U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 1O-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended
December 31, 1996
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period
from __________ to ____________
Commission file number 0-7855
UNITED-GUARDIAN, INC.
(Name of small business issuer in its charter)
___________Delaware_________ ____11-1719724___
State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
____230 Marcus Blvd., Hauppauge, NY_____ ___11788__
(Address or principal executive offices) (Zip Code)
Issuer's telephone number, including area code: ___(516) 273-0900___
Securities registered pursuant to Section l2(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
---------------------------- -----------------------------------------
Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section l2(g) of the Exchange Act: None
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or l5(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response
to Item 405 of Regulation S-B is not contained in this form, and no
disclosure will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-KSB or any amendment to this Form 10-KSB. |X|
The Registrant's revenues for the fiscal year ended December 31,
1996 were $8,036,546.
On March 7, 1997, the aggregate market value of the Registrant's
Common Stock (based upon the closing sales price of such shares on the
American Stock Exchange as reported in The Wall Street Journal) held by
non-affiliates of the Registrant was approximately $5,296,473. (Aggregate
market value has been estimated solely for the purposes of this report.
For the purpose of this report it has been assumed that all officers and
directors of the Registrant are affiliates of the Registrant and no
person, other than Alfred R. Globus, is an affiliate by virtue of his
stockholdings. The statements made herein shall not be construed as an
admission for determining the affiliate status of any person.)
On March 7, 1997 the Registrant had issued and outstanding
4,762,889 shares of Common Stock, $.10 par value per share ("Common
Stock").
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
DOCUMENTS INCORPORATED BY REFERENCE:
The information required by Part III (Items 10 and 11) is
incorporated by reference to the Registrant's definitive proxy statement
(the "1997 Proxy Statement") in connection with its 1997 annual meeting
of stockholders, which is to be filed no later than April 30, 1997 with
the Securities and Exchange Commission pursuant to Regulation 14A of the
Securities Exchange Act of 1934, as amended.
<PAGE>
PART 1
Item 1. Description of Business.
(a) General Development of Business
The Registrant is a Delaware corporation that conducts research,
product development, manufacturing and marketing of pharmaceuticals,
cosmetics, health care products, medical devices, and proprietary
industrial products. The Registrant also distributes a line of over 3,000
fine organic chemicals, research chemicals, test solutions, indicators,
dyes and reagents.
The Registrant operates in two industry segments:
(1) The Guardian Laboratories Division ("Guardian") conducts
research, development, manufacturing, and marketing of a variety of
pharmaceuticals, medical devices, health care and cosmetic products, and
proprietary specialty chemical products. The Research and Development
Department of Guardian engages in research and development in the fields
of cosmetics, health care products, and specialty industrial chemical
products, for the purpose of developing new products, and refining
existing products, that will be marketed or licensed by Guardian. Many of
the products manufactured by Guardian, particularly its LUBRAJEL(R) line
of products, are marketed worldwide through a network of distributors,
and are currently used by many of the major multinational cosmetic
companies.
The Registrant presently has a broad range of products,
some of which are currently marketed, some of which are marketable but
are not currently marketed by the Registrant, and some of which are still
in the developmental stage. Of the products being actively marketed, the
Registrant's LUBRAJEL(R) line of cosmetic ingredients, and its line of
RENACIDIN(R) pharmaceutical products, accounted for approximately 60% of
the Registrant's sales in 1996. The Registrant actively seeks other
companies as potential marketers for its products, particularly for those
products that are not yet being actively marketed by the Registrant.
(2) Eastern Chemical Corporation ("Eastern"), a wholly-owned
subsidiary of the Registrant, distributes a line of over 3,000 fine
organic chemicals, research chemicals, test solutions, indicators, dyes,
stains, and reagents. Since the Registrant's business activities and
marketing efforts over the past several years have focused increasingly
on the Guardian division, the Registrant is currently exploring the
feasibility of selling the Eastern operation. The Registrant believes
that by doing so it will be able to focus its efforts on the Guardian
division, which it believes has much larger growth potential.
(b) Narrative Description of Business
Guardian Laboratories Division
Guardian conducts research, product development, manufacturing
and marketing of many different pharmaceuticals, medical devices, health
care products, cosmetic bases, and proprietary specialty chemical
products, all of which are developed by the Registrant. The products
manufactured by Guardian are marketed through agents, distributors,
direct advertising and mailings, and trade exhibitions. Guardian's
proprietary cosmetic and specialty chemical products are sold through
distributors and are incorporated into products marketed by many of the
major international cosmetic companies. Many of Guardian's products are
marketed through collaborative agreements with larger companies. The
pharmaceutical products are generally sold through drug wholesalers and
surgical supply houses, as well as directly to the Veteran's
Administration, other government agencies, hospitals, and physicians.
During 1996, Guardian's sales accounted for approximately 75% of
the Registrant's total product sales.
Guardian's products are sold under trademarks or trade names
owned by the Registrant. The marks for the most important products,
LUBRAJEL and RENACIDIN, are registered as trademarks in the United States
Patent and Trademark Office ("Patent Office"). In 1996 sales from these
two product lines accounted for approximately 80% of Guardian's sales,
and 60% of the sales of the Registrant as a whole.
LUBRAJEL
LUBRAJEL is a non-drying water-based lubricating gel which has
applications in the medical field as a lubricant, and in the cosmetic
industry as a moisturizer and as a base for other cosmetic products. As a
medical lubricant it is used on prelubricated enema tips and
thermometers, and as a lubricant for catheters. In the cosmetic industry
it is used as a stable gel for application around the eyes and on the
face, and as an ingredient in skin creams and moisturizers, makeup, body
lotions, hair preparations, salves, and ointments. During 1996, sales of
LUBRAJEL products increased by 15% compared with 1995. During 1996, sales
of LUBRAJEL products represented 58% of Guardian's sales and 44% of the
sales of the Registrant as a whole.
Revenue from the sale of the Registrant's LUBRAJEL products
increased compared with the previous year as a result of (a) increased
sales of product resulting from Registrant's increased marketing efforts,
and in particular its new marketing alliance with International Specialty
Products ("ISP")(discussed in more detail in the "Domestic Sales" and
"Foreign Sales" sections below), and (b) a price increase on some forms
of Lubrajel instituted during 1996. In particular, sales of LUBRAJEL CG
(the original form of LUBRAJEL) increased 26% from $759,468 in 1995 to
$954,181 in 1996. Sales of LUBRAJEL MS (the most popular form of
Lubrajel) increased 12% from $1,103,982 in 1995 to $1,233,094 in 1996. As
a result of the new marketing alliance with ISP Registrant believes that
LUBRAJEL sales will increase in 1997, despite increased competition from
the recent introduction of two competitive products by European
producers. The Registrant believes that Lubrajel's reputation for quality
and reliability, as well as Registrant's innovations to the Lubrajel
product line, will enable it to compete effectively with these new
products.
The Registrant is developing other uses for LUBRAJEL. See "Item
1. Description of Business-Research and Development Activities."
RENACIDIN
RENACIDIN is a urological prescription drug sold by the
Registrant for many years in powder form to prevent the formation of and
to dissolve calcifications in catheters implanted in the urinary bladder.
The powder form of the product has to be reconstituted prior to use by
the hospital, pharmacy, or nursing facility using it. On October 2, 1990
the Registrant received approval from the FDA to market, under the
tradename "RENACIDIN IRRIGATION", a ready to use 10% sterile solution
made from the RENACIDIN Powder. In addition to the uses previously
approved for the powder, the new product is also approved for use in
dissolving certain types of kidney stones. Sales of RENACIDIN IRRIGATION
accounted for 18% of Guardian's sales in 1996, 84% of sales of all forms
of RENACIDIN, and 14% of the sales of the Registrant as a whole. Sales of
all forms of RENACIDIN increased by 2% in 1996 as a result of the gradual
replacement of sales of the powder form of the product by the solution
form, which is higher in cost. During 1996, sales of all forms of
RENACIDIN represented 22% of Guardian's sales and 16% of the Registrant's
total sales.
RENACIDIN was designated an Orphan Drug by the FDA in 1990,
entitling the Registrant to seven years of exclusive marketing from the
date of approval of the New Drug Application ("NDA"). In addition, on
October 9, 1990 the Patent Office issued to the Registrant a patent
covering the method of manufacturing the new product. Registrant does not
believe that the expiration of the Orphan Drug status will have any
effect on sales of the product.
Other Products
Other products that are manufactured and sold by Guardian but
which did not individually comprise more than 5% of the Registrant's
sales in 1996 are as follows:
CLORPACTIN(R) WCS-90 is a microbicidal product used primarily in
urology and surgery as an antiseptic for treating a wide range of
localized infections in the urinary bladder, the peritoneum, the
abdominal cavity, the eye, ear, nose and throat, and sinuses. The product
is a white powder that is made into a liquid prior to use. It is a
powerful disinfectant, fungicide, deodorizer, bleach and detergent.
Although the Registrant's patent on CLORPACTIN expired in June 1983, the
Registrant does not believe that it has experienced an increase in
competition with respect to the product. (See "Item 1. Description of
Business - Trademarks and Patents.") Sales of CLORPACTIN during 1996
accounted for approximately 5% of Guardian's sales and 3% of the total
sales of the Registrant.
LUBRAJEL RR (and LUBRAJEL RC, which is a lower cost companion
product) are special grades of LUBRAJEL that can withstand sterilization
by gamma radiation, which is the preferred method of sterilizing medical
and hospital products. In September, 1994 the Registrant entered into a
marketing agreement with Horizon Medical, Inc., a California company
engaged in the development and manufacturing of products and services to
the medical device and pharmaceutical industries. Horizon was given the
exclusive right to market the product as a catheter lubricant, and has
been actively marketing the product since January, 1996. The Registrant
also authorized Horizon to market another grade of LUBRAJEL RR as a
component of a wound healing system. Horizon made the appropriate
submissions to the FDA to market the product for this purpose, and
received notification that it could do so. It has introduced this product
on a limited basis. On April 11, 1995 the Registrant was granted a U.S.
patent for these new forms of LUBRAJEL. Sales of LUBRAJEL RC to Horizon
began in mid-1996 and amounted to about 2% of Registrant's sales and 2%
of Guardian's sales in 1996.
PHOSPHOCHOLATE is a mouth moisturizer used primarily by cancer
patients. The product was developed for, and is being marketed
exclusively by, Sage Products, Inc., an Illinois health care company with
which the Registrant had been working since 1993. The new product is a
significant improvement over a product previously marketed by Sage for
many years, and has replaced all of the sales of the previous
formulation. Shipments to Sage began in November, 1994, and amounted to
$200,756 in 1996, an increase of 34% over 1995.
LUBRAJEL PF is a preservative-free version of LUBRAJEL currently
being marketed by Societe D'Etudes Dermatologiques ("Sederma") under the
tradename "Norgel". Sederma is the Registrant's distributor of LUBRAJEL
in France and a major European cosmetic supplier. Tests conducted by
Sederma indicate that the product self-preserves, and aids in the
preservation of other cosmetic ingredients with which it is formulated.
Sales of Norgel in 1996 amounted to $215,125, an increase of 57% from
1995.
KLENSOFT is a surfactant that can be used in shampoos, makeup
removers, and other cosmetic formulations. Sales increased by 58% in 1996
to $58,620.
OIL OF ORCHIDS(TM) is a base for skin creams, lotions,
cleansers, and other cosmetics. This product is an extract of fresh
orchids, modified by extractants, stabilizers and preservatives. It is
soluble in water and alcohol and acts as a supplementary moisturizer. It
is also an enhancer for fragrances in perfumes and toiletries. It is sold
in two forms, water soluble and oil soluble. Total sales in 1996 amounted
to $64,510, a decrease of 32% from 1995.
LUBRASIL is a special type of LUBRAJEL in which silicone oil is
incorporated into a LUBRAJEL base by microemulsification, while
maintaining the clarity of regular LUBRAJEL. The product has a silky
feel, and is water resistant while moisturizing the skin. Sales in 1996
amounted to $51,771, an increase of 3% over 1995.
CONFETTI DERMAL ESSENTIALS is a new product introduced in 1996
that incorporates various oil-soluble ingredients into colorful flakes
that can be added to and suspended in various water-based products. The
product color and ingredients can be customized to the needs of
individual customers. Registrant believes that its product is unique and
that it has excellent market potential based on initial reaction from the
many cosmetic companies now evaluating the product. The first commercial
product using Confetti has already been introduced in Europe, and the
Registrant expects to see expanded commercial use in 1997.
DERMA-SURE PROTECTIVE LOTION is an alcohol-based product applied
to the skin which protects the skin against grease, oil, paint, stain,
and many other chemicals. The product is a consumer product that
Registrant intends to market through various methods. In August, 1996 the
home shopping network QVC expressed an interest in promoting the product
on its network. QVC has now approved the product, and the Registrant and
QVC are working out the final details of what Registrant hopes will be a
long-term relationship with QVC, not only for this product but for
additional products as well. Assuming that all details can be worked out
satisfactorily, Registrant anticipates that sales to QVC will begin by
the third quarter of 1997.
RAZORIDE is a clear, water-based, soap-free shaving product with
excellent lubricity and moisturizing properties. Registrant is currently
looking into methods of marketing this product.
POLYCOMPLEX(R) A-11 is a dispersant for oil and an industrial
cleaner, which does not require Environmental Protection Agency ("EPA")
or other governmental agency approval. Other POLYCOMPLEX products are
used to solubilize organic compounds (such as non-soluble germicides and
detergents) in water.
POLYSWEET(R) is in its various forms a low calorie and/or
non-caloric sweetener sold to food processors such as beverage makers,
producers of jellies, jams and dessert makers.
DESELEX(R) is a replacement for phosphates in detergents.
LUBRASLIDE(TM) and a related products, B-122(TM), are powders
used in the manufacture of cosmetics such as pressed powders, eye
shadows, and rouges.
FOAMBREAKER(TM) is a defoamer for cleansing solutions in the
electroplating, painting, and electronics industries. The product does
not leave the typical "fish-eye" residues associated with silicone
defoamers. It is an industrial product that does not require governmental
registrations or approvals. It is an unpatented, proprietary product.
UNITWIX(TM) is a cosmetic additive used as a thickener for oils
and oil-based liquids. The product has recently stimulated interest on
the part of cosmetic manufacturers. It is a proprietary, unpatented
product that does not require government approval to market.
LUBRASEPTIC(R) JELLY is a lubricating gel used during urological
procedures. LUBRASEPTIC contains components that provide both local
anesthesia and antibacterial action without side effects. In April, 1994
the Registrant discovered that the sterilization process for the product
was adversely affecting the level of active ingredients in the product,
and the Registrant voluntarily recalled the product. As a result of an
agreement with the FDA the Registrant has now discontinued making
antibacterial and anesthetic claims for the product, and promotes it only
as a urological lubricant. The product was put back on the market in
November, 1995. Registrant is no longer manufacturing the product, and
when current inventory is depleted the product will be discontinued.
Sales of the product have been lower than expected due to the lesser
claims being made for the product, and Registrant does not expect to be
able to sell all of its existing inventory in the normal course of
business prior to the expiration dates on some of the lots of product.
Because of this, Registrant has entered into an agreement with Source
Corporation, a company specializing in barter transactions, to dispose of
some of the product in exchange for trade credits that Registrant may be
able to use for a three year period for other goods and services.
Registrant also is looking into donating product to international aid
organizations that can use the product. As a result of the above, the
Registrant has reduced the carrying value of its inventory to an amount
currently estimated to be recoverable from future sales of the product.
Development Activities
Guardian's Research and Development Department has developed a
large number of products that can be used in many different industries,
including the pharmaceutical, medical, cosmetic, health care, and
specialty chemical industries. These products are in various stages of
development, some being currently marketable and some being in the very
early stages of development requiring a substantial amount of development
work to bring them to market. New uses for currently marketed products
are also being developed. Once a product is created, the initial
development work on it may consist of one or more of the following: (a)
laboratory refinements and adjustments to suit the intended uses of the
product; (b) stability studies to determine the effective shelf-life of
the product and suitable storage and transportation conditions for the
product; and (c) laboratory efficacy tests to determine the effectiveness
of the product under different conditions.
After the Research and Development Department has completed
its initial work on a product and is satisfied with the results of that
work, further development work to bring the product to market will
continue, including some or all of the following: (a) animal and human
clinical studies needed to determine safety and effectiveness of drug or
medical device products, which would be needed for submissions to the
appropriate regulatory agencies, such as the FDA or EPA; (b) preparatory
work for the filing of Investigational New Drug Applications or New Drug
Applications; (c) market research to determine the marketability of the
product, including the potential market size and most effective method of
marketing the product; (d) scaling up from laboratory production batches
to pilot batches, and then to full scale production batches, including
the determination of the type of equipment necessary to produce the
product; (e) upgrading or purchasing new equipment to manufacture the
products; and (f) the negotiation of joint venture or distribution
agreements to develop and/or market the product.
Some of the foregoing work may be done by outside contractors.
While there can be no assurance that any particular project
will result in a new marketable product or a commercially successful
product, the Registrant believes that a number of its development
projects, including those discussed below, may have significant
commercial potential.
LUBRAJEL
Preliminary studies indicated that LUBRAJEL may help to
accelerate the healing of wounds, such as leg ulcers, when applied daily
and used in conjunction with a Spandex or similar bandage. The Registrant
believes that an additional study done on a larger group of patients is
warranted. The Registrant is now working with Horizon Medical, Inc. (see
"LUBRAJEL RR" discussion above) to do further clinical work with this
product. Horizon received authorization from the FDA to market the
product as an accessory to a medical device for specific wound healing
uses.
CLORONINE (also known as TRICLORINE)
Cloronine is a powerful disinfectant, germicide, and sanitizer
for disinfecting medical and surgical instruments and equipment
(particularly where autoclaves are not available), and for the
purification of water supplies. The product has been approved for certain
uses in France and Canada. Before this product can be marketed in the
United States for any purpose, additional tests will have to be done to
determine if the product can be registered with the EPA as a sterilizer
or germicide. These tests would comprise laboratory microbiological
studies, compatibility studies, and specific studies on its intended
uses. The product will also have to be registered with the FDA as an
accessory to a medical device. Neither registration process has yet
begun. Due to the expense and time required, the Registrant hopes to work
jointly with other companies to obtain these registrations. The
Registrant was granted two patents for this product.
COLLAGENITE
Collagenite is a new product in which purified collagen is spun
into very fine fibers and made into pads to aid in burn and wound
healing. Collagen is found in human and animal connective tissue, and
lends shape, elasticity, and strength to skin, as well as functioning as
a metabolic component. The Registrant is interested in continuing its
research into the wound healing characteristics of the product.
Independent outside tests have indicated that collagen is capable of
aiding in the healing of skin wounds. Engineering studies would have to
be done to develop a method of spinning the product into fibers on a
commercial scale. This product would require clinical studies to
determine safety and efficacy, and laboratory work to determine long-term
stability. FDA authorization under a Premarket Notification would be
needed prior to marketing as a medical device, or a New Drug submission
would have to be made if it was considered a drug.
FELINE HEALTH PRODUCTS
Registrant has entered into a research & development agreement
with Feline Health Products to develop a new animal health care product.
The product itself cannot be disclosed at this time due to secrecy
obligations. The product is now undergoing testing at Cornell University.
LIDOCAINE GEL
Registrant has developed a new Lidocaine-based urological
anaesthetic gel to replace its Lubraseptic Jelly. This product will be
initially marketed through at least one outside medical products company
(the first one located in the United-Kingdom). Registrant has not yet
decided whether it will market this product itself.
GLYCERYL GLYCOLATE
This product is intended to replace the currently popular
alpha-hydroxy acids with a less irritating and longer lasting product.
The product is currently in the development stage.
Trademarks and Patents
The Registrant strongly believes in protecting its intellectual
property and intends whenever possible to make efforts to obtain patents
in connection with its product development program. The Registrant
currently owns many United States patents relating to its products. The
Registrant has patent applications pending with respect to a number of
its research and development products. Patents formerly held by the
Registrant on certain products have expired. There can be no assurance
that any patents held by the Registrant will be valid or otherwise of
value to the Registrant or that any patent applied for will be granted.
However, the Registrant believes that its proprietary manufacturing
techniques and procedures with respect to certain products offer it some
protection from duplication by competitors regardless of the patent
status of the products.
The various trademarks and trade names owned or used by the
Registrant in Guardian's business are of varying importance to the
Registrant. The most significant products for which the Registrant has a
registered trademark are LUBRAJEL, RENACIDIN, and CLORPACTIN.
Set forth below is a table listing certain information with
respect to all unexpired U.S. patents held by the Registrant:
<TABLE>
<CAPTION>
PATENT NAME PATENT # ISSUE DATE EXPIRATION DATE
<S> <C> <C> <C>
Stabilization of ethanol/gasoline mixtures 4,328,004 5/4/82 5/4/99
Treatment of Hazardous Waste 4,581,130 4/8/86 4/8/03
Treatment of Hazardous Materials; Dehalogenation 4,601,817 7/22/86 7/22/03
with sodium-copper-lead alloy
Treatment of Hazardous Waste - ternary alloy and oil 4,695,400 9/22/87 9/22/04
slurry thereof; sodium, copper, lead
Iodophor; Polyethylene Glycol Alkylaryl-sulfonate 4,873,354 10/10/89 10/10/06
Iodine complex
Thermal Resistant Microbial Agent ("Cloronine") 4,954,316 9/4/90 9/4/07
Method of Preparing Time-Stable Solutions of Non- 4,962,208 10/9/90 10/9/07
Pyrogenic Magnesium Gluconocitrate ("Renacidin
Irrigation")
Use of Clorpactin for the Treatment of Animal 4,983,634 1/8/91 1/8/08
Mastitis & the applicator used in that treatment
(owned jointly by the Registrant and Diversey Ltd.)
Iodophor; biocide; reacting polyethylene glycol, 5,013,859 5/7/91 5/7/08
alkylarylsulfonate and Iodine water-propylene glycol
solvent refluxing
Stabilized Beta Carotene 5,023,355 6/11/91 6/11/08
Stable, Active Chlorine Containing Anti-microbial 5,128,342 7/7/92 7/7/09
Compositions ("Cloronine")
Gamma Radiation Resistant Lubricating Gel 5,405,622 4/11/95 4/11/12
</TABLE>
The Registrant requires all employees and consultants who may
receive proprietary information to agree in writing to keep such
proprietary information confidential.
Eastern Chemical Corporation
Eastern Chemical Corporation is a wholly-owned subsidiary of the
Registrant. It distributes a line of over 3,000 fine organic chemicals,
research chemicals, test solutions, indicators, dyes and stains, and
reagents. In 1996 Eastern's sales accounted for approximately 25% of the
total product sales of the Registrant.
Marketing
Guardian markets its products through (a) distributors; (b)
advertising in medical and trade journals, by mailings to physicians and
to the trade; and (c) exhibitions at appropriate medical meetings. The
pharmaceutical products are generally sold in the United States to drug
wholesalers, surgical supply houses and drug stores for resale, and
directly to hospitals, physicians, the Veteran's Administration, and
other government agencies. The proprietary cosmetic and specialty
chemical products are sold to distributors for resale and directly to
manufacturers for use as ingredients or additives in the manufacture or
compounding of other cosmetic or chemical products.
Eastern's products are marketed through advertising in trade
publications and direct mailings. They are sold to distributors and
directly to users in a wide variety of applications. Eastern does not
sell any unique products and is not dependent on any single customer or
group of customers on a continuous basis.
Domestic Sales
Until September 20, 1996 the Amerchol Corporation, a subsidiary
of Union Carbide, was the Registrant's exclusive cosmetic distributor in
the United States, Canada, Mexico, and South and Central America.
Amerchol accounted for approximately 6.5% of the Registrant's sales in
1996. On September 20, 1996 Registrant entered into an agreement with ISP
for them to replace Amerchol as Registrant's exclusive distributor of
cosmetic products in the areas serviced by Amerchol. ISP manufactures and
markets an extensive line of personal care, pharmaceutical, and
industrial products on a global basis. They also have the right to sell
some of Registrant's other industrial and medical products. ISP's sales
in these specific territories accounted for approximately 4% of
Registrant's sales in 1996.
Foreign Sales
In 1996 the Registrant derived approximately 39% of its sales
from customers in foreign countries, primarily from sales of its cosmetic
products in Europe, compared to 33% in 1995. The Registrant currently has
seven major distributors for its cosmetic products in Europe: S. Black
(Import & Export) Ltd. in the United Kingdom ("S. Black"); Sederma and
Warwick-Chimilux S.A. in France; ISP in Germany and the Benelux
countries; S.A. de Especialidades Quimicas in Spain; Luigi & Felice
Castelli S.R.L. in Italy; and Mimox AG in Switzerland. The percentage of
Registrant's sales by its largest foreign distributors were as follows:
S. Black: 7.8%; Sederma: 10.9%; and ISP (for sales outside of the
territory specified in the "Domestic Sales" section above): 5.5%.
The previous agreement between Registrant and ISP, which
provided for ISP to sell Registrant's products in Europe and Asia, was
entered into in December 1994. That agreement established an alliance
with ISP that was intended to bring the Registrant's products to many
regions of the world where either they had not been marketed before, or
where previous marketing efforts had been unsatisfactory. The major focus
of that agreement was the Far East, but also included Eastern Europe,
Russia, and some countries in Western Europe, most importantly Germany.
The agreement provided for exclusivity in those areas as long as minimum
purchase requirements were met.
The new agreement with ISP, which provides them with marketing
exclusivity in North, South, and Central America, supplements the 1994
agreement and significantly expands ISP's territory. This agreement also
provides for increasing yearly sales requirements in order for ISP to
retain its exclusive rights. Registrant believes that this new agreement,
along with the initial 1994 agreement, could have a significant impact on
sales in the next few years.
In an effort to accelerate the marketing of its products, the
Registrant in late 1995 entered into an agreement with Creative
Technologies, Inc., a marketing consulting company. Creative will be
endeavoring to place some of Guardian's products with companies not
previously contacted by the Registrant, as well as to provide Guardian
with market information that will enable it to develop products to fill
existing market needs. The agreement with Creative was for an initial six
month period that ended May 31, 1996. The agreement was extended for an
additional six months that ended on November 30, 1996. They are
continuing to work on behalf of the Registrant based on a commission
schedule based on the business that they bring to the Registrant.
Raw Materials
The principal raw materials used by the Registrant consist of
common industrial organic chemicals, laboratory reagents, and common
inorganic chemicals. These materials are available in ample supply from
numerous sources. The Registrant's principal raw material suppliers are
Callahan Chemical Company, Van Waters & Rogers, Inc., Protameen Chemicals
Inc., Alzo, Inc., Independent Chemical Corp., Kramer Chemicals, B.A.S.F.,
Chemie Linz U.S., Inc., Eastman Chemical, Hoechst Celanese, Ishihara
U.S.A., Nissei Trading Co., Rhone-Poulenc, Inc., and Varessa, Ltd.
Inventories; Returns and Allowances
The Registrant's business requires that it maintain large
inventories of finished goods for Eastern, but not Guardian. Historically
(with the exception of the 1994 recall of Lubraseptic Jelly), returns and
allowances have not been a significant factor in the Registrant's
business.
Backlog
The Registrant currently does not have any significant backlog.
Competition
Guardian has many products or processes that are either unique
in their field or have some unique characteristics, and therefore are not
in direct competition with the products or processes of other
pharmaceutical, chemical, or health care companies. However, the
pharmaceutical, health care, and cosmetic industries are all highly
competitive, and the Registrant expects competition to intensify as
advances in the field are made and become widely known. There may be many
domestic and foreign companies that are engaged in the same or similar
areas of research as those in which the Registrant is engaged, many of
which have substantially greater financial, research, manpower, marketing
and distribution resources than the Registrant. In addition, there are
many large, integrated and established pharmaceutical, chemical and
cosmetic companies that have greater capacity than the Registrant to
develop and to commercialize types of products upon which the
Registrant's research and development programs are based. The Registrant
believes that manufacturing, regulatory, distribution and marketing
expertise will be increasingly important competitive factors. In this
regard, the Registrant believes that arrangements with major health care
and medical or hospital products suppliers will be important factors in
the commercialization of many of the products which it is currently
developing.
Eastern faces competition from many other chemical manufacturers
and distributors, many of which have much greater financial resources
than those of the Registrant. Eastern's competition is based primarily
upon price, service and quality. Eastern attempts to maintain its
competitive position in the industry through its ability to (i) locate
and make wholesale arrangements to purchase the chemicals with suppliers
located all over the world, (ii) maintain a sufficient inventory of each
of its items at all times, and (iii) customize each order as to quantity
of the item requested and to tailor the price of the order to such
quantity. Eastern's primary competitors are Fluka Chemicals, Sigma
Chemical Company, Aldrich Chemical Co., Inc., and Spectrum Chemical Mfg.
Corp.
Government Regulation
Regulation by governmental authorities in the United States and
other countries is a significant factor in the manufacturing and
marketing of many of the Registrant's products. The Registrant and many
of Registrant's products are subject to certain government regulations.
Products that may be developed and sold by the Registrant in the United
States may require approval from federal regulatory agencies, such as the
FDA, as well as state regulatory agencies. Products that may be developed
and sold by the Registrant outside of the United States may require
approval from foreign regulatory agencies. Any medical device products
developed by the Registrant will be subject to regulation by the Center
for Devices and Radiological Health of the FDA, and will require some
form of pre-market notification. Most pharmaceutical products will
require clinical evaluation under an Investigational New Drug ("IND")
application prior to submission of a New Drug Application ("NDA") for
approval of a new drug product.
A drug product normally must go through several phases in order
to obtain FDA approval. The research phase involves work up to and
including discovery, research and initial production. Next is the
pre-clinical phase, which involves studies in animal models necessary to
support an IND application to the FDA and foreign health registration
authorities to commence clinical testing in humans. Clinical trials for
pharmaceutical products are conducted in three phases. In Phase I,
studies are conducted to determine safety and dosages. In Phase II,
studies are conducted to gain preliminary evidence as to the efficacy of
the product. In Phase III, studies are conducted to provide sufficient
data for the statistical proof of safety and efficacy, including dose
regimen. Phase III is the final stage of such clinical studies prior to
the submission of an application for approval of an NDA. The amount of
time necessary to complete any of these phases cannot be predicted with
any certainty.
In all cases, the Registrant is required to comply with all
pertinent Good Manufacturing Practices of the FDA for medical devices and
drugs. Accordingly, the regulations to which the Registrant and certain
of its products may be subject, and any changes with respect thereto, may
materially affect the Registrant's ability to produce and market new
products developed by the Registrant.
The Registrant's present and future activities are, and will
likely continue to be, subject to varying degrees of additional
regulation under the Occupational Safety and Health Act, Environmental
Protection Act, import, export and customs regulations, and other present
and possible future foreign, federal, state and local regulations.
Portions of the Registrant's operating expenses are directly
attributable to complying with federal, state, and local environmental
statutes and regulations. In 1996 and 1995 the Registrant incurred
approximately $39,000 and $82,000 respectively, in environmental
compliance costs.
Research and Development Expense
Portions of the Registrant's operating expenses are directly
attributable to research and development the Registrant performs. In 1996
and 1995, the Registrant incurred approximately $268,000 and $215,000
respectively, in research and development expenses. The expenses consist
of direct costs as well as factory overhead. No portion of the research
and development expenses was directly paid by the Registrant's customers.
Revenue and Earnings
The tables below set forth, for the years indicated, the revenue
(including fees and retainers), and earnings from operations attributable
to the Registrant and to the Registrant's industry segments:
YEAR ENDED YEAR ENDED
December 31, December 31,
1996 1995
---- ----
Revenue:
Guardian $ 6,010,904 $ 5,333,993
Eastern 2,025,642 1,628,622
--------- ---------
$ 8,036,546 $ 6,962,615
========= =========
Earnings from Operations:
Guardian $ 936,731 $ 668,495
Eastern 89,007 9,035
Corporate (154,706) (128,802)
---------- ---------
$ 871,032 $ 548,728
========== =========
Identifiable Assets
The table below sets forth as of the dates indicated the
identifiable assets of the Registrant as a whole, as well as the
identifiable assets of the Registrant's industry segments:
________________As of______________
December 31, December 31,
1996 1995
---- ----
Guardian $ 2,607,254 $ 2,963,289
Eastern 1,166,828 1,296,509
Corporate 2,080,057 1,656,017
--------- ---------
$ 5,854,139 $ 5,915,815
========= =========
For certain additional financial information concerning the
Registrant's industry segments see Note 8 of Notes to Consolidated
Financial Statements of the Registrant contained in Item 7 herein.
Employees
The Registrant presently employs 45 people, 6 of whom serve in
an executive capacity, 24 in research, quality control and manufacturing,
5 in maintenance and construction and 10 in office and clerical work. Of
the total number of employees, 42 are full time employees. None of the
Registrant's employees are covered by a collective bargaining agreement.
The Registrant believes that its relations with its employees are
satisfactory.
Item 2. Description of Property.
The Registrant maintains its principal offices and conducts most
of its research at 230 Marcus Boulevard, Hauppauge, New York 11788. These
premises, which the Registrant owns, contain approximately 30,000 square
feet of manufacturing space, 15,000 square feet of warehouse space, and
5,000 square feet of office and laboratory space on approximately 2.7
acres of land. The Registrant has now fully developed the 2.7 acres, and
fully utilizes the buildings occupying the land. The Registrant believes
that the aforementioned property is adequate for its immediately
foreseeable needs.
The Registrant has given a first mortgage on the property to
State Bank of Long Island to secure a note in the original amount of $
758,333.63 (balance at December 31, 1996 of $566,666.98) with interest at
1.0% per annum over that bank's prime lending rate, as it may be adjusted
from time to time. Until January 9, 1998 the rate cannot exceed 12.25%,
nor be less than 6.25%. Between January 10, 1998 and January 9, 2001 the
rate cannot be more than 3% higher or 3% lower than the rate in effect on
January 10, 1998. Between January 10, 2001 and January 9, 2004 the rate
cannot be more than 3% higher or 3% lower than the rate in effect on
January 10, 2001. Monthly principal payments are $8,333.33 plus accrued
interest. The loan is due in full on January 10, 2004 but is callable, at
the option of State Bank of Long Island, at any time after January 10,
2001, upon 120 days prior written notice to the Registrant. The loan can
be prepaid at any time without penalty.
Item 3. Legal Proceedings.
In February, 1994 Eastern was served with a complaint filed by
the State of New Jersey to recover the costs it incurred in cleaning up a
warehouse in New Jersey where the State found several thousand drums of
surplus and waste chemicals, some of which it feared contained hazardous
materials that could contaminate the site. Approximately 10 drums were
surplus chemicals sold by Eastern to a company that stored the drums to
that site. Eastern was one of approximately 30 defendants named in the
complaint, which includes many large chemical companies, as well as
several universities around the country. The State of New Jersey and most
of the defendants, including the Registrant, settled the case in 1996
without any admission of responsibility on the part of the defendants.
Registrant determined that this would be far less costly to the company
than litigating the issue. The Registrant's share of the settlement
amount was $25,904.80. Registrant has now been dismissed from the case.
In 1996, after exhausting all other legal remedies, Registrant
brought suit in the Superior Court of New Jersey in Bergen County, New
Jersey against Microbalanced Products ("Microbalanced"), a former
customer of the Registrant that failed to pay its outstanding bill of
approximately $28,000. In January, 1997 Microbalanced filed a countersuit
against the Registrant alleging that the product sold to it by
Registrant, which was various forms of Registrant's Lubrajel product, was
not "all natural". Registrant vehemently denies that it ever made this
claim to Microbalanced, and in fact Microbalanced purchased the product
for over ten years without ever bringing this issue to the attention of
the Registrant. Registrant believes that Microbalanced's counterclaim is
groundless and has filed an answer denying all of Microbalanced's
allegations and requesting court costs due to Microbalanced having filed
a frivolous counterclaim. Registrant does not believe that it will incur
significant costs pursuing this action.
In February, 1997 two individuals who were the principals of
Microbalanced, along with another individual, filed a civil action in the
Superior Court of New Jersey in Bergen County, New Jersey to recover
money they invested in a project with Registrant in 1985. That project,
in which they invested $275,000, was to develop a product to reduce
snoring. Registrant had some initial success with the project until a key
raw material was discontinued. The project was put on hold until a
suitable new material could be found, which was done a few years ago, at
which time the project was revived and new clinical tests were begun.
Since that time Registrant has continued its work on the project and has
clinical testing being done now in Canada. The lawsuit requests a return
of plaintiffs' initial investment plus treble damages for "consumer
fraud". Registrant believes that the lawsuit is groundless and has
retained counsel to vigorously defend the action.
Item 4. Submission of Matters to a Vote of Security Holders:
None
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information
The Common Stock of the Registrant is traded on the American
Stock Exchange (the "AMEX") under the symbol "UG". The following table
sets forth for the periods indicated the high and low closing sale prices
of the shares of Common Stock, as reported by the AMEX Market Statistics
for the period January 1, 1995 to December 31, 1996. The quotations
represent prices between dealers and do not include retail markup,
markdown or commission:
Year Ended Year Ended
Quarters December 31, 1996 December 31, 1995
- -------- ----------------- -----------------
High Low High Low
---- --- ---- ---
First (1/1 - 3/31) $ 1 15/16 $ 1 1/2 $ 2 1/2 $ 1 11/16
Second (4/1 - 6/30) 3 1/4 1 1/2 2 1/8 1 5/8
Third (7/1 - 9/30) 3 1/16 1 1/2 2 3/8 1 11/16
Fourth (10/1 - 12/31) 2 1/8 1 9/16 2 3/8 1 1/2
Holders of Record
As of March 7, 1997 there were 1,741 holders of record of Common
Stock.
Cash Dividends
On January 6, 1997 the Registrant paid a $.05 per share dividend
to all stockholders of record as of December 10, 1996.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results Of Operations:
Year Ended December 31, 1996 Compared to
Year Ended December 31, 1995
Revenue
Revenue in 1996 increased by $1,073,931 (15%) compared to 1995
due to revenue increases in the Guardian and Eastern Divisions of
$676,911 (13%) and $397,020 (24%) respectively. The increase in sales of
the Guardian division was the result of higher international sales
resulting from the Company's distribution agreement with International
Specialty Products; increased sales and price increases on sales of
Renacidin Irrigation; and increases in sales of the Company's Lubrajel
product line. The increase in sales of the Eastern Division was the
result of an overall increase in sales volume not attributable to any one
product or customer.
Costs and Expenses
Costs and expenses in 1996 increased by $751,627 (12%) compared
to the prior year due to increases in cost of sales of $655,036 (15%) and
operating expenses of $96,591 (5%). Costs of sales as a percentage of
sales remained steady at 65% of sales in 1995 and in 1996. An actual 2%
decline in the cost of sales percentage in 1996 due to the absorption of
plant fixed costs by higher revenue was offset by the company's charge of
$170,000 for a write-down in value of the Lubraseptic Jelly inventory in
1996. The increase in operating expenses in 1996 is primarily due to
higher payroll and payroll related costs.
Other Income (Expense)
Interest expense decreased from $107,085 to $80,210 due to a
reduction in bank loans outstanding. The Company realized gain on sale of
assets of $44,312 in 1996 while there was no gain or loss in 1995.
Provision for Income Taxes
The provision for income taxes increased from $178,000 in 1995
to $324,767 in 1996. This increase is primarily due to the increase in
earnings before income taxes of $401,234 (89%) between years.
Liquidity and Capital Resources
Working capital increased from $2,936,295 as of the end of 1995
to $2,982,472 as of the end of 1996, an increase of $46,177 (2%). The
increase was primarily the result of the net cash provided by operations.
Current Ratios were as follows:
December 31, 1996: 4.6 to 1
December 31, 1995: 4.2 to 1
The Company has line of credit agreements with two banks, which
provide for borrowings of up to $250,000 and $700,000, respectively. As
of December 31, 1996, the unused portion of these lines, in the
aggregate, was $950,000.
The Company generated cash from operations of $1,059,577 in 1996
compared to $260,089 in 1995. The increase in 1996 was primarily due to
increased earnings and a decrease in accounts receivable. During each of
the years 1995 and 1996 the Company invested approximately $250,000 for
plant and equipment. Cash used in financing activities increased
approximately $186,000 to approximately $363,000 due to additional
reductions in bank debt.
While the Company believes that its working capital is
sufficient to support its operating requirements for the next fiscal
year, the Company's long-term liquidity position will be dependent upon
its ability to generate sufficient cash flow from operations. The Company
has no material commitments for future capital expenditures.
Impact of Inflation and Changing Prices
While it is difficult to assess the impact of inflation on the
Company's operations, management believes, because of the proprietary
nature of the majority of its product line, that inflation has had little
effect on net sales. Sales have changed as a result of volume, price and
product mix. While inflation has had an impact on the cost of sales and
payroll, these increases have been recaptured by price increases to the
greatest extent possible.
Item 7. Financial Statements.
Annexed hereto starting on page F-1
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.
Not Required.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
Set forth in the table below is certain information as of March
7, 1997 with respect to the executive officers and directors of the
Registrant:
Name Age Position(s) with the Registrant
---- --- -------------------------------
Dr. Alfred R. Globus 76 Chairman of the Board, Chief
Executive Officer and Director
Kenneth H. Globus 45 President, General Counsel and
Director
Robert S. Rubinger 54 Executive Vice President, Secretary,
Treasurer and Director
Charles W. Castanza 64 Vice President and Director
Derek Hampson 57 Vice President
Joseph J. Vernice 38 Vice President
Lawrence Maietta 39 Controller and Director
Henry P. Globus 74 Director
Benjamin Wm. Mehlman 86 Director
Howard A. Gellis 68 Director
Alan E. Katz 53 Director
Dr. Alfred Globus has been Chairman of the Board and Chief
Executive Officer of the Registrant since July, 1988. He served as
Chairman of the Board and President of the Registrant from the inception
of the Registrant in 1942 until July, 1988. He has been a director of the
Registrant since 1942.
Kenneth H. Globus has been President and General Counsel of the
Registrant since July, 1988. He served as Vice President and General
Counsel of the Registrant from July, 1983 until July, 1988. He has been a
director of the Registrant since 1984.
Robert S. Rubinger has been Executive Vice President and
Secretary of the Registrant since July, 1988, and Treasurer since May,
1994. He served as Vice President and Secretary of the Registrant from
February, 1982 until July, 1988. He has been a director of the Registrant
since 1982.
Charles W. Castanza has been a Vice President of the Registrant
since April, 1986. He served as Operations Manager of Chemicals and
Pharmaceuticals of the Registrant from February, 1982 until April, 1986.
He has been a director of the Registrant since 1982.
Derek Hampson has been a Vice President of the Registrant since
October, 1987. He has served as Manager of the Eastern Chemical division
since 1971.
Joseph J. Vernice has been a Vice President of the Registrant
since February, 1995. He served as Assistant Vice President of the
Registrant from November, 1991 until February, 1995.
Lawrence Maietta has been a partner in the public accounting
firm of Bonamassa & Maietta, C.P.A.s in Brooklyn, NY since October, 1991.
For five years prior to that he was a partner in the public accounting
firm of Wilfred, Wyler & Co. in New York, NY. He has been controller for
the Registrant since October, 1991, and a director of the Registrant
since February, 1994.
Henry P. Globus has been a consultant to the Registrant since
July, 1988. He served as Executive Vice President of the Registrant from
1982 until July, 1988. He has been a director of the Registrant since
1947.
Benjamin William Mehlman has been counsel to the law firm of
William T. Friedman and its predecessor, Friedman and Shaftan, P.C. since
1984. He has been a director of the Registrant since 1964.
Howard A. Gellis has been President of one or more private
investment companies since 1986. He has been a director of the Registrant
since July, 1991.
Alan E. Katz has been a partner in the law firm of Greenfield
Stein & Senior, LLP, New York, NY since November, 1984. He has been a
director of the Registrant since February, 1994.
Dr. Alfred R. Globus and Henry P. Globus are brothers. Kenneth
H. Globus is the son of Henry P. Globus and the nephew of Dr. Alfred R.
Globus. There are no other family relationships between any directors or
officers of the Registrant.
Item 10. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the section entitled "Management Remuneration" of the 1997
Proxy Statement.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
The information required by this Item is incorporated herein by
reference to the section entitled "Security Ownership of Management" of
the 1997 Proxy Statement.
Item 12. Certain Relationships and Related Transactions.
None
Item 13. Exhibits, List and Reports on Form 8-K
(a) Exhibits
3(a) Certificate of Incorporation of the Registrant as filed
April 22, 1987. Incorporated by reference to Exhibit 4.1 to
the Registrant's Current Report on Form 8-K, dated September
21, 1987 (the "1987 8-K").
3(b) Certificate of Merger of United-Guardian, Inc. (New York)
with and into the Registrant as filed with the Secretary of
State of the State of Delaware on September 10, 1987.
Incorporated by reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended February 29, 1988 (the "1988 10-K").
3(c) By-laws of the Registrant. Incorporated by reference to
Exhibit 4.2 to the 1987 8-K.
4(a) Specimen Certificate for shares of common stock of the
Registrant. Incorporated by reference to Exhibit 4(a) to the
1988 10-K.
10(a) Qualified Retirement Income Plan for Employees of the
Registrant, as restated April 1, 1976. Incorporated by
reference to Exhibit 11(c) of the Registrant's Registration
Statement on Form S-1 (Registration No. 2-63114) declared
effective February 9, 1979.
10(b) Mortgage, dated January 10, 1989, from the Registrant to
Extebank securing a mortgage note in the amount of
$1,500,000. Incorporated by reference to Exhibit 10(f) to
the Registrant's Annual Report on Form 10-K for the fiscal
year ended February 28, 1989 (the "1989 10-K").
10(c) Mortgage Note from the Registrant to State Bank of Long
Island dated July 30, 1996, in the amount of $758,333.63.
10(d) Mortgage Extension Agreement dated July 30, 1996 between the
Registrant and State Bank of Long Island extending the terms
of the original Mortgage from the Registrant to Extebank.
10(e) Employment Termination Agreement dated July 8, 1988 between
the Registrant and Henry Globus. Incorporated by reference
to Exhibit 10(i) to the Registrant's Annual Report on Form
10-K for the 10-month transition period from March 1, 1991
to December 31, 1991.
10(f) Distribution Agreement between the Registrant and Societe
D'Etudes Dermatologies, dated November 20, 1991.
Incorporated by reference to Exhibit 10(k) to the
Registrant's Annual Report on Form 10-K for the 10-month
transition period from March 1, 1991 to December 31, 1991.
10(g) Exclusive Distributor Agreement between the Registrant and
ISP (Switzerland) A.G. dated December 9, 1994. Incorporated
by reference to Exhibit 10(m) of the 1994 10-KSB. The
Registrant has been granted confidential treatment of
portions of some of the schedules to this Agreement.
10(h) Exclusive Distributor Agreement between the Registrant and
ISP Technologies Inc. dated September 20, 1996. The
Registrant has requested confidential treatment of portions
of some of the schedules to this Agreement
11 Statement re: Computation of Per Share Earnings - not
required.
16 Letter on Change in Certifying Accountant. Incorporated by
reference to Form 8-K filed December 10, 1996.
18 Letter on Change in Accounting Principles - not applicable.
21 Subsidiaries of the Registrant:
Name Under
Jurisdiction of Which it does
Name Incorporation Business
Eastern Chemical Corporation New York Eastern Chemical
Corporation
Transcontinental Processes (Pty.) Ltd.* Australia N/A
Dieselite Corporation** Delaware N/A
Paragon Organic Chemicals, Inc. New York Paragon Organic
Chemicals
Shield Chemical Ltd.*** Canada N/A
* Inactive without assets
** Inactive; formerly Vital Industries, Inc.
*** Inactive without assets; in the process of liquidation
27 Financial Data Schedule
(b) Reports on Form 8-K: On December 10, 1996 Registrant filed a
report on Form 8-K dated December 5, 1996 reporting a change in
Registrant's certifying accountant from Arthur Andersen LLP to Grant
Thornton LLP.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED-GUARDIAN, INC.
Dated: March 26, 1997 By: /s/ Alfred R. Globus
Chief Executive Officer
& Director
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
By: /s/ Alfred R. Globus Chief Executive Officer, March 26, 1997
Director (Principal
Executive Officer and
Principal Financial Officer)
By: /s/ Kenneth H. Globus President, General Counsel, March 26, 1997
Director
By: /s/ Robert S. Rubinger Executive Vice President, March 26, 1997
Secretary, Treasurer,
Director
By: /s/ Charles W. Castanza Vice President, Director March 26, 1997
By: _______________________ Director March __, 1997
Henry P. Globus
By: /s/ Benjamin Wm. Mehlman Director March 26, 1997
By: /s/ Howard A. Gellis Director March 26, 1997
By: /s/ Lawrence F. Maietta Controller, Director March 26, 1997
By: _______________________ Director March __, 1997
Alan E. Katz
<PAGE>
United-Guardian, Inc. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reports of Independent Certified Public Accountants F-2 - F-3
Financial Statements
Consolidated Balance Sheets as of December 31,
1996 and 1995 F-4 - F-5
Consolidated Statements of Earnings for the Years
Ended December 31, 1996 and 1995 F-6
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996
and 1995 F-7
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996 and 1995 F-8
Notes to Consolidated Financial Statements F-9 - F-23
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
United-Guardian, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of
United-Guardian, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996, and the related consolidated statements of earnings,
stockholders' equity 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 the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
United-Guardian Inc. and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
March 3, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To United-Guardian, Inc.:
We have audited the accompanying consolidated balance sheet of
United-Guardian, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1995, and the related consolidated statements of earnings,
stockholders' equity 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 the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
United-Guardian, Inc. and subsidiaries as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Melville, New York
March 11, 1996
F-3
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS 1996 1995
--------- ---------
CURRENT ASSETS
Cash and cash equivalents ........................ $ 826,079 $ 307,061
Accounts receivable, net of allowance for doubtful
accounts of $38,900 and $24,800, respectively 859,146 1,044,678
Inventories ...................................... 1,812,629 2,289,328
Prepaid expenses and other current assets ........ 199,516 148,678
Deferred income taxes ............................ 116,233 59,503
---------- ----------
Total current assets ............... 3,813,603 3,849,248
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land ............................................. 69,000 69,000
Factory equipment and fixtures ................... 2,119,223 1,973,589
Building and improvements ........................ 1,766,174 1,698,205
Waste disposal plant ............................. 133,532 133,532
---------- ----------
4,087,929 3,874,326
Less accumulated depreciation .................... 2,583,297 2,380,652
---------- ----------
1,504,632 1,493,674
Assets under capital leases, net ................. 6,934 22,965
---------- ----------
1,511,566 1,516,639
---------- ----------
OTHER ASSETS
Processes and patents, net ....................... 351,835 459,546
Other ............................................ 177,135 90,382
---------- ----------
528,970 549,928
---------- ----------
$5,854,139 $5,915,815
========== ==========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995
-------- ---------
CURRENT LIABILITIES
Current portion of long-term debt
and capital lease obligations .............. $114,241 $119,382
Notes payable - banks ........................ -- 100,000
Dividends payable ............................ 238,144
Accounts payable ............................. 222,743 545,901
Accrued expenses ............................. 100,772 147,670
Taxes payable ................................ 155,231 --
-------- --------
Total current liabilities ............... 831,131 912,953
-------- --------
LONG-TERM DEBT ................................... 475,000 727,462
-------- --------
CAPITAL LEASE OBLIGATIONS ........................ -- 5,053
-------- --------
DEFERRED INCOME TAXES ............................ 31,618 43,121
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; issued and outstanding,
4,762,889 shares ...................... 476,289 476,289
Capital in excess of par value .......... 3,089,380 3,089,380
Retained earnings ....................... 950,721 661,557
---------- ----------
4,516,390 4,227,226
---------- ----------
$5,854,139 $5,915,815
========== ==========
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
1996 1995
----------- -----------
Revenue
Net sales ....................... $ 8,001,546 $ 6,937,615
Fees and retainers .............. 35,000 25,000
----------- -----------
8,036,546 6,962,615
----------- -----------
Costs and expenses
Cost of sales ................... 5,166,543 4,511,507
Operating expenses .............. 1,998,971 1,902,380
----------- -----------
7,165,514 6,413,887
----------- -----------
Earnings from operations ... 871,032 548,728
Other income (expense)
Interest expense ................ (80,210) (107,085)
Gain on sale of assets .......... 44,312 --
Other ........................... 16,941 9,198
----------- -----------
Earnings before income taxes 852,075 450,841
Provision for income taxes .......... 324,767 178,000
----------- -----------
NET EARNINGS ............... $ 527,308 $ 272,841
=========== ===========
Earnings per common share ........... $ .11 $ .06
=========== ===========
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common stock Capital in
----------------------- excess of Retained
Shares Amount par value earnings Total
--------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 . 4,762,889 $ 476,289 $ 3,089,380 $ 388,716 $ 3,954,385
Net earnings ............. -- -- -- 272,841 272,841
--------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 4,762,889 476,289 3,089,380 661,557 4,227,226
Net earnings ............. 527,308 527,308
Dividends declared ....... -- -- -- (238,144) (238,144)
--------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 4,762,889 $ 476,289 $ 3,089,380 $ 950,721 $ 4,516,390
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1996 1995
--------- -------
Cash flows from operating activities
Net earnings .................................... $ 527,308 $ 272,841
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization ............... 334,999 308,923
Net gain on sale of equipment ............... (44,312) --
Deferred income taxes ....................... (68,233) 12,838
Inventory obsolescence reserve .............. 205,000 --
Increases (decreases) in cash resulting from
changes in operating assets and liabilities
Accounts receivable .................... 185,532 (117,984)
Inventories ............................ 271,699 (14,081)
Prepaid expenses and other assets ...... (137,591) (19,181)
Accounts payable ....................... (323,158) (184,643)
Accrued expenses and taxes payable ..... 108,333 1,376
--------- ---------
Net cash provided by operating activities .. 1,059,577 260,089
---------- ---------
Cash flows from investing activities
Acquisition of plant and equipment, net ......... (249,309) (253,465)
Proceeds from the sale of plant and equipment . 71,406 --
--------- ---------
Net cash used in investing activities .... (177,903) (253,465)
--------- ---------
Cash flows from financing activities
Net decrease in notes payable - banks ........... (100,000) (50,000)
Principal payments of long-term debt ............ (252,462) (114,644)
Principal payments of capital lease obligations . (10,194) (12,243)
--------- ---------
Net cash used in financing activities ...... (362,656) (176,887)
--------- ---------
Net increase (decrease) in cash and cash equivalents 519,018 (170,263)
Cash and cash equivalents, beginning of year ........ 307,061 477,324
--------- ---------
Cash and cash equivalents, end of year .............. $ 826,079 $ 307,061
========= =========
The accompanying notes are an integral part of these statements.
F-8
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996 and 1995
NOTE A - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Nature of Business
United-Guardian, Inc. (the "Company") is a Delaware corporation that
operates in two industry segments: (1) the Guardian Laboratories
Division which conducts research, product development, manufacturing
and marketing of pharmaceuticals, cosmetics, health care products,
medical devices and proprietary industrial products, and (2) the
Eastern Chemical Division which distributes a line of fine organic
chemicals, research chemicals, test solutions, indicators, dyes and
reagents. Sales from the Company's two major product lines, Lubrajel
and Renacidin, accounted for approximately 60% of consolidated sales
for the years ended December 31, 1996 and 1995. The Company's
predecessor, United International Research Corp. (name later changed
to United International Research, Inc.), was founded and
incorporated in New York in 1942 by Dr. Alfred R. Globus, the
Company's Chairman and Chief Executive Officer. On February 10,
1982, a merger took place between the Company and Guardian Chemical
Corp. ("GCC"), whereby GCC was merged into the Company and the name
was changed to United-Guardian, Inc. On September 14, 1987,
United-Guardian, Inc. (New York) was merged with and into
United-Guardian, Inc., a newly incorporated Delaware corporation
formed for the purpose of changing the domicile of the Company.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of United-Guardian, Inc. and its wholly-owned subsidiaries,
Admiral Specialty Products, Inc., and Paragon Organic Chemicals,
Inc. All intercompany accounts and transactions have been
eliminated.
Statements of Cash Flows
For financial statement purposes (including cash flows), the Company
considers as cash equivalents all highly liquid investments with an
original maturity of three months or less. During 1996, the Company
declared a dividend of $.05 payable on January 7, 1997 to
stockholders of record as of December 10, 1996 aggregating $238,144.
Cash payments for interest were $82,492 and $108,349 for the years
ended December 31, 1996 and 1995, respectively. Cash payments for
income taxes were $265,123 and $207,315 for the years ended December
31, 1996 and 1995, respectively.
F-9
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE A (continued)
Inventories
Inventories are valued at the lower of cost or current market value.
Costs are determined using the first-in, first-out method ("FIFO")
for the Eastern Chemical Division, and the average cost method
(which approximates FIFO) for the Guardian Laboratories Division.
Inventory costs include material, labor and factory overhead.
Property, Plant and Equipment
Property, plant and equipment are carried at cost, less accumulated
depreciation. Major replacements and betterments are capitalized
while routine maintenance and repairs are expensed as incurred.
Assets are depreciated under both accelerated and straight-line
methods. Depreciation charged to earnings as a result of using
accelerated methods was not materially different than that which
would result from using the straight-line method for all periods
presented. Certain factory equipment and fixtures are constructed by
the Company using purchased materials and in-house labor. Such
assets are capitalized and depreciated on a basis consistent with
the Company's purchased fixed assets.
Estimated useful lives are as follows:
Factory equipment and fixtures 5 - 7 years
Building 40 years
Building improvements Lesser of useful life or 20 years
Waste disposal plant 7 years
Processes and Patents
Processes and patents are amortized over periods ranging from 5 to
15 years. Amounts are shown net of accumulated amortization.
F-10
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE A (continued)
Long-Lived Assets
It is the Company's policy to evaluate and recognize an impairment
to its long-lived assets if it is probable that the recorded amounts
are in excess of anticipated undiscounted future cash flows.
Fair Value of Financial Instruments
The Company has estimated the fair value of financial instruments
using available market information and other valuation methodologies
in accordance with SFAS No. 107, "Disclosures About Fair Value of
Financial Instruments." Management of the Company believes that the
fair value of financial instruments, consisting of accounts
receivable and payable, notes payable and capital lease obligations,
approximates carrying value due to the short payment terms
associated with its accounts receivable and payable and the interest
rates associated with its notes payable and capital lease
obligations.
Income Taxes
Deferred tax assets and liabilities reflect the future tax
consequences of the differences between the financial reporting and
tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
reverse. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be realized.
Research and Development
The Company's research and development expenses are recorded in the
year incurred. Research and development expenses were approximately
$268,000 and $215,000 for the years ended December 31, 1996 and
1995, respectively.
Per Share Information
Earnings per share is based on the weighted average number of common
shares issued and outstanding during the year. The weighted average
number of common shares outstanding were 4,762,889 for the years
ended December 31, 1996 and 1995. There were no common stock
equivalents outstanding for the years ended December 31, 1996 and
1995.
F-11
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE A (continued)
Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
NOTE B - INVENTORIES
Inventories consist of the following:
December 31, December 31,
1996 1995
------------ -----------
Raw materials and work-in-process ............$ 319,817 $ 360,742
Finished products and fine chemicals ......... 1,492,812 1,928,586
---------- ----------
$1,812,629 $2,289,328
========== ==========
NOTE C - PROCESSES AND PATENTS
On October 1, 1984, a partnership agreed to provide the Company with
funding of $454,800 for a liquid Renacidin research and development
project. In 1985, funds of $154,800 were received, and the balance
was payable by a $300,000 note due on November 30, 1992 bearing
interest at 12%. On August 14, 1992, the Company and the partnership
terminated the agreement. Pursuant to the termination agreement, the
partnership conveyed its interest in the technology to the Company
in exchange for cancellation of the note plus accrued interest which
together amounted to $513,000. The technology is being amortized by
the Company under the straight-line method over a ten-year period
commencing in 1992. Additionally, during 1993, the Company and a
stockholder issued warrants to the two partners of the partnership
to purchase a total of 104,000 shares of the Company's common stock
at $6.00 per share, which approximated market value at that time.
During 1994, the Company renegotiated its warrant agreement (64,000
warrants) to reflect a reduced price of $4.00 per share with an
expiration date of December 31, 1998. The warrants previously issued
in 1993 by a stockholder to purchase 40,000 shares of the Company's
common stock were cancelled.
F-12
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE C (continued)
During 1991, the Company contracted with Abbott Laboratories, Inc.
("Abbott") for the production of Renacidin Irrigation. Such
production was to commence following approval by the Food and Drug
Administration ("FDA") of Abbott as the producer. In conjunction
with this agreement, the Company paid a nonrefundable fee of
$154,370 to Abbott for their assistance in obtaining an approved
supplement to the Company's New Drug Application ("NDA") for
Renacidin Irrigation. The NDA supplement covers the manufacture of
Renacidin Irrigation at the Abbott plant in North Carolina. During
1993, FDA approval was granted and production commenced. Amounts
paid to Abbott have been recorded as deferred costs, and are being
amortized over a five-year period consistent with the initial term
of the production agreement.
Processes and patents consist of the following:
December 31, December 31,
1996 1995
Capitalized technology - Renacidin ............. $513,000 $513,000
Deferred costs - Renacidin ..................... 154,370 154,370
Patents ........................................ 78,177 78,177
-------- --------
745,547 745,547
Less accumulated amortization .................. 393,712 286,001
-------- --------
$351,835 $459,546
======== ========
NOTE D - NOTES PAYABLE - BANKS
The Company has line of credit agreements with two banks which
provide for borrowings of up to $250,000 and $700,000, and expire in
April 30, 1997 and May 31, 1997, respectively. It is the Company's
intention to renew both line of credit agreements before they
expire. Interest under each line is at the bank's prime rate (8.5%
at December 31, 1996 and 1995), plus 1/2%. The outstanding line of
credit agreements contain financial covenants relating to minimum
net worth, working capital, current ratio, debt to capitalization
and maintenance of compensating balances. As of December 31, 1996
and 1995, the Company was in compliance with all covenants.
F-13
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE D (continued)
Demand notes payable under lines of credit are as follows:
December 31, December 31,
1996 1995
----------- -----------
Balance outstanding at year-end ............ $ -- $100,000
Average interest rate at year-end .......... -- 9%
Average month-end notes outstanding
during the year ........................ 65,000 $112,500
Weighted average interest rate for the year 8.78% 9.33%
NOTE E - LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt is as follows:
December 31, December 31,
1996 1995
----------- -----------
Mortgage (a) ............................... $566,667 $808,333
Term loans (b) ............................. 17,500 12,500
Auto loan .................................. -- 21,658
-------- --------
Total long-term debt ..... 584,167 842,491
Less current portion ....................... 109,167 115,029
-------- --------
$475,000 $727,462
======== ========
(a) The Company has a mortgage on its building which bears
interest at the bank's prime rate (8.5% at December 31, 1996
and 1995, respectively) plus 1%, up to a maximum of 3%
higher or lower than the base rate in effect, which is reset
every three-years at the bank's prime rate plus 1% as in
effect the first day of each three-year period. However, the
interest rate cannot
F-14
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE E (continued)
exceed 12.25%, nor be less than 6.25%. The land and building
have been pledged as collateral for the debt. The principal
of this mortgage is payable in monthly installments of
$8,333 until January 10, 2004. The holder of the note may
accelerate payment at any time, with 120 days' prior written
notice, after January 10, 2001.
(b) The principal of these term loans is payable in monthly
installments of $833 through March 1997 and $555 through
March 1999. The term loans bear interest at a bank's prime
rate (8.5% at December 31, 1996 and 1995) plus 0.75% per
annum, and are collateralized by the underlying equipment
purchased.
Maturities of long-term debt as of December 31, 1996 are as
follows:
1997 $ 109,167
1998 106,667
1999 101,667
2000 100,000
2001 and thereafter 166,666
--------
$ 584,167
========
The Company leases certain equipment under capital leases expiring
through 1998. Future minimum obligations under these capital leases
are $5,073 (net of $2,172 representing interest) as of December 31,
1996 and are payable $6,237 in 1997 and $1,008 in 1998.
F-15
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE F - INCOME TAXES
The provision for income taxes consists of the following:
Year ended Year ended
December 31, December 31,
1996 1995
--------- ----------
Current
Federal .......................... $ 332,000 $ 138,821
State ............................ 61,000 26,341
--------- ---------
393,000 165,162
--------- ---------
Deferred
Federal .......................... (59,149) 11,117
State ............................ (9,084) 1,721
--------- ---------
(68,233) 12,838
--------- ---------
Total provision ............ $ 324,767 $ 178,000
========= =========
The difference between the Company's effective income tax rate and
the United States statutory rate is reconciled below:
Year ended Year ended
December 31, December 31,
1996 1995
-------------- --------------
(000's) % (000's) %
Tax expense at statutory Federal income
tax rate .............................. $ 290 34% $ 153 34%
State income taxes, net of Federal benefit 34 4 19 4
Meals and entertainment disallowance ..... 2 -- 5 1
Other, net ............................... (1) -- 1 --
----- ----- ----- -----
Actual tax expense ....................... $ 325 38% $ 178 39%
===== ===== ===== =====
F-16
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE F (continued)
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
December 31, December 31,
1996 1995
----------- -----------
Deferred tax assets
Accounts receivable .................... $ 14,516 $ 9,251
Inventories ............................ 87,646 36,181
Accrued vacation ....................... 3,171 3,171
State net operating loss carryforward .. 10,900 10,900
--------- ---------
116,233 59,503
--------- ---------
Deferred tax liabilities
Deferred costs - Renacidin ............. (21,618) (33,121)
Other .................................. (10,000) (10,000)
--------- ---------
(31,618) (43,121)
--------- ---------
Net deferred tax asset ..................... $ 84,615 $ 16,382
========= =========
NOTE G - BENEFIT PLANS
Pension Plan
The Company has a noncontributory defined benefit pension plan which
covers substantially all of its employees. Benefits are based on
years of service and employees' compensation prior to retirement.
Amounts are funded in accordance with the requirements of ERISA
(Employee Retirement Income Security Act of 1974) and the plan is
administered by a trustee who is responsible for payments to
retirees. The plan assets primarily consist of cash equivalents,
bonds, commercial paper and mortgage-backed securities, and are
recorded at fair value within the plan.
F-17
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE G (continued)
Net pension cost, included the following components:
Year ended Year ended
December 31, December 31,
1996 1995
--------- ----------
Service cost - benefits earned during the period ... $ 61,601 $ 57,502
Interest cost on projected benefit obligation ...... 86,625 75,906
Actual return on plan assets ....................... (40,747) (149,198)
Net amortization and deferral ...................... (46,196) 59,957
--------- ---------
Net pension cost .............................. $ 61,283 $ 44,167
========= =========
In calculating amortization for any prior service costs, the
straight-line method has been used over the average remaining service
period of employees expected to receive benefits under the plan.
The funded status of the Company's pension plan was as follows:
December 31, December 31,
1996 1995
----------- -----------
Actuarial present value of benefit obligations
Accumulated benefit obligation, including
vested benefits of $930,527 and $918,972,
respectively $ 951,156 $ 931,833
=========== ===========
Projected benefit obligation ..................... $ 1,329,659 $ 1,390,435
Plan assets at fair value ........................ 1,132,370 1,085,850
----------- -----------
Projected benefit obligation in excess of
plan assets 197,289 304,585
Unrecognized net (loss) gain .................... (134,450) (261,979)
Unrecognized net prior service cost
and transition obligation .................... (99,844) (31,280)
----------- -----------
Accrued (prepaid) pension cost ................. $ (37,005) $ 11,326
=========== ===========
For the years ended December 31, 1996 and 1995, the projected benefit
obligation was determined using a discount rate of 7.25% and 6.25% and a
F-18
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE G (continued)
rate of increase in future compensation of 5.12% and 5.16%,
respectively. For the years ended December 31, 1996 and 1995, the
expected long-term rate of return on plan assets was 9%.
401(k) Plan
The Company maintains a 401(k) Plan for all of its employees. Under
the plan, employees may defer up to 15% of their weekly pay as a
pretax investment in a savings plan. In addition, the Company makes
a contribution of 50% of each employee's elective deferral up to 2%
of weekly pay for a 4% employee deferral. Employees become fully
vested in Company contributions after one year of employment. 401(k)
Company contributions were approximately $26,000 per year for the
years ended December 31, 1996 and 1995.
Stock Option Plans
The Company maintains two stock option plans, the 1993 Employee
Incentive Stock Option Plan ("EISOP") and the Non-Statutory Stock
Option Plan for Directors ("NSSOPD"), each of which provides for the
issuance of up to 100,000 shares of common stock. Such options are
exercisable either upon grant or after a waiting period specified in
the agreement. The Company has adopted only the disclosure
provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" (SFAS No. 123). It applies
APB Opinion No. 25 "Accounting for Stock Issued to Employees," and
related Interpretations in accounting for its plans. Accordingly, no
compensation costs have been recognized for either plan.
If the Company had elected to recognize compensation expense based
upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by SFAS No. 123, the
Company's net income and earnings per share as of December 31, 1996
would be reduced to the pro forma amounts indicated below:
Net income
As reported $527,308
Pro forma 513,628
Earnings per common share
As reported $.11
Pro forma .10
F-19
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE G (continued)
The pro forma amounts may not be representative of future disclosure
because they do not take into account pro forma compensation expense
related to grants made before 1995. The fair value of these options
was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted-average assumptions
for the year ended December 31, 1996: expected volatility of 52.58%;
risk-free interest rates of 6.24 percent; and expected life of ten
years.
The following summarizes the stock option transactions under both
plans.
<TABLE>
<CAPTION>
Weighted
Weighted average
average remaining Fair value
Number exercise contractual at date
EISOP outstanding price life of grant
<S> <C> <C> <C> <C>
Options outstanding, January 1, 1995 .. 33,000 $ 4.42
Surrendered/expired ................. (2,500) 5.00
-------
Options outstanding and exercisable
December 31, 1995 ................... 30,500 4.42
Granted .......................... 6,000 1.88 $ 1.88
Surrendered/expired .............. (1,000) 5.00
-------
Options outstanding, December 31, 1996 35,500 3.99 7 years
=======
Exercisable at December 31, 1996 ...... 35,500 3.99
=======
Available for grant, December 31, 1996 64,500
=======
NSSOPD
- ------
Options outstanding and exercisable
January 1 1995 and December 31, 1995, 14,000 3.36
Granted ............................... 8,000 1.88 1.88
-------
Options outstanding, December 31, 1996 22,000 3.36 8 years
=======
Exercisable at December 31, 1996 ...... 14,000 2.82
=======
Available for grant December 31, 1996 . 78,000
=======
</TABLE>
(a) The exercise price of the options at December 31, 1996 ranged from
$1.88 to $5.00
F-20
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE H - NATURE OF BUSINESS AND SEGMENT INFORMATION
The Company operates in two industry segments (Note A). Certain
financial and operating data related to the Company's segments are as
follows:
As of or for As of or for
the year ended the year ended
December 31, December 31,
1996 1995
------------- -----------
Revenue
Guardian ........................ $ 6,010,904 $ 5,333,993
Eastern ......................... 2,025,642 1,628,622
----------- -----------
$ 8,036,546 $ 6,962,615
=========== ===========
Earnings from operations
Guardian ........................ $ 936,731 $ 668,495
Eastern ......................... 89,007 9,035
Corporate ....................... (154,706) (128,802)
----------- -----------
$ 871,032 $ 548,728
=========== ===========
Identifiable assets
Guardian ........................ $ 2,607,254 $ 2,963,289
Eastern ......................... 1,166,828 1,296,509
Corporate ....................... 2,080,057 1,656,017
----------- -----------
$ 5,854,139 $ 5,915,815
=========== ===========
Depreciation and amortization
Guardian ........................ $ 212,785 $ 211,901
Corporate ....................... 122,214 97,022
----------- -----------
$ 334,999 $ 308,923
=========== ===========
Capital expenditures
Guardian ........................ $ 152,913 $ 152,662
Corporate ....................... 96,396 100,803
----------- -----------
$ 249,309 $ 253,465
=========== ===========
F-21
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE H (continued)
The Company sells to companies in various industries throughout the
United States and Europe. Due to the diversity of its product line,
distribution area and customer base, management does not believe
there is a significant concentration of credit risk. Foreign sales
represented approximately 39% and 33% of total sales in 1996 and
1995, respectively. In 1995, the Company negotiated new arrangements
with its European distributors and began shipping directly to some
of the larger European distributors, thus decreasing the sales to
Customer A. Revenues from significant customers exceeding 10% of
total revenue and to companies in foreign countries are summarized
as follows:
Percentage of revenue
---------------------------
Year ended Year ended
December 31, December 31,
1996 1995
-------- ----------
Significant customers
Customer A (United Kingdom) ........... --% 10%
Customer B (United States) ............ -- 10
Customer C (France) ................... 11 10
NOTE I - COMMITMENTS AND CONTINGENCIES
Royalties
In 1986, the Company executed a royalty agreement with
UNIR-Clorpactin, a Texas partnership. In 1986, the partnership paid
the Company a $350,000 fee, which is nonrefundable and whose use is
unrestricted. Under the original terms of the agreement, the
partnership was to receive for a seven-year period a 10% royalty on
all sales by the Company of the product Clorpactin. On February 24,
1993 this agreement was extended for a period of three years. The
royalty payments shall be made quarterly during such period which
runs from March 1, 1993 to February 28, 1996. Royalty expense
related to this agreement was $31,111 for the year ended December
31, 1995.
F-22
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1996 and 1995
NOTE I (continued)
Recall
On September 30, 1992, the Company entered into a distribution
agreement with Baker Norton Pharmaceuticals ("Baker"), a division of
IVAX Corp., whereby Baker obtained the exclusive right to distribute
Lubraseptic Jelly in the U.S., Canada, Ireland and the United
Kingdom. During fiscal 1994, the Company voluntarily recalled
Lubraseptic Jelly in response to newly acquired knowledge that the
sterilization process for the product was adversely affecting the
level of active ingredients in the product. The Food and Drug
Administration has agreed to permit the Company to re-market the
recalled inventory as a urological lubricant. As a result, the
agreement with Baker was terminated and Baker returned a total of
approximately $200,000 of product to the Company. In 1996, the
Company reduced the carrying value of the remaining Lubraseptic
Jelly inventory by $170,000 to reflect its estimated net realizable
value based upon expected future sales of the product.
The Company is involved in various legal matters involving claims
and counterclaims arising from the ordinary course of business. In
the opinion of the Company's management and its in-house legal
counsel, any unfavorable outcome associated with these matters would
not have a material adverse effect on the Company's financial
position and results of operations.
F-23
<PAGE>
EXHIBIT 10(c)
-------------
MORTGAGE NOTE
(Substitute Note)
FOR VALUE RECEIVED, UNITED-GUARDIAN INC., a Delaware corporation having
an office at 230 Marcus Boulevard, Hauppauge1 New York (the "Maker"),
promises to pay to THE STATE BANK OF LONG ISLAND, a banking corporation
organized and existing under the laws of the State of New York, having
its principal office at 699 Hillside Avenue, New Hyde Park, New York
11040 (the Holder), the principal sum of SEVEN HUNDRED FIFTY EIGHT
THOUSAND THREE HUNDRED THIRTY THREE AND 63/l00 ($758,333.63) DOLLARS ON
DEMAND, together with interest thereon at the rate equal to an amount one
(1%) percent per annum in excess of STATE BANK OF LONG ISLAND's Prime
Rate as in effect from time to time, which rate shall change, when and as
said Prime Rate shall change.
This note is secured by five (5) mortgages held by the
Holder, all of which are more paiticularly described in a certain
Extension Agreement made between the Maker and the Holder on July 30,
1996, and intended to be recorded in the office of the Clerk of the
County of Suffolk.
This note is given in complete substitution for the notes
described below and represents the present unpaid principal balance of
the same aggregate principal obligations described therein.
Date Maker Payee Amount
11/28/69 B.I.P. Realty Corp. The Dime Savings $335,000.00
Bank of Brooklyn
12/20/71 Milnet Realty The Dime Savings $102,103.00
Bank of New York
11/10/81 Guardian Chemical The Dime Savings $375,676.43
Corporation Bank of New York
11/30/87 United-Guardian, Inc. Extebank $500,000.00
01/10/89 United-Guardian, Inc. Extebank $322,003.21
01/10/89 United-Guardian, Inc. Extebank $1,500,000.O0
Dated: July 30, 1996
UNITED-GUARDIAN, INC.
BY: /s/ Kenneth H. Globus
PRESIDENT
<PAGE>
EXHIBIT 10(d)
------------
MORTGAGE EXTENSION AGREEMENT
----------------------------
AGREEMENT, made the 30th day of July ninteen hundred and ninety six
BETWEEN STATE BANK OF LONG ISLAND, a banking corporation
organized and existing under the laws of the State of
New York, having its principal office at 699 Hillside
Avenue, New Hyde Park, NY 11040, hereinafter
designated as the party of the first or Mortgagee, and
UNITED-GUARDIAN, INC., a Delaware corporation, having an office at 230
Marcus Boulevard, Hauppauge, NY 11788 hereinafter designated as the party
of the second part, or Mortgagor
WITNESSETH, that the party of the first part, the holder of the following
mortgages and of the bonds or note secured thereby more particularly
described on Schedule I annexed hereto and made a part hereof now a first
lien upon the premises more particularly bounded and described on
Schedule A annexed hereto and made a part hereof and on which bonds or
note there is now due the sum of $758,333.63, with interest thereon, in
consideration of one dollar paid by said party of the second part, and
other valuable consideration, the receipt whereof is hereby acknowledged,
does hereby extend the time of payment of the principal indebtedness
secured by said bonds or notes and mortgages so that the same shall be
due and payable as set forth in the Rider annexed hereto and made a part
hereof
PROVIDED, the party of the second part meanwhile complies with all the
other terms of said bonds or notes and mortgages as hereby modified.
AND the party of the second part, in consideration of the above
extension, does hereby assume, covenant and agree to pay said principal
sum and interest as above set forth and not before the maturity thereof
as the same is hereby extended, and to comply with the other terms of
said bond or note and mortgage as hereby modified AND the party of the
second part further covenants with the party of the first part as
follows:
1. That the party of the second part will pay the indebtedness as
hereinbefore provided.
2. That the party of the second part will keep the buildings on the
premises insured against loss by fire for the benefit of the party of the
first part; that he will assign and deliver the policies to the party of
the first part; and that he will reimburse the party of the first part
for any premiums paid for insurance made by the party of the first part
on default of the party of the second part in so insuring the buildings
or in so assigning and delivering the policies.
3. That no building on the premises shall be altered, removed or
demolished without the consent of the party of the first part
4. That the whole of said principal sum and interest shall become due at
the option of the party of the first part: after default in the payment
of any installment of principal or of interest for fifteen days; or after
default in the payment of any tax, water rate, sewer rent or assessment
for thirty days after notice and demand; or after default after notice
and demand either in assigning and delivering the policies insuring the
buildings against loss by fire or in reimbursing the party of the first
part for premiums paid on such insurance, as hereinbefore provided; or
after default upon request in furnishing a statement of the amount due on
the mortgage and whether any offsets or defenses exist against the
mortgage debt, as hereinafter provided. An assessment which has been made
payable in installments at the application of the party of the second
part or lessee of the premises shall nevertheless, for the purpose of
this paragraph, be deemed due and payable in its entirety on the day the
first installment becomes due or payable or a lien.
5. That the holder of this mortgage, in any action to foreclose it, shall
be entitled to the appointment of a receiver.
6. That the party of the second part will pay all taxes, assessments,
sewer rents or water rates, and in default thereof, the party of the
first part may pay the same.
7. That the party of the second part within five days upon request in
person or within ten days upon request by mail will furnish a written
statement duly acknowledged of the amount due on this mortgage and
whether any offsets or defenses exist against the mortgage debt.
8. That notice and demand or request may be in writing and may be served
in person or by mail.
9. That the party of the second part warrants the title to the premises.
10. That the fire insurance policies required by paragraph No.2 above
shall contain the usual extended coverage endorsement; that in addition
thereto the party of the second part, within thirty days after notice and
demand, will keep the premises insured against war risks and any other
hazard that may reasonably be required by the party of the first part.
All of the provisions of paragraphs No.2 and No.4 above relating to fire
insurance and the provisions of Section 254 of the Real Property law
construing the same shall apply to the additional insurance required by
this paragraph.
11. That in case of a foreclosure sale, said premises, or so much thereof
as may be affected by said mortgage, may be sold in one parcel.
12. That if any action or proceeding be commenced (except an action to
foreclose said mortgage or to collect the debt secured thereby), to which
action or proceeding the party of the first part is made a party, or in
which it becomes necessary to defend or uphold the lien of said mortgage,
all sums paid by the party of the first part for the expense of any
litigation to prosecute or defend the rights and lien created by said
mortgage (including reasonable counsel fees), shall be paid by the party
of the second part, together with interest thereon at the rate of six per
cent. per annum, and any such sum and the interest thereon shall be a
lien on said premises, prior to any right, or title to, interest in or
claim upon said premises attaching or accruing subsequent to the lien of
said mortgage, and shall be deemed to be secured by said mortgage. In any
action or proceeding to foreclose said mortgage, or to recover or collect
the debt secured thereby, the provisions of law respecting the recovering
of costs, disbursements and allowances shall prevail unaffected by this
covenant
13. That the party of the second party hereby assigns to the party of the
first part the rents, issues and profits of the premises as further
security for the payment of said indebtedness, and the party of the
second part grants to the party of the first part the right to enter upon
the premises for the purpose of collecting the same and to let the
premises or any part thereof, and to apply the rents, issues and profits,
after payment of all necessary charges and expenses, on account of said
indebtedness. This assignment and grant shall continue in effect until
said mortgage is paid. The party of the first part hereby waives the
right to enter upon said premises for the purpose of collecting said
rents, issues and profits and the party of the second part shall be
entitled to collect and receive said rents, issues and profits until
default under any of the covenants, conditions or agreements contained in
said mortgage, and agrees to use such rents, issues and profits in
payment of principal and interest becoming due on said mortgage and in
payment of taxes, assessments, sewer rents, water rates and carrying
charges becoming due against said premises, but such right of the party
of the second part may be revoked by the party of the first part upon any
default, on five days' written notice. The party of the second part will
not, without the written consent of the party of the first part, receive
or collect rent from any tenant of said premises or any part thereof for
a period of more than one month in advance, and in the event of any
default under said mortgage will pay monthly in advance to the party of
the first part, or to any receiver appointed to collect said rents,
issues and profits, the fair and reasonable rental value for the use and
occupation of said premises or of such part thereof as may be in the
possession of the party of second part, and upon default in any such
payment will vacate and surrender the possession of said premises to the
party of the first part or to such receiver, and in default thereof may
be evicted by summary proceedings.
14. That the whole of said principal sum and the interest shall become
due at the option of the party of the first part (a) after failure to
exhibit to the party of the first part, within ten days after demand,
receipts showing payment of all taxes, water rates, sewer rents and
assessments; or (b) after the actual or threatened alteration, demolition
or removal of any building on the premises without the written consent of
the party of the first part; or (c) after the assignment of the rents of
the premises or any part thereof without the written consent of the party
of the first part; or (d) if the buildings on said premises are not
maintained in reason-ably good repair; or (e) after failure to comply
with any requirement or order or notice of violation of law or ordinance
issued by any governmental department claiming jurisdiction over the
premises within three months from the issuance thereof ; or (f) if on
application of the party of the first part two or more fire insurance
companies lawfully doing business in the State of New York refuse to
issue policies insuring the buildings on the premises; or (g) in the
event of the removal, demolition or destruction in whole or in part of
any of the fixtures, chattels or articles of personal property covered
hereby, unless the same are promptly replaced by similar fixtures,
chattels and articles of personal property at least equal in quality and
condition to those replaced, free from chattel mortgages or other
encumbrances thereon and free from any reservation of title thereto; or
(h) after thirty days' notice to the party of the second part, in the
event of the passage of any law deducting from the value of land for the
purposes of taxation any lien thereon, or changing in any way the
taxation of mortgages or debts secured thereby for state or local
purposes; or (i) if the party of the second part fails to keep, observe
and perform any of the covenants, conditions or agreements contained in
said mortgage.
15. That the lien of said mortgage is hereby extended so as to cover all
fixtures, chattels and articles of personal property now or hereafter
attached to or used in connection with said premises, including but not
limited to furnaces, boilers, oil burners, radiators and piping, coal
stokers, plumbing and bathroom fixtures, refrigeration, air conditioning
and sprinkler systems, wash tubs, sinks, gas and electric fixtures,
stoves, ranges, awnings, screens, window shades, elevators, motors,
dynamos, refrigerators, kitchen cabinets, incinerators, plants and
shrubbery and all other equipment and machinery, appliances, fittings,
and fixtures of every kind in or used in the operation of the buildings
standing on said premises, together with any and all replacements thereof
and additions thereto.
16. That the party of the second part does hereby assign to the party of
the first part all awards heretofore and hereafter made to the party of
the second part for taking by eminent domain the whole or any part of
said premises or any easement therein, including any awards for changes
of grade of streets, which said awards are hereby assigned to the party
of the first part, who is hereby authorized to collect and receive the
proceeds of such awards and to give proper receipts and acquittances
therefor, and to apply the same toward the payment of the mortgage
indebtedness, notwithstanding the fact that the amount owing thereon may
not then be due and payable; and the said party of the second part hereby
agrees, upon request, to make, execute and deliver any and all
assignments and other instruments sufficient for the purpose of assigning
said awards to the party of the first part, free, clear and discharged of
any encumbrances of any kind or nature whatsoever.
17. That the party of the second part is now the owner of the premises
upon which said mortgage is a valid lien for the amount above specified
with interest thereon at the rate above set forth, and that there are no
defenses or offsets to said mortgage or to the debt which it secures.
18. That the principal and interest hereby agreed to be paid shall be a
lien on the mortgaged premises and be secured by said bond or note and
mortgage, and that when the terms and provisions contained in said bond
or note and mortgage in any way conflict with the terms and provisions
contained in this agreement, the terms and provisions herein contained
shall prevail, and that as modified by this agreement the said bond or
note and mortgage are hereby ratified and confirmed.
19. This agreement may not be changed or terminated orally. The covenants
contained in this agreement shall run with the land and bind the party of
the second part, the heirs, personal representatives, successors and
assigns of the party of the second part and all subsequent owners,
encumbrances, tenants and subtenants of the premises, and shall entire to
the benefit of the party of the first part, the personal representatives,
successors and assigns of the party of the first party and all subsequent
holders of this mortgage. The word "party" shall be construed as if it
read "parties" whenever the sense of this agreement so requires.
SEE RIDER ANNEXED HERETO AND MADE A PART HEREOF
IN WITNESS WHEREOF, this agreement has been duly executed by the parties
hereto the day and year first above written
IN PRESENCE OF: STATE BANK OF LONG ISLAND
BY: /s/ James T. Burns
VICE PRESIDENT
UNITED-GUARDIAN, INC.
BY: /s/ Kenneth H. Globus
PRESIDENT
- ------------------------------------------------------------------------
RIDER TO EXTENSION AGREEMENT
DATED JULY 30, 1996, BY AND BETWEEN
STATE BANK OF LONG ISLAND,
AS PARTY OF THE FIRST PART, OR MORTGAGEE,
AND UNITED-GUARDIAN, INC.,
AS PARTY OF THE SECOND PART, OR MORTGAGOR
20. The unpaid principal amount of SEVEN HUNDRED FIFTY EIGHT THOUSAND
THREE HUNDRED THIRTY THREE AND 63/100 ($758,333.63) DOLLARS shall be paid
to the Mortgagee, or order, at 699 Hillside Avenue, New Hyde Park, New
York, or at such other place as may be designated in writing by the
Mortgagee, in equal monthly installments of principal of $8,333.33,
commencing on the 10th day of August, 1996, and on the 10th day of each
and every month thereafter to and including January 10, 2004, at which
time the entire balance then remaining unpaid, together with accrued
interest, shall become due and payable. The unpaid principal amount from
the date hereof shall, until it is due and payable, bear interest at a
rate equal to an amount one (1%) percent per annum in excess of STATE
BANK OF LONG ISLAND's Prime Rate as in effect from time to time, which
rate shall change when and as said Prime Rate shall change, but the rate
of interest shall: (a) from the date hereof to and including January 9,
1998 in
no event be at a rate in excess of 12.25% per annum or less than 6.25%
per annum; (b) from and after January 10, 1998 to and including January
9, 2001 in no event be at a rate in excess of 3% per annum above the rate
as calculated above and in effect on January 10, 1998 or less than 3% per
annum below the rate as calculated above and in effect on said date; and
(c) from and after January 10, 2001 to and until the entire principal
balance is paid in full in no event be at a rate in excess of 3% per
annum above the rate as calculated above and in effect on January 10,
2001 or less than 3% per annum below the rate as calculated above and in
effect on said date; and
The term "Prime Rate" as used herein, means the rate announced from time
to time by STATE BANK OF LONG ISLAND as its Prime Rate regardless of
whether or not such rate is charged in connection with any loan to any
particular borrower. Interest shall be computed on the basis of a 360-day
year for the actual number of days involved. All interest hereon shall be
payable monthly on the 10th day of each and every month commencing August
10, 1996 until the principal has been paid. Each of such monthly
installments shall be applied first to the payment of interest as
aforesaid and the balance toward reduction and payment of the principal
sum hereof. Notwithstanding the foregoing, if the unpaid principal
balance is not paid when due (whether at stated maturity, by acceleration
or otherwise) it shall bear interest until fully paid from such due date
at a rate which shall be equal to five (5%)percent per annum in excess of
the rate computed as set forth above, changing as aforesaid. If any
payment becomes due and payable on a Saturday, Sunday or public holiday
under the laws of the State of New York, the maturity thereof shall be
extended to the next succeeding business day, and interest shall be
payable thereon at the rate herein specified during such extension. The
indebtedness evidenced by this Agreement together with accrued interest
may be prepaid without premium or penalty, in whole or in part, at any
time, upon thirty (30) days written notice to the Mortgagee. In the event
notice of intention to prepay all or a permitted portion of the
indebtedness as hereinabove provided is given to the Mortgagee, the
principal amount contained in the notice of intention to prepay the
indebtedness together with interest accrued thereon to the date of
prepayment shall, at the option of the Mortgagee, become due and payable
on the date specified in such notice.
At the option of the Mortgagee, the maturity date of the indebtedness
evidenced by this Agreement may be accelerated so as to become due at any
time on or after January 10, 1997, provided the Mortgagee shall give
notice of its election to accelerate the said maturity date by mailing
written notice, postage prepaid, by first-class mail to the Mortgagor, at
230 Marcus Boulevard, Hauppauge, New York 11788, or at such other address
as may be designated in writing by the Mortgagor to the Mortgagee, such
notice to be so mailed not less than one hundred twenty (120) days prior
to the accelerated maturity date.
This Agreement is subject to the express condition that at no time shall
the party of the second part be obligated or required to pay interest on
the principal balance at a rate which could subject the party of the
first part to either civil or criminal liability as a result of being in
excess of the maximum interest rate which the party of the second part of
this Agreement is permitted by law to contract or agree to pay. If by the
terms of this Agreement, the party of the second part is at any time
required or obligated to pay interest on the principal balance at a rate
in excess of such maximum rate, the rate of interest hereunder shall be
deemed to be immediately reduced to such maximum rate and the interest
payments in excess of the maximum interest rate in effect at the
respective times of the making of such payments shall be applied and
shall be deemed to have been payments in reduction of the principal
balance secured by this Agreement.
21. In the event that the title to the mortgaged premises or any part
thereof or any interest therein is transferred, the total balance
outstanding on the obligation or indebtedness for which the mortgage is
additional collateral security, together with interest, shall be due and
payable on the date of transfer, unless the Mortgagee shall have agreed
in advance of such transfer to permit the transferee to assume the
mortgage. In the event that the Mortgagor shall be a corporation, the
sale or transfer of more than 49 per cent of the outstanding shares of
the corporation or the dilution of the present 5tockholding or corporate
control by issuance of new or treasury stock or by conversion of any
non-voting stock or other securities to voting stock or if Mortgagor is a
partnership the withdrawal, except by death, resignation or retirement,
of any general partner or the appointment of any new, or other, or
substitute general partners1 shall be deemed a transfer of the mortgaged
premises.
22. In the event of a default and while such default remains uncured, at
the option of the holder of the mortgage interest on the indebtedness
herein secured shall be at a rate 5 per cent per annum above the rate set
forth in the note for which the mortgage is additional collateral
security and such increased interest shall be paid prior to and as a
condition precedent to the curing of any default.
23. In the event of the foreclosure of the mortgage an amount equal to
fifteen (15%) percent of the unpaid principal balance shall be added to
the principal debt as attorney's fees. This shall be in addition to the
right of the Mortgagee to assess, tax and recover all disbursements,
allowances, additional allowance and costs provided by law.
24. The owner of the mortgaged premises shall not cancel, abridge, or
otherwise modify tenancies, subtenancies, leases, or subleases of the
mortgaged real property or to accept prepayment of installments of rent
to become due thereunder without the written consent of the holder of the
mortgage as provided for in Section 291-f of the Real Property Law.
25. In the event that Mortgagor or any principal of the Mortgagor is an
occupant of part of the mortgaged premises, Mortgagor and any such
principal of Mortgagor hereby agree to surrender the possession of said
part to Mortgagee immediately upon any default hereunder and if Mortgagor
or any such principal of Mortgagor remains in possession such possession
shall be as tenant of Mortgagee, and Mortgagor and any such principal
agree to pay monthly in advance to Mortgagee such rent for the premises
so occupied as the Mortgagee may reasonably demand, and in default of so
doing, Mortgagor and any such principal may also be dispossessed by
summary proceedings or otherwise. In case of the appointment of a
receiver of rents and profits of the mortgaged premises, the covenants of
this paragraph may be enforced by such receiver.
Mortgagor shall not, without the prior written consent of the Mortgagee,
further encumber the mortgaged premises.
27. If any installment of interest or principal is not paid within ten
days after the date on which it is due, Mortgagor shall pay to Mortgagee
upon demand an amount equal to five (5%) percent of such unpaid
installment to defray the expense incurred by Mortgagee in handling and
processing such delinquent payment, and such amount shall be deemed to be
secured by the mortgage.
28. This agreement creates a security interest in the property described
herein and constitutes a Security Agreement under the New York Uniform
Commercial Code. As collateral and continuing security for the payment of
the indebtedness secured by the mortgage and any renewal or renewals
thereof, party of the second part hereby mortgages, sells, transfers and
assigns to party of the first part all of the party of the second part's
interest in all personal property at any time located on the mortgaged
premises or used in connection with the operation of said premises
(hereinafter referred to as the "Personal Property"); together with all
renewals or replacements thereof or additions thereto or articles in
substitution thereof, and party of the second part does hereby represent
and covenant that it is the sole owner of the Personal Property and that
every part thereof is and shall be free and clear of all prior liens,
claims and encumbrances of every name and nature, and party of the second
part will execute and deliver to party of the first part on demand, and
hereby irrevocably (i) appoints party of the first part or any officer of
party of the first part the attorney-in-fact of party of the second part
to execute, deliver and file, such financing statements and other
instruments as party of the first part may require in order to perfect
and maintain such security interest under the New York Uniform Commercial
Code upon the personal property and (ii) authorizes party of the first
part to execute on behalf of party of the second part any such financing
statements and other instruments as party of the first part may require
in order to perfect and maintain such security interest under the New
York Uniform Commercial Code upon the Personal property.
29. Any and all awards heretofore and hereafter made to Mortgagor and all
subsequent owners of the mortgaged premises by any governmental or other
lawful authorities for the taking by eminent domain of the whole or any
part of the mortgaged premises or any easement therein, including any
awards for any changes of grade of streets, are hereby assigned to
Mortgagee, who is hereby authorized to collect and receive the proceeds
of any such awards from such authorities, to give proper receipts and
acquittances therefor and to apply the same toward the payment of the
amount owing on account of the mortgage and said indebtedness,
notwithstanding the fact that the amount owing thereon may not then be
due and payable; and Mortgagor hereby covenants and agrees, upon request,
to make, execute and deliver any and all assignments and other
instruments sufficient for the purpose of assigning the aforesaid awards
to Mortgagee free, clear and discharged of any and all encumbrances of
any kind or nature whatsoever. Notwithstanding any such taking by eminent
domain, Mortgagor shall continue to make all payments required by the
Note until any such award shall have been actually received by Mortgagee
and any reduction in said indebtedness resulting from the application by
Mortgagee of such award shall be deemed to take effect only on the date
of such receipt.
30. The Mortgagor agrees that until payment in full of the debt secured
by the mortgage, unless Mortgagee shall otherwise consent in writing, it
will furnish to Mortgagee:
(a) as soon as available, but in any event not later than 120 days after
the close of each fiscal year of Mortgagor, a copy of the audited annual
report for Mortgagors immediately preceding fiscal year, including
therein a balance sheet of Mortgagor at the end of such fiscal year, and
related statements of income and retained earnings of Mortgagor for such
fiscal year, setting forth in each case in comparative form the
corresponding figures for the preceding fiscal period, all in reasonable
detail, prepared in accordance with generally accepted accounting
principles applied on a basis consistently maintained throughout the
period involved and with prior periods, such financial statements being
certified, without material exception, by an independent certified public
accountant of recognized standing selected by Mortgagor and acceptable to
Mortgagee;
(b) concurrently with the delivery of the financial statements referred
to in clause (a) above, a certificate of the chief financial officer or a
general partner or member of Mortgagor stating that, to the best of his
or her knowledge, Mortgagor during such period has kept, observed,
performed and fulfilled each and every covenant and condition contained
in this Mortgage and that he or she has obtained no knowledge of any
default hereunder except as specifically indicated;
(c) as soon as available, but in any event not later than 120 days after
the close of each calendar year, a certified list of all tenants of the
mortgaged premises indicating what portion of the mortgaged premises are
then occupied by each tenant and the annual rental being paid for such
occupancy, and a list of all security deposits made by tenants of the
mortgaged premises, and the name of the depository and account number
under which such security deposits are kept; and
(d) as soon as possible, but in any event not later than 30 days after
request therefor by Mortgagee, such additional information and
statements, lists of assets and liabilities, agings of receivables and
payables, inventory schedules, budgets, forecasts, tax returns and other
reports with respect to the financial condition and business operation of
Mortgagor and any guarantor of the obligations of Mortgagor to Mortgagee
as Mortgagee may request from time to time.
31. The Mortgagor will keep the buildings and improvements now or
hereafter located on the mortgaged premises insured against loss or
damage by flood, provided that the mortgaged premises are located in an
area which is identified by the U.S. Secretary of Housing and Urban
Development as having special flood hazards and in which insurance is
available under the National Flood Insurance Act of 1968, in an amount at
least equal to the outstanding principal balance of the debt secured by
the mortgage or the maximum coverage available with respect to the
buildings and improvements under the Act, whichever is less, and by a
company approved by the Mortgagee. The Mortgagor will assign the policy
or policies of such insurance to the Mortgagee, its executors,
administrators, personal representatives1 successors and assigns, which
policy or policies shall have endorsed thereon the standard New York
Mortgagee clause in the name of the Mortgagee, so and in such a manner
and form that the Mortgagee shall, at all times, until the full payment
of the mortgage debt, have and hold such policy or policies as collateral
and further security for the payment of the mortgage debt, and in default
of so doing, the Mortgagee, or its executors, administrators, successors
and assigns may procure such insurance from year to year, in the amount
aforesaid, and pay the premium or premiums therefor, and the Mortgagor
will reimburse the Mortgagee for such premium or premiums so paid, with
interest thereon from the time of payment of such premium or premiums to
the date when the Mortgagee actually receives such reimbursement, at the
highest interest rate then allowed by law, and such premiums with
interest shall be added to the mortgage debt and be secured by the
mortgage.
32. The whole of said principal sum and the interest shall become due at
the option of the Mortgagee if the Mortgagor or any guarantor of the
obligations of Mortgagor to Mortgagee fails to keep, observe and perform
any of the covenants, conditions or agreements contained in any other
agreement with the Mortgagee, or fail to pay any other obligations to the
Mortgagee, when due.
33. At reasonable intervals, or as updated or new appraisals are required
or suggested by federal and/or state law or regulations or as updated
appraisals are required pursuant to the Mortgagee's policy for mortgage
loans of this type, amount and/or risk level, as may be amended from time
to time, the Mortgagee may order a re-appraisal of the mortgaged property
by an independent appraiser of its selection, or by an employee of the
Mortgagee and the Mortgagor agrees to allow access to the mortgaged
property to such independent appraiser or employee of the Mortgagee, and
in the case of an independent appraiser, to pay to Mortgagee, within
thirty (30) days of billing, such appraiser 5 reasonable fee and
expenses.
34. Mortgagor shall keep and maintain the mortgaged premises in
compliance with, and shall not cause or permit the mortgaged premises to
be in violation of any Federal, State, or local laws, ordinances, or
regulations relating to industrial hygiene or to the environmental
conditions on, under, or about the mortgaged premises including, but not
limited to, soil and ground water conditions. Mortgagor shall not use,
generate, manufacture, store, or dispose of, on, under, or about the
mortgaged premises or transport to or from the mortgaged premises any
flammable explosives, radioactive materials, hazardous wastes, toxic
substances, or related materials including, without limitation, any
substances defined as or included in the definition of "hazardous
substances", "hazardous waste", hazardous materials", or "toxic
substances", under any applicable federal or state laws of regulations
(collectively referred to hereinafter as "Hazardous Materials").
Mortgagor shall immediately advise Mortgagee in writing of (i) any and
all enforcement, cleanup, removal or other governmental or regulatory
actions instituted, completed, or threatened pursuant to any applicable
federal, state, or local laws, ordinances, or regulations relating to any
Hazardous Materials affecting the mortgaged premises ("Hazardous
Materials Laws"); (ii) all claims made or threatened by any third party
against Mortgagor or the mortgaged premises relating to damage,
contribution, cost recovery compensation, loss or injury resulting from
any Hazardous Materials (the matters set forth in clauses (i) and (ii)
above are hereinafter referred to as "Hazardous Materials Claims"); (iii)
Mortgagor's discovery of any Hazardous Materials on, under or about the
mortgaged premises including, but not limited to, soil and ground water
conditions; and (iv) Mortgagor's discovery of any occurrence or condition
on any real property adjoining or in the vicinity of the mortgaged
premises that could cause the mortgaged premises or any part thereof to
be classified as "border-zone property" or the equivalent under such
state law as is applicable, or any regulation adopted in accordance
therewith, or to be otherwise subject to any restrictions on the
ownership, occupancy, transferability or use of the mortgaged premises
under any Hazardous Materials Laws.
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SCHEDULE I
1. Mortgage made by B.I.P. REALTY CORP. to THE DIME SAVINGS BANK OF
BROOKLYN, in the amount of $335,000.00, dated November 28, 1969 and
recorded in the office of the Clerk of the County of Suffolk on December
3, 1969 in Liber 5737 of Mortgages, page 264.
2. Mortgage made by MILNET REALTY CORP. to THE DIME SAVINGS BANK OF NEW
YORK, in the amount of $102,103.00, dated December 20, 1971 and recorded
in the office of the Clerk of the County of Suffolk on January 10, 1972
in Liber 6250 of Mortgages, page 559, which two (2) mortgages were
consolidated by the terms of the last mentioned mortgage to form a single
lien in the sum of $430,000.00.
3. Mortgage made by GUARDIAN CHEMICAL CORPORATION to THE DIME SAVINGS
BANK OF NEW YORK, in the amount of $375,676.43, dated November 10, 1981
and recorded in the office of the Clerk of the County of Suffolk on
November 17, 1981 in Liber 9141 of Mortgages, page 416, which three (3)
mortgages were consolidated by the terms of the last mentioned mentioned
to form a single lien in the sum of $700,000.00 and, which mortgages, as
consolidated, were assigned by Assignment of Mortgage dated January 6,
1989 by THE DIME SAVINGS BANK OF NEW YORK FSB f/k/a THE DIME SAVINGS BANK
OF BROOKLYN to EXTEBANK and recorded in the office of the Clerk of the
County of Suffolk on January 24, 1989 in Liber 14842 of Mortgages, page
291.
4. Mortgage made by UNITED GUARDIAN INC. to EXTEBANK, in the amount of
$500,000.00, dated November 30, 1987 and recorded in the office of the
Clerk of the County of Suffolk on December 30, 1987 in Liber 13689 of
Mortgages, page 205.
5. Mortgage made by UNITED GUARDIAN INC. to EXTEBANK, in the amount of
$322,003.21, dated January 10, 1989 and recorded in the office of the
Clerk of the County of Suffolk on January 24, 1989 in Liber 14842 of
Mortgages, page 269, which five (5) mortgages were consolidated by the
terms of the last mentioned mortgage to form a single lien in the sum of
$1,500,000.00 and which five (5) mortgages, now having a principal unpaid
balance of $758,333.63, were assigned by Assignment of Mortgage dated
July 25, 1996, by NORTH FORK BANK, as successor by merger to EXTEBANK to
STATE BANK OF LONG ISLAND and intended to be recorded in the office of
the Clerk of the County of Suffolk simultaneously herewith.
<PAGE>
SCHEDULE A
ALL that certain lot, piece or parcel or land, with the buildings thereon
erected1 situate, lying and being at Hauppauge, Town of Smithtown, County
of Suffolk and State of New York, bounded and described as follows:
BEGINNING at a point on the westerly side of Marcus Boulevard at the
extreme southerly end of the curve connecting the westerly side of Marcus
Boulevard with the southerly side of Oser Avenue;
RUNNING THENCE a long the westerly side of Marcus Boulevard South 3
degrees 17 minutes 15 seconds East 297.31 feet;
THENCE South 86 degrees 112 minutes 45 seconds West 3110.35 feet; THENCE
North 3 degrees 17 minutes 15 seconds West 390.97 feet to the southerly
side of Oser Avenue;
THENCE South 80 degrees 25 minutes 35 seconds East along the southerly
side of Oser Avenue 333.16 feet to the westerly end of the curve
connecting the southerly side of Oser Avenue with the westerly side of
Marcus Boulevard; THENCE easterly, southeasterly and southerly along said
curve bearing to the right having a radius of 20 feet, a distance along
said curve of 26.93 feet to the westerly side of Marcus Boulevard to the
point or place of BEGINNING.
<PAGE>
EXHIBIT 10(h)
-------------
EXCLUSIVE DISTRIBUTOR AGREEMENT
-------------------------------
This Agreement is made on September 20, 1996, between United-
Guardian, Inc., a corporation organized under the laws of Delaware with
offices at 230 Marcus Blvd., Hauppauge, New York, 11789 ("UGI") and ISP
Technologies Inc., a corporation organized under the laws of Delaware
with offices at State Highway 146 & Industrial Road, Texas City, Texas
77590 ("ISP").
WHEREAS, UGI is a manufacturer of specialty chemical products;
and
WHEREAS, ISP and its affiliated companies have substantial
experience and expertise in marketing specialty chemical products to
various markets; and
WHEREAS, UGI desires ISP to act as its exclusive distributor in
certain markets and territories of certain of its specialty chemical
products in accordance with the terms and conditions of this Agreement;
NOW THEREFORE, UGI and ISP hereby agree as follows:
I. APPOINTMENT; PRODUCTS
1.1 UGI hereby appoints and authorizes ISP as its exclusive
distributor of the specialty chemical products listed on Schedule A,
which is attached hereto and incorporated herein (the "PRODUCT(S)") to
sell such PRODUCTS in the personal care and industrial markets (the
"MARKETS") in the territories set forth in Schedule B, which is attached
hereto and incorporated herein (the "TERRITORY"). UGI also hereby
appoints and authorizes ISP as its non-exclusive distributor of the
PRODUCTS to sell such PRODUCTS to the medical market in the TERRITORY.
During the entire term of this Agreement, UGI shall not appoint any
additional distributor for the PRODUCTS for the medical market in the
TERRITORY. UGI's present distributors of the PRODUCTS for the medical
market in the TERRITORY are listed on Schedule C, which is attached
hereto and incorporated herein.
1.2 ISP accepts the appointment and agrees to use its
commercially reasonable best efforts to maintain, promote, develop and
increase sales of the PRODUCTS.
1.3 It is understood that the authority granted to ISP hereunder
is the authority to market the PRODUCTS and does not constitute ISP as
the agent or legal representative of UGI for any purpose whatsoever, and
ISP is not authorized to assume or create any obligation or
responsibility, express or implied, on behalf of or in the name of UGI,
or to bind UGI in any manner whatsoever, except as provided pursuant to
the terms and conditions of this Agreement or as may be authorized by UGI
from time to time.
1.4 UGI shall have the right to continue to sell PRODUCTS to
UGI'S pre-existing customers listed on Schedule D, which is attached
hereto and incorporated herein. UGI shall also have the right, as shall
ISP (except as provided in Section 2.3 below), to market and sell
Lubrajel and Hydrajel-based products for use as vaginal moisturizers,
sexual lubricants or for other internal applications, such as mouth or
nose moisturizers. ISP shall not receive any compensation for sales by
UGI of Lubrajel or Hydrajel based products for the aforementioned uses or
for sales by UGI to the distributors listed on Schedule C or customers
listed on Schedule D.
II. EXCLUSIVITY
2.1 From the execution date of this Agreement set forth in the
preamble hereof and during the entire term of this Agreement, UGI shall
not appoint any other distributor of the PRODUCTS for the MARKETS and
TERRITORY other than ISP. UGI represents that Amerchol was UGI's sole
distributor of the PRODUCTS for the MARKETS and TERRITORY, that UGI
terminated its distributor arrangements with Amerchol effective September
1, 1996, and that UGI has no existing distributor arrangements of any
nature whatsoever with any third party regarding direct or indirect sale
and/or marketing of the PRODUCTS for the MARKETS and TERRITORY.
2.2 Except as specified in Section 2.3 below, UGI shall not,
directly or indirectly, sell or market the PRODUCTS in the MARKETS and
TERRITORY, other than to ISP or as otherwise mutually agreed upon.
2.3 UGI shall retain the exclusive right to market and sell
"FINISHED FORMULATIONS," as hereinafter defined. ISP shall not receive
any compensation for sales of FINISHED FORMULATIONS, including FINISHED
FORMULATIONS for use in medical applications, and ISP may sell FINISHED
FORMULATIONS only upon the prior written consent of UGI which consent
shall not unreasonably be withheld or delayed. For purposes of this
Agreement, "FINISHED FORMULATION(S)" shall mean all PRODUCTS which are
formulated with other ingredients and/or a formulation of two or more
products manufactured by UGI which is intended to be used, as is, without
further processing as an end-use product. The current FINISHED
FORMULATIONS are listed in Schedule E, which is attached hereto and
incorporated herein.
2.4 UGI may develop and/or solicit customers for the PRODUCTS in
the MARKET and TERRITORY, either directly or through third parties;
provided, however, UGI shall refer, and shall cause all such third
parties to refer, any such customers to ISP.
III. PERIOD OF AGREEMENT; PERFORMANCE CRITERIA
3.1 Unless earlier terminated as provided herein, the term of
this Agreement shall commence October 1, 1996, and shall continue through
and including December 31, 2001 (the "INITIAL TERM"); provided, however
(i) in the event ISP purchases at least eighty-seven percent (87%) of the
sum of the PURCHASE TARGETS for the INITIAL TERM (such PURCHASE TARGETS
are set forth in Schedule F, which is attached hereto and incorporated
herein), then ISP shall have the exclusive right to renew this Agreement
for an additional term of three (3) years or (ii) in the event ISP
purchases at least one hundred and thirty percent (130%) of the sum of
the PURCHASE TARGETS for the INITIAL TERM, then ISP shall have the
exclusive right to renew this Agreement for an additional term of five
(5) years (in either case, the "FIRST RENEWAL TERM" and in either case,
provided ISP has not received notice under Section 3.3 below that this
Agreement has been terminated). After the FIRST RENEWAL TERM, this
Agreement shall be renewable for successive five (5) year terms upon the
mutual agreement of both parties.
3.2. Also included in Schedule F are ISP's PURCHASE TARGETS for
each calendar year of the FIRST RENEWAL TERM.
3.3 In the event ISP fails to meet the PURCHASE TARGET for any
calendar year, the amount of the shortfall shall be added to the PURCHASE
TARGET for the next calendar year. In the event ISP fails to attain fifty
percent (50%) of the PURCHASE TARGET for said next calendar year by the
end of the first six (6) month period of said next calendar year
(including fifty percent (50%) of the amount of any shortfall added from
the prior calendar year), then UGI shall have the right to terminate this
Agreement upon sixty (60) days written notice given within ninety (90)
days after the end of said six (6) month period.
IV. PRICES; PAYMENT; DELIVERY; AND TITLE
4.1 Initial prices for the PRODUCTS are set forth on Schedule G,
which is attached hereto and incorporated herein, and are FOB Hauppauge,
New York. Prices shall not increase prior to July 1, 1997, after which,
the prices for each PRODUCT shall be subject to increase on thirty (30)
days prior written notice to ISP; provided, however, any such increase in
prices shall not exceed five percent (5%) each calendar year and;
provided further, the aggregate of such increases shall not exceed
eighteen percent (18%) during any consecutive five (5) year period. Any
such price increase may be instituted only once each calendar year.
Increased prices shall apply with respect to PRODUCT shipped after the
effective date of any such increase. Should UGI suffer hardship caused by
escalating costs by reason of conditions beyond its control, including
but not limited to environmental or regulatory requirements, or
substantial unforeseen increases in the cost of raw material prices
purchased from a third party and used by UGI to manufacture a PRODUCT
(and expressly excluding labor and overhead), then UGI may so notify ISP
in writing (such notice to be accompanied by documentation substantiating
such escalating costs), and the parties shall discuss the practicality of
increasing the price for such PRODUCT hereunder above the amount of any
increase otherwise permissible hereunder.
Should ISP and UGI not agree upon a mutually acceptable price
increase within a reasonable period of time after the date of UGI's
aforementioned notice, UGI may have an independent accounting firm,
mutually acceptable to both UGI and ISP (the "Auditors"), at UGI's sole
cost and expense, conduct an audit of such escalating costs. In the event
the Auditors verify in a certified written statement to ISP and UGI that
such costs have actually increased in a calendar year by an amount in
excess of the percentage price increase permitted for any such affected
PRODUCT for such calendar year, such actual percentage increase in costs
to be set forth in said certified statement, then UGI may increase the
prices for each affected PRODUCT by the actual percentage increase in
costs so certified by the Auditors, such increase to be effective thirty
(30) days following the date of said certified statement; provided,
however, the aggregate of all increases hereunder shall nonetheless not
exceed the aforementioned maximum eighteen percent (18%) during any
consecutive five (5) year period unless UGI, through the Auditors,
justifies any additional increase in accordance with the foregoing
procedure. No more frequently than once each calendar year, ISP may
request an audit of UGI's aforementioned costs after any price increase
which exceeds the annual five percent (5%) cap and/or the eighteen
percent (18%) five (5) year cap has been instituted pursuant to the
foregoing procedure and UGI shall have the Auditors conduct such an audit
at UGI's sole cost and expense. In the event the Auditors verify in a
certified written statement to ISP and UGI that such costs have actually
decreased, then the prices for each affected PRODUCT shall forthwith be
reduced accordingly.
4.2 If at any time during the term of this Agreement, UGI sells
any PRODUCT to another purchaser, including but not limited to another
distributor, at a price (excluding taxes and freight charges) which is
lower than the price to ISP hereunder and/or on better terms and
conditions than those set forth herein, then UGI shall offer such price
and/or better terms and conditions for such PRODUCT to ISP for the period
of time such price and/or better terms and conditions are offered to such
other purchaser.
Once in any twelve (12) consecutive calendar month period, ISP
shall have the right, exercisable by written notice to UGI, to obtain
verification of the prices charged to third party purchasers for the
PRODUCTS. Verification shall be performed by an independent outside
auditor selected by ISP. UGI shall afford such auditor access to customer
invoices and such other records necessary to verify PRODUCT prices. Upon
completion of the review, the auditor shall issue to both parties a
written report of the findings, which shall be final and binding upon the
parties and which shall include the amount of any price adjustment and/or
the better terms and conditions offered to third parties. If the auditor
requires a credit to ISP's account of at least $1000, the cost of the
audit shall be borne by UGI otherwise, the cost shall be borne by ISP.
Any credit to ISP's account shall be made within ten (10) days of UGI's
receipt of the auditor's written report.
4.3 UGI shall invoice ISP for all shipments, and payment is due
thirty (30) days from the date of the invoice.
4.4 Title, risk of loss of, and liability for the PRODUCTS shall
remain with UGI until delivery of the PRODUCTS to a common carrier
reasonably acceptable to ISP at UGI's facilities in Hauppauge, New York.
UGI warrants that, at the time of delivery, the PRODUCTS shall be free
and clear of all liens and encumbrances.
4.5 Duplicate shipments or overages may be returned by ISP to
UGI freight collect if such duplicate shipment or overage is the fault of
UGI.
4.6 At such time as the quantity of ISP's purchases of PRODUCTS,
in the aggregate, under this Agreement exceeds the applicable PURCHASE
TARGET for a calendar year by the percentages indicated below, the prices
for each pound of PRODUCT purchased by ISP under this Agreement in excess
of such quantity shall be reduced by the percentage discount indicated
below from the prices then in effect for each such PRODUCT and such
discount in price shall apply to PRODUCTS so purchased for the remainder
of said calendar year and the following calendar year (the "Next Year").
In the event ISP's purchases of PRODUCTS, in the aggregate, in the Next
Year do not reach the discount level last in effect in the previous
calendar year, then at the end of said Next Year UGI shall invoice ISP
for the difference in price between what ISP paid for PRODUCTS during
said Next Year and the price that ISP would have paid for such PRODUCTS
had said discount not been applied during said Next Year.
Payment of any undisputed invoice shall be due thirty (30) days from
the date of ISP's receipt of said invoice.
Percentage by which ISP Exceeds
Applicable Minimum PURCHASE TARGET Percentage Discount
10% 5%
15% 6%
20% 7%
25% 8%
30% 9%
35% 10%
4.7 Prices for any PRODUCT may be reviewed and may be amended if
the parties agree that marketing conditions are such that ISP is not able
to compete effectively. If ISP believes it must reduce pricing on a
specific order to meet a competitor's prices and/or to respond to unusual
market conditions, ISP may request price reductions from UGI on a
case-by-case basis and/or request UGI to reduce prices in general to
respond to such unusual market conditions and UGI shall negotiate any
such requested price reduction with ISP in good faith.
V. SPECIFICATIONS
5.1 UGI warrants the PRODUCTS shall meet the specifications set
forth in Schedule H which is attached hereto and incorporated herein. UGI
may propose revisions to Schedule H to narrow the ranges provided therein
upon written notice to ISP. If ISP does not object, in writing, within
thirty (30) days of receipt of such notice, the revisions shall become
effective. ISP shall retain the right to reject any proposed revisions to
Schedule H in its reasonable business judgment. ISP shall have the right
at all times to reject PRODUCTS not meeting the specifications set forth
in Schedule H, which PRODUCTS will then be returned and replaced, and
replacement products shipped as requested by ISP at UGI's sole cost and
expense, and UGI shall reimburse ISP for any and all costs and expenses
incurred by ISP as a result of such rejection. ISP does not waive any
rights, including but not limited to the foregoing, by unloading, selling
and/or using PRODUCT that does not meet such specifications unless it
knew at the time of such unloading, selling, or use that the PRODUCT did
not meet the specifications. UGI shall bear all risks of any nature
whatsoever with respect to such PRODUCTS which have been so rejected by
ISP and shall indemnify ISP as set forth in Section 9.1 with respect to
such PRODUCTS.
5.2 UGI shall provide ISP with certificates of analysis for each
individual lot and Material Safety Data Sheets and any updates thereto,
such certificates to be in the form set forth on Schedule I, which is
attached hereto and incorporated herein.
VI. SUPPORT AND SALES
6.1 All orders of PRODUCTS shall be made by ISP's standard
purchase order. Neither such standard purchase order nor any document
used by UGI shall amend or modify any provisions of this Agreement.
6.2 ISP shall market and sell the PRODUCTS under UGI's
tradenames or trademarks. UGI hereby grants to ISP an exclusive license
to use the UGI tradenames or trademarks associated with the PRODUCTS in
the TERRITORY as long as UGI itself has the right to use such mark in a
particular country in the TERRITORY. Except as set forth in Schedule J,
which is attached hereto and incorporated herein, UGI represents and
warrants that, to the best knowledge of its officers and directors, no
third parties have registered UGI's tradenames or trademarks. Upon
termination of this Agreement and after sale or disposal of all PRODUCT
in ISP's inventory, ISP shall cease using UGI's tradenames and
trademarks. In any part of the TERRITORY in which UGI has not registered
its trademarks, ISP shall have the right, but not the obligation, to do
so at its own expense under UGI's name, and shall be entitled to an
exclusive royalty-free license to use the same as long as this Agreement
remains in effect and thereafter as provided in the preceding sentence.
UGI shall cooperate fully with ISP in the event ISP decides to pursue any
such registration, and will furnish to ISP any documentation it may
reasonably request to accomplish such registration. In such cases in
which ISP does so register UGI's trademark, it shall be ISP's sole right,
but not its obligation, at its expense to initiate or defend any
trademark infringement actions connected with the use of said mark in
those areas on behalf of, and in the name, of UGI as owner of said mark.
UGI shall provide ISP with such information and technical
assistance as is reasonably necessary for ISP to service all customers
for the PRODUCTS. The extent of such information and technical assistance
shall be determined solely by UGI in the exercise of its reasonable
business judgment.
6.3 UGI shall designate a UGI employee to be the PRODUCT
representative for ISP. Such employee shall assist ISP in resolving
technical PRODUCT and specification matters and shall provide such other
assistance as may be reasonably requested by ISP for ISP to successfully
market the PRODUCTS and provide a high standard of service in the
promotion and sale of the PRODUCTS. ISP shall designate an ISP employee
to be its technical contact to interface with UGI's PRODUCT
representative regarding technical PRODUCT and specification matters.
6.4 Notwithstanding expiration or earlier termination of this
Agreement for any reason whatsoever, ISP shall have the right to continue
to sell or otherwise dispose of any and all PRODUCTS in ISP's inventory
at such prices as ISP may elect unless UGI agrees to buy back such
inventory at the price paid to UGI by ISP for such PRODUCTS, including
ISP's shipping expenses and related costs. Shipping expenses back to UGI
will also be the responsibility of UGI.
6.5 UGI shall have the right to terminate this Agreement upon
thirty (30) days prior written notice, if during the term of this
Agreement ISP purchases or manufactures, or causes a third party to
purchase or manufacture on its behalf, for sale in the MARKETS and
TERRITORY, any products which have substantially the same specifications
as the PRODUCTS (as set forth in Schedule H) and which are intended to be
used as direct substitutes for the PRODUCTS.
6.6 Within sixty (60) days after the end of the first six (6)
months of each calendar year and within sixty (60) days after the end of
each calendar year, ISP shall submit to UGI a report on its marketing
efforts for the PRODUCTS during that six (6) month period of that
calendar year, and, with respect to the second report, its plans for the
following calendar year. Any data regarding the PRODUCTS that is
generated by ISP in connection with its efforts to market the PRODUCTS or
to obtain regulatory approval, as provided in Section 10.2 hereof, shall
be provided to UGI as obtained by ISP. Such reports shall include
information on sales, customer needs and requests, and problems
encountered and shall be deemed CONFIDENTIAL INFORMATION, as defined in
Section 14.1 hereof, whether or not so marked.
6.7 UGI represents and warrants that its sales of PRODUCTS in
the TERRITORY (excluding sales to the medical market and sales to UGI's
pre-existing customers listed on Schedule D) for the twelve (12) calendar
months September 1, 1995 through August 31, 1996 were as set forth on
Schedule K, which is attached hereto and incorporated herein.
6.8 After termination of this Agreement for any reason, ISP
shall provide to UGI a list of all ISP customers that have purchased
PRODUCTS within the twelve (12) month period prior to the effective date
of such termination. Such list shall include the customer name, PRODUCTS
purchased by that customer, and the quantities of PRODUCTS purchased
during said twelve (12) month period. With respect to customers located
in the United States, such list shall be provided to UGI within fifteen
(15) days of the effective date of such termination, and within such
period of time as is reasonably possible after the effective date of such
termination with respect to customers located in the remainder of the
TERRITORY.
VII. PACKAGING AND SHIPPING
7.1 UGI shall package the PRODUCTS in accordance with the
specifications described on Schedule L, which is attached hereto and
incorporated herein and in accordance with all pertinent provisions of
any applicable federal, state, municipal, provincial or other local law
or regulation of which it is aware or is made aware; provided, however,
ISP may repackage PRODUCT, in which event ISP will use only repackaging
containers and other packing materials and labels that comply with all
pertinent provisions of any applicable federal, state, provincial,
municipal or other local law or regulation.
VIII. SAMPLES AND RETAINED BATCHES
8.1 UGI, at no cost to ISP, shall provide ISP with reasonable
quantities of samples for those PRODUCTS that ISP does not stock, to be
shipped to ISP in accordance with ISP's instructions and at ISP's
expense. For PRODUCTS that ISP does stock, it will be ISP's
responsibility to use its own stock to provide samples.
8.2 UGI shall retain a reasonable amount of PRODUCT as a sample
to allow for testing of each finished batch lot. Such sample shall be
labelled with the PRODUCT name, code, batch/lot number, and date of
sample and shall be retained by UGI for a period of three (3) years from
the date of manufacture of such batch lot. At any time, ISP shall have
the right to request UGI to deliver, and UGI shall thereupon forthwith
deliver, a portion of such sample to ISP or its designee.
IX. INDEMNIFICATION
9.1 Neither party hereto shall be liable for any indirect,
incidental, or consequential damages or lost profits caused by or arising
out of its performance or failure to perform hereunder. However, UGI will
defend, indemnify and hold ISP, its affiliates, assigns, and their
respective agents, representatives, officers, directors and employees
harmless from and against all claims, demands, settlements, judgments,
losses, liabilities and any and all related costs and expenses (including
reasonable and necessary attorneys' fees) arising out of or related, in
any manner whatsoever, to (i) the PRODUCTS (including but not limited to
the manufacture, transportation, sale, use and/or disposal of the
PRODUCTS) except to the extent solely and directly caused by ISP's
negligence or willful misconduct in handling, storing, repackaging, or
transporting the PRODUCTS, (ii) any breach of any representation,
warranty or agreement made by UGI herein; (iii) any failure to comply
with applicable laws and regulations; and/or (iv) any act or omission of
UGI in any way related to this Agreement.
ISP will defend, indemnify and hold UGI and its affiliates,
assigns and their respective agents, representatives, officers, directors
and employees harmless from and against all claims, demands, settlements,
judgments, losses, liabilities and any and all related costs and expenses
(including reasonable and necessary attorneys' fees) arising out of or
related to (i) ISP's handling, storing, repackaging, transportation,
marketing, advertising, sale, use, disposal, or label content of the
PRODUCTS (except if such sale, handling, storing, repackaging,
transportation, marketing, advertising, use, disposal or label content is
based on erroneous information provided by UGI) or (ii) ISP's failure to
comply in all material respects with applicable laws and regulations, and
with respect to both (i) and (ii), only to the extent the same are solely
and directly caused by ISP.
9.2 Notwithstanding any other provision set forth herein, the
indemnity provisions set forth in Section 9.1 and elsewhere in this
Agreement shall survive termination or expiration of this Agreement.
X. REGULATORY, HEALTH AND SAFETY MATTER
10.1 UGI, at its sole cost and expense, shall perform such
health and safety tests related to the PRODUCTS and take any other action
which may be required by any governmental authority having jurisdiction
of the same, which are or may become necessary to ensure the continued
manufacture of the PRODUCTS. UGI represents and warrants that, to the
best knowledge of its officers and directors, it is not aware of any
regulations prohibiting the sale of the PRODUCTS in the MARKETS or to the
medical market and TERRITORY. UGI does not warrant that it will be able
to comply with the health and safety regulations in all parts of the
TERRITORY, but shall use commercially reasonable efforts to comply when
so requested by ISP. UGI shall share with ISP the results of any such
health and safety tests and all other health, safety and/or regulatory
information now or hereafter in its possession relating to the PRODUCTS
and their uses.
10.2 ISP may, in its sole discretion and at its own expense,
choose to obtain governmental approvals that may be required to market
the PRODUCTS in the TERRITORY. UGI will, at ISP's request and expense,
execute and deliver whatever documents are necessary in order to enable
ISP to obtain such approvals; however, all such documents or information
which UGI deems confidential will, at UGI's option, be provided directly
to the regulatory agencies involved, with appropriate procedures
satisfactory to UGI (in its reasonable business judgment) being followed
to maintain the confidentiality of the information.
10.3 In the event UGI cannot, or chooses not to, and ISP chooses
not to comply with any government regulations affecting the sale of
PRODUCTS in the TERRITORY, the parties shall in good faith, renegotiate
the PURCHASE TARGETS set forth in Schedule F hereto to account for
diminished sales potential.
XI. INSURANCE
11.1 UGI shall maintain, at its sole cost and expense, the
following kinds of insurance with minimum limits as set forth below and
naming ISP as additional insured (and such insurance shall be primary
without regard to any other insurance ISP shall maintain or otherwise
have in force):
Kinds of Insurance Limits of Liability
Comprehensive General Minimum $1,000,000
Liability (including products per occurrence
liability) and a broad form
vendors endorsement naming ISP
Excess (umbrella) $4,000,000
liability (including products
liability) and a broad form
vendors endorsement naming ISP
The insurance coverages set forth in this Article XI shall be
provided by insurers reasonably acceptable to ISP. UGI shall provide ISP
with a certificate of insurance evidencing that all such insurance
coverages are in effect prior to commencement of the INITIAL TERM, and
that none of such policies of insurance shall be terminated, canceled or
modified by the insurers unless ISP is provided with at least thirty (30)
days prior written notice of the same.
11.2 Notwithstanding any other provision set forth herein, the
insurance provisions set forth in Section 11.1 shall survive expiration
or earlier termination of this Agreement.
XII. DEFAULT
12.1 In the event that either party hereto shall default in any
material respect in the performance of any obligation specified herein,
the non-defaulting party shall have the right in addition to any other
rights or remedies it may have hereunder or at law or in equity, to so
notify the other party thereof in writing specifying the nature of such
default and, if such default is not remedied within thirty (30) days from
the date of such notice, then the non-defaulting party shall have the
right, in addition to any other rights or remedies it may have hereunder
or at law or in equity, to terminate this Agreement immediately.
12.2 In the event either party shall initiate any bankruptcy,
insolvency, receivership or similar proceedings, or such proceedings are
initiated against either party, and such party fails to have such
proceedings dismissed within forty-five (45) days after such proceedings
are initiated, the other party may terminate this Agreement immediately.
12.3 In the event either party transfers all or substantially
all the business to which this Agreement relates to a competitor of the
other party, such other party shall have the right to terminate this
Agreement upon thirty (30) days prior written notice.
XIII. ASSIGNMENT
13.1 Neither party shall assign this Agreement, in whole or in
part, whether by operation of law or otherwise, without the other party's
prior written consent, which consent shall not be unreasonably withheld
or delayed, except that either party may assign this Agreement without
such consent to an affiliate or to any subsequent purchaser of all or
substantially all of the business to which this Agreement relates.
XIV. CONFIDENTIAL INFORMATION; PATENTS
14.1 Each party hereto shall keep confidential and shall not
disclose in any manner to any third party nor use for any purposes other
than those contemplated by this Agreement, during the term hereof and for
a period of ten (10) years from the expiration or earlier termination of
this Agreement, any proprietary technical or business information marked
as "CONFIDENTIAL" and acquired from the other party hereto in connection
with or in the course of performance of this Agreement ("CONFIDENTIAL
INFORMATION").
14.2 CONFIDENTIAL INFORMATION shall not include any information
which: (a) was in the possession of the receiving party prior to the
disclosing party's disclosure to the receiving party and which was not
previously obtained either directly or indirectly from the disclosing
party; (b) was at the time of the disclosing party's disclosure to the
receiving party or thereafter becomes, through no fault of the receiving
party, part of the public domain by publication or otherwise; or (c) was
furnished to the receiving party by any third party not subject to
restrictions on disclosure.
14.3 Notwithstanding Section 14.1, any invention, discovery or
improvements which either party hereto or its employees, agents or
advisors solely develops or makes as a result of information received
under this Agreement or the performance of its obligations hereunder,
shall become the property of such party as long as such invention,
discovery, or improvement is not the result of use of the proprietary
CONFIDENTIAL INFORMATION of the other party. Both parties agree to
perform, and agree to use best efforts to have their employees, agents
and advisors perform, all lawful acts requested by the party owning such
property, at such owning party's expense to:
(a) perfect title therein in such owning party or its nominee and;
(b) enable such owning party or its nominee to obtain and maintain
patent or other legal protection therefor anywhere in the world.
14.4 ISP and UGI shall have joint ownership of any invention,
discovery or improvements made as a result of the parties' joint efforts,
or the joint efforts of their employees, agents or advisors. ISP and UGI
shall file joint applications for all patents arising from such efforts
in all countries the parties deem necessary. The costs of obtaining such
patents shall be borne equally by the parties, however, if one party
seeks to file a patent in a jurisdiction where the other party does not
wish to file, that party may make such a filing and all such costs shall
be borne by the filing party.
14.5 The terms and conditions of this Agreement shall be treated
as CONFIDENTIAL INFORMATION hereunder, except to the extent required by
government regulations. ISP acknowledges that UGI may be required to file
this Agreement with the Securities and Exchange Commission ("SEC"),
disclose the subject matter hereof in a letter to its shareholders,
and/or issue a press release regarding the subject matter hereof. If this
Agreement is filed with the SEC, UGI shall use its best efforts to obtain
confidential treatment of all market information. ISP and UGI shall
mutually agree to any press release to be issued with respect to the
subject matter hereof.
14.6 Notwithstanding any other provision set forth herein, the
provisions of this Article XIV shall survive expiration or earlier
termination of this Agreement.
XV. INTELLECTUAL PROPERTY RIGHTS
15.1 Except as disclosed in Schedule J, UGI represents and
warrants, to the best knowledge and belief of its officers and directors,
that UGI owns all right, title and interest in and to the manufacturing
process and the patents, trademarks, copyrights and other intellectual
property rights relating to the PRODUCTS.
15.2 Except as disclosed in Schedule J, UGI represents and
warrants, to the best knowledge and belief of its officers and directors,
that the manufacture and sale of the PRODUCTS by UGI to ISP and the
distribution, promotion and sale of the PRODUCTS by ISP, does not and
will not infringe any United States or foreign patent, trademark,
copyright or other intellectual property rights of any third party.
15.3 UGI shall defend, indemnify and hold ISP, its affiliates,
and their respective agents, representatives, officers, directors,
employees and customers harmless from and against all claims, demands,
settlements, judgments, losses, liabilities, penalties, fines and any and
all related costs and expenses (including reasonable attorney's fees)
arising out of any allegation that any PRODUCT sold by UGI to ISP under
this Agreement infringes any United States or foreign patent, trademark,
copyright or other intellectual property rights of any third party, up to
an amount equal to the total REVENUES earned by ISP with respect to the
infringing PRODUCT(S) in the country where such infringement allegedly
occurred. For purposes of this Section 15.3 "REVENUES" shall exclude (a)
discounts, rebates, returns and allowances, if actually allowed or
granted to customers; and (b) sales, excise, and other taxes,
transportation and insurance charges; if such items are actually included
in the gross sales price to customers. ISP shall notify UGI of the
commencement of any such suit or action promptly after receiving written
notice of the same and provide UGI with reasonable and necessary
cooperation, at UGI's sole cost and expense, in defense or resolution of
any such suit or action.
XVI. NOTICES
16.1 All notices and consents required to be given hereunder
shall be in writing and given: by hand; by first class mail (return
receipt requested); by facsimile confirmed by first class mail (return
receipt requested); or, by recognized overnight courier service,
addressed to the intended recipient as follows:
If to ISP ISP Technologies Inc.
c/o ISP Management Co., Inc.
1361 Alps Road
Wayne, New Jersey 07470
Attn: General Counsel
Telephone: (201) 628-3925
Fax: (201) 628-3196
If to UGI: United-Guardian, Inc.
230 Marcus Blvd.
Hauppauge, New York 11788
Attn: President
Telephone: (516) 273-0900
Fax:(516) 273-0858
or to such other address as either party may from time to time designate
in writing to the other.
XVII. DISPUTE RESOLUTION
17.1 The parties agree to make a diligent, good faith attempt to
resolve all disputes concerning the terms and conditions of this
Agreement. If the parties are unable to resolve a dispute within fifteen
(15) days after notice from one party to the other, such dispute shall be
submitted to arbitration before one arbitrator under the Large Complex
Case Program (the "LCCP") of the American Arbitration Association (the
"AAA") at the of offices of AAA in New York City.
17.2 If the parties cannot agree on an arbitrator from the LCCP
list of panelists, either party can request AAA to appoint such an
arbitrator, which appointment shall be binding upon the parties. The
arbitrator shall render a reasoned written decision together with his or
her award.
XVIII. GOVERNING LAW
The validity and interpretation of this Agreement and the legal
relations of the parties shall be governed by the laws of the United
States of America and State of New York without regard to the choice of
law provisions. Each party consents to submit to the exclusive
jurisdiction of the federal or state courts located in the State of New
York for the enforcement of any arbitration award made pursuant to
Article XVII.
XIX. FORCE MAJEURE
Neither party shall be liable for delay or failure to perform in
whole or in part any provision of this Agreement by reason of
contingencies beyond its control, including but not limited to: acts of
God; fires; floods; earthquake; lightning; storms; explosions; mechanical
breakdowns; military operations; civil commotions; failure of public
services; wars; sabotage; accidents; labor disputes or shortages;
governmental laws, ordinances, rules, regulations, whether valid or
invalid; inability to obtain material, equipment or transportation; and
any other similar occurrences. The party so affected shall promptly give
written notice to the other party whenever such contingency or other act
becomes reasonably foreseeable, and the affected party shall use its best
efforts to overcome the effects of the contingency as promptly as
possible, and shall promptly give written notice to the other party of
the cessation of such contingency. Neither party, however, shall be
required to resolve a strike, lockout or other labor problem in a manner
which it, in its sole discretion, does not deem proper and advisable. In
the event of a force majeure circumstance which prevents UGI from
supplying and/or ISP from purchasing PRODUCTS, the PURCHASE TARGETS for
each calendar year or portion thereof set forth in Schedule F hereof
shall be reduced prorata based upon the length of time the force majeure
circumstance is in effect.
XX. ENTIRE AGREEMENT AND AMENDMENTS; WAIVER; CAPTIONS
20.1 This Agreement and the Schedules, which are attached hereto
and incorporated herein, constitute the entire agreement and
understanding between the parties with respect to its subject matter and
supersede all prior agreements, written or oral, between the parties
concerning such subject matter. This Agreement and the Schedules hereto
may not be changed or modified except in writing signed by a duly
authorized representative of each party. The parties may use purchase
orders, acknowledgments or other documentation but the same are intended
for convenience and record purposes only and any provisions which may be
contained therein are not intended to (nor shall they serve to) add to or
otherwise amend or modify any provisions of this Agreement.
20.2 No failure of either party to enforce any provisions hereof
shall constitute a waiver by that party of its right subsequently to
enforce the same or any other provision hereof.
No waiver of any provision of this Agreement shall be effective
unless in writing signed by the party claimed to have waived such
provision.
20.3 The captions used herein are for reference only, and shall
not in any way affect the meaning or interpretation of this Agreement.
XXI. SEVERABILITY
If any provision of this Agreement shall hereafter be held to be
invalid or unenforceable for any reason in a particular jurisdiction,
such provision shall be reformed to the maximum extent permitted to
preserve the parties' original intent, failing which such provision shall
be severed from this Agreement and the remainder of this Agreement shall
continue in full force and effect. Such occurrence shall not have the
effect of rendering the provision in question invalid in any other
jurisdiction or in any other case or circumstance, or of rendering
invalid any other provision contained herein, to the extent that such
other provision is not actually in conflict with any applicable law.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
ISP TECHNOLOGIES INC. UNITED-GUARDIAN, INC.
By: /s/ Art Dresner By: /s/ Kenneth H. Globus
Name: Art Dresner Name: Kenneth H. Globus
Title: Vice President Title: President
<PAGE>
Schedule A
PRODUCTS*
Lubrajel
Grades: LC, MS, CG, NP, DV, TW, Oil, Karajel and Creamjel
Oil of Orchids (water soluble)
Oil of Orchids (oil soluble)
Lubrasil
Aquathik
Thixotrate
B122
Lubraslide
Klensoft
Super Ti Powder
Unitwix
Confetti
Any improvements to, or variations of, the above-listed PRODUCTS will
also be deemed PRODUCTS for purposes of this Agreement with the exception
of (a) the FINISHED FORMULATIONS listed on Schedule E hereto and (b) any
improvements to, or variations of, Lubrajel and Hydrajel-based products
for use as vaginal moisturizers, sexual lubricants or for other internal
applications, such as mouth or nose moisturizers, which may be marketed
and sold by both UGI and ISP as provided in Section 1.4 hereof.
* Lubrajel LC, Creamjel and Confetti will become PRODUCTS
hereunder only upon ISP's receipt of specifications for the same
from UGI.
<PAGE>
Schedule B
Territory
All of North America, Central America and South America.
<PAGE>
Schedule C
UGI DISTRIBUTORS FOR THE
MEDICAL MARKET IN THE TERRITORY
Horizon Medical, Inc. - Santa Ana, CA
<PAGE>
Schedule D
UGI PRE-EXISTING CUSTOMERS
THE INFORMATION CONTAINED IN THIS SCHEDULE IS CONSIDERED BY THE
REGISTRANT TO BE PROPRIETARY AND CONFIDENTIAL, AND HAS, THEREFORE, BEEN
OMITTED FROM THIS FILING. THE INFORMATION CONTAINED IN THIS SCHEDULE HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
Schedule E
FINISHED FORMULATIONS
Razoride
Hydrogen Peroxide Gel
NCL-818
Protective Skin Lotion
After Sun Cooling Gel
Witch Hazel Gel
Phosphocholate
Colostrum (liquid and powder)
Gamma radiation resistant line of Lubrajel and Hydrajel products
Lubrajel or Hydrajel products in 100% concentrations for use in
medical applications or for use as vaginal moisturizers, sexual
lubricants or for other internal applications, such as mouth or
nose moisturizers
<PAGE>
Schedule F
AGGREGATE PRODUCT PURCHASE TARGETS FOR THE INITIAL TERM
THE INFORMATION CONTAINED IN THIS SCHEDULE IS CONSIDERED BY THE
REGISTRANT TO BE PROPRIETARY AND CONFIDENTIAL, AND HAS, THEREFORE, BEEN
OMITTED FROM THIS FILING. THE INFORMATION CONTAINED IN THIS SCHEDULE HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
Schedule H
PRODUCT SPECIFICATIONS
THIS SCHEDULE HAS NOT BEEN FILED HEREWITH SINCE THE MATERIAL
CONTAINED THEREIN IS NOT DEEMED TO BE MATERIAL TO THIS CONTRACT. ALL
PRODUCT SPECIFICATIONS ARE AVAILABLE FROM REGISTRANT UPON REQUEST.
<PAGE>
Schedule I
FORM OF CERTIFICATE OF ANALYSIS
THIS SCHEDULE HAS NOT BEEN FILED HEREWITH SINCE THE MATERIAL
CONTAINED THEREIN IS NOT DEEMED TO BE MATERIAL TO THIS CONTRACT. ALL
CERTIFICATES OF ANALYSIS ISSUED BY THE REGISTRANT ARE AVAILABLE FROM THE
REGISTRANT UPON REQUEST.
<PAGE>
Schedule G
PRICING IN U.S. DOLLARS FOR PRODUCTS
THE INFORMATION CONTAINED IN THIS SCHEDULE IS CONSIDERED BY THE
REGISTRANT TO BE PROPRIETARY AND CONFIDENTIAL, AND HAS, THEREFORE, BEEN
OMITTED FROM THIS FILING. THE INFORMATION CONTAINED IN THIS SCHEDULE HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
Schedule J
UGI PATENTS, TRADENAMES AND TRADEMARKS
REGISTERED TO THIRD PARTIES
TRADEMARKS COUNTRY THIRD PARTY
Lubrajel Japan Showa Denko
Lubragel Japan Showa Denko
PATENTS COUNTRY THIRD PARTY
Lubrajel in Japan Kose (1)
Cosmetic uses
1. Kose Japanese patent No. 3-72042 (and related patents) covers the
use of Lubrajel in cosmetic applications in Japan.
<PAGE>
Schedule K
SALES IN TERRITORY
FOR THE TWELVE (12) CALENDAR MONTHS -
SEPTEMBER 1995 - AUGUST 1996
THE INFORMATION CONTAINED IN THIS SCHEDULE IS CONSIDERED BY THE
REGISTRANT TO BE PROPRIETARY AND CONFIDENTIAL, AND HAS, THEREFORE, BEEN
OMITTED FROM THIS FILING. THE INFORMATION CONTAINED IN THIS SCHEDULE HAS
BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE>
Schedule L
PACKAGING SPECIFICATIONS
Lubragel
LC, MS, NP, EL, DV, TW 45 lbs. net weight
WA, Oil, Karajel, per pail.
Creamjel 500 lbs. net weight
per drum.
CG 50 lbs. net weight
per pail.
540 lbs. net weight
per drum.
Oil of Orchids (Water Soluble) 40 lbs per pail
Oil of Orchids (Oil Soluble) 40 lbs per pail
Lubrasil 45 lbs per pail
Aquathick 100 lbs per drum
Thixolrate 40 lbs per pail
B122 55 lbs per drum
Klensoft 40 lbs per pail
Lubraslide 55 lbs per drum
Super Ti Powder 50 lbs per drum
Unitwix 20 lbs per pail
200 lbs per drum
Confetti 40 lbs per pail
450 lbs per drum
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 826,079
<SECURITIES> 0
<RECEIVABLES> 898,062
<ALLOWANCES> 38,916
<INVENTORY> 1,812,619
<CURRENT-ASSETS> 3,813,603
<PP&E> 4,087,929
<DEPRECIATION> 2,583,297
<TOTAL-ASSETS> 5,854,139
<CURRENT-LIABILITIES> 831,131
<BONDS> 475,000
0
0
<COMMON> 476,289
<OTHER-SE> 3,089,380
<TOTAL-LIABILITY-AND-EQUITY> 5,854,139
<SALES> 8,001,546
<TOTAL-REVENUES> 8,036,546
<CGS> 5,166,543
<TOTAL-COSTS> 5,166,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 80,210
<INCOME-PRETAX> 852,075
<INCOME-TAX> 324,767
<INCOME-CONTINUING> 527,308
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 527,308
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
