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
For the fiscal year ended December 31, 1998.
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required] For the transition period
from __________ to ____________
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
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State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
230 Marcus Blvd., Hauppauge, NY 11788
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(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
<PAGE>
file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| No |_|
Indicate by check mark if there is no disclosure herein of
delinquent filers pursuant to Item 405 of Regulation S-B, and if, to the
best of registrant's knowledge, no disclosure will be contained 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. |_|
The Registrant's revenues for the fiscal year ended December 31,
1998 were $8,769,738.
On March 8, 1999 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 $9,693,041. (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 8, 1999 the Registrant had issued and outstanding
4,883,139 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:
Certain information required by Part III (portions of Item 9, as
well as Items 10 and 11) is incorporated by reference to the Registrant's
definitive proxy statement (the "1999 Proxy Statement") in connection
with its 1999 annual meeting of stockholders, which is to be filed no
later than April 30, 1999 with the Securities and Exchange Commission
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
<PAGE>
This annual report on Form 10-KSB contains both historical and
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995, which provides a safe harbor for
forward-looking statements by the Registrant about its expectations or
beliefs concerning future events, such as financial performance, business
prospects, and similar matters. The Registrant desires to take advantage
of such "safe harbor" provisions and is including this statement for that
express purpose. Words such as "anticipates", "believes", "expects",
"intends", "future", and similar expressions identify forward-looking
statements. Any such "forward-looking" statements in this report reflect
the Registrant's current views with respect to future events and
financial performance, and are subject to a variety of factors that could
cause Registrant's actual results or performance to differ materially
from historical results or from the anticipated results or performance
expressed or implied by such forward-looking statements. Because of such
factors, there can be no assurance that the actual results or
developments anticipated by the Registrant will be realized or, even if
substantially realized, that they will have the anticipated results. The
risks and uncertainties that may affect Registrant's business include,
but are not limited to: economic conditions, governmental regulations,
technological advances, pricing and competition, acceptance by the
marketplace of new products, retention of key personnel, the sufficiency
of financial resources to sustain and expand Registrant's operations, and
other factors described in this report and in prior filings with the
Securities and Exchange Commission. Readers should not place undue
reliance on such forward-looking statements, which speak only as of the
date hereof, and should be aware that except as may be otherwise legally
required of Registrant, Registrant undertakes no obligation to publicly
revise any such forward-looking statements to reflect events or
circumstances that may arise after the date hereof.
PART I
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 business 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
<PAGE>
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 two
largest product lines are Registrant's LUBRAJEL(R) line of cosmetic
ingredients, which accounted for approximately 50% of the Registrant's
sales in 1998, and its RENACIDIN(R) IRRIGATION, a pharmaceutical product
that accounted for approximately 20% of the Registrant's sales in 1998.
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 an extensive line of 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, which the Registrant believes has greater
growth potential, the Registrant has explored the possibility of selling
the Eastern division. The Registrant concluded in 1997 that the Eastern
operation would be more marketable if Eastern could reduce its inventory
and focus its marketing efforts on the inventory items that sell more
regularly. Registrant is continuing to implement these changes, and
anticipates that Eastern's future sales may be lower than in prior years
as a result of these changes.
(b) Narrative Description of Business
Guardian Laboratories Division
Guardian conducts research, product development, manufacturing
and marketing of many different personal care products, pharmaceuticals,
medical devices, health care products, cosmetic bases, and proprietary
specialty chemical products, all of which are developed by the
Registrant, and many of which have unique properties. The products
manufactured by Guardian are marketed through marketing partners,
distributors, direct advertising, mailings, and trade exhibitions.
Guardian's proprietary cosmetic and specialty chemical products are sold
through marketing partners and 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 principally sold
through drug wholesalers and surgical supply houses, as well as directly
to the Veteran's Administration, other government agencies, hospitals,
and physicians. One of Registrant's pharmaceutical products,
CLORPACTIN(R) WCS-90, is also being marketed by VascA, Inc., a
Massachusetts-based company that intends to market the product in
connection with the marketing of its subcutaneous kidney dialysis access
port. VascA's marketing in the U.S. is subject to the FDA's acceptance of
its 510(k) pre-market notification, after which full marketing may begin.
During 1998, Guardian's sales accounted for approximately 82% of
Registrant's total product sales.
<PAGE>
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 1998 sales from these
two product lines accounted for approximately 84% of Guardian's sales,
and 70% of the sales of the Registrant as a whole.
LUBRAJEL
LUBRAJEL is a line of nondrying water-based moisturizing and
lubricating gels that have applications in the cosmetic industry
primarily as a moisturizer and as a base for other cosmetic products, and
in the medical field primarily as a lubricant. In the cosmetic industry
it is used primarily 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. As a medical
lubricant it has been used on prelubricated enema tips and thermometers,
and as a lubricant for catheters. During 1998, sales of LUBRAJEL products
increased by 7% compared with 1997. During 1998, sales of LUBRAJEL
products represented 61% of Guardian's sales and 50% 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) greater
marketing success on the part of Registrant's distributors, and (b) the
expansion of Registrant's marketing efforts as a result of Registrant's
marketing alliance with International Specialty Products ("ISP")
(discussed in more detail in the "Marketing" section below). In
particular, sales of LUBRAJEL MS (the most popular form of Lubrajel)
increased 10% from $1,211,883 in 1997 to $1,333,786 in 1998, and sales of
LUBRAJEL CG (the original form of LUBRAJEL) increased 7% from $1,164,727
in 1997 to $1,246,523 in 1998. Both of these increases were attributable
to increases in volume and not price increases.
As a result of the continuing efforts of its marketing partners
and distributors Registrant believes that LUBRAJEL sales will continue to
increase in 1999 in the United States and Europe. These sales increases
will be offset somewhat by continuing competition from products
introduced by European manufacturers, as well as decreased sales into
Asia due to continuing economic problems in that part of the world.
Registrant still believes that there will be an overall increase in
sales, but that amount of that increase will depend on whether Asian
sales stabilize or continue to decrease in 1999. Registrant believes that
LUBRAJEL'S reputation for quality and customer service will enable it to
continue to compete effectively in the marketplace.
The Registrant is developing other uses for LUBRAJEL. See "Item
1. Description of Business-Development Activities".
RENACIDIN
RENACIDIN is a urological prescription drug used to prevent the
formation of and to dissolve calcifications in catheters implanted in the
urinary bladder. It is marketed as a ready to use 10% sterile solution
under the name "RENACIDIN IRRIGATION". The product was also sold for many
years in powder form that was reconstituted into a liquid by the
pharmacist, but that form of the product was discontinued in favor of the
sterile liquid in May, 1997. RENACIDIN IRRIGATION is also approved for
<PAGE>
use in dissolving certain types of kidney stones. Sales of RENACIDIN
IRRIGATION in 1998 accounted for 24% of Guardian's sales and 20% of the
sales of the Registrant as a whole. Sales of RENACIDIN IRRIGATION
increased 29% from $1,336,629 in 1997 to $1,728,279 in 1998. Some of this
increase in sales was attributable to a continuing conversion of
customers from the powder form to the new sterile liquid form. In
addition, the diversification of the advertising program for this product
in 1998 also contributed to this increase. On October 9, 1990, the Patent
Office issued to the Registrant a patent covering the method of
manufacturing RENACIDIN IRRIGATION.
Other Products
Other significant products that are manufactured and sold by
Guardian but which did not individually comprise more than 5% of the
Registrant's sales in 1998 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. In
late 1998 the Registrant entered into a new marketing agreement with
VascA, Inc. for sale of the product as an adjunct to VascA's subcutaneous
kidney dialysis access port. VascA is in the process of preparing a
510(k) premarket notification to the F.D.A. to enable it to market their
port along with Clorpactin. They expect to file this in the second
quarter of 1999 and hope to receive marketing approval by the end of the
third quarter of 1999. The product will be used to disinfect the port and
surrounding tissue before and after every dialysis treatment. Sales of
CLORPACTIN amounted to $269,247 in 1998 compared to $287,011 in 1997, a
decrease of 6%.
KLENSOFT(TM)is a surfactant that can be used in shampoos, makeup
removers, and other cosmetic formulations. The primary customer for
Klensoft over the past few years was in Taiwan. As a result of the
problems in the Asian economies, sales of Klensoft decreased from
$253,836 in 1997 to $41,712 in 1998, a decrease of 84%. The Registrant
believes that some of this decrease will be reversed in 1999 as the
Taiwanese economy recovers.
PHOSPHOCHOLATE (TM) 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. Phosphocholate 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
$239,474 in 1998 compared to $243,771 in 1997, a decrease of 2%.
LUBRAJEL PF (TM) is a preservative-free version of LUBRAJEL
currently being marketed primarily 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 amounted to $236,600 in 1998 compared to
$199,344 in 1997, an increase of 19%.
<PAGE>
CONFETTI DERMAL ESSENTIALS (TM) is a product line introduced in
1996 that incorporates various functional 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 sales
increases experienced in 1998. The first commercial products using
Confetti appeared in 1997. Sales in 1998 amounted to $152,294, compared
to $60,034 in 1997, an increase of 154%.
LUBRAJEL RR and RC 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 has been actively marketing the product since
January, 1996. On April 11, 1995, the Registrant was granted a U.S.
patent for this unique form of LUBRAJEL. Sales of LUBRAJEL RC to Horizon
amounted to $208,693 in 1998 compared to $155,133 in 1997, an increase of
35%.
Other products that do not have significant sales at the present
time but have the potential for increased sales in the future, and which
as a group constituted approximately 3% of Registrant's sales in 1998,
are as follows:
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.
LUBRASIL (TM) and LUBRASIL DS are special types of LUBRAJEL in
which silicone oil is incorporated into a LUBRAJEL base by
microemulsification, while maintaining much of the clarity of regular
LUBRAJEL. The products have a silky feel, and are water resistant while
moisturizing the skin.
DERMA-SURE (TM) 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 can be both a consumer and
industrial product, and is currently produced in two formulations. The
Registrant is discussing the marketing of this product with two companies
at the present time, one looking at the possibility of selling if for
consumer use via one of the home shopping channels, and the other a major
producer of consumer and industrial products that is interested in
marketing the product for industrial use.
RAZORIDE (TM) is a clear, water-based, soap-free shaving product
with excellent lubricity and moisturizing properties. The Registrant is
currently looking into potential marketing avenues for this product.
<PAGE>
DESELEX(R) is a replacement for phosphates in detergents.
LUBRASLIDE(TM) and a related product, 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. It is a proprietary, unpatented product that does
not require government approval to market.
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 United States Food and Drug
Administration ("FDA") or the United States Environmental Protection
Agency ("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 commercial potential.
<PAGE>
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. Horizon Medical, Inc. (see "LUBRAJEL RR" discussion above) had
done some work with the product for this use, and received authorization
from the FDA to market the product as an accessory to a medical device
for specific wound healing uses. Registrant is continuing to look for
other potential marketers for this product.
The Registrant is also engaged in a major new project
with a company based in the United Kingdom for the use of one of its
Lubrajels in a globally marketed consumer health product. The exact
nature of this project cannot yet be disclosed due to confidentiality
agreements between the Registrant and this U.K. company.
CLORONINE
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 sterilant 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 is
currently discussing this product with a major producer of consumer and
industrial products. The Registrant was granted two patents for this
product.
FELINE HEALTH PRODUCTS
In March, 1996 Registrant entered into a research &
development agreement with Feline Health Products ("FHP") to develop a
new animal health care product. The product is a combination of pH
indicators that indicate when a cat may have a potential health problem
that could lead to the formation of urinary stones. The project has been
delayed for various reasons and is now on hold temporarily, but is
expected to be resumed in the second quarter of 1999. If FHP is able to
find a marketing partner for the project, the terms of the marketing
agreement would provide for the Registrant to manufacture the key
component.
LIDOCAINE GEL
Registrant has developed a new Lidocaine-based
urological anaesthetic gel. This product was originally developed for a
company in the United Kingdom, but has not yet been brought to market by
them. Registrant has not yet decided whether it will market this product
itself or look for other potential marketers for it.
<PAGE>
SONARITE
Sonarite is a product developed by the Registrant to
reduce the severity of snoring. It is a soft tissue lubricant that
reduces the surface tension in obstructed airways and allows for
increased air flow. In 1997 the Registrant secured the exclusive right to
market the product from a group of investors who had initially funded the
product development work. The product has been in clinical testing since
that time. In October, 1998 the development work on this product resumed
after the Registrant learned through its additional clinical testing that
the then current formulation was not working as well as an earlier
prototype formulation. The product is currently in testing in several
locations throughout the U.S. One of the tests is being conducted by a
company that currently markets another breathing aid to determine the
relative effectiveness of the two products in reducing snoring, and to
determine if there is any synergy between them. Registrant hopes that if
its clinical results are satisfactory it will be able to use the results
to interest another company in entering into a joint venture to market
the product. Registrant believes that the marketing of the product to
reduce the severity of snoring would only require the filing of a 510(k)
pre-market notification to the FDA. The product continues to be tested
for use in reducing the incidence and severity of sleep apnea, a sleep
disorder affecting millions of people. Some initial clinical work has
indicated that the product may be effective for this use as well, and
clinical tests are continuing. However, since the marketing of the
product for this use would require a New Drug Application, the Registrant
is trying to find a partner that is interested in completing the
additional clinical work that will be required before the product can be
marketed for this use.
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:
<PAGE>
<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 an extensive line of fine organic chemicals,
research chemicals, test solutions, indicators, dyes and stains, and
reagents. In 1998, Eastern's sales accounted for approximately 18% of the
total product sales of the Registrant versus 20% in 1997.
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.
<PAGE>
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
In the United States Registrant's cosmetic products are marketed
exclusively by ISP in accordance with a marketing agreement entered into
in 1996 (see "Marketing Agreements" below). ISP also has the right to
sell some of Registrant's other industrial and medical products. In 1998
ISP's purchases for distribution in the United States were estimated to
be approximately $900,000* , and accounted for approximately 10% of the
Registrant's sales in 1998. Registrant's domestic sales of pharmaceutical
products are handled primarily through the major full-line drug
wholesalers and account for approximately 23% of Registrant's sales.
Registrant's other products, such as its industrial products, are sold
directly to end-users by the Registrant and account for less than 2% of
Registrant's sales. (*Note: this figure is an estimate based on sales
information provided to Registrant by ISP. Registrant has no way of
independently determining which of ISP's purchases are intended for
domestic sale and which are intended for foreign sale.)
Foreign Sales
In 1998 the Registrant derived approximately 44% of its sales
from customers in foreign countries, primarily from sales of its cosmetic
products in Europe, compared to 43% in 1997. The Registrant currently has
8 distributors for its cosmetic products outside the United States: S.
Black (Import & Export) Ltd. in the United Kingdom ("S. Black"); Sederma
and Warwick France in France; S.A. de Especialidades Quimicas in Spain;
Luigi & Felice Castelli S.R.L. in Italy; Mimox AG in Switzerland; C&M
International in Korea; and ISP in Germany, Eastern Europe, the Benelux
countries, Canada, Mexico, South & Central America, Asia (with the
exception of Korea), and most of the remaining foreign markets. The
percentage of Registrant's sales by its largest foreign distributors were
as follows: Sederma: 13%; ISP (for sales outside of the United States):
9% (an estimate based on sales figures provided to the Registrant by
ISP); S. Black: 8%; and C&M International: 3%.
Marketing Agreements
ISP
In 1994 Registrant entered into an agreement with ISP
whereby ISP would market certain of Registrant's products, primarily its
cosmetic products, in Europe and Asia. 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. ISP manufactures and markets an
extensive line of personal care, pharmaceutical, and industrial products
on a global basis. ISP's sales during 1998 were negatively impacted by
<PAGE>
the economic problems experienced in Asia, and will most likely continue
to be impacted in 1999 until those affected economies recover. However,
the Registrant does not believe that it will experience any further sales
declines in 1999 due to the economic problems in that part of the world.
In 1996 Registrant entered into an additional marketing
agreement with ISP whereby ISP became Registrant's exclusive distributor
of its cosmetic products in the United States, Canada, Mexico, and
Central and South America, thereby significantly expanding ISP's
territory. As with its earlier agreement, this agreement provided for
exclusivity as long as yearly minimum purchase levels are attained.
Accompanying this agreement was a modification to the 1994 agreement to
provide consistency between the two agreements.
Registrant believes that in the event that ISP were to
cease marketing Registrant's products, that alternative arrangements
could be made to continue to supply product to the customers currently
using Registrant's products without any significant interruption of
supply.
CREATIVE TECHNOLOGIES
In an effort to accelerate the marketing of some of
Registrant's other products, Registrant in late 1995 entered into an
agreement with Creative Technologies, Inc., ("Creative") a marketing
consulting company. Since that time Registrant has been working with
Creative 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, which was extended until
November 30, 1996. Since that time Creative is continuing to work on
behalf of the Registrant based on a commission schedule relating to the
volume of business that Creative brings to the Registrant. At the present
time Registrant is actively working with Creative to bring more of
Guardian's products to the attention of Creative's clients, in particular
Kimberly Clark.
VASCA, INC.
In December, 1998, Registrant entered into a marketing
agreement with VascA, Inc. whereby VascA will promote the use of
Registrant's Clorpactin WCS-90 as a disinfecting agent for use with
VascA's subcutaneous kidney dialysis access port. The Clorpactin will be
used to disinfect the tissue surrounding the port as well as the port
itself. VascA's port is currently approved in parts of Europe and VascA
is in the process of obtaining approval for the use of Clorpactin there.
In the United States, VascA is currently working with the FDA to obtain
approval to market both their access port and the Clorpactin. Approval in
the U.S. is expected by the fourth quarter of 1999, and applications are
pending in Europe as well. VascA also will be providing funding to the
Registrant to further improve the product and/or its packaging. The
agreement provides for VascA to take over all marketing of Clorpactin
once they achieve certain sales levels.
Most of Registrant's other marketing arrangements are not in the
form of long-term contracts and can be terminated at any time.
<PAGE>
Raw Materials
The principal raw materials used by the Registrant consist of
common industrial organic chemicals, laboratory reagents, and common
inorganic chemicals. Most of 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., Vitusa Products, Inc., B.A.S.F.,
DSM Fine Chemicals Inc., Eastman Chemical, Clariant Corp., Ishihara
U.S.A., Nissei Trading Co., and Varessa, Ltd.
Inventories; Returns and Allowances
The Registrant's business requires that it maintain large
inventories of certain of its finished goods. Historically, 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., Acros Organics, Pfaltz &
Bauer, Inc., and Spectrum Chemical Mfg. Corp.
<PAGE>
ISO-9000 REGISTRATION
On November 24, 1998 the Registrant earned ISO-9002 registration
from Underwriters Laboratories, Inc., indicating that the Registrant's
documented procedures and overall operations had attained the high level
of quality needed to receive ISO registration.
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 usually require
a 510(k) 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.
<PAGE>
Portions of the Registrant's operating expenses are directly
attributable to complying with federal, state, and local environmental
statutes and regulations. In 1998 and 1997 the Registrant incurred
approximately $46,000 and $45,000 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 1998
and 1997, the Registrant incurred approximately $234,000 and $285,000
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 business segments:
YEAR ENDED YEAR ENDED
December 31, December 31,
1998 1997
---------- ----------
Revenue:
Guardian $7,230,783 $6,964,060
Eastern 1,538,955 1,788,073
--------- ---------
$8,769,738 $8,752,133
========= ==========
Earnings from Operations:
Guardian $1,819,443 $1,526,310
Eastern (103,934) (45,308)
Corporate (166,238) (161,123)
--------- ---------
$1,549,271 $1,319,879
========= =========
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 business segments:
<PAGE>
As of:
December 31, December 31,
1998 1997
--------- ----------
Guardian $2,659,964 $2,650,668
Eastern 591,550 772,401
Corporate 3,542,819 2,702,777
--------- ---------
$6,794,333 $6,125,846
========= =========
For certain additional financial information concerning the
Registrant's industry segments see Note J of Notes to Consolidated
Financial Statements of the Registrant contained in Item 7 herein.
Employees
The Registrant presently employs 44 people, 6 of whom serve in
an executive capacity, 23 in research, quality control and manufacturing,
5 in maintenance and construction and 10 in office and administrative
work. Of the total number of employees, 40 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 property is presently unencumbered and is
adequately insured.
Item 3. Legal Proceedings.
None
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
<PAGE>
for the period January 1, 1997 to December 31, 1998. The quotations
represent prices between dealers and do not include retail markup,
markdown or commission:
Year Ended Year Ended
December 31, 1998 December 31, 1997
Quarters High Low High Low
- ------------------ ------- -------- ------ -------
First (1/1 - 3/31) $ 5 $ 4 1/8 $ 2 3/8 $ 1 3/4
Second (4/1 - 6/30) 6 11/16 4 7/8 5 1 15/16
Third (7/1 - 9/30) 5 1/2 3 11/16 4 7/8 3 3/4
Fourth (10/1 - 12/31) 5 3/4 3 1/2 6 1/8 3 3/4
Holders of Record
As of March 8, 1999 there were 1,604 holders of record of Common
Stock.
Cash Dividends
On January 5, 1999 the Registrant paid a $.07 per share dividend
to all stockholders of record as of December 10, 1998. On January 5, 1998
the Registrant paid a $.06 per share dividend to all stockholders of
record as of December 12, 1997.
Item 6. Management's Discussion and Analysis or Plan of Operation
Results Of Operations:
Year Ended December 31,1998 Compared to
Year Ended December 31,1997
Revenue
Revenue in 1998 increased by $17,605 compared to 1997 due to revenue
increases in the Guardian Division of $266,723 (4%) and a decrease in the
Eastern Division of $249,118 (14%). The Guardian sales increase was due
mainly to increases in sales of Guardian's core product lines in the
United States and Europe, which offset some decreases experienced by the
Company in Asian markets. The sales increases in the cosmetic product
lines were the result of an expansion of the marketing of the Company's
core product lines in conjunction with the Company's marketing partners
in the United States and Europe. The Eastern decrease was due primarily
to a slight downsizing of the Eastern operations intended to streamline
Eastern's business, which resulted in a reduction in inventory and the
consequent loss of some sales.
<PAGE>
Costs and Expenses
Costs and expenses in 1998 decreased by $211,787 (3%) compared to the
2prior year due to decreases in cost of sales of $395,121 (7%) which were
partially offset by increases in operating expenses of $183,334 (9%).
Costs of sales as a percentage of sales decreased to 57% in 1998 as
compared to 62% in 1997.
Of the 5% decrease in cost of sales as a percentage of sales,
approximately 2% was attributable to a decrease in the cost of the
Company's RENACIDIN IRRIGATION due to the larger volumes purchased in
1998 versus 1997. Another 1% of the decrease was attributable to a
reduction in cost of one of the Company's largest volume raw materials in
1998 compared to 1997. Other reductions were attributable to (a) a change
in product mix of the Guardian division, with some higher cost items
being replaced by sales of lower cost items, and (b) reduced sales of
lower margin products of the Eastern division that were replaced by
additional sales of higher margin products by the Guardian division.
The increase in operating expenses in 1998 was primarily due to a
non-cash charge of approximately $204,000 relating to the unamortized
costs of the Registrant's Sonarite technology. In October, 1998 the
Registrant determined that the then current formulation required further
development and testing before the product could be marketed.
Other Income (Expense)
Interest expense decreased from $31,505 to $523 due to a reduction in
outstanding borrowings. Investment income and other increased from
$38,492 to $66,466 principally due to the investing of excess cash
provided from operations. The Registrant realized gain on sale of assets
of $31,000 in 1998 while there was no gain or loss in 1997.
Provision for Income Taxes
The provision for income taxes increased from $502,620 in 1997 to
$632,677 in 1998. This increase is primarily due to the increase in
earnings before income taxes of $319,348 (24%) between years. The
Registrant's effective rates remained consistent at approximately 38%.
Liquidity and Capital Resources
Working capital increased from $2,973,768 as of the end of 1997 to
$3,926,106 as of the end of 1998, an increase of $952,338 (32%).
The current ratio increased from 4.6 to 1 at December 31, 1997 to 5.9 to
1 at December 31, 1998. The increase in working capital was due primarily
to increases in cash provided by operations.
The Registrant has a line of credit agreement with a bank for borrowings
of up to $700,000. As of December 31, 1998, there were no outstanding
borrowings on this line of credit.
<PAGE>
The Registrant generated cash from operations of $1,234,272 in 1998
compared to $1,497,078 in 1997. The decrease in 1998 was primarily due to
an increase in accounts receivable. During each of the years 1998 and
1997 the Registrant invested approximately $271,000 and $291,000
respectively for plant and equipment. Cash used in investing activities
was $482,871 and $703,151 in the years ended December 31, 1998 and 1997
respectively. The decrease was mainly due to reduction in the purchase of
marketable securities. Cash used in financing activities was $253,387 and
$797,410 in the years ended December 31, 1998 and 1997 respectively. The
decrease was primarily due to the repayment of substantially all of
Registrant's long term debt that was outstanding in 1997.
While the Registrant believes that its working capital is sufficient to
support its operating requirements for the next fiscal year, the
Registrant's long-term liquidity position will be dependent upon its
ability to generate sufficient cash flow from operations. The Registrant
has no material commitments for future capital expenditures.
Impact of Inflation, Changing Prices, and Seasonality
While it is difficult to assess the impact of inflation on the
Registrant's operations, management believes that, because of the
proprietary nature of the majority of its product line, inflation has had
little impact on net sales. Sales have changed as a result of volume 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. Registrant's products and sales are not
considered to be a seasonal, and are generally distributed evenly
throughout the year.
Impact of the "Year 2000" Issue
The Registrant has evaluated the impact of the Year 2000 ("Y2K")
issue on its business and does not expect to incur any significant costs
associated with Year 2000 compliance or that the Year 2000 issue will
have a material impact on the Registrant's business, results of
operations, or financial condition. In 1998 the Registrant purchased new
computer equipment to enable it to run a new Y2K compliant version of its
accounting software. This software has been certified by the vendor to be
Y2K compliant, and the Registrant has independently verified that the
date fields have been expanded to four digits instead of two, and is
satisfied that the software will function properly after December 31,
1999. All of Registrant's inventory, purchase orders, sales, receivables,
and general ledger are handled by this Y2K compliant software. The
underlying operating system on which this software works has been
certified Y2K compliant. Registrant's cost to bring its computer systems
into Y2K compliance during 1998 was approximately $30,000.
The Registrant is not aware of any problems that its customers
or suppliers may have in regard to the Y2K issue. Registrant does not at
the present time conduct any direct data transfer with any of its
customers or suppliers that would be affected by their failure to be Y2K
compliant, and has no reason to believe that any Y2K compliance problems
that any of its suppliers or customers might have will have any material
adverse impact on the Registrant. The Registrant is in the process of
trying to obtain second sources of supply for as many of its raw
materials as possible before the end of 1999, and believes that it
currently has enough alternative suppliers for its key products that it
will not be materially affected by the failure of one or more of its
<PAGE>
current raw material suppliers to become Y2K compliant. Registrant has
requested information on Y2K compliance from those suppliers and
customers with which it considers itself to have a material relationship
and where their failure to attain Y2K compliance could have a material
impact on the Registrant. Registrant has requested final responses by
March 31, 1999. To date all of those customers and vendors that have
responded to Registrant's request for Y2K information have indicated that
either they already are Y2K compliant or will be so by the end of 1999.
Registrant has investigated its key non-information technology
systems for Y2K compliance and has determined that they are either
already Y2K compliant or will be so by the end of the year without
material expense to the Registrant. The following material
non-information technology system providers have already given the
Registrant assurances that the systems or services they provide are Y2K
compliant: Registrant's primary bank; the company that handles
Registrant's payroll; the company that handles its security system; and
the Registrant's registrar and stock transfer agent. The company that
handles Registrant's telephone system has assured the Registrant that,
with the exception of its voice mail system, which will be made Y2K
compliant by mid-1999 at no cost to the Registrant, all of the rest of
Registrant's telephone system is already Y2K compliant.
Registrant believes that it has already made all of the material
expenditures necessary to attain Y2K compliance internally, and does not
expect to expend any material amounts during 1999 or thereafter for this
purpose.
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.
Directors and Executive Officers
Set forth in the table below is certain information as of March
8, 1999 with respect to the executive officers and directors of the
Registrant:
Name Age Position(s) with the Registrant
- -------------------- ----- ----------------------------------------------
Dr. Alfred R. Globus 78 Chairman of the Board, Chief Executive Officer
and Director
<PAGE>
Kenneth H. Globus 47 President, Chief Financial Officer, General
Counsel and Director
Robert S. Rubinger 56 Executive Vice President, Secretary, Treasurer
and Director
Charles W. Castanza 66 Vice President and Director
Derek Hampson 59 Vice President
Joseph J. Vernice 40 Vice President
Lawrence Maietta 41 Director
Henry P. Globus 76 Director
Benjamin Wm. Mehlman 88 Director
Alan E. Katz 55 Director
Arthur Dresner 57 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. He became the Chief Financial
Officer in November, 1997.
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 Corp.
subsidiary 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.
<PAGE>
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 more than five years prior to that he was a partner in the public
accounting firm of Wilfred, Wyler & Co. in New York, NY. He was
controller for the Registrant from October, 1991 until November, 1997,
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 was formerly a judge and attorney in
private practice until he retired from the practice of law in February,
1999. From 1984 to 1998 he had been counsel to the law firm of William T.
Friedman and its predecessor, Friedman and Shaftan. He has been a
director of the Registrant since 1964.
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.
Arthur Dresner is an attorney in private practice and an
independent business consultant. From June 1998 to the present he has
been engaged as "Of Counsel" to the law firm of McAulay Nissen Goldberg
Kiel & Hand in New York City. From 1974 until 1997 he was employed as a
Vice President in the corporate development area and general management
of ISP. He has been a director of the Registrant since April, 1997.
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.
Compliance with Section 16(a) of the Exchange Act
The information required by this section is incorporated herein
by reference to the section entitled "Directors and Executive Officers -
Section 16(a) Beneficial Ownership Reporting Compliance" of the 1999
Proxy Statement.
Item 10. Executive Compensation.
The information required by this Item is incorporated herein by
reference to the section entitled "Compensation of Directors and
Executive Officers - Summary Compensation Table" of the 1999 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 "Voting Securities and Principal
Stockholders - Security Ownership of Management" of the 1999 Proxy
Statement.
<PAGE>
Item 12. Certain Relationships and Related Transactions.
The Registrant has a split dollar life insurance arrangement
with Alfred R. Globus, its Chairman and Chief Executive Officer
("Insured"). For fiscal years 1995 through 1998 Registrant made
non-interest bearing advances of approximately $87,000 per year
(approximately 87% of the annual cost of the $1,500,000 policy), on
behalf of a trust of which the Insured is the grantor and another
officer, Kenneth H. Globus is one of the beneficiaries. Under a
collateral assignment agreement the proceeds from the policy will first
be paid to the Registrant to repay all of the advances it made. If the
policy is terminated prior to the death of the Insured, the Registrant
will be entitled to the cash surrender value of the policy at that time,
and any shortfall between that amount and the amount of the advances made
by the Registrant will be repaid to the Registrant by the Insured. As of
December 31, 1998 and 1997, cumulative advances of $348,161 and $261,559,
respectively, are recorded in the Consolidated Balance Sheets under
"Other Assets". The trust is currently in the process of looking into
modifications to the policy that might decrease the amount of the yearly
advances being made by the Registrant.
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) 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.
<PAGE>
10(c) 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(d) 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(e) Exclusive Distributor Agreement between the Registrant and
ISP Technologies Inc. dated September 20, 1996. The
Registrant has been granted confidential treatment of
portions of some of the schedules to this Agreement.
Incorporated by reference to Exhibit 10(h) to the
Registrant's Annual Report on Form 10-KSB for the year
ending December 31, 1996 ("1996 10-KSB")
10(f) Marketing and Supply Agreement between the Registrant and
VascA, Inc. dated January 1, 1999.(filed herewith)
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 Australia N/A
(Pty.) Ltd.*
Dieselite Corporation** Delaware N/A
Paragon Organic Chemicals, New York Paragon Organic Chemicals
Inc.
* Inactive without assets
** Inactive
27 Financial Data Schedule
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNITED-GUARDIAN, INC.
Dated: March 17, 1999 By: /s/ Alfred R. Globus
---------------------
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, Director March 17, 1999
------------------------ (Principal Executive Officer)
Alfred R. Globus
By:/s/ Kenneth H. Globus President, General Counsel, March 17, 1999
------------------------ Director, Chief Financial
Kenneth H. Globus Officer(Principal Financial
and Accounting Officer)
By:/s/ Robert S. Rubinger Executive Vice President, March 17, 1999
------------------------ Secretary, Treasurer, Director
Robert S. Rubinger
By:/s/ Charles W. Castanza Vice President, Director March 17, 1999
------------------------
Charles W. Castanza
By:/s/ Henry P. Globus Director March 17, 1999
------------------------
Henry P. Globus
By:/s/ Benjamin Wm. Mehlman Director March 17, 1999
------------------------
Benjamin Wm. Mehlman
By:/s/ Lawrence F. Maietta Director March 17, 1999
------------------------
Lawrence F. Maietta
By:/s/ Alan Katz Director March 17, 1999
------------------------
Alan E. Katz
By:/s/ Arthur Dresner Director March 17, 1999
------------------------
Arthur Dresner
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----------
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets as of December 31,
1998 and 1997 F-3 - F-4
Consolidated Statements of Earnings for the Years
Ended December 31, 1998 and 1997 F-5
Consolidated Statements of Stockholders' Equity
and Comprehensive Income for the Years Ended
December 31, 1998 and 1997 F-6
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8 - F-25
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 sheets of
United-Guardian, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1998 and 1997, and the related consolidated statements of
earnings, stockholders' equity and comprehensive income, and cash flows
for the years 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 audits.
We conducted our audits 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 audits
provide 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, 1998 and 1997,
and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
GRANT THORNTON LLP
Melville, New York
March 4, 1999
F-2
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
1998 1997
--------- ---------
CURRENT ASSETS
Cash and cash equivalents ........................ $1,320,610 $ 822,596
Marketable securities............................. 604,314 361,723
Accounts receivable, net of allowance for doubtful
accounts of $52,894 and $32,300, respectively 1,300,118 905,896
Inventories ...................................... 1,150,132 1,372,067
Prepaid expenses and other current assets ........ 169,786 225,854
Deferred income taxes ............................ 176,318 107,111
---------- ----------
Total current assets ............... 4,721,278 3,795,247
---------- ----------
PROPERTY, PLANT AND EQUIPMENT
Land ............................................. 69,000 69,000
Factory equipment and fixtures ................... 2,407,200 2,333,654
Building and improvements ........................ 1,964,646 1,843,171
Waste disposal plant ............................. 133,532 133,532
---------- ----------
4,574,378 4,379,357
Less accumulated depreciation .................... 3,041,694 2,847,870
---------- ---------
1,532,684 1,531,487
Assets under capital leases, net ................. -- 1,444
---------- ---------
1,532,684 1,532,931
---------- ---------
OTHER ASSETS
Processes and patents, net ....................... 190,685 533,984
Split dollar life insurance ...................... 348,161 261,559
Other ............................................ 1,525 2,125
---------- ---------
540,371 797,668
---------- ---------
$6,794,333 $6,125,846
========== ==========
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
-------- ---------
CURRENT LIABILITIES
Dividends payable ............................ $341,820 $292,610
Accounts payable ............................. 317,973 292,632
Accrued expenses ............................. 119,855 165,841
Taxes payable ................................ 5,524 70,396
Current portion of long-term debt ............ 10,000 --
-------- --------
Total current liabilities ............... 795,172 821,479
-------- --------
LONG-TERM DEBT, net of current portion ........... 16,229 --
-------- --------
DEFERRED INCOME TAXES ............................ 10,000 20,116
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.10 par value; authorized,
10,000,000 shares; issued and
outstanding, 4,883,139 and 4,876,839
shares, respectively ...................... 488,314 487,684
Capital in excess of par value ............... 3,330,874 3,314,210
Accumulated other comprehensive (loss) (330) -
Retained earnings ............................ 2,154,074 1,482,357
---------- ----------
5,972,932 5,284,251
---------- ----------
$6,794,333 $6,125,846
========== ==========
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF EARNINGS
Year ended December 31,
1998 1997
----------- -----------
Revenue
Net sales ....................... $ 8,769,738 $ 8,752,133
----------- -----------
Costs and expenses
Cost of sales ................... 5,009,463 5,404,584
Operating expenses .............. 2,211,004 2,027,670
----------- -----------
7,220,467 7,432,254
----------- -----------
Earnings from operations ... 1,549,271 1,319,879
Other income (expense)
Interest expense ................ ( 523) (31,505)
Investment income................ 66,488 34,829
Gain on sale of assets .......... 31,000 --
Other ........................... (22) 3,663
----------- -----------
Earnings before income taxes 1,646,214 1,326,866
Provision for income taxes .......... 632,677 502,620
----------- -----------
NET EARNINGS ............... $ 1,013,537 $ 824,246
=========== ===========
Earnings per common share (Basic
and Diluted)...................... $ .21 $ .17
=========== ===========
Basic weighted average shares ....... 4,880,343 4,832,783
=========== ===========
Diluted weighted average shares ..... 4,904,587 4,852,641
=========== ===========
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Accumulated
Common stock Capital in other
----------------------- excess of comprehensive Retained Comprehensive
Shares Amount par value (loss) earnings Total income
--------- ----------- ----------- --------------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997 4,762,889 $ 476,289 $ 3,089,380 -- $ 950,721 $4,516,390
Issuance of common stock in
connection with exercise
of stock options ...... 13,950 1,395 28,580 -- 29,975
Issuance of common stock for
purchase of technology. 100,000 10,000 196,250 -- 206,250
Net earnings ............. 824,246 824,246 $ 824,246
Dividends declared ....... -- -- -- (292,610) (292,610)
---------
Comprehensive income 824,246
--------- ----------- ----------- --------------- ----------- ---------- =========
Balance, December 31, 1997 4,876,839 $ 487,684 $ 3,314,210 -- $ 1,482,357 $5,284,251
Issuance of common stock in
connection with exercise
of stock options ...... 6,300 630 12,364 -- 12,994
Income tax benefits on stock
options exercised 4,300 4,300
Unrealized loss on
marketable securities $ (330) (330) (330)
Net earnings ............. 1,013,537 1,013,537 1,013,537
Dividends declared ....... -- -- -- (341,820) (341,820)
----------
Comprehensive income $1,013,207
--------- ----------- ----------- --------------- ----------- --------- ==========
Balance, December 31, 1998 4,883,139 $ 488,314 $ 3,330,874 $ (330) $ 2,154,074 $5,972,932
========= =========== =========== =============== =========== =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
United-Guardian, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1998 1997
--------- ---------
Cash flows from operating activities
Net earnings ....................................$1,013,537 $ 824,246
Adjustments to reconcile net earnings to net cash
provided by operating activities
Depreciation and amortization ............... 614,826 394,164
Net gain on sale of equipment ............... (31,000) --
Provision for doubtful accounts ............. 20,568 22,140
Deferred income taxes ....................... (79,323) (2,380)
Unrealized loss on marketable securities..... (330) --
Provision for inventory obsolescence ........ 165,000 180,000
Increases (decreases) in cash resulting from
changes in operating assets and liabilities
Accounts receivable .................... (414,790) (68,890)
Inventories ............................ 56,935 260,562
Prepaid expenses and other assets ...... (29,934) (112,887)
Accounts payable ....................... 25,341 69,889
Accrued expenses and taxes payable ..... (106,558) (69,766)
---------- ----------
Net cash provided by operating activities .. 1,234,272 1,497,078
---------- ----------
Cash flows from investing activities
Acquisition of plant and equipment, net ......... (271,280) (291,428)
Proceeds from the sale of plant and equipment ... 31,000 --
Purchase of technology .......................... -- (50,000)
Purchase of marketable securities net............ (242,591) (361,723)
--------- ---------
Net cash used in investing activities .... (482,871) (703,151)
--------- ---------
Cash flows from financing activities
Proceeds from long-term debt .................... 30,339 --
Principal payments on long-term debt ............ (4,110) (589,241)
Proceeds from exercise of stock options ......... 12,994 29,975
Dividends paid .................................. (292,610) (238,144)
--------- ---------
Net cash used in financing activities ...... (253,387) (797,410)
--------- ---------
Net increase (decrease) in cash and cash equivalents 498,014 (3,483)
Cash and cash equivalents, beginning of year ........ 822,596 826,079
--------- ---------
Cash and cash equivalents, end of year ..............$1,320,610 $ 822,596
========= =========
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998 and 1997
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 business 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 70% and 63% of
consolidated sales for the years ended December 31, 1998 and 1997
respectively.
Principles of Consolidation
The consolidated financial statements of the Company include the
accounts of United-Guardian, Inc. and its wholly-owned subsidiaries,
Eastern Chemical Corporation 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 1998 the Company
declared a cash dividend of $.07 payable on January 4, 1999 to
stockholders of record as of December 10, 1998 aggregating $341,820.
During 1997, the Company declared a dividend of $.06 payable on
January 5, 1998 to stockholders of record as of December 12, 1997
aggregating $292,610. Cash payments for interest were $523 and
$34,635 for the years ended December 31, 1998 and 1997,
respectively. Cash payments for income taxes were $772,572 and
$586,608 for the years ended December 31, 1998 and 1997,
respectively.
Marketable Securities
Marketable securities include investments in certificates of
deposit, which mature in less than a year, and investments in mutual
funds. Certificates of deposit are classified as "Held to Maturity"
securities and are reported at their amortized cost which
approximates market value. Investment in equity mutual funds are
classified as "Available for Sale" securities and are reported at
their fair values. Unrealized gains and losses on "Available for
Sale" securities are reported as accumulated other comprehensive
(loss) in stockholders' equity, net of related tax effects.
F-8
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
Inventories
Inventories are valued at the lower of cost or current market value.
Cost is determined using the average cost method (which approximates
FIFO). 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.
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.(See
Note D)
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 and long-term debt, approximates carrying
value due to the short payment terms associated with its accounts
receivable and payable and the interest rates associated with its
long-term debt.
F-9
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
Concentration of Credit Risk
Accounts receivable potentially expose the Company to concentrations
of credit risk. The Company routinely addresses the financial
strength of its customers and, as a consequence, believes that its
receivable credit risk exposure is limited. Two customers accounted
for 30% and 18% of the accounts receivable at December 31, 1998. Two
customers accounted for 22% and 11% at December 31, 1997.
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
$234,000 and $285,000 for the years ended December 31, 1998 and
1997, respectively.
Earnings Per Share Information
Basic earnings per share is based on the weighted average number of
common shares outstanding without consideration of potential common
stock. Diluted earnings per share is based on the weighted average
number of common and potential common shares outstanding. The
calculation takes into account the shares that may be issued upon
exercise of stock options, reduced by the shares that may be
repurchased with the funds received from the exercise, based on the
average price during the year.
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.
F-10
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE A (continued)
Segment Reporting
The Company adopted the Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures About Segments of an Enterprise and
Related Information" for the year ended December 31, 1998. SFAS No.
131 requires that the Company disclose certain information about its
business segments defined as "components of an enterprise about
which separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance."
NOTE B - MARKETABLE SECURITIES
Marketable securities are carried at fair value. A summary of
investments in marketable securities and reconciliation of amortized
cost to the fair value follow:
Gross
Amortized Unrealized Fair
Cost loss Value
---------- ---------- ---------
December 30, 1998
Available for sale
Mutual funds $ 81,452 $ (330) $ 81,122
Held to Maturity
Certificates of deposit 523,192 523,192
--------- ---------- --------
Total $ 604,644 $ (330) $ 604,314
========= ========== ========
December 30, 1997
Available for sale
Mutual funds $ 30,208 $ -- $ 30,208
Held to Maturity
Certificates of deposit 331,515 331,515
--------- ---------- --------
Total $ 361,723 $ -- $ 361,723
========= ========== ========
Certificates of deposit, classified as "Held to Maturity", at
December 31, 1998 and 1997, are due in less than one year.
Investment income, including realized gains from mutual funds, was
$9,776 and $2,168 for the years ended December 31,1998 and 1997. Net
unrealized losses from marketable securities were $330 and $0 at
December 31, 1998 and 1997.
F-11
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE C - INVENTORIES
Inventories consist of the following:
December 31, December 31,
1998 1997
----------- -----------
Raw materials and work-in-process ...... $ 364,969 $ 272,833
Finished products and fine chemicals ... 785,163 1,099,234
---------- ----------
$1,150,132 $1,372,067
========== ==========
NOTE D - PROCESSES AND PATENTS
Processes and patents consist of the following:
December 31, December 31,
1998 1997
----------- -----------
Capitalized technology - Renacidin (1).......... $513,000 $513,000
Deferred costs - Renacidin (2).................. 154,370 154,370
Capitalized technology - Sonarite (3)........... -- 306,250
Patents ........................................ 8,177 8,177
------- --------
675,547 981,797
Less accumulated amortization .................. 484,862 447,813
-------- --------
$190,685 $533,984
======== ========
(1) 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, 1998 and 1997
NOTE D (continued)
(2) 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.
(3) In August, 1985 the Company entered into an agreement with
three private investors to develop a product to reduce snoring.
The investors provided $275,000 to fund the project, and in
exchange received majority ownership interest in the
technology. The Company successfully developed the product,
which was known as "Sonarite", but shortly thereafter one of
the key raw materials was discontinued and the project did not
proceed further until 1996 when a satisfactory replacement was
found. In February, 1997 the investors filed suit claiming
breach of the development agreement. That lawsuit was settled
in April, 1997. As part of the settlement the Company purchased
from the investors their interest in the Sonarite technology in
exchange for $100,000 and 100,000 shares of restricted stock of
the Company, thereby giving the Company the exclusive right to
commercialize the technology.
In October 1998, after results of additional product testing of
the technology in its present formulation, the Company
determined that further modification of the technology was
necessary in order to make it commercially marketable. Based on
such facts, the unamortized balance of approximately $204,000
was expensed. Such amount is included in amortization expense
in operating expenses.
F-13
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE E - NOTES PAYABLE - BANKS
The Company has a line of credit agreement with one bank which
provides for borrowings of up to $700,000 and expires on May 31,
1999. It is the Company's intention to renew the line of credit
agreement before it expires. Interest under each line is at the
bank's prime rate plus 1/2%. The outstanding line of credit
agreement contains financial covenants relating to minimum net
worth, working capital, current ratio, debt to capitalization and
maintenance of compensating balances. There were no outstanding
borrowings at December 31, 1998 and 1997.
NOTE F - LONG-TERM DEBT
During 1998, the Company financed the purchase of transportation
equipment with proceeds of an installment loan. The loan, which is
collateralized by the underlying equipment, requires monthly
payments of $868 including interest through July 31, 2001. Principal
payments under this financing are $10,000 in 1999, $10,193 in 2000
and $6036 in 2001.
NOTE G - INCOME TAXES
The provision for income taxes consists of the following:
Year ended Year ended
December 31, December 31,
1998 1997
--------- ---------
Current
Federal .......................... $ 607,000 $ 435,000
State ............................ 105,000 70,000
--------- ---------
712,000 505,000
--------- ---------
Deferred
Federal .......................... (68,689) (5,266)
State ............................ (10,634) 2,886
--------- ---------
(79,323) (2,380)
--------- ---------
Total provision ............ $ 632,677 $ 502,620
========= =========
F-14
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE G (Continued)
The following is a reconciliation of the Company's effective income
tax rate to the Federal statutory rate:
Year ended Year ended
December 31, December 31,
1998 1997
-------------- --------------
(000's) % (000's) %
------- --- ------- ---
Tax expense at statutory Federal income
tax rate .............................. $ 559 34% $ 451 34%
State income taxes, net of Federal benefit 72 4 48 4
Nondeductible expenses.................... 1 -- 2 --
Other, net ............................... 1 -- 1 --
----- ----- ----- -----
Actual tax expense ....................... $ 633 38% $ 502 38%
===== ===== ===== =====
The tax effects of temporary differences which comprise the deferred
tax assets and liabilities are as follows:
December 31, December 31,
1998 1997
----------- ------------
Deferred tax assets
Accounts receivable .................... $ 19,731 $ 12,069
Inventories ............................ 146,216 84,671
Accrued vacation ....................... 3,171 3,171
State net operating loss carryforward .. 7,200 7,200
--------- ---------
176,318 107,111
--------- ---------
Deferred tax liabilities
Deferred costs - Renacidin ............. -- (10,116)
Other .................................. (10,000) (10,000)
--------- ----------
(10,000) (20,116)
--------- ----------
Net deferred tax asset ..................... $ 166,318 $ 86,995
========= ==========
F-15
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H - BENEFIT PLANS
Pension Plan
In 1998, the Company adopted SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits". The provisions of
SFAS No. 132 revise employers' disclosures about pension plans. It
does not change the measurement or recognition of these plans. It
standardizes the disclosure requirements for pensions to the extent
practicable.
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.
The following table sets forth the plan's funded status:
Year ended Year ended
December 31, December 31,
1998 1997
--------- ---------
Change in Benefit Obligation
Benefit obligation at beginning of year............. $1,412,269 $1,329,659
Service cost........................................ 66,164 57,887
Interest cost....................................... 90,800 95,960
Actuarial loss...................................... 39,173 80,764
Benefits paid....................................... (288,423) (151,911)
--------- ---------
Benefit obligation at end of year................... $1,319,983 $1,412,269
========= =========
Change in Plan Assets
Fair value of plan assets at beginning of year..... $1,192,657 $1,132,370
Actual return on plan assets....................... 92,746 115,115
Employer contributions............................. 89,940 97,083
Benefits paid...................................... (288,423) (151,911)
--------- ---------
Fair value of plan assets at end of year........... $1,086,920 $1,192,657
========= =========
Reconciliation of Funded Status
Funded status (underfunded)........................ $ (233,063) $ (219,612)
Unrecognized net actuarial loss.................... 199,422 204,728
Unrecognized transition obligation................. 17,789 22,286
Unrecognized prior service cost.................... 62,489 67,775
--------- --------
Prepaid benefit cost............................... $ 46,637 $ 75,177
========= ========
F-16
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H (continued)
The Net Periodic Benefit Cost for the years ending December 31 includes
the following components:
December 31, December 31,
1998 1997
----------- -----------
Components of Net Periodic Benefit Cost
Service cost....................................... $ 66,164 $ 57,887
Interest cost...................................... 90,800 95,960
Expected return on plan assets..................... (94,928) (104,821)
Recognized net actuarial loss...................... 46,661 102
Amortization of transition obligation.............. 4,497 4,497
Amortization of prior service cost................. 5,286 5,286
--------- -------
Net periodic benefit cost.......................... $ 118,480 $ 58,911
========= =======
NOTE H (continued)
Weighted-average assumptions as of December 31:
1998 1997
----------- -----------
Discount rate...................................... 6.50% 6.50%
Expected long term rate of return.................. 8.00% 8.00%
Weighted average rate of compensation increase..... 5.73% 5.73%
Amortization method................................ Straight-Line Straight-Line
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 $30,000 and $26,000 for the
years ended December 31, 1998 and 1997, respectively.
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 SFAS No. 123, "Accounting for Stock-based
Compensation" 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.
F-17
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H (continued)
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 basic and diluted earnings per share as of
December 31, 1998 and 1997 would be reduced to the pro forma amounts
indicated below:
1998 1997
---------- ----------
Net income
As reported $ 1,013,537 $ 824,246
Pro forma 1,009,433 795,148
Basic and diluted earnings per common share
As reported $ .21 $ .17
Pro forma .21 .16
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, 1997: expected volatility of 56.30%;
risk-free interest rates of 5.82% to 5.95%; expected life of three
to five years; and expected dividends of 1.2%. No stock options were
granted under either of the plans in 1998.
F-18
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H (continued)
The following summarizes the stock option transactions under both Plans:
Weighted
average Fair value
Number exercise at date
EISOP outstanding price of grant
Options outstanding, January 1, 1997 35,500 $3.99
Granted 22,200 2.06 $1.13
Exercised (7,950) 2.28
Surrendered/Expired (1,000) 5.00
-------
Options outstanding, and exercisable
December 31, 1997 48,750 3.38
-------
Exercised (4,300) 2.06
-------
Options outstanding, and exercisable
at December 31, 1998 44,450 $3.49
=======
Available for grant, December 31, 1998 43,300
=======
NSSOPD
- ------
Options outstanding, January 1, 1997 22,000 $2.82
Granted 8,000 2.06 $.83
Exercised (6,000) 1.96
Expired (2,000) 5.00
------
Options outstanding at December 31, 1997 22,000 2.58
------
Expired (4,000) 5.00
Exercised (2,000) 2.06
------
Options outstanding and exercisable
at December 31, 1998 16,000 $2.04
======
Available for grant December 31, 1998 72,000
======
F-19
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE H (continued)
Summarized information about stock options outstanding under the two
plans at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- -------------------------
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding Average Average Exercisable Average
Prices at Remaining Exercise at Exercise
December 31,1998 Contractual Price December 31,1998 Price
Life
<S> <C> <C> <C> <C> <C>
EISOP
- -----
$1.88 - $2.13 22,700 7.41 $2.05 22,700 $2.05
$5.00 21,750 5.09 5.00 21,750 5.00
- ------------- ------ ---- ----- ------ -----
$1.88 - $5.00 44,450 6.29 $3.49 44,450 $3.49
NSSOPD
- --------
$1.88 - $2.13 16,000 2.06 $2.04 16,000 $2.04
</TABLE>
F-20
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE I - RELATED PARTY TRANSACTION
The Company has a split dollar life insurance arrangement with
Alfred R. Globus, its Chairman and Chief Executive Officer (the
"Insured"). On an annual basis the Company makes non-interest
bearing advances of approximately $86,000 or 87% of the cost of a
$1,500,000 life insurance policy, which is owned by a trust of which
the Insured is the grantor and another officer, Kenneth H. Globus,
is a beneficiary. Under a collateral assignment agreement the
proceeds from the policy will first be paid to the Company to repay
the advances it made. If the policy is terminated prior to the death
of the Insured, the Company will be entitled to the cash surrender
value of the policy at that time, and any shortfall between that
amount and the amount of the advances made by the Company will be
repaid to the Company by the Insured. As of December 31, 1998 and
1997, advances of $348,161 and $261,559, respectively, are recorded
in the Consolidated Balance Sheets under "Other Assets".
NOTE J - COMPREHENSIVE INCOME
During 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of SFAS No. 130 had no impact on the Company's
net earnings or stockholders' equity. SFAS No. 130 requires
unrealized gains or losses on marketable securities, which had been
reported separately in stockholder's equity, to be included in
accumulated other comprehensive (loss). Prior year financial
statement have been reclassified to confirm to the requirements of
SFAS No. 130.
The components of comprehensive income are as follows:
1998 1997
------ ------
Net Income $ 1,013,537 $ 824,246
Change in unrealized (loss)
on marketable securities (330) --
------------ -----------
Comprehensive income $ 1,013,207 $ 824,246
============ ===========
The components of accumulated other comprehensive (loss) are
unrealized losses on marketable securities of $330 and $0 at
December 31, 1998 and 1997, respectively.
F-21
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE K - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share at December 31, 1998 and 1997:
1998 1997
---------- ----------
Numerator:
Net earnings $1,013,537 $ 824,246
Denominator:
Denominator for basic earnings
per share ( weighted average shares) 4,880,343 4,832,783
Effect of dilutive securities:
Employee stock options 24,244 19,858
--------- ---------
Denominator for diluted earnings per
share (adjusted weighted-average
shares) and assumed conversions 4,904,587 4,852,641
========= =========
Basic earnings per share $ 0.21 $ 0.17
========= =========
Diluted earnings per share $ 0.21 $ 0.17
========= =========
NOTE L - NATURE OF BUSINESS AND SEGMENT INFORMATION
The Company has the following two reportable business segments:
Guardian Laboratories and Eastern Chemical. The Guardian segment
conducts research, development and manufacturing of pharmaceuticals,
medical devices, cosmetics, products and proprietary specialty
chemical products. The Eastern segment distributes fine chemicals,
solutions, dyes and reagents.
The accounting polices used to develop segment information
correspond to those described in the summary of significant
accounting policies. Segment earnings or loss is based on earnings
or loss from operations before income taxes. The reportable segments
are distinct business units operating in different industries. They
are separately managed, with separate marketing and distribution
systems. The following information about the two segments is for the
years ended December 31, 1998 and 1997.
F-22
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE L (continued)
<TABLE>
<CAPTION>
1998 1997
---------------------------------- ----------------------------------
GUARDIAN EASTERN TOTAL GUARDIAN EASTERN TOTAL
------------ ----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Earnings from external customers $ 7,230,783 $ 1,538,955 $ 8,769,738 $ 6,964,060 $ 1,788,073 $ 8,752,133
Depreciation and amortization 483,030 - 483,030 266,181 - 266,181
Segment earnings (loss) before
income taxes 1,819,443 (103,934) 1,715,509 1,526,310 (45,308) 1,481,002
Segment assets 2,659,964 591,550 3,251,514 2,650,668 772,401 3,423,069
Expenditure for segment assets 88,627 - 88,627 203,202 - 203,202
Reconciliation to Consolidated Amounts
Earnings before income taxes
- ----------------------------
Total earnings for reportable segments $ 1,715,509 $ 1,481,002
Other earnings 96,943 6,987
Corporate headquarters expense (166,238) (161,123)
--------- ---------
Consolidated earnings before income taxes $ 1,646,214 $ 1,326,866
Assets
- ------
Total assets for reportable segments $ 3,251,514 $ 3,423,069
Corporate headquarters 3,542,819 2,702,777
--------- ---------
Total consolidated assets $ 6,794,333 $ 6,125,846
========= =========
</TABLE>
F-23
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE L (continued)
<TABLE>
<CAPTION>
Other Significant Items
- -----------------------
1998 1997
-------------------------------------- --------------------------------------
Segment Consolidated Segment Consolidated
Totals Adjustments Totals Totals Adjustments Totals
---------- ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Interest expense $ - $ 523 $ 523 $ - $ 31,505 $ 31,505
Expenditures for assets 88,627 182,653 271,280 203,202 88,226 291,428
Depreciation and amortization 483,030 131,796 614,826 266,181 127,983 394,164
</TABLE>
<TABLE>
<CAPTION>
Geographic Information
- ----------------------
1998 1997
---------------------- ----------------------
Revenues Long-Lived Revenues Long-Lived
Assets Assets
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
United States $ 4,911,053 $ 1,723,369 $ 4,988,716 $ 2,066,915
France 1,219,667 1,070,843
Other countries 2,639,018 2,692,574
--------- --------- --------- ---------
$ 8,769,738 $ 1,723,369 $ 8,752,133 $ 2,066,915
========= ========= ========= =========
Major Customers
- ---------------
Customer A (Guardian) $ 1,702,079 $ 2,045,016
Customer B (Guardian) 1,146,414 982,849
All other customers 5,921,245 5,724,268
--------- ---------
$ 8,769,738 $ 8,752,133
========= =========
</TABLE>
F-24
<PAGE>
United-Guardian, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December 31, 1998 and 1997
NOTE M - CONTINGENCIES
While the Company has product claims arise from time to time in the
ordinary course of its business, the Company is not currently
involved in any material product claims. Historically, the
settlement of such claims has not had a material adverse effect on
the Company's financial position and results of operations.
F-25
<PAGE>
EXHIBIT 10(f)
-------------
MARKETING AND SUPPLY AGREEMENT
THIS AGREEMENT, effective as of January 1, 1999, is between
VascA, Inc., a Delaware corporation located at 3 Highwood Drive,
Tewksbury, MA 01876 (hereinafter referred to as "VascA") and
United-Guardian, Inc., a Delaware corporation located at 230 Marcus
Blvd., Hauppauge, NY 11788 (hereinafter referred to as "UGI").
WHEREAS, UGI is the co-owner of certain patents and the
exclusive owner of certain other proprietary technical information
relating to the pharmaceutical product known as Clorpactin and related
technologies;
WHEREAS, VascA is developing implantable valves and other
products designed for vascular access and other applications;
WHEREAS, VascA is desirous of obtaining from UGI exclusive,
worldwide marketing and distribution rights to Clorpactin and related
technologies under UGI's patents and technical information in accordance
with the terms and conditions hereof; and
WHEREAS, UGI is willing to grant such rights to VascA upon the
terms and conditions hereof;
NOW, THEREFORE, the parties hereto have mutually agreed as
follows:
1. Definitions.
The following definitions will control the construction of each of the
following terms wherever they appear in this Agreement:
"Affiliate" shall mean, as to a Party hereto, any person, corporation,
company, partnership, joint venture, firm and/or other entity (a
"Person") which controls, is controlled by or is under common control
with such Party. For these purposes, "control" shall refer to the
possession, directly or indirectly, of the power to direct, or cause the
direction of, the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Cost of Goods" shall mean fully-allocated cost of goods according to
U.S. generally accepted accounting principles, and shall include without
limitation material costs, allocable compensation costs of manufacturing
personnel, manufacturing overhead (including without limitation such
items as rent, utility expenses, depreciation and amortization) and
royalties and other amounts payable to third parties in respect of
patents and other intellectual property rights licensed in connection
with the manufacture or sale of Licensed Products, but shall not include
any allocation of non-manufacturing managerial or non-manufacturing
employee overhead or of selling or general and administrative expenses.
"Current Uses" shall mean all uses for which Clorpactin is currently
being marketed as more fully described on Exhibit A attached hereto.
"EPA" shall mean the United States Environmental Protection Agency.
"Event of Interruption" shall mean any of the following:
(a) the failure by UGI to ship any order for the Licensed
Product within three (3) months following receipt of a purchase order; or
(b) the filing by UGI of any petition for bankruptcy pursuant to
the United States Bankruptcy Code; or
(c) the filing against UGI of any petition or assignment in
bankruptcy pursuant to the United States Bankruptcy Code, if such
petition or assignment is consented to by UGI or is not vacated or
dismissed within sixty (60) days of the date of filing; or
(d) the initiation or consent or failure to defend any
proceeding by or against UGI which is intended to lead to its final
liquidation, or the entering of any judgment against UGI the consequence
of which will be UGI's final liquidation.
"FDA" shall mean the United States Food and Drug Administration.
"Improvements" shall mean any invention, enhancement, improvement, next
generation product, discovery or other development, whether patentable or
not, developed or discovered by UGI or licensed to UGI and applicable or
related to a Licensed Product or any component thereof.
"Licensed Products" shall mean Clorpactin and any other product, whether
currently sold or under development, relating to, derived from or based
in whole or in part on the Technology.
"Net Sales" shall mean, with respect to a Licensed Product and a
specified period, the gross revenues collected by a Party, its Affiliates
or its sublicensees from or on account of sales of such Licensed Product
during that period to third parties, less deduction for (a) credits or
allowances, if any, actually granted on account of price adjustments,
rejection or return of items previously sold, whether during the specific
period or not, rebates and discounts, (b) excises, sales taxes, duties or
other taxes imposed upon and paid with respect to such sales (excluding
income or other taxes levied with respect to gross receipts), and (c)
separately itemized insurance and transportation costs incurred in
shipping products to third parties.
"New Uses" shall mean all medical applications other than Current Uses,
including but not limited application of the product as a site care
treatment with VascA's implantable valve products.
"Party" shall mean either UGI or VascA, as the context may require.
"Patents" shall mean all present and future domestic and foreign patents,
patent applications, provisional patent applications, patent extensions,
certificates of invention, or applications for certificates of invention,
together with any divisions, continuations or continuations-in-part and
renewals thereof, or substitutions therefor, and all reissues,
reexaminations or extensions thereof, which are owned or controlled by or
licensed to, UGI, and which are necessary or useful for the development,
manufacture, use or sale of Licensed Products, including without
limitation the patents and patent applications listed on Exhibit B
hereto.
"Registrations" shall mean (1) in the United States, approval from the
FDA, the EPA and/or other governmental authorities, as necessary, for the
manufacturing, marketing, promotion and sale of the Licensed Products,
and (2) outside of the United States, analogous orders by the relevant
governmental agencies which require regulatory approval prior to
marketing, promotion and sale of the Licensed Products in such non-U.S.
country.
"Steering Committee" shall have the meaning set forth in Section 6.5 below
"Technology" shall mean all present and future inventions, trade secrets,
trademarks, copyrights, data, regulatory submissions and other
intellectual property of any kind, including all confidential technical
information in the possession of UGI as of the date hereof and during the
term of this Agreement (and any renewal thereof), which are owned or
controlled by, or licensed to, UGI, and which are necessary or useful for
the development, manufacture, use or sale of the Licensed Products.
"Territory" shall mean worldwide.
"Valid Claim" shall mean a claim of an unexpired or pending Patent which
(a) shall not have been withdrawn, cancelled or disclaimed or held
invalid by a court of competent jurisdiction in an unappealed or
unappealable decision or revoked by opposition proceedings where there is
no further right to appeal or the time period for appeal has elapsed, and
(b) in the case of a patent application, (i) has not been on file with
the relevant patent office for more than five years without having been
allowed or issued, and (ii) is not a claim as to which UGI's outside
patent counsel has advised in writing clearly will not be allowed or
issued.
The singular shall include the plural and vice versa as may be
required by the context of this Agreement.
2. License Grant.
2.1 UGI hereby grants to VascA an exclusive, royalty-free
license, including the right to grant sublicenses, under the Patents and
the Technology, to develop, use, market, distribute and sell Licensed
Products in the Territory for New Uses.
2.2 UGI hereby grants to VascA a non-exclusive, royalty-free
license, including the right to grant sublicenses, under the Patents and
the Technology, to use, market, distribute and sell Licensed Products in
the Territory for Current Uses. The non-exclusive license granted in this
Section 2.2 shall, at VascA's election, become exclusive at such time as
the number of units of Licensed Product purchased by VascA in any
contract year under this Agreement is greater than sixty percent (60%) of
UGI's total unit sales, whether direct or indirect, of Licensed Product
for such contract year. During the term of this Agreement and any renewal
thereof, UGI shall not grant licenses under the Patents and Technology to
distribute, market or sell Licensed Products to any third party, nor
directly sell any Licensed Products to any party that is not a customer
of UGI as of the date hereof and identified on Exhibit C hereto, with the
exception of new drug wholesalers, without VascA's prior written consent,
which consent shall not be unreasonably withheld, unless UGI reasonably
believes that the sale is for a drug (and not a device) use that is not
covered under the definition of "New Uses" and provides notice thereof to
VascA prior to effecting such sale. In the event UGI cannot determine
with a reasonable degree of certainty that the intended use is a drug use
that would not be covered under the definition of "New Uses," then it
will not make the direct sale to that customer and will instead refer the
customer to VascA or, with VascA's approval, to a drug wholesaler. VascA
agrees to sell Licensed Products to new customers referred to VascA by
UGI (or to current customers of UGI in the event that such customers are
unable to obtain product from drug wholesalers) on comparable pricing,
terms and other conditions as it sells to other customers at similar
levels of distribution.
2.3 UGI hereby grants to VascA an exclusive, royalty-free
license, including the right to grant sublicenses, under the Patents and
the Technology, to make and have made Licensed Products for New Uses;
provided, however, that VascA agrees that it may not exercise such
license with respect to any Licensed Product unless UGI fails to fulfill
its supply obligations with respect to such Licensed Product as set forth
in Section 3.1.
2.4 In the event other marketers of implantable valve products
similar to, or competitive with, VascA's device ("Competitors") desire to
purchase Licensed Products, VascA agrees to sell them Licensed Products
provided they comply with the following requirements:
(a) VascA must be given the opportunity to review any
regulatory submissions or marketing and training materials related to the
use of Licensed Products by Competitors, prior to submission, to assure
that they are consistent with the filings being made by VascA. This will
not include any proprietary information not relevant to VascA's use of
the Licensed Products. VascA will have no obligation to sell to
Competitors if it finds that the information being submitted, or which
has been submitted, to regulatory agencies by those Competitors is
incorrect or inconsistent with VascA's submissions.
(b) VascA's price of Licensed Products to Competitors
shall be consistent with the prices it charges to other customers for
Licensed Products at the same level of distribution.
2.5 In the event VascA takes over the exclusive distribution of
Licensed Product for Current Uses in accordance with Section 2.2, VascA
agrees that it will continue to sell Licensed Products to UGI's customer
base on the same pricing, terms, and conditions, for the same level of
distribution, as they were getting from UGI, subject to reasonable price
increases that will be mutually agreed upon by VascA and UGI. If, at some
point in the future, VascA decides to distribute Licensed Products
directly to customers instead of through the full line drug wholesalers
currently used by UGI, such decision shall only be made with the approval
of UGI, and such approval may be withheld by UGI only in circumstances in
which UGI demonstrates, to VascA's reasonable satisfaction, that such
approval would have a material adverse effect on UGI's business.
2.6 UGI represents and warrants to VascA that there are no
restrictions on UGI's rights to grant the licenses contemplated hereunder
with respect to any of the Licensed Products, except that UGI's rights in
regard to the use of Clorpactin to treat animal mastitis are owned
jointly with the Diversey Corporation and, therefore, are specifically
excluded from this Agreement unless otherwise agreed at a later time by
the parties hereto.
2.7 VascA shall have the right to sublicense the licenses
granted hereunder so long as each sublicensee agrees to be bound mutatis
mutandis by all of the terms and conditions of this Agreement.
3. Supply of Licensed Products; Security of Supply; Samples; Orders.
3.1 (a) Except as otherwise permitted by Section 2.3, each of
the Licensed Products shall be supplied by UGI in accordance with the
procedure specified in Section 3.2 to VascA, VascA Affiliates or VascA
sublicensees as VascA may designate, and VascA, VascA Affiliates and
VascA sublicensees shall each purchase its requirements for each of the
Licensed Products exclusively from UGI. UGI shall be responsible as
provided in this Agreement for all Licensed Products supplied by it even
if such Licensed Products are manufactured, in whole or in part, for UGI
by third parties.
(b) The parties acknowledge the importance of VascA
having a continuing source of supply of Licensed Products and wish to
provide for VascA to be able to source or manufacture Licensed Products
in situations where UGI becomes or is likely to become unable to supply
the Licensed Products to VascA in quantities sufficient to meet VascA's
requirements. VascA will use reasonable efforts to maintain at all times,
under refrigeration, a stock of Licensed Product equal to three (3)
months of sales volume, based on the annual projections provided to UGI.
UGI will cause a full and complete copy of the most current formula and
manufacturing instructions for the Licensed Product in form and scope
sufficient to enable VascA to manufacture the Licensed Product without
further assistance (the "Formula"), to be kept by an officer of UGI at a
secure location other than UGI's manufacturing site in Hauppauge, New
York. Upon the occurrence of any Event of Interruption (as defined in
Section 1), VascA will have the right to require UGI to deliver the
Formula to VascA for its use in manufacturing the Licensed Product, or
having the Licensed Product manufactured, during the Event of
Interruption. VascA will use the Formula and manufacturing instructions
to source or manufacture the Licensed Product only for the purposes
specified herein, and only during the Event of Interruption. Upon the
correction or termination of an Event of Interruption, VascA will
promptly return the Formula and manufacturing instructions to UGI without
keeping any copies, and will certify to UGI that it has done so and will
resume purchasing the Licensed Product from UGI.
(c) VascA will pay UGI a royalty, at the rate of 50% of
VascA's gross profit VascA's Net Sales less VascA's Cost of Goods, on all
Licensed Product sourced or produced by VascA, rather than purchased from
UGI, and sold by VascA during any Event of Interruption.
(d) Any quantities of Licensed Products sourced or
manufactured by VascA during any Event of Interruption shall be counted
toward VascA's Minimum Purchase Requirement for the applicable contract
year as more fully described in Section 10 below.
(e) VascA's rights hereunder are in addition to, and
not in substitution for, its rights under Section 14 hereof. In addition,
if an Event of Interruption continues for more than twelve (12) months,
UGI shall deliver to VascA all of UGI's right, title and interest in the
Registrations referred to in Section 6.1 below and VascA shall be
entitled to the rights of a licensee under Section 14 hereof, in addition
to such other legal and equitable rights and remedies as may be
available. In such event, VascA shall pay to UGI a royalty of 10% of
VascA's Net Sales of Licensed Products during such time as VascA is
manufacturing and selling Licensed Products in accordance with this
Section.
3.2 The Licensed Products will in VascA's discretion be shipped
to VascA in powder form in 2-gram bottles packed five to a box, or in
such form and packaging as may be specified by VascA; provided, however,
that UGI shall not be obligated to make any changes in the specifications
of the bottle or cap in which any Licensed Product is sold as of the date
hereof.
3.3 UGI hereby warrants that the Licensed Products supplied by
it hereunder shall comply in all material respects with all applicable
laws, rules, regulations and registrations. VascA hereby acknowledges
that the regulatory status of Clorpactin is not clear due to the age of
the product, and that it will be VascA's responsibility to determine
whether the marketing of the product for any particular use or uses would
be considered acceptable by the FDA. UGI warrants that each shipment or
other delivery of each Licensed Product, when supplied by UGI to VascA,
VascA Affiliates and VascA sublicensees hereunder and through the product
expiration date thereafter, shall (i) be or merchantable quality, fit for
the purpose intended by this Agreement and free from defects, (ii) meet
in all material respects the product specifications of UGI therefor and
(iii) be produced, packaged and labeled in accordance with approved
standards of the FDA and the EPA, and in compliance with all applicable
rules and regulations of all other relevant regulatory authorities,
including compliance with good manufacturing practices. UGI's only
liability for breach of its obligations under this Section 3.3 shall be
to replace the defective Licensed Product as provided in Section 3.4.
EXCEPT FOR THE CONTRACTUAL PROVISIONS EXPRESSLY SET FORTH IN THIS
AGREEMENT, UGI DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, WRITTEN OR
ORAL, WITH RESPECT TO LICENSED PRODUCTS. Except as stated in Section 7.1
(Product Liability Indemnity) and Section 7.4 (Infringement Indemnity),
UGI's liability to VascA for damages arising out of the manufacture, use
or sale of a Licensed Product shall not exceed the actual purchase price
paid by VascA for such Licensed Product. In no event shall UGI be liable
to VascA for special, incidental or consequential damages arising out of
the manufacture, use or sale of any Licensed Product. Nothing in this
Section 3.3 shall be construed to limit UGI's obligations under Sections
7.1 and 7.4.
3.4 Claims relating to quality defects in the Licensed Products
supplied by UGI shall be submitted to UGI within a reasonable time, not
to exceed 90 days, after VascA, the VascA Affiliate or the VascA
sublicensee hereunder has received delivery of the Licensed Product. UGI
shall replace free of charge the defective quantities. Nothing in this
Section 3.4 shall be construed to limit UGI's obligations under Sections
7.1 and 7.2.
3.5 As to each Licensed Product, VascA shall provide UGI with a
written forecast (the "Forecast") of the requirements of VascA, its
Affiliates and sublicensees for such Licensed Product at least 90 days
prior to each 12-month period during the term of the Agreement, except
that VascA shall provide UGI with the Forecast of its requirements for
the first contract year within thirty days of the execution of this
Agreement. VascA, its Affiliates and sublicensees shall provide UGI with
at least 90 days' notice of each requested delivery date of any Licensed
Product.
4. VascA's Marketing Efforts.
VascA, VascA Affiliates and VascA sublicensees each shall use
its reasonable efforts, subject to governmental laws, regulations and
requirements and the terms and provisions of this Agreement(TM), to
identify Licensed Products (a) as a recommended site care treatment for
use with its LifeSite product in the Territory, and (b) for such other
New Uses as VascA shall determine to be commercially viable from time to
time. VascA will also use its reasonable efforts to pursue any necessary
registration and pricing approval of each Licensed Product in the
Territory. VascA may market and sell Licensed Products under it own label
and packaging and under its own trademarks; provided, however, that such
label or packaging shall include the name Clorpactin and shall indicate
that such Licensed Product has been manufactured by UGI.
5. Prices; Payments.
5.1 The price at which UGI shall supply any unit of Licensed
Product to VascA and its Affiliates and sublicensees hereunder shall be
the lowest price at which UGI sells units from time to time to any of its
distributors or licensees; provided, however, that VascA may elect to
procure, directly or indirectly, packaging materials and labels for
Licensed Products and to deduct from the purchase price payable to UGI
hereunder the cost of such materials up to an amount not in excess of
UGI's cost for such materials as long as the substitute packaging
materials and labels are of comparable quality and size to UGI's current
packaging materials and labels and can be accommodated on UGI's current
filling and labeling equipment without modification. In the event
modifications are required in order to accommodate VascA's packaging
materials or labels, such modifications shall be made at VascA's expense.
In the event new packaging and/or labeling equipment is required it will
be purchased by VascA, will be maintained at VascA's expense, and will
remain the property of VascA. UGI will obtain VascA's written
authorization prior to making any modifications to existing equipment or
purchasing new equipment in accordance with this paragraph. All shipments
will be made with carriers approved by VascA, which approval shall not be
unreasonably withheld or delayed. All amounts payable under this Section
5 shall be paid in full within 30 days after the date of delivery of the
Licensed Products.
5.2 In consideration of VascA's marketing and other obligations
hereunder, UGI shall pay to VascA an amount equal to 10% of the amount by
which UGI's Net Sales of Licensed Products (excluding, for this purpose,
sales to VascA under this Agreement) exceeds $280,000 during each
contract year of this Agreement (the "Base Amount"). The Base Amount will
remain the same each contract year unless UGI puts through a price
increase, in which case the Base Amount will be increased by the same
percentage as the price increase, prorated for the year. In the event UGI
begins to sell Licensed Product in other types of units, the increase in
the Base Amount will be calculated by applying the percentage increase
only to the percentage of sales in the prior year attributable to the
current unit size (one box of five 2-gram bottles).
5.3 In the event that UGI enters into an agreement with a third
party for a purpose similar to this Agreement, and the provisions of such
third party agreement are more favorable to such third party than the
corresponding provisions of this Agreement, then UGI will agree to offer
VascA such more favorable terms and amend this Agreement accordingly.
6. Development of Products; Technical Information; Research Program.
6.1 VascA will be responsible for the administrative handling of
Registrations in all countries of the Territory in which VascA deems
obtaining such Registrations to be necessary or appropriate. VascA will
pay all fees and expenses related thereto. VascA shall keep UGI informed
on an ongoing and timely basis and seek UGI's consent as to all material
matters relating to the Registrations of Licensed Products, which consent
shall not be unreasonably withheld or delayed. In the event it is
necessary for UGI to submit proprietary information in support of a
Registration, VascA will arrange for such information to be submitted
directly to the regulatory agencies involved. UGI will be obligated to
provide information in support of VascA's Registrations only to the
extent such information is in the possession of UGI. UGI will only be
responsible for the accuracy of the information that it has provided, and
shall not be responsible in the event such information is not sufficient
for the Registration to be granted. VascA shall be the sole holder of the
Registrations and will, at its own expense, be responsible for all
administrative matters necessary to compile and submit the Registrations
for each Licensed Product in each country of the Territory. VascA shall
also be responsible for maintaining the Registrations and will bear the
registration renewal fees for the Registrations of Licensed Products in
each country of the Territory. Subject to compliance with applicable laws
and regulations, VascA shall promptly report to UGI any adverse drug
reactions associated with the use of any Licensed Product in the
Territory.
6.2 Any changes of the Licensed Products shall only be made by
UGI or VascA after (i) prior written approval of the other Party, which
approval shall not be unreasonably withheld or delayed, and (ii) if
required, the authorization of the relevant authorities.
6.3 UGI shall provide VascA, on a regular and continuing basis,
with all technical information, sales and marketing materials and other
information that is reasonably necessary for VascA to have hereunder,
including but not limited to Improvements, in order for VascA to be able
to follow the developmental progress of each of the Licensed Products
that is under development by UGI and to otherwise perform under this
Agreement.
6.4 During the initial term of this Agreement, VascA and UGI
shall collaborate on a research program to examine, among other things,
the shelf life, product stability, toxicology and formulation
improvements for Clorpactin and other Licensed Products (the "Research
Program"). The Research Program and related budget, objectives, resource
commitments and timetable shall be as more fully set forth on Exhibit D
attached hereto. VascA agrees to provide funding for the Research Program
in an amount not less than $50,000 for the first contract year and
$75,000 for each of the second and third contract years. Activities under
the Research Program shall be conducted by UGI personnel or third party
contractors, in each case, reasonably satisfactory to VascA. All right,
title and interest in any Improvements or other inventions ("Research
Program Inventions"), and patent rights thereon, that are discovered,
made or conceived during the term of the Research Program shall be
jointly owned by UGI and VascA; provided, however, that neither party
shall have the right to make use of such Research Program Inventions,
other than in connection with the performance of its rights and
obligations under this Agreement, without the approval of the other
party.
6.5 The Research Program shall be directed, managed and
administered by a steering committee consisting of one representative of
UGI and one representative of VascA (the "Steering Committee"). The
Steering Committee shall initially consist of Rick Andrews and Ken
Globus. The Steering Committee shall meet not less than once every six
months during the term hereof or at such other times, either in person or
by telephone conference, as may be agreed upon by members of the
Committee. The specific tasks of the Research Program may be reduced,
modified or supplemented from time to time by unanimous consent of the
Steering Committee. During the term of the Research Program, UGI shall
provide the Steering Committee with quarterly written reports of the
status of the Research Program, including a summary of results to date.
Members of the Steering Committee or their designees shall have
reasonable access to the facilities of each party where Research Program
activities are in progress, but only during normal business hours and
with reasonable prior notice. Any disputes among members of the Steering
Committee shall be resolved by referring the matter for resolution to the
Chief Executive Officers of the respective companies (or, if either Chief
Executive Officer is then a member of the Steering Committee, to the
Chairman of the Board). If, after 30 days, the dispute remains
unresolved, it shall be referred to arbitration in accordance with
Section 23 below.
7. Liability and Indemnification.
7.1 UGI shall indemnify, defend and hold harmless VascA, its
Affiliates and sublicensees and all officers, directors, employees and
agents thereof (collectively, "VascA Indemnitees") from all damages,
losses, claims, judgements, liabilities, cost and expenses, including
without limitation, reasonable attorneys' fees and expenses
(collectively, "Costs"), whether the foregoing are based in contract,
tort, negligence or product liability, incurred by or assessed against
any VascA Indemnitees that arise out of or incident to injury or death of
persons or damage to or destruction of any property caused or alleged to
be caused by any Licensed Product supplied by UGI. In the event of any
such claim against or Costs incurred by any of the VascA Indemnitees,
VascA shall promptly notify UGI of such claim or Costs. UGI shall manage
and control, at its sole expense, the defense and/or settlement of any
such claim against a VascA Indemnitee. The VascA Indemnitees shall
cooperate with UGI and may, at their option and expense, be represented
in (but not control) any such action or proceeding. UGI shall not be
liable for any settlement entered into or cost or expense incurred by the
VascA Indemnitees in relation to any such action or proceeding without
UGI's written authorization (unless UGI shall have failed to assume
management and control of the defense and settlement of the matter as
provided above in this Section 7.1).
7.2 VascA shall indemnify, defend and hold harmless UGI, its
Affiliates and sublicensees and all officers, directors, employees and
agents thereof (collectively, "UGI Indemnitees") from all Costs, whether
the foregoing are based in contract, tort, negligence or product
liability, incurred by or assessed against any UGI Indemnitees that arise
out of or incident to injury or death of persons or damage to or
destruction of property caused or alleged to be caused by any Licensed
Product manufactured by VascA, VascA Affiliates or VascA sublicensees
pursuant to the license grant set forth in Section 2.2. In the event of
any such claim against or Costs incurred by any of the UGI Indemnitees,
UGI shall promptly notify VascA of such claim or Costs. VascA shall
manage and control, at its sole expense, the defense and/or settlement of
any such claim against a UGI Indemnitee. The UGI Indemnitees shall
cooperate with VascA and may, at their option and expense, be represented
in (but not control) any such action or proceeding. VascA shall not be
liable for any settlement entered into or cost or expense incurred by the
UGI Indemnitees in relation to any such action or proceeding without
VascA's written authorization (unless VascA shall have failed to assume
management and control of the defense and settlement of the matter as
provided above in this Section 7.2).
7.3 During the term of this Agreement and for four (4) years
thereafter, each of the Parties shall maintain an insurance policy, to
the extent available on commercially reasonable terms and subject to
customary deductibles, issued by a reputable insurance company, naming
the other Party as an additional insured, which policy shall insure
against any and all claims, liabilities, costs and expenses in connection
with the obligations of the insured Party under Section 7.1 or 7.2, as
applicable, in an amount of at least $2,000,000 per claim.
7.4 UGI shall indemnify, defend and hold harmless the VascA
Indemnitees from all Costs incurred by or assessed against any VascA
Indeninitees that arise out of or incident to any intellectual property
infringement claim made by any third party with respect to any Licensed
Products, whether manufactured by UGI or by or under authority of VascA
pursuant to Section 3.1, provided that the VascA Indemnitees shall not
have modified the relevant Licensed Product. In the event of any such
claim against or Costs incurred by any of the VascA Indemnitees, VascA
shall promptly notify UGI of such claim or Costs. UGI shall manage and
control, at its sole expense, the defense and/or settlement of any such
claim against a VascA Indemnitee. The VascA Indemnitees shall cooperate
with UGI and may, at their option and expense, be represented in (but not
control) any such action or proceeding. UGI shall not be liable for any
settlement entered into or cost or expense incurred by the VascA
Indemnitees in relation to any such action or proceeding without UGI's
written authorization (unless UGI shall have failed to assume management
and control of the defense and settlement of the matter as provided above
in this Section 7.4). Without waiving any rights it may have against UGI
in respect of this obligation to indemnify the VascA Indemnitees
hereunder, VascA shall have the continuing right to deduct from and
offset against amounts otherwise payable to UGI under Section 3 any Costs
not paid or reimbursed by UGI as required by this Section 7.4, including,
without limitation, any royalty or other compensation that VascA and/or
its Affiliates and sublicensees are required to pay to a third party in
settlement in order to continue to exercise VascA's license rights as set
forth in this Agreement.
8. Third Party Infringement/Misappropriation.
8.1 If either Party becomes aware of any infringement of Patents
or misappropriation of Technology by a third party in the Territory for
New Uses, such Party shall promptly give notice thereof to the other
Party and shall provide the other Party with any evidence or other
information in its possession relating to such infringement or
misappropriation. The Parties shall thereupon consult together as to the
action to be taken.
8.2 UGI shall have the first right, but not the obligation, to
commence legal proceedings against any infringer of any Patent or
misappropriator of Technology in the Territory for New Uses and in this
case (subject to the provisions of the next two sentences) any damages
recovered shall belong to UGI. In the event UGI commences such legal
proceedings, VascA may join in such proceedings within 60 days after its
receipt of notice from UGI of the commencement of such proceedings if
VascA agrees to pay an amount equal to 50% of the cost of such
proceedings. In such event, any damages, settlement fees or other
consideration for past infringement received as a result of such
proceedings shall be shared by UGI and VascA equally. If UGI is not
willing to undertake legal proceedings against the infringer or
misappropriator in the Territory for New Uses, VascA may at its own cost
and expense in its own name commence such legal proceedings and in such
case any damages recovered shall belong to VascA. In such event, (a)
VascA shall be free to settle the dispute on an amicable basis, (b) UGI
shall cooperate with VascA as reasonably requested by VascA and at
VascA's expense, and (c) with respect to any legal proceedings brought by
VascA, UGI shall agree to be named as a party thereto, provided that
VascA agrees to indemnify, defend and hold harmless UGI from all Costs
incurred by or assessed against UGI in connection with any actions or
counterclaims relating to such legal proceedings, except for costs
incurred by or assessed against UGI as a result of UGI's negligence or
willful misconduct directly related to such proceedings.
9. Representations and Warranties.
9.1 UGI warrants and represents that it is the owner of the
entire right, title and interest in and to the Technology (or holds
requisite rights as licensee thereof) and that it has the right to grant
licenses and distribution rights under the Technology of the scope set
forth herein.
9.2 UGI warrants and represents that to the best of its
knowledge (i) there are no patent rights owned by third parties relevant
and material to an evaluation of VascA's freedom to operate with respect
to the use of rights licensed hereunder, and (2) each patent included
within the Patents was not fraudulently procured from the relevant
governmental patent granting authority.
9.3 Each Party hereto represents and warrants to the other that
its execution and delivery hereof has been duly authorized by all
necessary corporate action and that the terms and conditions of this
Agreement, and its obligations hereunder, do not conflict with or violate
any terms or conditions of any other agreement or commitment to which it
is a signatory or by which it is bound.
10. Minimum Purchase Requirements.
UGI may, by sixty (60) days' advance notice to VascA, convert to
non-exclusive the license granted to VascA under Section 2.1 hereof as
set forth below at the end of any contract year if VascA does not
purchase from UGI in any contract year a quantity of Licensed Products
equal to the following (the "Minimum Purchase Requirement"):
Year 1: 50,000 grams
Year 2: 70,000 grams
Year 3 85,000 grams
Years 4 through 6: 7% above the average annual purchases during the
preceding two contract years, but in no event less than 102,000 grams in
Year 4, 130,000 grams in Year 5 and 150,000 grams in Year 6. Year 7 and
all subsequent contract years: 5% above the average annual purchase
during the preceding two contract years but in no event less than 170,000
grams.
If VascA fails to satisfy the Minimum Purchase Requirement in
any contract year, VascA's rights under this Agreement shall become
non-exclusive and UGI shall be obligated to continue supplying VascA's
requirements for Licensed Products.
11. Effective Date and Term.
This Agreement will be effective as of the day and year first
above written and will remain in effect until and expire upon the third
anniversary of the date hereof. Following the initial term hereof, the
Agreement will be automatically renewed for successive three (3) year
terms unless terminated by either Party upon delivery of notice to the
other Party within six (6) months prior to the end of the initial term or
any subsequent term.
12. Termination.
12.1 Failure by UGI or VascA to comply with any of the
obligations and conditions contained in this Agreement shall entitle the
other Party to give notice to the Party in default requiring the
defaulting Party to cure such default. If such default is not cured
within thirty (30) days in the case of payment defaults involving amounts
in excess of $25,000 or within forty-five (45) days in the case of all
other defaults, after the receipt of such notice, the notifying Party
shall be entitled (without prejudice to any of its other rights conferred
on it by this Agreement) to terminate this Agreement by giving notice to
take effect immediately. The right of either Party to terminate this
Agreement, as hereinabove provided, shall not be affected in any way by
its waiver of, or failure to take action with respect to, any previous
default.
12.2 VascA shall have the right to terminate this Agreement at
any time upon not less than six (6) months prior written notice to UGI.
In the event of termination by VascA pursuant to this Section 12.2, VascA
shall reimburse UGI the Cost of Goods for all Licensed Products then in
UGI's inventory and allocated for delivery to VascA, up to an amount of
inventory not to exceed 20% of the Forecast furnished to UGI under
Section 3.5 hereof for the relevant period, except in the case of
inventory packaged or labeled specifically for VascA that is different
from the packaging or labeling of UGI's regular Clorpactin, in which case
VascA shall be responsible for paying for all such existing inventory.
12.3 Notwithstanding anything else in this Agreement to the
contrary, the Parties agree that Sections 3.3, 7.1, 7.2, 7.3, 7.4, 13.1,
13.2 and 14 shall survive the termination or expiration of this
Agreement, as the case may be, to the extent required thereby for the
full observation and performance by either or both of the Parties hereto.
12.4 In the event a Party breaches or defaults on any of its
obligations hereunder, the non-breaching Party's remedies shall be
limited to any or all of the following: (a) collecting any and all
amounts then due and payable from the breaching Party pursuant to this
Agreement; (b) seeking injunctive or similar equitable relief to compel
the breaching Party to comply with its obligations and other terms and
conditions of this Agreement; and (c) initiating procedures for
termination of this Agreement pursuant to Section 12.1 hereof. In the
event of any termination of this Agreement by UGI pursuant to Section 10
or 12.1 hereof or by VascA pursuant to Section 12.2 hereof, VascA, VascA
Affiliates and VascA sublicensees shall, upon the request of UGI, (i)
transfer and assign to UGI all clinical and other data in their
possession that relate to any Licensed Products, and all regulatory
filings relating thereto, (ii) cooperate with UGI in the transfer of all
Registrations of Licensed Products to UGI and execute and deliver any and
all instruments required to effect such transfers, and (iii) until such
time as such Registrations have been transferred to UGI, take all actions
reasonably requested by UGI to enable UGI to market the Licensed Products
under the Registrations therefor held by VascA, including executing and
filing any necessary amendments, supplements or other documents with the
relevant regulatory agencies. UGI shall reimburse VascA for VascA's
documented out-of-pocket costs reasonably incurred in connection with
VascA's compliance with the immediately preceding sentence.
13. Rights and Obligations During, Upon and Following Termination;
Confidentiality.
13.1 Termination of this Agreement, by expiration or for any
other reason, shall be without prejudice to (a) UGI's rights to receive
all payments due and accrued hereunder and unpaid on the effective date
of such termination, and (b) any other remedies which either Party may
then have hereunder. Except as provided in the previous sentence, VascA
shall upon termination or expiration of this Agreement have no obligation
to make any further payments to UGI.
13.2 During the term of this Agreement and for a period of five
(5) years from any termination or expiration hereof, the Parties agree to
keep in confidence and not to disclose to any third party, or use for any
purpose, except pursuant to, and in order to carry out, the terms and
objectives of this Agreement, any Confidential Information. As used
herein, "Confidential Information" shall mean all trade secrets or
confidential or proprietary information designated as such in writing by
the disclosing Party, whether by letter or by the use of an appropriate
stamp or legend, prior to or at the time any such trade secret or
confidential or proprietary information is disclosed by the disclosing
Party to the receiving Party. Notwithstanding the foregoing, information
which is orally or visually disclosed to the receiving Party by the
disclosing Party, or is disclosed in writing without an appropriate
letter, stamp or legend, shall constitute Confidential Information if the
disclosing Party, within 30 days after such disclosure, delivers to the
receiving Party a written document or documents describing such
information and referencing the place and date of such oral, visual or
written disclosure and the names of the employees or officers of the
receiving Party to whom such disclosure was made. The restrictions on the
disclosure and use of Confidential Information set forth in the first
sentences of this Section 13.2 shall not apply to any Confidential
Information which (a) was known by the receiving Party (as evidenced by
the receiving Party's written records) prior to disclosure by the
disclosing Party hereunder; (b) is or becomes part of the public domain
through no fault of the receiving Party; (c) is disclosed to the
receiving Party by a third party having a legal right to make such a
disclosure; or (d) is required to be disclosed by law or legal process
(provided that the other Party has received prior notice of such intended
disclosure if practicable under the circumstances). This Agreement shall
supersede any prior agreements as to the protection of confidential
information.
13.3 In order to enable VascA to exercise its rights to market
the Licensed Products, UGI hereby grants VascA a royalty-free license
throughout the Territory to use any trademark which UGI applied to the
Licensed Products at any time prior to the date hereof (the "Licensed
Trademarks").
14. Bankruptcy.
All rights and licenses granted under or pursuant to this
Agreement are, and shall otherwise be, deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101(52) of the U.S.
Bankruptcy Code. The parties to this Agreement shall retain and may fully
exercise all of their respective rights and elections under the U.S.
Bankruptcy Code. The parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against a party licensor
under the U.S. Bankruptcy Code, the licensee shall be entitled to a
complete duplicate of (or complete access to, as appropriate) any such
intellectual property and, to the extent necessary for the exercise of
the applicable license rights, all embodiments of such intellectual
property, and same, if not already in its possession, shall be promptly
delivered to the licensee (a) upon any such commencement of a bankruptcy
proceeding upon written request therefor by the licensee, unless the
licensor elects to continue to perform all its obligations under this
Agreement, or (b) if not delivered under (a) above, upon the rejection of
this Agreement by or on behalf of the licensor upon written request
therefor by the licensee; provided, however, that upon the licensor's (or
its successor's) written notification to the licensee that it is again
willing and able to perform all its obligations under this Agreement, the
licensee shall promptly return all such tangible materials to the
licensor.
15. Force Majeure.
Neither Party shall be considered in default or be liable to the
other Party for any delay in performance or non-performance caused by
circumstances beyond the reasonable control of such Party, including but
not limited to acts of God, explosion, fire, flood, war, whether declared
or not, accident, labor strike, sabotage order or decrees or any court or
action of governmental authority.
16. Succession and Assignment.
This Agreement may not be assigned or otherwise transferred by
either Party, whether voluntarily or by operation of law, without the
prior written consent of the other Party, which shall not be unreasonably
withheld or delayed; provided, that VascA may assign this Agreement or
any of its rights hereunder to any of its Affiliates (although, in such
event, VascA shall remain primarily responsible for all of its
obligations and agreements set forth herein, notwithstanding such
assignment). Any purported assignment in violation of the preceding
sentence shall be void. Any permitted assignee shall assume all
obligations of its assignor under this Agreement. No assignment shall
relieve either Party of responsibility for the performance of any accrued
obligation which such Party then has hereunder.
17. Notices.
Any notice or report required or permitted to be given or made
under this Agreement by one of the Parties to the other shall be in
writing and shall be deemed to have been delivered upon personal delivery
or (a) in the case of notices provided between Parties in the continental
United States, 48 hours after deposit in the mail or noon on the business
day next following deposit with a reputable overnight courier, or (b) in
the case of notices provided by telecopy (which notice shall be followed
immediately by an additional notice pursuant to clause (a) or (b) above
if the notice is of a default hereunder), upon completion of
transmissions to the addressee's telecopier, as follows (or at such other
addresses or facsimile numbers as may have been furnished in writing by
one of the Parties to the other as provided in this Section 17):
If to UGI: United-Guardian, Inc.
230 Marcus Blvd.
P.O. Box 18050
Hauppauge, NY 11788
Attention: Ken Globus, President
Facsimile No.: (516) 273-0858
If to VascA: VascA, Inc.
3 Highwood Drive
Tewksbury, MA 01876
Attention: Richard Andrews, Vice President
Facsimile No.: (978) 863-4401
With a copy to: Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attention: William T. Whelan, Esq.
Facsimile No.: (617) 542-2241
18. Affiliates.
To the extent that any obligations or agreements are imposed
upon Affiliates of a Party under this Agreement, such Party shall cause
such Affiliates to fulfill such obligations and agreements.
19. Waiver.
Failure of either Party to require, in one or more instances,
performance by the other Party in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or
relinquishment of the future performance of any such terms and conditions
or of any other term and condition of this Agreement.
20. Entire Agreement and Amendment; Titles.
20.1 This Agreement constitutes the entire agreement between the
Parties with respect to the subject matter hereof. It cancels and
supersedes all prior written and oral agreements, understandings and
declarations between the Parties in respect of the subject matter of this
Agreement.
20.2 The titles of the Sections of this Agreement are for
general reference and convenience only and this Agreement shall not be
construed and interpreted by reference to such titles.
21. Severability.
In case one or several provisions of this Agreement should be
declared ineffective or void by any court of competent jurisdiction or a
government agency having jurisdiction, such declaration shall not affect
the remainder of this Agreement which will remain in full force and
effect. The provisions ineffective or void shall be replaced by new
effective ones which shall be in their sense and regarding the intentions
of the Parties in respect of this Agreement as similar as possible to the
provisions ineffective or void.
22. No Agency.
Nothing herein shall be deemed to constitute either Party as the
agent or representative of the other Party, or both Parties as joint
venturers or partners for any purpose. Except as set forth herein,
neither Party shall be responsible for the acts or omissions of the other
Party, and neither Party will have authority to act on behalf of,
represent or obligate the other Party in any way without prior written
authority from the other Party.
23. Governing Law; Dispute Resolution.
23.1 This Agreement is governed by, and construed in accordance
with, the laws of the State of Delaware without reference to choice of
law principles.
23.2 This Agreement is made on the basis of mutual confidence,
and it is understood that the differences, if any, during the duration of
this Agreement should freely be discussed between the two Parties. Any
dispute, controversy or claim arising out of, or relating to, this
Agreement, or the breach, termination or invalidity thereof, shall be
settled by arbitration conducted in New York, New York in accordance with
the rules of the American Arbitration Association. Notwithstanding the
foregoing, nothing in this Section 23.2 shall be construed as limiting in
any way the right of a Party to seek injunctive relief with respect to
any actual or threatened breach of this Agreement, which breach would
cause irreparable harm to the Party seeking such relief, from a court of
competent jurisdiction.
24. Modifications.
Any modification or addition to this Agreement shall be valid
only if it is confirmed in writing by the duly authorized officers of
both Parties.
IN WITNESS WHEREOF, the Parties hereto have caused this
Agreement to be executed in duplicate by their duly authorized
representatives as of the date first above written.
UNITED-GUARDIAN, INC.
By:/s/ Kenneth H. Globus
--------------------
Kenneth H. Globus
Title: President
Date: December 4, 1998
VASCA, INC.
By:/s/ Richard Andrews
-------------------
Richard Andrews
Title: Vice President
Date: December 7, 1998
<PAGE>
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<PERIOD-END> DEC-31-1998
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<COMMON> 488,314
<OTHER-SE> 3,330,544
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