William G. and Debra C. Kellen - Page 7




                                        - 7 -                                         
          order “to undertake a comprehensive research and development                
          program on the plant Simmondsia Chinesis (Jojoba).”  The offering           
          memorandum described how this program was to be carried out:                

               The Partnership will enter into a research and                         
               development contract * * * with U.S. Agri Research and                 
               Development Corp. (the “R & D Contractor”), who will                   
               conduct the experiments in various test sites * * * as                 
               well as its laboratory or greenhouse facilities that it                
               in its sole discretion deems advisable.  In addition,                  
               the R & D Contract sets forth that a site in the                       
               vicinity of Desert Center and Blythe, California of                    
               from 30-50 acres will be delineated as the applied                     
               research site upon which all technology and improved                   
               cultivars developed on behalf of the Partnership during                
               the term of the contract will be placed “in field.”                    
               The Partnership will also have the right but not be                    
               obligated to enter into a License Agreement * * * to                   
               license to U.S. Agri Research and Development Corp. all                
               technology developed on behalf of the Partnership for a                
               period of forty (40) years and receive therefrom an                    
               amount equal to 85% of the products produced from the                  
               developed technology.[8]                                               
               Copies of the research and development (R&D) contract and              
          the license agreement referred to in the preceding paragraph were           
          attached as exhibits to the offering memorandum.  The R&D                   
          contract identified U.S. Agri Research and Development Corp.                
          (U.S. Agri) as a party to the contract and the R&D contractor               
          thereunder.  The license agreement identified U.S. Agri as a                

               8  Although San Nicholas may not have been obligated to                
          enter into a license agreement with U.S. Agri Research and                  
          Development Corp., it was a foregone conclusion that it would do            
          so.  Indeed, the research and development (R&D) contract and the            
          license agreement were executed concurrently.  Notably, execution           
          of the license agreement by San Nicholas served to automatically            
          terminate the R&D contract pursuant to the terms of the latter              
          contract.  See infra pp. 19-20.                                             





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