument. 18. Descriptive Headings The descriptive headings the several paragraphs of this Agreement are inserted for convenience only and do not constitute a part of this Agreement. 19. Entire Agreement This Agreement, together with the other written documents entered into by the parties on the date hereof, embodies all the terms and conditions agreed upon between the parties hereto as to the subject matter of this Agreement and supersedes and cancels in all respects all previous letters and 13 14 correspondence, understandings, agreements and undertakings (if any) between the parties hereto with respect to the subject matter hereof, whether such be written oral. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as the day and year first above written. ATTEST CONTINENTAL GRAIN COMPANY /s/ Gerry Shultie /s/ Arthur Johansen ATTEST POLYDEX PHARMACEUTICALS LIMITED /s/ Natu Patel /s/ T. C. Usher ATTEST: CHEMDEX Incorporated /s/ Natu Patel /s/ T.C. Usher 14 15 Continental Grain Company Legal Department 222 S. Riverside Plaza, Chicago IL 60606 Telephone: (312) 466-6570 Fax: (312) 466-6574 Gerard J. Schulte Assistant General Counsel November 22, 1996 Mr. George Usher Polydex Pharmaceuticals Limited 415-421 Comstock Road Scarborough, Ontario Canada M1L 2H5 Dear George: This letter shall serve as an Amendment to the Stock Sale and Purchase Agreement dated October 13, 1992 ("Agreement") between Continental Grain Company ("Continental") and Polydex Pharmaceuticals Limited ("Polydex") and Chemdex Incorporated ("Chemdex"). Pursuant to Section 8.2.3, T. C. Usher is required to buy the remaining Polydex shares owned by Continental at such price which will bring the total proceeds received by Continental from the sale of Polydex shares to an amount equal to the purchase price under the Agreement. Continental has currently received approximately eight hundred twenty thousand dollars ($820,000) on the sale of four hundred forty-eight thousand five hundred (448,500) shares of Polydex, which would make T.C.Usher's buy-back obligation equal to three million seventy-four thousand eight hundred fourteen U.S. Dollars ($3,074,814). Polydex and T.C. Usher have asked for an extension of their obligations pursuant to the Agreement, as well as the Guarantee of T.C. Usher to Continental dated November 30, 1992 ("Guarantee"), and Continental, Polydex, Chemdex and T.C. Usher have agreed to amend the Agreement and Guarantee as follows: 1. Polydex will fully cooperate with Continental in filing the necessary documents with the United States Internal Revenue Service to reattribute pursuant to or in accordance with Reg. 1.1502-20(g)(1) to Continental those net operating loss carry forward which existed in Veterinary Laboratories, Inc. ("Vet Labs") at the time Vet Labs was sold to Polydex pursuant to the Agreement. 2. Continental has provided to Polydex a copy of the statement filed with its amended U.S. Federal Income Tax return for its year ended March 31, 1993, Pursuant to Income Tax Regulation 1.1502-20(g)(5)(i), a copy of which attached hereto, and Polydex agrees to file its copy of this statement with the Internal Revenue Service before December 31, 1996, pursuant to Income Tax Regulation 1.1502-20(g)(5)(ii). 3. The maximum obligation of Polydex and/or T.C. Usher to repurchase Polydex shares form Continental pursuant to Section 8.2.3 of the Agreement is reduced form three million one hundred thousand dollars ($3,100,000) to the sum of two million dollars ($2,000,000), Consistent with the Agreement, the net proceeds of any sales by Continental of Polydex shares will reduce such maximum repurchase obligation. 15 16 4. Continental hereby releases T.C. Usher from the personal obligations under his Guarantee and Polydex hereby undertakes and shall be fully responsible for the repurchase obligations of T.C. Usher as set forth in Section 8.2.3 of the Agreement, as amended herein. Subsequent to Polydex providing evidence of its required filing pursuant to paragraph 2 above, Continental shall supply T.C. Usher such further evidence of such release as he shall reasonably request. 5. Continental and Polydex agree to extend the deadline for Continental to exercise its option for sale of such shares under Section 8.2.3 of the Agreement to March 15, 1999. If Continental does not exercise such option by May 30, 1999 or such other mutually agreed date, Polydex obligation to repurchase such shares pursuant to paragraph 4 above shall cease. 6. Continental agrees to continue to exercise caution in the sale of the Polydex shares consistent with the understanding set forth in Section 8.1 of the Agreement. 7. Pursuant to Section 8.3 of the Agreement, Polydex agreed that it would limit any working capital loan secured by assets of Vet Labs to the sum of five hundred thousand dollars ($500,000). Continental has subsequently agreed to raise this limit to eight hundred thousand dollars ($800,000). Continental hereby agrees to extend such limit from eight hundred thousand dollars ($800,000), to one million two hundred thousand dollars ($1,200,000). 8. If Polydex does not cooperate and file the statement in accordance with paragraphs 1 and 2 of this Letter of Amendment by January 3, 1997 and provide Continental a copy of the filing with th Internal Revenue Service, this Agreement shall be void and Continental shall be deemed to have exercised its option for the sale of the Polydex shares to T.C. Usher pursuant to Section 8.2.3 of the Agreement. 9. Except as expressly amended hereby, the Agreement remains in full force and effect. If this Letter of Agreement meets with your approval, please sign and return the enclosed duplicate copy acknowledging your acceptance of the terms. Very truly yours, Gerard J. Schulte Assistant General Counsel Agreed and Accepted this 26th day of November, 1996: Polydex,Pharmaceuticals, Ltd. Attest: /s/ Natu Patel /s/ George Usher Chemdex, Incorporated Attest: /s/ George Usher /s/ Natu Patel Its: Chairman 16 17 STATEMENT ATTACHED TO CONTINENTAL GRAIN COMPANY & SUBSIDIARIES AMENDED FEDERAL TAX RETURN FOR YEAR ENDED 3/31/93 This is an election under Section 1.1502-20(g)(1) to reattribute losses of Veterinary Laboratories, Inc. ("Vet Labs") E.I.N. 36-3550074 to Continental Grain Company ("CGC") E.I.N. 36-0947870 (A) Amount and year of Net Operating Loss Carryforward to be reattributed to Continental Grain Company, the common parent:
Tax Reattributed Reattributed Year NOL SRLY NOL - ------------- ---------------- -------------------- 4/06/90 $1,188,560 3/31/92 $3,069,466 3/31/93 -$159,747
(B) Chemdex, Inc. (E.I.N. 59-1297596) acquired Vet Labs. This acquisition caused Vet Labs to cease being a member of the CGC consolidated group. Continental Grain Company /s/ Marc Halbreich - Assistant Vice President Veterinary Laboratories, Inc. /s/ Gerald Frenchman (Former) Vice President - Taxes Note: Continental Grain Company, "the common parent" did not make a proper computation under Regulation 1.1502-20 upon disposition of the stock of its subsidiary. Vet Labs on November 30, 1992. Correction is being made on this amended filing (Form 1120X) to reflect the loss disallowance resulting form a "Duplicated Loss" determined under Regulation 1.1520-20(c)(2)(vi), and pursuant to Regulation 1.1520-20(g)(i), the election to reattribute the subsidiary's losses to the common parent is being made, on a timely basis, since the amended filing is the first tax return filed wherein the disallowed loss is reflected. copy to: Veterinary Laboratories, Inc. c/o Chemdex, Inc. 12340 Sante Fe Drive Lenexa, Kansas 66215 17 EX-13 12 EXHIBIT 13 1 EXHIBIT 13 STOCKHOLDER INFORMATION Market for the Company's Common Stock and Related Security Holder Matters. The Company's shares are listed for trading on NASDAQ under the symbol POLXF, and on the Boston Stock Exchange under the symbol PXL. The reported high and low bid prices of the common shares on the over-the-counter market for the past two calendar years were as follows (similar prices were quoted on the Boston Stock Exchange):
Stock Price (Low and High bid) - ------------------------------------------------------------------------------- Quarter Ended 1997 1996 1995 - ------------------------------------------------------------------------------- March 31 5/8-15/16 19/32-1 1/4 1/2 - 31/32 June 30 25/32 - 1 5/16 15/32 - 25/32 September 30 5/8 - 1 3/32 7/16 - 1 3/8 December 31 11/16 - 1 1/2 - 31/32
The quotations set out above represent prices between dealers and do not include retail mark-up, mark-down or commission. They do not represent actual transactions. These quotations have been supplied by the National Association of Securities Dealers, Inc. As at March 31, 1997, there were approximately 906 holders of record of the Company's Common Shares. The Company has paid no dividends in the past and does not consider likely the payment of any dividends in the foreseeable future. FORM 10-K AND FURTHER INFORMATION The Company's annual report to the Securities and Exchange Commission, Form 10-K, is available free of charge. This information is provided by contacting Polydex Pharmaceuticals Limited. Polydex will be pleased to respond to all inquiries not involving proprietary or confidential information. All inquiries and contacts from investors, securities analysts, other members of the financial community and the news media should be directed to: Debbie MacAskill Dextran Products Limited 421 Comstock Road Scarborough, Ontario, Canada M1L 2H5 Tel: 416-755-2231 Fax: 416-755-0334 The following are abbreviations used in this and future reports from the Company. ANDA Abbreviated New Drug Application cGMP Current Good Manufacturing Practices HIV Human Immunodeficiency Virus IDA Iron Deficiency Anemia Inc. Incorporated, as in an Incorporated company IND Investigations New Drug Ltd. Limited, as in a Limited liability company NDA New Drug Application STD Sexually Transmitted Diseases: for example AIDS, Herpes 2 FINANCIAL HIGHLIGHTS For the fiscal years ended January 31 (Expressed in U.S. dollars)
1997 1996 1995 1994 1993 1992 - --------------------------------------------------------------------------------------------------------------------------- SALES FROM CONTINUING OPERATIONS $ 9,344,089 $ 8,459,563 $ 7,254,913 $ 6,970,405 $ 4,418,842 $ 3,462,867 COMPONENTS OF NET INCOME (LOSS): From continuing operations 122,390 (1,165,534) (1,034,622) (1,275,371) (353,922) (500,062) From discontinued operations -- -- -- -- -- (256,468) Extraordinary items -- -- -- -- 136,000 117,000 Net income (loss) for the year 122,390 (1,165,534) (1,034,622) (1,275,371) (217,922) (639,530) INCOME (LOSS) PER COMMON SHARE: From continuing operations before extraordinary items 0.00 (0.04) (0.04) (0.05) (0.02) (0.02) From continuing operations after extraordinary items 0.00 (0.04) (0.04) (0.05) (0.01) (0.02) Income (loss) for the year 0.00 (0.04) (0.04) (0.05) (0.01) (0.03) TOTAL ASSETS 8,627,517 8,064,990 8,412,596 8,182,257 7,542,589 3,708,387 LONG-TERM BORROWINGS 1,555,551 1,633,041 821,179 905,728 456,434 703,294
2 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's fiscal year ends on January 31st therefore fiscal year 1997 refers to the year ended January 31, 1997. 1997 compared to 1996 Sales increased 10% or $884,526 to $9,344,089 in fiscal 1997 from $8,459,563 in fiscal 1996. The growth in sales was primarily due to a greater volume at Dextran Products Limited ("Dextran Products"), where sales rose by 29% or $952,523 to $4,201,555 in fiscal 1997 from $3,249,032 in fiscal 1996 and accounted for 45% and 38% of the Company's sales in fiscal 1997 and 1996 respectively. This increase was primarily attributable to increased sales of Iron Dextran 20% and Dextran Sulphate and a new application for Iron Dextran in the feed supplement industry. Half way through the year Dextran Products raised prices 7% to cover increased raw material prices over the last three years, and so a small portion of this increase in sales can be attributed to the new prices. Management expects this sales trend to continue although perhaps not at the same rate, due to continued increased market penetration in the Pacific Rim and the activities of new customers in Europe. Sales at Veterinary Laboratories Inc. ("Vet Labs") decreased slightly by 1% or $67,997 to $5,142,534 in fiscal 1997 from $5,210,531 in fiscal 1996, and accounted for 55% and 62% of the Company's sales in fiscal 1997 and 1996 respectively. The decrease was primarily attributable to a $713,000 reduction in sales following Vet Labs' cancellation of a manufacturing agreement with one customer which generated very low margins. This decrease in sales was nearly offset by the increased sales volume of injectables at much larger margins. Management expects to continue its effort to streamline the product line by discontinuing low margin items and replacing them with products that generate larger margins. The Company's gross profit increased 60% or $920,773 to $2,454,030 in fiscal 1997 from $1,533,257 in fiscal 1996. As a percentage of sales, gross profit increased to 26% from 18% in fiscal 1996. This was mainly due to the performance of Dextran Products as explained below. Dextran Products' gross profit increased 69% or $762,057 to $1,873,511 in fiscal 1997 from $1,111,454 in fiscal 1996. As a percentage of sales, gross profit increased to 45% from 34% in fiscal 1996. The primary reason for the increase was that Dextran Products reorganized its operating process to increase volume without affecting fixed costs. Also late in fiscal 1996 Dextran Products purchased its building in Toronto and consolidated its operations from two buildings into one resulting in a reduction in fixed overhead costs. Rent paid in fiscal 1996 amounted to $116,592. Depreciation and interest relating to the building are not included in the cost of sales, thus increasing the margin relative to the prior years. The yearly mortgage interest for fiscal 1997 was $20,690 and annual building depreciation was $3,471, and in fiscal 1998 these numbers are expected to be $12,635 and $30,785 respectively. The rise in margins was also partly due to the effect of exchange rates because Dextran Products costs are incurred in Canadian dollars, but the majority of its sales are in US dollars. Therefore if the Canadian dollar drops in relation to the US dollar, margins increase and in fiscal 1997 this resulted in a 2% increase in margins. Dextran Products also increased its prices midway through the year by 7%, and so this benefited margins for part of the year. Certain equipment was purchased during the year which increased batch sizes without increasing fixed costs and so improved margins. Management does not believe there will be a similar increase in margins for fiscal 1998, but does believe the margins will remain steady at this level. 3 4 Vet Labs' gross profit increased 38% or $158,716 to $580,519 in fiscal 1997 from $421,803 in fiscal 1996. As a percentage of sales, gross profit increased to 11% from 8% in fiscal 1996. This rise was primarily attributable to the discontinuance of certain low margin products and the cancellation of a manufacturing contract with one customer where the work generated significant sales but extremely low margins. Management expects to continue its efforts to streamline the product line by discontinuing low margin products and replacing them with products that generate greater margins and management believes that for fiscal 1998 margins will continue to improve. Selling, promotion, general and administrative expenses increased by 13% to $1,501,581 in fiscal 1997 from $1,331,101 in fiscal 1996 due in part to variable expenses associated with the higher sales volume. As a percentage of sales, selling, promotion, general, and administrative expenses were 16% in fiscal 1997 and 1996. Research and development expenses decreased by 71% or $222,086 to $92,063 in fiscal 1997 from $314,149 in fiscal 1996. The Company conducts its research through collaborations with the Rush Institute and the University of British Columbia. These institutes received additional funding from government sources during fiscal 1997 reducing the Company's cash requirements. Although continued government funding is never certain, the Company expects that this funding should continue due to the success of the work to date. Interest expense increased by 15% or $20,204 to $151,463 in fiscal 1997 from $131,259 in fiscal 1996. This increase resulted primarily from Dextran Products obtaining a mortgage for the purchase of its Toronto facilities. Interest and other non-operating income decreased by 26% or $19,609 to $56,629 in fiscal 1997 from $76,238 in fiscal 1996. This decrease was primarily attributable to an officer, director and major shareholder of the Company (the "Major Shareholder") repaying his loan due to the Company. The Company's effective tax rate was 9.3% and 0.58% for fiscal 1997 and 1996 respectively, due to the utilization of previously unrecognized tax losses. As a result of the foregoing, the Company recorded net income of $122,390 in fiscal 1997 as compared to a net loss of $1,165,534 in fiscal 1996. 1996 compared to 1995 Sales increased 17% or $1,204,650 to $8,459,563 in fiscal 1996 from $7,254,913 in fiscal 1995. The growth in sales was primarily due to a greater volume at Vet Labs where sales rose by 20% or $854,087 to $5,210,531 in fiscal 1996 from $4,356,444 in fiscal 1995 and accounted for 62% and 60% of the Company's sales in fiscal 1996 and 1995 respectively. This increase was mainly in injectable sales since Vet Labs received U.S. Food and Drug Administration approval to produce sterile injectable products in October of 1995. Sales at Dextran Products increased by 12% or $350,563 to $3,249,032 in fiscal 1996 from $2,898,469 in fiscal 1995 and accounted for 38% and 40% of the Company's sales in fiscal 1996 and 1995 respectively. The increase was primarily due to increased Iron Dextran sales due to greater market penetration by distributors. The Company's gross profit increased 31% or $364,387 to $1,533,257 in fiscal 1996 from $1,168,870 in fiscal 1995. As a percentage of sales, gross profit increased to 18% from 16% in fiscal 4 5 1996. This was mainly due to the performance of Vet Labs as explained below. Dextran Products' gross profit decreased 12% or $150,550 to $1,111,454 in fiscal 1996 from $1,262,004 in fiscal 1995. As a percentage of sales, gross profit decreased to 34% from 44% in fiscal 1995. The primary reason for the decrease was that Dextran Products purchased its building in Toronto in late fiscal 1996 and consolidated its operations from two buildings into one resulting in the occurrence of one time expenses. Rent paid in fiscal 1996 amounted to $116,592. The yearly mortgage interest for fiscal 1996 was $7,399 and annual building depreciation was $3,490. Vet Labs' gross profit increased by $514,937 to $421,803 in fiscal 1996 from a gross loss of $93,134 in fiscal 1995. As a percentage of sales, gross profit increased to 8% from -2%. This rise was primarily attributable to the commencement of sales of sterile injectable products which generate significantly higher margins than the other products. Selling, promotion, general and administrative expenses decreased by 4% to $1,331,101 in fiscal 1996 from $1,390,694 in fiscal 1995 due in part to the Company's cost cutting efforts. As a percentage of sales, selling, promotion, general, and administrative expenses were 16% in fiscal 1996 and 19% in fiscal 1995. Research and development expenses increased by 16% or $43,661 to $314,149 in fiscal 1996 from $270,488 in fiscal 1995 due to the cancellation of the Company's research agreement with Novadex Inc., a company controlled by the Major Shareholder, in fiscal 1995. In March 1991, the Company entered into an agreement with Novadex Inc., whereby Novadex agreed to perform certain research and development in the Company's facilities, but otherwise at its own cost, in exchange for a royalty on the sale of certain of the Company's products. Novadex performed substantially all of the Company's research and development during the term of the agreement, and thus the Company was able to maintain its commitment to research without incurring considerable expense. Although the contract has been canceled, the Company continues to benefit from a process to produce a major product at a lower cost than was previously possible. After the Company assumed the research activities from Novadex, the primary research was conducted through a collaboration with the University of British Columbia investigating the use of a special form of Dextran in the treatment of secondary infections in patients with cystic fibrosis. Interest expense increased by 79% or $57,881 to $131,259 in fiscal 1996 from $73,378 in fiscal 1995. This increase was primarily attributable to interest expense relating to a loan made by the Major Shareholder to the Company in fiscal 1996. During fiscal 1996 the Company wrote off $400,000 in long-term investments. The Company's effective tax rate was 0.58% and 0% for fiscal 1996 and 1995 respectively, due to the utilization of previously unrecognized tax losses. As a result of the foregoing, the Company recorded a net loss of $1,165,534 in fiscal 1996 as compared to a net loss of $1,034,622 in fiscal 1995. Liquidity and Capital Resources For fiscal 1997 the Company generated cash of $202,404 from its operating activities compared to $48,207 for fiscal 1996. This was primarily attributable to the operations of Dextran Products. The Company maintained $1,482,029 of working capital and a current ratio of 1.94:1 as of January 31, 5 6 1997 compared to $243,508 of working capital and a current ratio of 1.12:1 as of January 31, 1996. At January 31, 1997, the Company had accounts receivable of $1,107,829 and $1,279,280 in inventory compared to $727,135 and $1,407,955 respectively at January 31, 1996. The increase in accounts receivable was due to an increase in sales overall but especially in December and January resulting in certain receivables being collected after year end. This also contributed to the inventory decrease. Property, plant and equipment increased from $3,503,060 at January 31, 1996 to $3,857,302 at January 31, 1997 primarily due to the construction of new laboratories in the Toronto facilities and purchase of equipment. Dextran Products has a $75,000 line of credit of which there were no outstanding borrowings as of January 31, 1997. Vet Labs has a $400,000 line of credit. At January 31, 1997 there were outstanding borrowings of $377,062 under this line of credit and the interest rate was 10.5%. Vet Labs also has a loan commitment for $300,000 to be used for the construction of a 12,000 square foot production and warehouse addition. Management has decided to delay construction until further growth warrants additional space. The sale of the Company's investment in Novatek International Inc. during fiscal 1997 resulted in proceeds to the Company of $1,176,564. From the proceeds, $553,069 remains in short term investments. This transaction is the subject of litigation and until the likelihood of the outcome of the lawsuit is determinable, the gain has been deferred. The Company anticipates that it can satisfy its fiscal 1998 operating requirements from cash generated from operating activities. If it cannot, the Company expects that, as in prior years, it will be able to meet its operating requirements through additional loans from and/or private sales of its common stock to principal shareholders or entities controlled by them or to unrelated parties. The Company, at present, does not have any material commitments for capital expenditures. Dextran Products has ongoing research commitments with the University of British Columbia to investigate the use of a special form of Dextran to combat the effects of cystic fibrosis. The Company is in preliminary discussions with certain companies about further financing or forming an alliance to further this research through clinical trials and to market. The Company is in preliminary discussions with certain companies to fund the further research necessary to commercialize the Cellulose Sulphate product but the results of these discussions are indeterminable at this time. No changes in accounting principles of their applications have been implemented in the reporting period that would have a material effect on reported income. Changes in the relative values of the Canadian dollar and the U.S. dollar occur from time to time and may, in certain instances, materially affect the Company's results of operations. The Company does not believe that the impact of inflation and changing prices on its operations are material. 6 7 AUDITORS' REPORT To the Shareholders of Polydex Pharmaceuticals Limited We have audited the consolidated balance sheet of Polydex Pharmaceuticals Limited as at January 31, 1997 and the related consolidated statements of shareholders' equity, operations and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the consolidated financial position of Polydex Pharmaceuticals Limited as at January 31, 1997 and the consolidated results of its operations and the changes in its financial position for the year then ended in accordance with accounting principles generally accepted in the United States. The consolidated financial statements as at January 31, 1996 and for each of the years in the two-year period ended January 31, 1996 were audited by other auditors who expressed an opinion without reservation on those statements in their report dated April 30, 1996. Ernst & Young LLP Chartered Accountants Toronto, Canada March 14, 1997 7 8
CONSOLIDATED BALANCE SHEETS As at January 31 (Expressed in U.S. dollars) 1997 1996 - ---------------------------------------------------------------------------------------- ASSETS CURRENT Cash $ 603,491 $ 12,321 Trade accounts receivable 1,107,829 727,135 Inventories [note 2] 1,279,280 1,407,955 Prepaid expenses and other current assets 63,312 64,394 - ---------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 3,053,912 2,211,805 Property, plant and equipment, net [note 3] 3,857,302 3,503,060 Patents and animal drug applications, net [notes 4 and 5] 877,311 991,731 Investment in Novatek International Inc. [note 7] -- 400,000 Due from Novadex Inc. [note 5] 765,209 838,911 Other assets 73,783 119,483 - ---------------------------------------------------------------------------------------- 8,627,517 8,064,990 - ---------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities 1,511,698 1,880,200 Loan payable -- 10,000 Current portion of long-term debt [note 6] 60,185 78,097 - ---------------------------------------------------------------------------------------- Total current liabilities 1,571,883 1,968,297 - ---------------------------------------------------------------------------------------- Long-term debt [note 6] 524,656 558,829 Due to shareholders [note 5] 605,475 648,792 Due to affiliated companies [note 5] 425,420 425,420 Deferred gain [note 7] 776,564 -- Minority interest 22,791 22,935 - ---------------------------------------------------------------------------------------- TOTAL LIABILITIES 3,926,789 3,624,273 - ---------------------------------------------------------------------------------------- Related party transactions [notes 5 and 10] Commitments and contingencies [notes 7 and 9] SHAREHOLDERS' EQUITY Capital stock [note 8] Authorized 1,000,000 A preferred shares of $0.01 each 8,994,000 B preferred shares of $0.00167 each 40,000,000 common shares of $0.00167 each Issued and outstanding 8,994,000 B preferred shares 15,010 15,010 28,252,182 common shares [1996 - 28,052,182] 46,959 46,625 Contributed surplus 22,733,319 22,583,653 Deficit (17,559,330) (17,681,720) Currency translation adjustments (535,230) (522,851) - ---------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 4,700,728 4,440,717 - ---------------------------------------------------------------------------------------- $ 8,627,517 $ 8,064,990 ========================================================================================
See accompanying notes 8 9 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended January 31, 1997, 1996 and 1995 (Expressed in U.S. dollars)
Currency Total Preferred Common Contributed translation shareholders' shares shares surplus Deficit adjustments equity - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 31, 1994 $ 4,990 $ 44,104 $ 21,456,174 $(15,481,564) $ (239,498) $ 5,784,206 Common shares issued for cash through private placement -- 2,505 1,117,495 -- -- 1,120,000 Net loss for the year -- -- -- (1,034,622) -- (1,034,622) Currency translation adjustment -- -- -- -- (224,191) (224,191) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 31, 1995 4,990 46,609 22,573,669 (16,516,186) (463,689) 5,645,393 Common shares issued for services provided -- 16 9,984 -- -- 10,000 Preferred shares issued to repay shareholder loan 10,020 -- -- -- -- 10,020 Net loss for the year -- -- -- (1,165,534) -- (1,165,534) Currency translation adjustment -- -- -- -- (59,162) (59,162) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 31, 1996 15,010 46,625 22,583,653 (17,681,720) (522,851) 4,440,717 Exercise of options -- 334 149,666 -- -- 150,000 Net income for the year -- -- -- 122,390 -- 122,390 Currency translation adjustment -- -- -- -- (12,379) (12,379) - ------------------------------------------------------------------------------------------------------------------------------------ BALANCE, JANUARY 31, 1997 $ 15,010 $ 46,959 $ 22,733,319 $(17,559,330) $ (535,230) $ 4,700,728 ===================================================================================================================================
See accompanying notes 9 10 CONSOLIDATED STATEMENTS OF OPERATIONS Years ended January 31 (Expressed in U.S. dollars)
1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------- SALES $ 9,344,089 $ 8,459,563 $ 7,254,913 Cost of goods sold 6,890,059 6,926,306 6,086,043 - ----------------------------------------------------------------------------------------------------------------- GROSS MARGIN 2,454,030 1,533,257 1,168,870 - ----------------------------------------------------------------------------------------------------------------- EXPENSES Selling and promotion 159,694 143,072 173,801 General and administrative 1,341,887 1,188,029 1,216,893 Depreciation and amortization 630,825 551,306 553,445 Interest 151,463 131,259 73,378 Research and development [note 10] 92,063 314,149 270,488 Write-down of property, plant and equipment and patents -- 40,000 -- - ----------------------------------------------------------------------------------------------------------------- 2,375,932 2,367,815 2,288,005 - ----------------------------------------------------------------------------------------------------------------- Income (loss) from operations 78,098 (834,558) (1,119,135) - ----------------------------------------------------------------------------------------------------------------- Other income (expenses) Write-down of long-term investments [note 11] -- (400,000) -- Gain (loss) on sale of equipment -- (2,529) 6,456 Interest and other 56,629 76,238 78,057 - ----------------------------------------------------------------------------------------------------------------- 56,629 (326,291) 84,513 - ----------------------------------------------------------------------------------------------------------------- Income (loss) before the undernoted 134,727 (1,160,849) (1,034,622) Provision for income taxes [note 12] (12,481) (6,750) -- Minority interest in loss 144 2,065 -- - ----------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) FOR THE YEAR $ 122,390 $ (1,165,534) $ (1,034,622) - ----------------------------------------------------------------------------------------------------------------- PER SHARE INFORMATION Loss per common share for the year $ 0.00 $ (0.04) $ (0.04) - ----------------------------------------------------------------------------------------------------------------- Weighted average number of common shares outstanding for the year 28,319,384 28,047,182 27,750,515 - -----------------------------------------------------------------------------------------------------------------
See accompanying notes 10 11 CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended January 31 (Expressed in U.S. dollars)
1997 1996 1995 - ------------------------------------------------------------------------------------------------------------------------ OPERATING ACTIVITIES Net income (loss) for the year $ 122,390 $(1,165,534) $(1,034,622) Add (deduct) items not affecting cash Depreciation and amortization 630,825 551,306 553,445 Write-down of property, plant and equipment and patents -- 40,000 -- Write-down of long-term investments -- 400,000 -- Loss (gain) on sale of equipment -- 2,529 (6,456) Minority interest (144) (2,065) -- Expenses paid by issuance of common shares -- 10,000 -- Net change in non-cash working capital balances related to operations [note 13] (550,667) 211,971 183,943 - ------------------------------------------------------------------------------------------------------------------------ CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 202,404 48,207 (303,690) - ------------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES Proceeds from sale of investment in Novatek International Inc. 1,176,564 -- -- Additions to property, plant and equipment (838,960) (568,678) (307,519) Additions to patents and animal drug applications (4,187) (8,207) (37,164) Proceeds from sale of equipment -- 5,087 6,456 Cash acquired on acquisition of Novadex International Inc. -- 250,000 -- Investment in Personal Blood Storage of South Florida, Inc. -- -- (200,000) - ------------------------------------------------------------------------------------------------------------------------ CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 333,417 (321,798) (538,227) - ------------------------------------------------------------------------------------------------------------------------ FINANCING ACTIVITIES Repayment of loan payable (10,000) -- (37,125) Repayment of long-term debt (52,085) (36,226) (54,747) Proceeds from long-term debt -- 213,968 109,917 Advances from (repayment to) shareholders 106,683 120,958 (522,000) Advances from (repayment to) Novadex Inc. 73,702 (40,913) (376,359) Private placement of common shares -- -- 1,120,000 - ------------------------------------------------------------------------------------------------------------------------ Cash Provided by Financing Activities 118,300 257,787 239,686 - ------------------------------------------------------------------------------------------------------------------------ Effect of exchange rate changes on cash (62,951) (107,070) (192,750) - ------------------------------------------------------------------------------------------------------------------------ NET INCREASE (DECREASE) IN CASH DURING THE YEAR 591,170 (122,874) (794,981) CASH, BEGINNING OF YEAR 12,321 135,195 930,176 - ------------------------------------------------------------------------------------------------------------------------ Cash, End of Year $ 603,491 $ 12,321 $ 135,195 - ------------------------------------------------------------------------------------------------------------------------
See accompanying notes 11 12 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Years ended January 31, 1997, 1996 and 1995 (Expressed in U.S. dollars) GENERAL Polydex Pharmaceuticals Limited [the "Company"] is incorporated in the Commonwealth of the Bahamas and its principal business activities, carried on through subsidiaries, include the manufacture and sale of chemical products. 1. SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated on consolidation. The investment in Novatek International Inc. ["Novatek"] was accounted for by the cost method. Research and Development Research and development costs are expensed as incurred and are stated net of research and development grants received. Inventories Inventories are stated at the lower of cost and net realizable value, cost being determined on a first-in, first-out basis. Depreciation and Amortization Depreciation on property, plant and equipment is provided on a straight-line basis over the estimated useful lives of the assets as follows: Buildings 15 years Machinery and equipment 3 to 10 years Patents and animal drug applications are amortized using the straight-line method over their estimated useful lives, which range from ten to twenty years. Revenue Recognition Revenue from sales of manufactured products is recognized upon shipment to customers. Foreign Currency Translation The functional currency of the Company's Canadian operations has been determined to be Canadian dollars. All asset and liability accounts of these companies have been translated using the current exchange rates at the balance sheet dates. Income statement amounts have been translated using the average exchange rates for the year. The gains and losses resulting from the change in exchange rates from the beginning to the end of the year have been reported separately as a component of shareholders' equity. Stock Options The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ["APB 25"] and related Interpretations in accounting for its employee stock options rather than the alternative fair value accounting provided for under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ["SFAS 123"]. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Accounting Estimates The preparation of financial statements in conformity with generally accepted accounting principles ["GAAP"] requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. 2. INVENTORIES Inventories consist of the following:
1997 1996 - ---------------------------------------------------------------- Finished goods $ 656,039 $ 802,812 Work-in-process 89,640 98,281 Raw materials 533,601 506,862 - ---------------------------------------------------------------- $ 1,279,280 $ 1,407,955 - ----------------------------------------------------------------
12 13 3. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
1997 1996 - ----------------------------------------------------------------------------------------------------------------------------- Accumulated Net Accumulated Net depreciation/ book depreciation/ book Cost amortization value Cost amortization value - ----------------------------------------------------------------------------------------------------------------------------- Land and buildings $ 2,796,935 $ 239,817 $ 2,557,118 $ 2,320,588 $ 130,784 $ 2,189,804 Machinery and equipment 5,077,720 3,777,536 1,300,184 4,689,083 3,375,827 1,313,256 - ----------------------------------------------------------------------------------------------------------------------------- $ 7,874,655 $ 4,017,353 $ 3,857,302 $ 7,009,671 $ 3,506,611 $ 3,503,060 - -----------------------------------------------------------------------------------------------------------------------------
4. PATENTS AND ANIMAL DRUG APPLICATIONS Patents and animal drug applications consist of the following:
1997 1996 - ---------------------------------------------------------------- Cost $ 1,184,555 $ 1,180,368 Less accumulated amortization 307,244 188,637 - ---------------------------------------------------------------- $ 877,311 $ 991,731 - ----------------------------------------------------------------
The Company's patents and animal drug applications relate to products and potential products for which there is significant competition. Although management expects that these costs will be recovered through net future revenues, it is reasonably possible that a write-down might be required due to changes in the competitive market. 5. RELATED PARTY TRANSACTIONS [a] Amounts Due From and To Related Parties Amounts due from and due to related parties consist of the following:
1997 1996 - ------------------------------------------------------------------------------- Amounts due from Novadex Inc. [i] [note 10] $ 765,209 $ 838,911 - ------------------------------------------------------------------------------- Amounts due to Usher Insurance Company Ltd. [ii] 138,635 138,635 Lincoln Underwriting Management Inc. [ii] 286,785 286,785 - ------------------------------------------------------------------------------- 425,420 425,420 - ------------------------------------------------------------------------------- Amounts due to shareholders [iii] $ 605,475 $ 648,792 - -------------------------------------------------------------------------------
Novadex Inc., Usher Insurance Company Ltd. and Lincoln Underwriting Management Inc. are each controlled by an officer, director and major shareholder of the Company [the "Major Shareholder"]. Amounts due from Novadex Inc. are collateralized by a guarantee of the Major Shareholder. [i] The amount due from Novadex Inc. has no fixed terms of repayment, except that amounts may not be called prior to February 1, 1998. This balance is non-interest bearing, except that an amount of $217,109 included in the balance bears interest at U.S. prime [8.25% at January 31, 1997; 8.5% at January 31, 1996]. [ii] The amounts due to Usher Insurance Company Ltd. and Lincoln Underwriting Management Inc. have no fixed terms of repayment, except that amounts may not be called prior to February 1, 1998, and are non-interest bearing. [iii] Amounts due to shareholders bear interest at U.S. prime plus 1.5% [9.75% at January 31, 1997; 10% at January 31, 1996] and have no fixed terms of repayment except that the amounts may not be called prior to February 1, 1998. Interest recorded with respect to amounts due to and from related parties are as follows:
1997 1996 1995 - ---------------------------------------------------------------- Interest income $ 17,670 $ 58,612 $ 45,176 - ---------------------------------------------------------------- Interest expense $ 65,520 $ 66,487 $ 42,821 - ----------------------------------------------------------------
[b] Acquisition of Novadex International Inc. During the year ended January 31, 1996, the Company acquired a 90% interest in Novadex International Inc. from the Major Shareholder for an ascribed value of $1,000,000 which was applied to the due from shareholder account. The principal asset of Novadex International Inc. is a patent, developed by the Major Shareholder, for the use of Cellulose Sulphate in a number of applications including the development of a new contraceptive gel and use in the commercial production of photographic film. The acquisition by the Company of its interest in Novadex International Inc. has been accounted for by the purchase method, and consolidated from the acquisition date of May 9, 1995. The allocation of the purchase price of the assets and liabilities acquired was as follows:
Cash $ 250,000 Patents 775,000 Minority interest (25,000) - ---------------------------------------------------------------- $ 1,000,000 - ----------------------------------------------------------------
13 14 6. LONG-TERM DEBT
Long-term debt consists of the following: 1997 1996 - -------------------------------------------------------------------------------------------------------- Mortgage payable in monthly instalments of principal and interest of $3,409, interest rate 8.5%, which matures January, 2002 $167,001 $ 185,609 Note payable to bank, matures January 1, 2000, interest rate 10.5%, collateralized by assignments of land, building and certain accounts receivable inventories and equipment 377,062 407,329 Note payable due December 31, 1996 - 36,927 Equipment under capital lease 40,778 7,061 - -------------------------------------------------------------------------------------------------------- 584,841 636,926 Less current portion 60,185 78,097 - -------------------------------------------------------------------------------------------------------- $ 524,656 $ 558,829 - --------------------------------------------------------------------------------------------------------
The aggregate maturities of long-term debt for each of the years subsequent to January 31, 1997 are as follows:
1998 $ 60,185 1999 57,403 2000 383,514 2001 44,915 2002 38,824 - ---------------------------------------------------------------- $ 584,841 - ----------------------------------------------------------------
7. COMMITMENTS AND CONTINGENCIES [a] Investment in Novatek International Inc. The investment in Novatek consisted of 160,000 common shares representing approximately 6% of the issued and outstanding share capital as at January 31, 1996. During the year ended January 31, 1997, the Company sold its shares in Novatek for a gain of $878,412. Prior to April 28, 1996, these shares were subject to options held by unrelated parties. After April 28, 1996, these options expired and the Company sold the shares in the open market realizing the gain. Subsequently, the former option holders have filed a lawsuit against the Company for unspecified damages alleging that the Company denied them the opportunity to exercise their option. The Company intends to vigorously defend the action, however, because the proceedings are in the preliminary stages, the ultimate outcome is not determinable. Accordingly, the Company has deferred the gain on this transaction until the likelihood of the outcome of the lawsuit is determinable. The reported gain has been reduced by legal fees incurred to date. [b] Other Legal Proceedings The Company has been named along with the Government of Canada and the Canadian Broadcasting Corporation in a legal action seeking Canadian $2,900,000 in the aggregate, plus pre- and post-judgment interest and costs, in connection with a television broadcast in 1989. The Company intends to vigorously defend the action, however, the ultimate outcome at this stage of the proceedings is not determinable and accordingly no provision for loss has been made in these consolidated financial statements. [c] Operating Commitments The Company has obligations under non-cancellable operating leases of $20,000 annually to the year 2001. Rental expense for the year totalled $23,000 [1996 - $195,000; 1995 - $199,000]. 8. CAPITAL STOCK [a] Share Capital Issued and Outstanding [i] Common shares During the year ended January 31, 1997, the Major Shareholder exercised options for 200,000 common shares valued at $150,000. These shares were issued in exchange for partial settlement of the Major Shareholder's loan account with the Company. During the year ended January 31, 1996, the Company issued 10,000 common shares valued at $10,000 under a private placement as payment for services rendered to the Company. During the year ended January 31, 1995, the Company issued 1,500,000 common shares in private placements for net cash proceeds of $1,120,000. Of the common shares issued during the year, 1,000,000 shares were originally issued for a $750,000 promissory note. During January 1995, $500,000 was accepted by the Company as payment in full satisfaction for the purchase of these shares. These consolidated financial statements, therefore, reflect the shares issued at $500,000. 14 15 [ii] A preferred shares The A preferred shares will carry dividends, be convertible into common shares of the Company and will be redeemable, all at rates as shall be determined by resolution of the Board of Directors. No A preferred shares have been issued to date. [iii] B preferred shares During the year ended January 31, 1996, the Company issued 6,000,000 B preferred shares under a private placement to the Major Shareholder of the Company for $10,020 as partial settlement of the Major Shareholder's loan account with the Company. The B preferred shares carry no dividends, are non-convertible and entitle the holder to one vote per share. The Company, at its option, may redeem these shares for $15,010. [b] Share Option Plan [i] Options outstanding The Company maintains an incentive stock option plan to grant options to purchase common stock to management personnel and contractors. Options granted have terms ranging from one to four years and vest immediately. At January 31, 1997, the Company has 3,170,766 options outstanding at exercise prices ranging from $0.75 to $1.25, and a weighted average price of $0.90. The options which are all exercisable and expire on dates between June 30, 1997 and December 31, 2000, entitle the holder to acquire 1 common share of the Company. Details of the outstanding options are as follows:
Share options Average option price per share ------------------------------------ -------------------------------- 1997 1996 1995 1997 1996 1995 - ------------------------------------------------------------------------------------------------ Options outstanding, beginning of year 2,955,766 1,585,766 6,545,766 $ 0.93 $ 0.84 $ 1.96 Granted 565,000 1,765,000 40,000 0.80 0.98 .06 Exercised (200,000) -- -- 0.75 -- -- Cancelled or expired (150,000) (395,000) (5,000,000) 0.87 0.78 2.25 - ------------------------------------------------------------------------------------------------ OPTIONS OUTSTANDING, END OF YEAR 3,170,766 2,955,766 1,585,766 $ 0.91 $ 0.93 $ 0.84 - ------------------------------------------------------------------------------------------------
[ii] Pro forma earnings Adopting SFAS 123 would require the Company to estimate the fair value of any options issued and to reflect these amounts as compensation expense in determining net income for each year. In order to estimate the fair value of its options, the Company may use option pricing models which were developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. Because the Company's employee stock options have characteristics significantly different from those related options and changes in subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. However, as required by SFAS 123, pro forma information regarding net income and earnings per share has been determined as if the Company had accounted for its employee stock options under the fair value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1997: risk-free interest rates of 5.48%; dividend yields of nil; volatility factors of the expected market price of the Company's common stock of 1.001, and a weighted-average expected life of the option ranging from one to four years. For purposes of pro forma disclosures, the estimated fair value of the options is expensed immediately. The Company's pro forma net income following SFAS 123 are as follows:
1997 1996 1995 - --------------------------------------------------------------------------------- Pro forma net loss $ (285,424) $ (1,559,459) $(1,045,782) Pro forma earnings per share Primary $ (0.01) $(0.06) $ (0.04) Fully diluted $ (0.01) $(0.05) $ (0.04) - --------------------------------------------------------------------------------
15 16 9. VETERINARY LABORATORIES INC. ["VET. LABS."] [a] Purchase Obligation to Continental Grain Company In 1992, the Company, through its 90% owned subsidiary, Chemdex Inc. ["Chemdex"], acquired 100% of the issued outstanding share capital of Vet. Labs. from Continental Grain Company ["CGC"], for a total purchase price of $3,894,980, which was satisfied by issuing 1,947,490 common shares of the Company. The acquisition was accounted for as a purchase. The Company and the Major Shareholder had guaranteed that, by November 30, 1996, CGC would realize a value of $3,894,980 on the eventual sale of these shares or CGC had an option to put its remaining shares to the Company or the Major Shareholder at such a price to bring CGC's total consideration to $3,894,980. The assets of Vet Labs were pledged as collateral for this guarantee. By November, 1996, CGC had realized approximately $800,000 on the sale of shares but had not been able to sell all of their shares. On November 22, 1996, the terms of the original purchase agreement were amended. In exchange for the Company reattributing net operating loss carryforwards of $5.0 million [carrying value of nil] which existed in Vet. Labs. at the time of acquisition by the Company, CGC has reduced the maximum repurchase obligation of the Company from approximately $3.1 million at November 22, 1996 to $2.0 million. In addition, the deadline for CGC to exercise its option for sale of shares to the Company has been extended from November 30, 1996 to May 30, 1999, and CGC has released the Major Shareholder from his guarantee. In order to ensure that there is an orderly disposition of shares, CGC has agreed to not sell more than an average of 50,000 shares per month in any six month period. If CGC has not been able to sell an average of 50,000 shares per month at an average price of $1.33 per share, the Company will issue to CGC additional shares such that the proceeds realized by CGC in the six-month period plus the market value of the additional shares issued will leave CGC in the same position as if it had sold shares at an average price of $1.33 per share. If CGC's sale of shares at the end of each six-month period is at an average price greater than $1.33 per share, then CGC will return to the Company sufficient additional shares to reduce the average price to $1.33 per share. Throughout fiscal 1997, the shares have traded at values in a range of $0.63 to $1.44. To date, CGC has not requested any additional shares under this agreement. Any shares issued will be considered to be a component of the original transaction value and would be issued at nominal consideration. The assets of Vet. Labs. continue to be pledged as collateral for the performance of the Company pursuant to this agreement. If CGC does not exercise its option for sale of shares to the Company by May 30, 1999, the Company's obligation to repurchase such shares shall cease. [b] Sparhawk Laboratories Inc. ["Sparhawk"] In 1992, Vet. Labs and Sparhawk entered into a joint venture [collectively referred to as the "Joint Venture"] for the purpose of manufacturing and selling veterinary pharmaceutical products. Sparhawk is an affiliated company owned primarily by the management of the Joint Venture. The Company controls the Joint Venture through its control of the board of directors. The Company has funded the Joint Venture's losses since 1992, and accordingly has recorded 100% of these losses in the consolidated financial statements. Future profits will accrue to the Company until Sparhawk's share of losses since 1992, $1,900,000 at January 31, 1997, have been recovered. Subsequent income will be allocated 50% to Vet. Labs. and 50% to Sparhawk. 10. RESEARCH AND DEVELOPMENT [a] Iron Dextran Process Effective February 1, 1995, the Company entered into an agreement with Novadex Inc., an affiliated company, whereby Novadex Inc. granted the Company the exclusive worldwide license to use a certain process developed by Novadex Inc. for producing Iron Dextran. The term of this license agreement is 10 years. The Company pays a license fee based on production volumes. The total royalty expense incurred during the year was $88,835 [1996 - $80,491]. [b] Cystic Fibrosis Effective April 1, 1994, the Company had entered into a Research Agreement [the "Agreement"] with an affiliated company and the University of British Columbia ["UBC"]. Under the terms of the Agreement, the Company agreed to provide equipment and funding in connection with research into Cystic Fibrosis. This agreement was amended on April 1, 1996 and expanded to include a number of Canadian Hospitals. In conjunction with the Agreement, UBC granted the Company, through a sub-licensing agreement with an affiliated company, an exclusive worldwide license to manufacture, distribute and sell products derived or developed from the research performed. The Company will pay a quarterly royalty, based on net sales. Costs incurred during the year in relation to the Agreement total $55,483 [1996 - $175,100; 1995 - $198,818]. The Company has committed to funding approximately $70,000 in fiscal 1998. 11. WRITE-DOWN OF LONG-TERM INVESTMENTS During the year ended January 31, 1996, the Company wrote off the $400,000 investment in Personal Blood Storage of South Florida Inc. as a result of its continuing financial difficulties. This investment had been recorded at cost in the consolidated financial statements. 16 17 12. INCOME TAXES [a] Substantially all of the Company's activities are carried out through operating subsidiaries in Canada and the United States. The Company's effective income tax rate is dependent on the tax legislation in each country and the operating results of each subsidiary and the parent Company. The provision for income taxes consists of the following:
1997 1996 1995 - ------------------------------------------------------------------------------------------ Provision for income taxes based on statutory rates $ 334,811 $ (56,054) $(186,977) Benefit of previously unrecorded tax items (484,566) (117,738) -- Losses not recognized 162,236 180,542 186,977 - ------------------------------------------------------------------------------------------ PROVISION FOR INCOME TAXES $ 12,481 $ 6,750 $ -- - ------------------------------------------------------------------------------------------
The income tax provision consists entirely of Canadian federal deferred tax expense. [b] Deferred income taxes have been provided on timing differences which consists of the following:
1997 1996 1995 - --------------------------------------------------------------------------------------------------- DEFERRED TAX ASSETS Canadian non-capital losses $ 467,000 $ 557,000 $ 718,000 U.S. net operating losses 762,000 2,100,000 2,073,000 Amounts provided for in the financial statements which have not yet been claimed for income tax purposes 1,244,000 1,556,000 1,568,000 Investment tax credits 223,000 227,000 291,000 - --------------------------------------------------------------------------------------------------- 2,696,000 4,440,000 4,650,000 Valuation allowance (2,696,000) (4,440,000) (4,650,000) - --------------------------------------------------------------------------------------------------- NET DEFERRED TAX ASSET $ -- $ -- $ -- - ---------------------------------------------------------------------------------------------------
[c] The Canadian subsidiaries of the Company have non-capital loss carryforwards for Canadian tax purposes which expire in the following fiscal years:
Federal Ontario - -------------------------------------------------------------------------------- 1998 $ 596,000 $ 612,000 1999 268,000 268,000 2000 -- 37,000 2001 -- 28,000 2002 -- -- 2003 130,000 130,000 2004 37,000 21,000 - -------------------------------------------------------------------------------- $1,031,000 $1,096,000 - --------------------------------------------------------------------------------
In addition, the Canadian subsidiaries have deductions available to reduce future years' income for tax purposes on account of net timing differences resulting from expense items reported for tax purposes in different periods than for financial statement purposes totalling $2.7 million and $2.5 million for federal and provincial purposes respectively. Certain Canadian subsidiaries also have net capital losses available for carryforward of $422,000 available to offset taxable capital gains. These potential deductions and net capital losses have an indefinite carryforward period. Certain Canadian subsidiaries have also earned investment tax credits of $223,000 which are available to offset federal income taxes payable in the future expiring from 1999 through 2007. The benefits associated with these losses, deductions and investment tax credits have been recorded in the consolidated financial statements to the extent described in paragraph [b]. [d] The U.S. subsidiaries of the Company, have net operating loss carryforwards for tax purposes of approximately $1.9 million which expire from 2001 to 2011. The benefits associated with these losses have been recorded in the consolidated financial statements to the extent described in paragraph [b]. 17 18 13. Consolidated Statements of Cash Flows Changes in non-cash working capital balances consists of the following:
1997 1996 1995 - ------------------------------------------------------------------------------- DECREASE (INCREASE) IN CURRENT ASSETS Trade accounts receivable $(371,576) $(119,149) $ (77,856) Inventories 140,539 324,636 (153,847) Prepaid expenses and other assets 1,499 (1,117) (73,865) - ------------------------------------------------------------------------------- $(229,538) $ 204,370 $(305,568) INCREASE (DECREASE) IN CURRENT LIABILITIES Accounts payable and accrued liabilities (321,129) 7,601 489,511 - ------------------------------------------------------------------------------- $(550,667) $ 211,971 $ 183,943 - -------------------------------------------------------------------------------
Cash paid during the year for interest was $85,943 [1996 - $68,313; 1995 - $30,557]. Cash paid during the year for income taxes was $1,767 [1996 - $6,750; 1995 - nil]. Excluded from the consolidated statements of cash flows for the year ended January 31, 1997 is the issuance of 200,000 common shares of the Company in exchange for a reduction in the Major Shareholder's loan account. Excluded from the consolidated statements of cash flows for the year ended January 31, 1996 is the issuance of 10,000 common shares of the Company in exchange for services rendered to the Company, the issuance of 6,000,000 B preferred shares in exchange for a reduction in the Major Shareholder's loan account and the acquisition of a 90% interest in Novadex International Inc. [note 5] from the Major Shareholder in exchange for a shareholder loan. The above transactions are considered non-cash financing and investing activities. 14. SEGMENTED INFORMATION All of the operations of the Company are carried on through Dextran Products Limited ["Dextran Products"] in Canada and through Vet. Labs. in the United States. These subsidiaries operate principally in one industry: the manufacture of veterinary pharmaceuticals products. Dextran Products manufactures and sells bulk quantities of Dextran and several of its derivatives to large pharmaceutical companies. Vet.Labs. develops, manufactures and sells veterinary pharmaceutical products through distributors and private labelers. [a] Segment Information by Geographic Area is as Follows:
1997 1996 1995 - -------------------------------------------------------------------------------------- Sales Canada $ 4,201,555 $ 3,249,032 $ 3,033,026 United States 5,142,534 5,210,531 4,221,887 - -------------------------------------------------------------------------------------- CONSOLIDATED SALES 9,344,089 8,459,563 7,254,913 - -------------------------------------------------------------------------------------- Operating income (loss) Canada 1,214,678 525,005 554,988 United States (365,467) (404,917) (770,393) General corporate expenses (527,587) (509,238) (559,864) Corporate research and development (92,063) (314,149) (270,488) Interest expense (151,463) (131,259) (73,378) - -------------------------------------------------------------------------------------- CONSOLIDATED INCOME (LOSS) FROM OPERATIONS 78,098 (834,558) (1,119,135) - -------------------------------------------------------------------------------------- Identifiable assets at year end Canada 3,354,384 2,046,793 1,789,429 United States 3,619,717 3,736,838 3,937,420 Corporate assets 1,653,416 2,281,359 2,685,747 - -------------------------------------------------------------------------------------- CONSOLIDATED ASSETS $ 8,627,517 $ 8,064,990 $ 8,412,596 - --------------------------------------------------------------------------------------
18 19 Identifiable assets are those assets of the Company that are identified with the operations in each geographic area. Corporate assets are princially patents, investment in affiliated company and amounts due from affiliated companies. [b] Consolidated Sales by Destination are Analyzed as Follows:
1997 1996 1995 - --------------------------------------------------------------------------------- United States $5,852,313 $5,770,268 $4,990,344 Canada 792,051 723,452 486,280 Europe 1,470,159 1,190,660 761,424 Pacific Rim 983,029 725,783 792,700 Other 246,537 49,400 224,165 - --------------------------------------------------------------------------------- Consolidated Sales $9,344,089 $8,459,563 $7,254,913 - ---------------------------------------------------------------------------------
15. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair value of financial instruments has been determined based on available market information and appropriate valuation methodologies. The carrying amounts of cash, trade accounts receivable, accounts payable, and accrued liabilities approximate fair value at January 31, 1997 because of the short maturity of these financial instruments. The estimated carrying value of due from Novadex and non-current liabilities is not materially different from the carrying value for financial statement purposes at January 31, 1997 and 1996. 16. NEW ACCOUNTING STANDARDS In February 1997, the Financial Accounting Standards Board issued the Statement of Financial Accounting Standards Number 128 ["SFAS 128"], "Earnings per share". SFAS 128 will replace the current presentation of primary earnings per share ["EPS"] with a presentation of basic EPS. Basic EPS will exclude dilution and will be computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS will reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. SFAS 128 is required for fiscal periods ending after December 15, 1997 and accordingly, the Company will adopt this standard for its 1998 fiscal year end. 17. COMPARATIVE CONSOLIDATED FINANCIAL STATEMENTS The comparative consolidated financial statements have been reclassified from statements previously presented to conform to the presentation of the 1997 consolidated financial statements. 19 EX-21 13 EXHIBIT 21 1 Exhibit 21 Polydex Pharmaceuticals Limited Subsidiaries List
Subsidiary Percentage Owned Incorporated ---------- ---------------- ------------ Chemdex, Inc. 90% Kansas, USA Dextran Products Limited 100% Ontario, Canada Polydex Chemicals (Canada) 100% Ontario, Canada Limited Veterinary Laboratories, Inc. 100% Kansas, USA
EX-23 14 EXHIBIT 23 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Polydex Pharmaceuticals Limited of our report dated March 14, 1997, with respect to the consolidated financial statements of Polydex Pharmaceuticals Limited included in its 1997 Annual Report to Shareholders. Toronto, Canada Ernst & Young LLP April 30, 1997 Chartered Accountants EX-27 15 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED JANUARY 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR JAN-31-1997 FEB-01-1996 JAN-31-1997 603,491 0 1,133,477 25,648 1,279,280 3,053,912 7,874,655 4,017,353 8,627,517 1,571,883 584,841 46,959 0 15,010 4,638,759 8,627,517 9,344,089 9,344,089 6,890,059 6,890,059 2,375,932 0 151,463 78,098 12,481 122,390 0 0 0 122,390 0 0
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