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Biotech / Medical : Paracelsian Inc (PRLN) -- Ignore unavailable to you. Want to Upgrade?

To: Jonathan Schonsheck who wrote (4223)	4/5/1999 10:25:00 AM
From: Jonathan Schonsheck	Read Replies (1) \| Respond to of 4342

sec 10-KSB $, KUBOTA! On July 9, 1998, the company entered into a letter agreement with R.P. Scherer North America (followed by a definitive contract in October 1998) that established Scherer as the exclusive marketing and distribution agent for the BioFIT(TM) certification program in the dietary supplement and OTC market segments in North America. The agreement provided for several different methods of compensation to Paracelsian. First, Paracelsian will receive $50,000 in development fees for each of the first five customers accepting the program. The initial payment under this section was received in January 1999 and the balance of the $250,000 is expected to be received not later than June 30, 1999. In addition, Paracelsian will receive an additional $50,000 payment per product for the development of five additional products beyond the original five provided under the agreement. These payments are to be made upon acceptance of the new products by at least two of Scherer's customers for the BioFIT products. The first portion of the first payment has already been received and the balance of the $250,000 is payable by the end of calendar year 1999. Scherer also agreed to pay Paracelsian $15,000 for the BioFIT Certification of a second set of five products. These payments, totaling $75,000, are expected by the end of calendar year 1999 as well. In addition, Scherer agreed to pay Paracelsian $350 for the certification of each production batch of each BioFIT product produced under the program. Payments for batch to batch certification are expected to commence by August 1999. Finally, Scherer agreed to pay Paracelsian a royalty of 2% of Scherer's net sales of BioFIT products until Paracelsian receives patent approval of its process. Upon patent approval, the royalty rate increases to 3% of Scherer's net sales. In the initial 18 months following initial shipment, Scherer must pay a minimum of $400,000 in royalties to Paracelsian in order to maintain its exclusivity of the BioFIT Program. After this initial period, Scherer must guarantee Paracelsian a minimum of $700,000 in royalty payments in the subsequent 12 month period to maintain exclusivity. There is a 3% escalation required each year over royalties paid in the prior 12 month period for Scherer to maintain ongoing exclusivity. Payments under this section of the agreement are expected to commence in the third quarter of calendar year 1999. On March 1, 1999, Paracelsian entered into a second agreement with R.P. Scherer Limited of Swindon, England under which Paracelsian grants exclusive distribution rights to Scherer for the BioFIT program in Europe, Scandinavia, the Middle East and Africa. Under the agreement, Scherer agrees to pay Paracelsian a total of $30,000 for each of the first five products offered, said payment to occur on the basis of $20,000 per product upon submission for regulatory approval and $10,000 upon receipt of approval for each product. Scherer then has an exclusivity period of 24 months for each product from the date of regulatory approval. Scherer agrees to provide a schedule for regulatory submission with initial submissions expected to be filed by June 1999. Revenue of $100,000 is expected under this section of the agreement in 1999. Within six months of the expiration of exclusivity for the first product, the parties agree to negotiate a further agreement which is to include revenue guarantees to Paracelsian. Scherer also agrees to pay a $25,000 development fee to Paracelsian for each product not developed concurrently with R.P. Scherer North America. Paracelsian expects payment of $75,000 in calendar year 1999 for such development fees. Scherer paid Paracelsian $50,000 on March 29, 1999 representing an advance against these future royalty payments. Scherer will also pay Paracelsian $15,000 for each certification not already provided under the North American Agreement and $350.00 for the certification of each batch of product produced that is not certified under the North American Agreement. -14-<PAGE> Finally, Paracelsian is in discussions with the R.P. Scherer Division serving the Pacific Rim, Australia and New Zealand, and the Division serving South America. Agreements similar to those in North America and Europe are anticipated not later than by the end of calendar year 1999. In addition to the Scherer Agreement, Paracelsian has begun the initial phase of a collaboration with Kubota Corporation of Osaka, Japan to further develop and implement the use of Paracelsian's patented dioxin testing system know as the Ah IMMUNOASSAY(TM). Under this collaboration, Paracelsian will develop an advanced sample preparation system which will facilitate the widespread use of the assay to monitor the levels of dioxin in the smoke and ash of municipal waste incinerators operated by Kubota and others. An initial payment of $38,000 was received by Paracelsian in March 1999. Payments for the balance of the clean up development program are expected to be approximately $300,000 and are anticipated to be received by September 1999. Paracelsian and Kubota have begun negotiations for a more comprehensive agreement under which Kubota would pay Paracelsian a license fee for the use and distribution of the Ah Immunoassay. Under this arrangement, Paracelsian would receive both an initial license fee and an ongoing payment for each use or sale of the assay, with a minimum annual payment required under the agreement to maintain exclusivity. Paracelsian's management is confident that all payments under the Scherer agreements will be made on a timely basis and is confident that the implementation strategy developed collaboratively by the two companies will result in widespread acceptance in the marketplace for BioFIT products in all areas into which they are introduced. In addition, Paracelsian is confident that the Kubota agreement will provide substantial revenues in 1999 and continuing in 2000.