SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998
Commission File Number 0-10683
HYDROMER, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2303576
(State of incorporation) (I.R.S. Employer
Identification No.)
35 Columbia Road, Branchburg, New Jersey 08876-3518
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 526-2828
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock Without Par Value
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report(s,) and (2) has been subject to such filing requirements for the
past 90 days. Yes (X) No( )
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10KSB
or any amendment to this Form 10KSB (X)
The aggregate market value of the voting stock held by non-affiliates of
the Registrant at August 25, 1998 was approximately $5,186,985.
The number of shares of Registrant's Common Stock outstanding on August 25,
1998 was 4,367,987.
Portions of the Audited Financials Statements for the year ended June 30,
1998 are incorporated by reference in Part II of this report. Portions of the
Proxy Statement of Registrant dated September 12, 1998 are incorporated by
reference in Part III of this report.
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PART I
Item 1. BUSINESS
General
Hydromer, Inc. (the "Company") is a polymer research and development
company organized as a New Jersey Corporation in 1980 for the purpose of
developing polymeric complexes for commercial markets in the medical and
industrial fields. The Company owns several process and applications patents for
Hydromer(R) ("Hydromer"), which is both a polymeric substance that becomes
extremely lubricious (slippery) when contacted by water and a technique of
grafting or applying this substance onto surfaces which may consist of a wide
variety of materials, including polyurethane, polyvinyl chloride, and metals.
"Hydromer(R)" is a trademark of the Company. The Company has also been issued
patents for a permanent anti-fog material, a hydrophilic polyurethane foam,
hydrophilic polyurethane blends, hydrophilic polyvinylbutyral alloys, several
different biocompatible hydrogels and an anti-bacterial medical material, and
owns a trademark Sea-Slide(R), a hull coating for water craft, which the Company
is marketing. Two additional patents for contact allergen barriers have been
approved and will issue shortly. Other patent applications have been filed. See
"Patents and Trademarks" below.
From its inception in 1980 to mid 1984, the Company was engaged primarily
in research and development activities relating to Hydromer coatings. The
Company believes that the polymer and water interface of Hydromer provides a
surface lubricity superior to the quality of other presently marketed
silicone-based lubricants used to treat medical devices. When treated with
Hydromer coating, a medical device becomes highly slippery upon contact with
water, facilitating its insertion into any orifice of the body, in particular,
the nasal/oral, rectal and urinary orifices, or penetration through the skin,
thus reducing discomfort for the patient. Hydromer coatings are bonded to the
medical device unlike silicone-based lubricants which must be re-applied after
each use of the medical device. During its fiscal year ended June 30, 1997, the
Company entered into three license agreements for the use of Hydromer. Hydromer
has license agreements with eight different companies covering the application
of Hydromer coatings to heart pacemaker leads, enteral feeding products, guide
wires; certain urological devices, central venous catheters, ear prostheses,
guiding catheters, razor cartridges and angioplasty balloon catheters,
embolization delivery devices, pancreatic stents, umbilical catheters, infusion
catheters for peripheral and neurological uses and certain urological devices.
See "Option and License Agreements" below.
The Company believes that Hydromer technology may have further application
both in connection with medical products and products outside the medical field.
See "Potential Applications" below.
During the 1986 fiscal year, the Company was granted a U. S. Patent for
hydrophilic polyurethane foam and dental and biomedical products fabricated
therefrom. This foam has been independently tested and exhibits superior
absorptivity, high tensile strength when wet and reduced peel adhesion to the
skin.
In addition to its foregoing activities, the Company is marketing the
following products based on its polymer technology:
Anti-Fog - a coating for plastics (e.g. ski and swim goggles) which
prevents the accumulation of vision-obscuring condensation under high humidity
conditions. A more advanced version of anti-fog coating was patented in August
1984 and is being sold in bulk to manufacturers of industrial safety and swim
goggles, aircraft windows and meter covers. Condensation control coatings have
been developed for use on greenhouses and food packaging and are currently in
extended field testing with several customers.
Sea-Slide(R)- a Hydromer-based drag reducing marine coating which reduces
friction between hull and water, and can be used over most anti-fouling paints.
A U. S. Patent covering this coating and other potential uses was issued in
February 1987.
Cosmetic formulations - aqueous-based polymer blends, were introduced
during 1988 and are protected by the polymer blends patent issued in February
1987. These formulations are being sold to major cosmetic firms for use in hair
dyes, hair conditioners, mascaras, eye shadows and body
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lotions and are being tested for use in shampoos and sunscreens and agricultural
barrier products.
HYDROMER(TM) Poison Oak and Ivy Barrier, is a barrier lotion that protects
the wearer from the effects of poison ivy, poison oak, and poison sumac plant
allergens. Two patents will be issued shortly covering this technology.
Until September 1982, approximately 99% of the outstanding common stock,
without par value (the "Common Stock"), of the Company was owned by Biosearch
Medical Products Inc. ("BMP"), which in turn was controlled by Manfred F. Dyck,
who is Chief Executive Officer, a Director and the Chairman of the Board of the
Company. On September 16, 1982, BMP distributed its shareholdings in the Company
pro rata to the holders of its common stock. In connection with this
distribution, the Company granted to BMP an exclusive, world-wide perpetual,
royalty-free license to use the Hydromer technology in connection with the
development, manufacture and marketing of biomedical devices for enteral feeding
applications.
Option and License Agreements
A substantial portion of the Company's revenues in prior years have been
derived from option and license agreements. The option agreements have in
general provided that the customers pay to the Company a flat fee in exchange
for the right during a limited period of time (i) to use the Hydromer process to
determine whether the customer's products lend themselves to treatment with the
process and (ii) to test market such products. The option agreements have also
given the customers the right subsequently to enter into a license agreement
with the Company. At the customer's option, a license agreement with respect to
the marketing of a product treated with Hydromer may then be entered into,
providing for payment to the Company of an initial flat fee, followed by
periodic royalty payments based on sales.
The Company has previously reported license agreements in effect and
expiring relating to applications of the Hydromer as follows: (See Annual Report
on Form 10-K for the fiscal years ended June 30, 1983 through 1996 and Form
10KSB for fiscal year ended 1997.)
Licensee/Application
Arrow International, Inc. polyurethane-jacketed guidewires.
Axiom Medical, Inc. wound drains. - expired 3/98
Licensed Medicell for medical uses in US to Bioderm
Biosearch Medical Products Inc. enteral feeding systems
Boston Scientific - jacketed guidewires - expired 3/98
Cordis Endovascular Systems infusion microcatheters.
CR Bard (formally St. Jude Medical, Inc.) intra-aortic balloon catheters,
introducer systems and introducer needles.
Film Specialties, Inc. use anti-fog on adhesive backed film and certain
non-adhesive backed sheets.
Medispo (formally Cosmo Ikko) certain urological devices. - expired 3/98
Johnson & Johnson Orthopaedics Inc. casting gloves. - expired 3/98
Kendall HealthCare Products certain urological devices.
Ohmeda (formally U. S. Viggo, Inc.) central venous catheters. - expired 3/98
Smith & Nephew (formally Richards Medical) ear prostheses. - expired 3/98
Schneider Stent USA delivery devices for expandable stents. - expired 3/98
Circon Surgitek (Division of Circon Corporation and formally Surgitek which was
a Division of Cabot Medical) guidewires, urinary stents.
Boston Scientific (Van-Tec) guide wires and certain urological devices.
Wilkinson Sword Ltd. razor cartridges.
Piolax (formally Katoh Hatsujyo Kaisha, LTD) polyurethane jacketed guidewires -
cancelled
Products
Coating solutions for use on medical devices are manufactured and sold by
the Company to its
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licensees and others. The Company has received a United States and foreign
patents for a permanent type anti-fog coating. The Company is selling bulk
quantities of anti-fog solution to manufacturers of swim goggles, industrial
safety equipment, aircraft windows and meter covers, both in the U. S. and
foreign countries.
The Company has developed a condensation control coating for use on
structured greenhouse coverings. Which it sells to a major corporation that
manufactures this material in the U. S. and Europe.
A food packaging coating has been formulated using only materials that are
generally recognized as safe for food contact and independent laboratory
extraction tests of the coating have demonstrated that the extractibles are well
within levels specified by the FDA.
Another product introduced in 1984 was "Sea-Slide(R)", a drag reducing
overcoating for boats and ships. This product is designed to improve fuel
efficiency by lowering the friction between hull and water. It is being marketed
through a repackager and distributor who services the marine industry.
Sea-Slide(R) has been shown at major marine shows. Bulk quantities are also
being sold to distributors in Europe who package the product for local markets.
In the 1988 fiscal year, the Company introduced aqueous-based formulations
for use as a component in beauty aids. This product is being marketed through
distributors in the U.S. and abroad and is currently being sold for use in
mascaras, hair dyes, hair conditioners, hair shampoos, eye shadows, hair
colorings, hair sprays, body lotions and perfumes.
The Company is also marketing its patent-pending allergen barrier products
and its Aquatrix Cosmetics and medical hydrogels directly to the cosmetic, OTC
drug and medical device industry.
The Company's processes utilize various chemicals purchased from a number
of companies. The Company's primary suppliers are Elco Solvents, Inc. Avenel, NJ
and TR Metro Chemical, Inc. of Ridgefield, NJ. The Company has no long-term
contracts with any of its suppliers and believes that there are adequate
alternative sources of supply available for all raw materials that it currently
uses.
Dependence Upon Customers
The Company derives substantially all of its revenues from one business
segment, i.e. polymer research and products derived therefrom. During the fiscal
year ended June 30, 1998, the Company recognized revenues from two major
customers.
The Company sold products and collected royalty income representing more
than 10% of its total revenues for the year ended June 30, 1997 and June 30,
1998, from Johnson & Johnson, Cordis Division and Warner Lambert.
Potential Applications
The Company continues to explore other applications of the complexing
capabilities of polymeric substances, such as antimicrobial agents. The Company
currently is working on further applications of its patented technologies to
existing products of other companies, including cosmetics, wound dressings,
personal care and a wide variety of medical devices. These products and
applications are in the preliminary development stage and are subject to
substantial further development before their feasibility can be verified.
On the basis of its market analyses, as well as laboratory and in-vitro
testing of certain applications of Hydromer, the Company believes that
Hydromer's potential product applications, classified with reference to salient
Hydromer characteristics, are as follows:
1. Low Coefficient of Friction. Hydromer is a hydrophilic coating which when
contacted by water becomes extremely lubricious. The Company believes that this
unique feature would prove beneficial to any medical device that is inserted
into the body. Medical products that would so benefit include:
urinary products - urethral catheters and urinary drainage
systems;
rectal products - enemas, rectal tubes, examination gloves
and proctoscopy devices (disposable);
nasal/oral products - suction catheters, oxygen catheters and
endotracheal tubes;
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cardiovascular and - grafts, cardiac assist catheters heart-
related products lung tubing.
2. Ability to be Complexed with Other Functional Chemicals. The Hydromer
hydrophilic polymer coating can be complexed with other chemicals. For example,
Hydromer coating complexed with iodine forms an effective antimicrobial barrier.
The Company believes that this unique feature would lend itself to application
on a wide variety of currently marketed medical products, including Foley
catheters, wound drains, wart and corn dressings, burn dressings, intravenous
catheters, surgical dressings and adhesive bandages.
3. Cross-link Density Can be Controlled. The Hydromer hydrophilic polymer
coating, through controlled cross-linking, has been further developed into a
special anti-fog coating. Such a coating is (a) resistant to fogging under a
wide range of temperature/humidity conditions; (b) transparent and has
heat/light stability; (c) long lasting, i.e., will not chip or peel and offers
more scratch resistance than do most commercial plastics; (d) inert to most
commercial glass cleaners; (e) less prone to static dirt pickup; and (f)
applicable by dip, spray or roll coating. A U. S. Patent for this material was
issued to the Company in August 1984. This anti-fog product has use on sports
goggles, windows, mirrors and other products, either by direct application or by
coating of an adhesive backed film. Food grade versions are available for
packaging of fresh ready-to-eat produce, meats and deli-foods.
Research and Development
The Company's research and development activities presently are, and during
the next year are expected to be, devoted primarily to the development and
enhancement of the products described above and to the design and development of
new products. All of such activities were sponsored by the Company. The major
portion of such expenses was applied toward salaries and other expenses of
personnel employed on a regular basis in such work. See "Employees" below.
Competition
The Company considers the most significant competitive factors in its
market for its patented coatings to be product capability and performance
(including reliability and ease of use), in addition to price and terms of
purchase.
The Company owns both process patent and applications patents for Hydromer
coatings (see "Patents and Trademarks" below) two of which expired in Fiscal
1998, one U.S. patent remaining in effect until 2005. Although the medical
products market is highly competitive, the Company does not believe that there
is any other product available which performs functions significantly comparable
to those which are performed by Hydromer, in terms of lubricity, complexing
capabilities, durability and cost.
While management believes the Company has a dominant position in the market
for medical device coatings in which it competes, and that its hydrophilic foam,
anti-fog coatings and hydrogel products are technologically superior to other
products in the market, there can be no assurance that alternatives, with
similar properties and applications, could not be developed by other companies.
The Company is aware that there are other similar technologies available and/or
being developed by others. The industry in which the Company competes is
characterized by rapid technological advances and includes competitors that
possess significantly greater financial resources and research and manufacturing
capabilities, larger marketing and sales staffs and longer established
relationships with customers than the Company does at present or will for the
foreseeable future.
Marketing
The Company markets its products and services through five principal means:
1. Commercialization of its existing technologies: The Company will expand its
efforts to market its currently marketed technology to the medical, industrial
and personal care markets. The Company has expanded its capabilities to
prototype for customers to demonstrate the value of Hydromer technology. The
Company will also seek opportunities to apply its technology in new applications
where the technology will offer a benefit. Further, the Company will seek
customers for technologies that have been developed but are not currently
generating revenue capitalize on the
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technology that has been created through its R&D efforts, and to expand the
application of current technologies.
2. Sale of Development Services: The Company intends to move its effort away
from straight technology licensing and toward contract product development and
contract manufacturing. The Company has significant expertise in polymer
development and applications. By exhibiting at selected trade shows in the
medical device and cosmetic fields, the Company expects to generate interest in
its technology and products, with a view toward acting as an outside product
development arm and development supplier for companies in these fields.
3. Joint Development: The Company will continue to seek joint development
programs, co-marketing programs and other business arrangements with potential
partners.
4. Licensing: The Company will continue its endeavors to license its technology
to current market leaders in the medical device, pharmaceutical, and other
fields, whereby the Company will grant exclusive or non-exclusive rights for the
Hydromer coating treatment of existing or new products, and the development of
specific products utilizing its foam and hydrogel technology under its patents.
In return, the Company generally would earn royalties based on sales of such
treated or new products. Such licenses will usually be very narrow. The
activities leading to the consummation of a license agreement normally are
lengthy and require establishing a scientific dialogue with potential customers,
treating samples supplied by that customer with Hydromer coatings, determining
if the treatment is feasible and cost effective, testing the coated products in
a laboratory and then negotiating a mutually acceptable option agreement. An
option fee may be paid by the customer which would give the customer exclusive
rights to use the Hydromer treatment on the specified product for a specified
period. During such period, the optionee can test market the coated product
and/or determine its ability to treat the product in its own manufacturing
process. If the customer determines that the subject product should be treated
with Hydromer coating on a commercial basis, it may either perform the Hydromer
coating treatment itself under a license agreement with the Company or it may
have the a third party perform the Hydromer coating treatment.
5. Coating Services The Company will serve the customer who needs products
coated with lubricious or anti-fog coatings in production runs that are
economically feasible without substantial investments in fixturing and
automation. Typically this would be prototypes or runs of low volume, high value
products. Higher volume products could be accommodated if they were physically
small and did not require extensive fixturing or because for technical reasons
they could not be automated and were of high enough value to warrant the added
cost. The company will pursue large volume projects if they fall within a
technical area where Hydromer has particular expertise.
Business segments which are of particular interest are medical devices,
(catheters and guide wires), and transparencies (lenses, face shields). Contacts
will be pursued in conjunction with marketing of Hydromer coatings, at trade
shows, in mass mailings and advertisement in appropriate trade publications. The
company will endeavor to become a "one stop" supplier of high performance
coatings and services.
Patents and Trademarks
The Company owns both a United States process patent and an applications
patent for Hydromer, which have expired in August 1997 and March 1998. The
Company has granted to BMP an exclusive, royalty-free license of the Hydromer
process with respect to enteral feeding products. In addition, there are
currently 9 US patents, 3 US applications and various foreign counter parts.
Management believes that the protection afforded by the Hydromer patents goes
well into the year 2000 and will be a significant factor in the Company's
ability to market its products. Anticipating patent expiration, the Company has
focused on licensing and developing products based upon its newer technologies.
The Company has also been issued United States and foreign patents for a
permanent anti-fog. A U. S. patent was issued in October 1985 for a hydrophilic
polyurethane foam that is expected to have numerous medical applications.
Foreign patents covering this material issued in July 1990. A U. S. patent for
hydrophilic polymer blends, which covers the Company's
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coating for boats and the cosmetic formulations, was issued in February 1987. A
U. S. Patent has been received for Hydrophilic Polyvinylbutyral Alloys was
issued in July 1989 and foreign applications are pending. This patent protects
the condensation control coatings that have been developed for greenhouses and
food packaging. U. S. and foreign patents have also been issued for an
anti-bacterial medical material that can be incorporated in a foam or as a
coating. The Company has recently received notice of approval of two United
States patents in respect of its new composition, barrier film, and method for
preventing contact dermatitis developed by the company's research and
development staff. The Company has recently received a patent for Chitosan gels,
which expires in 2014. This patent is part of the new gel technology with
applications in medical, industrial, cosmetic and personal care markets. Two new
patent applications from composition to prevent mastitis and for non-leachable
biostatic coatings have been filed.
The Company owns the registered trademark "Hydromer" in the United States
and other countries.
Employees
As of June 30, 1998, the Company had fourteen full-time employees,
consisting of nine engaged in research and development, quality control and
assurance, coating of products for others and manufacturing the Company's
products, one in marketing and four in general administrative and executive
functions. The chief executive officer duties were assumed by Manfred F. Dyck,
Chairman of the Board, who agreed to serve the Company for a minimum of five
days per month. The Company does not have a collective bargaining agreement with
any of its employees and considers its relationship with its employees to be
excellent.
Government Regulations
The uses of the Company's medical and cosmetic products come under the
jurisdiction of the FDA, as well as other federal, state and local agencies, and
similar agencies in other countries.
In connection with the Company's license agreements, it is generally the
obligation of the licensee to conform to any required FDA pre-market
notification or other regulations. To the Company's knowledge, all such
licensees who are marketing FDA regulated licensed products are in such
compliance. The Company may in the future desire to market additional
applications of Hydromer to existing products, or products introduced by it,
which may be subject to such FDA approval procedures as proof of safety and
effectiveness of the applications or products, or adherence to prescribed design
standards. There can be no assurance that such approvals would be forthcoming or
of compliance with such standards. Any such failure to obtain approvals or
non-compliance might have a significant adverse effect on the Company. However,
the Company intends to make every effort to obtain all necessary approvals and
to comply with such standards, and in the case of its licensed applications, to
require the licensees to obtain such approvals.
The Company does not manufacture medical products and therefore its
activity does not come under the jurisdiction of the FDA nevertheless, it is the
policy of the Company to use the FDA regulations as guidelines during
manufacturing of Hydromer coatings.
The Company is also subject to federal and state regulations dealing with
occupational health and safety and environmental protection. It is the policy of
the Company to comply with these regulations and be responsive to its
obligations to its employees and the public.
Executive Officers
The executive officers of the Company are as follows:
Name Position with Company
- ---- ---------------------
Manfred F. Dyck Chairman of the Board Chief Executive
Officer and President
Age at August 31, 1998 - 63
Kenneth P. Brice Chief Financial Officer Vice President
Finance & Administration
Age at August 31, 1998 - 52
Joseph A. Ehrhard, Jr. Vice President, New Business Development
and R&D.
Age at August 31, 1998 - 32
Robert D. Frawley Secretary
Age at August 31, 1998 - 50
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Robert J. Moravsik Vice-President and General Counsel
Age at August 31, 1998 - 56
Manfred F. Dyck has been Chairman of the Board of the Company since June
1983 and a Director of the Company since its inception. Mr. Dyck served as Chief
Executive Officer of the Company from its inception until October 1986, and as
of August 1989, reassumed the duties of Chief Executive Officer. Mr. Dyck has
been President and a Director of Biosearch Medical Products Inc. since 1975.
Kenneth P. Brice has been Vice-President, Chief Financial Officer since
September 1997. Prior to joining Hydromer, Mr. Brice was President of CFO
Resources, Inc., a company that provides financial resources to other companies.
Mr. Brice previously was Vice-President and Chief Financial Officer of Digital
Solutions, Inc., a NJ based Professional Employer Organization. From September
1992 to February 1995, he was Vice-President and Corporate Controller for
Interim Services, Inc., a large international temporary help firm located in Ft.
Lauderdale, Fl.
Joseph A. Ehrhard, Jr., has been Vice-President of New Business and R&D
since February 1998. Prior to joining Hydromer, Mr. Ehrhard was Director of R&D
for the Golden Cat Division of Ralston-Purina in St. Louis, Mo. Mr. Ehrhard was
previously Director of R&D in Worldwide Absorbent Products and Materials
Research for Johnson & Johnson in New Jersey. From June 1987 through January
1995, he was in R&D at Procter & Gamble Company, most recently as Section Head
of Global New Technology Development in Personal Cleansing in Cincinnati, OH.
Robert D. Frawley has been Secretary of the Company since January 1984. Mr.
Frawley has been an attorney in private practice since December 1985. He is
employed by the law firm of Smith, Stratton, Wise, Heher and Brennan, Princeton,
New Jersey since February 1994. From December 1983 to December 1985, Mr. Frawley
was Vice President - Corporate Counsel and Secretary of Biosearch Medical
Products Inc.
Robert J. Moravsik has been Vice-President and General Counsel since April 1998.
He also serves in the same capacity for Biosearch Medical Products, Inc. and
affiliated company since 1987. Prior to that he was Vice-President and General
Counsel to Fisher Stevens, Inc., a subsidiary of the Bureau of National Affairs.
Item 2. PROPERTIES
The Company currently has two facilities located in New Jersey. The
manufacturing and quality assurance functions of the Company are located at 35
Columbia Road, Branchburg, New Jersey. The Company signed a five year lease with
a party not affiliated with the Company for the Branchburg facility.
In June 1998, the company purchased the building and land at 35 Industrial
Parkway for expansion. The new facility is secured by a mortgage with a bank and
is partially occupied by Biosearch Medical Products, Inc., the prior owner of
the facility. The Company will move its Research and Development as well as its
administrative staff to the new facility. See the financial statements included
herein for the terms of the agreements.
The facilities will be adequate for the Company's operations for the
foreseeable future.
Item 3. LEGAL PROCEEDINGS
Not applicable
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Prior to January 9, 1986, the Company's Common Stock was traded in the
over-the-counter market on the National Association of Securities Dealer's
Automated Quotation System (NASDAQ) under the symbol HYDI. Subsequent to January
9, 1986, reporting of trading was transferred to the National Daily Quotation
Service (commonly
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known as the "Pink Sheets"). For the past twelve years, trading in the Company's
stock has been limited. The Company has been informed by individual investors of
trades at prices ranging between $1.875 and $.1875 in the fiscal year 1998 and
between $.50 and $.0625 in fiscal year 1997. Prices for the 1996 fiscal year
ranged between $.1875 and $.0625 according to the National Quotation Bureau.
These prices may not include retail mark-ups or mark-downs or any commission to
the broker dealer.
The approximate number of holders of record of the Common Stock on August 25,
1998 was 323. There are approximately 723 individual shareholders of the common
stock.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The below discussion analyzes major factors and trends regarding the results of
operations and the financial condition of the Company as of June 30, 1998, and
its results of operations for the prior fiscal period. It should be read in
conjunction with the Financial Statements and Notes thereto.
Revenues for the year ended June 30, 1998 were $2,360,570 as compared to
$2,062,026 for the same period last year or a growth of 14.48%
Product sales were $989,527 for the 1998 fiscal year compared to $1,062,772 in
the prior fiscal year. Anti-fog coating solutions, which represented 19% of
product sales in 1998, were slightly ahead of last year, finishing the year at
$188,472 vs. $186,180 for the same period last year. Coating Solutions, 29% of
product sales were up 5.8% over last year at $286,553 vs. $270,917 for fiscal
1997. Cosmetics sales were down 22.6% over last year finishing the year at
$153,557 from $198,401 last year. Technology transfers to two major licensees,
representing 32.6% of product sales were down 6.5% to $322,470 in fiscal 1998 as
compared to $344,892 in fiscal 1997. There were no sales in condensation control
in fiscal 1998, down from $62,382 in fiscal 1997.
License royalties were $1,371,043 in fiscal 1998, up 37.2% over fiscal 1997's
results of $999,254.
Management Comment: In fiscal 1998, the Company focused on defining its markets
and technologies for commercialization. This focusing into the four major
markets (medical, industrial, cosmetic and personal care) redefined the
Company's strategies opening larger markets and accordingly, longer lead times
for new sales. These longer lead times, while having a short-term impact on
product sales, will lead to more significant sales gains in the future. Our
licensee's sales with our products are increasing at a dramatic rate, indicating
their continued acceptance and approval of Hydromer's technologies. This
increase is through existing licensees only as only one new license agreements
was signed last year, with revenues forecasted to begin in fiscal 1999. (Even
though 12 license agreements expired (or were cancelled) with the expiration of
a patent in March 1998, the Company has replaced a significant amount of the
loss license revenue with new pricing on the solutions to reflect the technical
support it still gives its clients.) To counter balance the trend in cosmetic
sales, we have expanded our cosmetic distributor network in fiscal 1998 to 11.
We expect to be able to reverse the trend in cosmetic sales with this expanded
focus.
Gross Profit for the year ended June 30, 1998 was $2,156,935 up 18.51% over
fiscal year 1997's results of $1,820,001.
Direct costs, as a percentage of product sales, were 20.6% for fiscal 1998
as compared to 22.7% for the fiscal year ended June 30, 1997. Overall gross
profit, including royalty income, was 91.3% for fiscal 1998 as compared to 88.3%
for fiscal 1997, or an increase of $336,934, 18.6%.
Management Comment: The majority of the increase in overall gross profit was the
increase in license revenues, which have no direct costs, were up $371,789.
Profits from product sales (revenues minus direct costs) were down $34,855
reflecting the effect of lower than anticipated product sales.
8
<PAGE>
Operating Income for the year ended June 30, 1998, was $502,467 vs. $298,723 for
the same period last year, or an increase of 68.2%.
Selling, general and administrative and research and development costs were
$1,654,468 for the year ended June 30, 1998 as compared to $1,521,278 for the
same period last year or an increase of 8.8%.
Management Comment: The increase in SG&A is primarily due to upgrading the
company's senior management and bonuses paid to staff members according to a
plan agreed at the beginning of the year for over budget achievement.
Additionally, the company has invested in its facility by building a clean-room
environment for prototyping coating samples, upgraded its computer systems to be
Y2K compatible and Microsoft based, and expanded its analytical capabilities by
purchasing state-of-the art equipment for the labs. Finally, the interest that
is being generated in the Company's products by direct marketing, trade show
participation and its website have required an increase in the volume of samples
being prepared and distributed.
Income before taxes is $534,022 for the current year, up 70.7% over prior year's
results of $312,770.
Other Income and expense is $31,555 for fiscal 1998 as compared to $14,047 for
the same period last year.
Management Comment: The Company's strong cash position has generated interest
income of $33,394 for the fiscal year ended June 30, 1998 as compared to $14,047
for the same period last year.
Net Income for the fiscal year 1998 was $375,535 compared to $344,394 for fiscal
year 1997, or an increase of 9.0%.
Income taxes were $158,487 for the current fiscal year compared to a tax benefit
of $31,624 for the prior fiscal year.
Management Comment: All of the Company's loss carry forwards were utilized in
1997 requiring the Company to book a tax liability for the fiscal year ended
June 30, 1998. This compares unfavorably to 1997 when the company booked a tax
benefit of $31,624. The company has a deferred tax asset on the books of
$236,235 which will be applied to this liability in FY 1999.
Liquidity and Capital Resources
Working Capital as of June 30, 1998 was $1,360,049, up $123,648 from prior year.
During the year ended June 30, 1998, the Company generated $399,798 through
operating activities. The Company paid $131,368 in dividends and, purchased land
and buildings for a net cash adjustment of $201,000. Cash balances, at the end
of the fiscal year, are $783,475, up $67,430 from the prior year.
Management Comment: Management believes that its current cash position plus its
projections will generate sufficient funds to maintain its current level of
operations.
Fiscal year 1998 was a year of focusing for the Company - in products,
technology and management. Hydromer is poised to take advantage of its patented
technologies by focusing on commercialization and licensing its technologies to
companies that offer significant revenue opportunities for the Company, now and
in the future.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information concerning this item, see pages 2 through 12 of the
"Audited Financial Statements for the year ended June 30, 1998," which
information is incorporated herein by reference.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
9
<PAGE>
PART III
Item 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 1 through 3 of the Proxy Statement filed with respect to the
1997 Annual Meeting of shareholders (the "Proxy Statement"), which information
is incorporated herein by reference.
Item 10. EXECUTIVE COMPENSATION
For information concerning this item, see page 3 of the Proxy Statement,
which information is incorporated herein by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item, see pages 2 through 4 of the Proxy
Statement, which information is incorporated herein by reference.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information concerning this item, see pages 2 through 4 of the Proxy
Statement, which information is incorporated herein by reference.
PART IV
Item 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The financial statement of the Company incorporated by reference in this
Report are listed in the attached Index to the Financial Statements and
Supplementary Data.
(a) 2. Financial Statement Schedules:
The financial statement schedules of the Company filed in this Report are
listed in the attached Index to Financial Statements and Supplementary Data.
(a) 3. Exhibits (not included)
The exhibits required to be filed as part of this Report are listed in the
attached Index to Exhibits.
(b) Current Reports on Form 8-K:
The Company has not filed any Current Reports on Form 8-K during the
quarter ended June 30, 1997.
10
<PAGE>
POWER OF ATTORNEY
The Company and each person whose signature appears below hereby appoint
Manfred F. Dyck and Robert D. Frawley as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make such changes in
the report as the attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
HYDROMER, INC.
/s/ Manfred F. Dyck President, Principal Executive Officer, September 11 ,1998
- ------------------------ Chairman of the Board of Directors
Manfred F. Dyck
/s/ Kenneth P. Brice Vice President Finance & September 11, 1998
- ------------------------ Administration Chief Financial Officer
Kenneth P. Brice
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ Manfred F. Dyck President, Principal Executive Officer, September 11, 1998
- ------------------------ Chairman of the Board of Directors
Manfred F. Dyck
/s/ Ursula M. Dyck Director September 11, 1998
- ------------------------
Ursula M. Dyck
/s/ Dieter Heinemann Director September 11, 1998
- ------------------------
Dieter Heinemann
/s/ Maxwell Borow Director September 11, 1998
- ------------------------
Maxwell Borow
/s/ Robert H. Bea Director September 11, 1998
- ------------------------
Robert H. Bea
</TABLE>
11
<PAGE>
INDEX TO EXHIBITS
3.a Certificate of Incorporation of the Company, as amended to date
3.b By-Laws of the Company, as amended to date
10.a Minutes of Meeting of the Board of Directors of the Company held on
March 5, 1981 with respect to stock options granted to Manfred F. Dyck
(Incorporated by reference to Exhibit 10.i to the Registration Statement).
10.b Agreement dated August 11, 1981 between Horizon Concepts, Inc., and
the Company (Incorporated by reference to Exhibit 10.c to the Registration
Statement).
10.c Agreement dated January 27, 1982 between Reliable Pharmaceutical
Company, Inc. and the Company (Incorporated by reference to Exhibit 10.d to the
Registration Statement).
10.d License Agreement dated July 14, 1982 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
Registration Statement).
10.e Management Services Agreement dated July 14, 1982 between Biosearch
Medical Products Inc. and the Company (Incorporated by reference to Exhibit 10.h
to the Registration Statement).
10.f Amendment dated October 7, 1982 to Agreement dated January 27, 1982
between Reliable Pharmaceutical Company, Inc. and the Company, together with
letter dated October 14, 1982 from Reliable Pharmaceutical Company, Inc. to the
Company (Incorporated by reference to Exhibit 10.f to the 1983 Annual Report).
10.g Hydromer Coating agreement dated February 11, 1983 between Pacesetter
Systems, Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
1983 Annual Report).
10.h Lease Agreement dated April 5, 1983 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.h to the 1983 Annual Report).
10.i License Agreement dated April 25, 1983 between CardioSearch Inc. and
the Company (Incorporated by reference to Exhibit 10.i to the 1983 Annual
Report).
10.j Trademark License Agreement dated April 25, 1983 between CardioSearch
Inc. and the Company (Incorporated by reference to Exhibit 10.j to the 1983
Annual Report).
10.k Agreement dated August 31, 1983 between Becton, Dickinson & Company
and the Company (Incorporated by reference to Exhibit 10.l to the 1983 Annual
Report).
10.l Current Report on Form 8-K filed May 30, 1986
10.m Hydromer Coating License Agreement dated September 30, 1984 between
Axiom Medical, Inc. and the Company (Incorporated by reference to Exhibit 10.m
to the 1984 Annual Report).
10.n 1982 Stock Option Plan of the Company (Incorporated by reference to
Exhibit 10.m to the 1983 Annual Report).
10.o Amendment dated June 26, 1984 to Agreement dated August 3, 1983
between Becton, Dickinson & Company and the Company (Incorporated by reference
to Exhibit 10.o to the 1984 Annual Report).
10.p License Agreement dated July 31, 1984 between Kendall Company and the
Company (Incorporated by reference to Exhibit 10.p to the 1984 Annual
Report).
10.q License Agreement dated March 1, 1985 between Van-Tec Inc. and the
Company and Letter of Amendment thereto dated June 13, 1985 (Incorporated by
reference to Exhibit 10.o to the 1985 Annual Report).
10.r Telex dated June 24, 1985 terminating License Agreement with
CardioSearch Inc. (Incorporated by reference to Exhibit 10.p to the 1984 Annual
Report).
10.s Amendment dated as of December 31, 1984 to Management Services
Agreement dated July 14, 1982 between Biosearch Medical Products Inc. and the
Company (Incorporated by reference to Exhibit 10.q to the 1985 Annual Report).
10.t Lease Renewal Agreement dated April 15, 1985 between Salem Realty and
the Company
12
<PAGE>
(Incorporated by reference to Exhibit 10.r to the 1985 Annual Report).
10.u Lease Agreement dated December 4, 1984 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.s to the
1985 Annual Report).
10.v License Agreement dated April 11, 1986 between Axiom Medical, Inc. and
the Company (Incorporated by reference to Exhibit 10.i to the 1986 Annual
Report).
10.w License Agreement dated September 13, 1985 between U. S. Viggo and the
Company (Incorporated by reference to Exhibit 10.c to the 1986 Annual Report).
10.x License Agreement dated March 27, 1986 between Wilkinson Sword Limited
and the Company (Incorporated by reference to Exhibit 10.f of the 1986 Annual
Report).
10.y Lease Renewal Agreement dated April 15, 1987 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.y to the 1987 Annual
Report).
10.z License Agreement dated April 30, 1986 between HPK International and
the Company (Incorporated by reference to Exhibit 10.j to the 1986 Annual
Report).
10.aa License Agreement dated August 1, 1986 between Film Specialties, Inc.
and the Company (Incorporated by reference to Exhibit 10.aa to the 1987 Annual
Report).
10.ab Lease Renewal Agreement dated April 15, 1988 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.ab to the 1988 Annual
Report).
10.ac License Agreement dated June 30, 1987 between Richards Medical
Company and the Company (Incorporated by reference to Exhibit 10.ac to the 1988
Annual Report).
10.ad License Agreement dated December 1, 1987 between Mallinckrodt, Inc.
and the Company (Incorporated by reference to Exhibit 10.ad to the 1988 Annual
Report).
10.ae Option Agreement dated January 28, 1988 between Cordis Corporation
and the Company (Incorporated by reference to Exhibit 10.ae to the 1988 Annual
Report).
10.af Lease Agreement dated April 15, 1988 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.ag of the
1988 Annual Report).
10.ag Letters dated June 11, 1987 and September 22, 1987 to U. S. Viggo,
Inc. modifying License Agreement dated September 13, 1985, to cover only central
venous catheters (Incorporated by reference to Exhibit 10.ag to the 1988 Annual
Report).
10.ah Lease Renewal Agreement dated April 15, 1989 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.ah to the 1989 Annual
Report).
10.ai Amendment dated October 1, 1988 to License Agreement dated September
13, 1985, between U. S. Viggo and the Company (Incorporated by reference to
Exhibit 10.ai to the 1989 Annual Report).
10.aj License Agreement dated October 20, 1988 between Cordis Corp. and the
Company (Incorporated by reference to Exhibit 10.aj to the 1989 Annual Report).
10.ak License Agreement dated March 31, 1989 between Cathlab Corp. and the
Company (Incorporated by reference to Exhibit 10.ak to the 1989 Annual Report).
10.al Amendment dated December 1, 1988 to License Agreement dated August 1,
1986 between Film Specialties, Inc. and the Company (Incorporated by reference
to Exhibit 10.al to the 1989 Annual Report).
10.am Finders Agreement dated August 20, 1987 between Phoenix Chemical,
Inc. and the Company (Incorporated by reference to Exhibit 10.am to the 1989
Annual Report).
10.an License Agreement dated September 10, 1989 between the Stent Division
of Schneider and the Company (Incorporated by reference to Exhibit 10.an to the
1990 Annual Report).
10.ao License Agreement dated March 30, 1990 between Cosmo Ikko Company and
the Company (Incorporated by reference to Exhibit 10.ao to the 1990 Annual
Report).
10.ap License Agreement dated April 12, 1990 between Interventional
Therapeutics, Inc. and the Company and amendment dated May 7, 1990 to the
Agreement dated April 12, 1990 between Interventional Therapeutics, Inc. and
13
<PAGE>
the Company (Incorporated by reference to Exhibit 10.ap to the 1990 Annual
Report).
10.aq Amended License Agreement dated January 1, 1990 between the Wilkinson
Sword group of companies and the Company (Incorporated by reference to Exhibit
10.aq the 1990 Annual Report).
10.ar Lease Agreement dated April 15, 1990 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.ar to the 1990 Annual Report).
10.as Amendment to the Agreement dated July 31, 1984 between Kendall
Company and the Company (Incorporated by reference to Exhibit 10.as to the 1990
Annual Report).
10.at License Agreement dated January 11, 1991 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.at to the
1991 Annual Report).
10.au License Agreement dated May 16, 1991 between I E Sensors and the
Company (Incorporated by reference to Exhibit 10.au to the 1991 Annual Report).
10.av Lease Renewal Agreement dated April 15, 1991 between Salem Realty and
The Company (Incorporated by reference to Exhibit 10.av to the 1991 Annual
Report).
10.aw License Agreement dated July 25, 1991 between Johnson & Johnson
Orthopaedics and the Company (Incorporated by reference to Exhibit 10.aw to the
1992 Annual Report).
10.ax License Agreement dated August 19, 1991 between Navarre Laboratories
Ltd. and the Company (Incorporated by reference to Exhibit 10.ax to the 1992
Annual Report).
10.ay Amended License Agreement dated September 15, 1991 between Boston
Scientific Corp. and the Company (Incorporated by reference to Exhibit 10.ay to
the 1992 Annual Report).
10.az Option/License Agreement dated September 23,1991 between Elan Corp.
PLC and the Company (Incorporated by reference to Exhibit 10.az to the 1992
Annual Report).
10.ba Lease Agreement dated November 1, 1991 between Morton Street Realty
and the Company (Incorporated by reference to Exhibit 10.ba to the 1992 Annual
Report).
10.bb License Agreement dated August 17, 1992 between SCIMED Peripheral
Interventions, division of SCIMED Life Systems, Inc. and the Company.
(Incorporated by reference to Exhibit 10.bb to the 1993 Annual Report).
10.bc License Agreement dated March 9, 1993 between Arrow International,
Inc. and the Company. (Incorporated by reference to Exhibit 10.bc to the 1993
Annual Report).
10.bd License Agreement dated April 28, 1993 between St. Jude Medical, Inc.
and the Company. (Incorporated by reference to Exhibit 10.bd to the 1993 Annual
Report).
10.be License Agreement dated November 11, 1993 between Katoh Hatsujyo
Kaisha, Ltd. and the Company. (Incorporated by reference to Exhibit 10.be to the
1994 Annual Report).
10.bf Lease Agreement dated June 9, 1995 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.bf to the 1995 Annual Report).
10.bg Amendment dated September 20, 1995 to License Agreement dated April
28, 1993 between St. Jude Medical, Inc. and the Company. (Incorporated by
reference to Exhibit 10.bg to the 1996 Annual Report).
10.bh License Agreement dated April 12, 1990 between Interventional
Therapeutics and the Company was terminated effective December 22, 1995.
(Incorporated by reference to Exhibit 10.bh to the 1996 Annual Report).
10.bi License Agreement dated May 16, 1991 between I E Sensors and the
Company was terminated effective December 31, 1995. (Incorporated by reference
to Exhibit 10.bi to the 1996 Annual Report).
10.bj Consented to the assignment of license agreement dated April 28,1993
between St. Jude Medical, Inc. and the Company to CR Bard dated January 18,
1996. (Incorporated by reference to Exhibit 10.bj to the 1996 Annual Report).
14
<PAGE>
10.bk License Agreement dated April 30, 1986 between HPK International and
the Company was terminated effective February 19, 1996. (Incorporated by
reference to Exhibit 10.bk to the 1996 Annual Report).
10.bl License Agreement dated June 6, 1996 between Biosearch Medical
Products Inc. and the Company. (Incorporated by reference to Exhibit 10.bl to
the 1996 Annual Report).
10.bm License Agreement dated August 1, 1996 between Biosearch Medical
Products Inc. and the Company. 10.bn Amended License Agreement dated September
4, 1996 between SCIMED (Boston Scientific Corporation and the Company. 10.bo
License Agreement dated January 6, 1997 between Sherwood Davis & Geck and the
Company.
10.bp Use permit for certain designated area dated May 4, 1997 between
Biosearch Medical Products Inc. and the Company
11 Contract of sale between Biosearch Medical Products and the Company for
the sale of 35 Industrial Parkway dated 3/31/98.
12 Note and mortgage with PNC Bank dated 6/12/98
13 3 year lease agreement with Biosearch Medical Products dated 6/12/98 for
35 Industrial Parkway
14 Audit Report for Year Ended 6/30/98- Rosenberg Rich Baker Berman and
Company, independent auditors.
15 Notice of 1998 Annual Meeting of Stockholders.
25 Power of Attorney (see "Power of Attorney" in the Annual Report on Form
10-KSB).
15
<PAGE>
Hydromer, Inc.
Financial Statements
June 30, 1998 and 1997
<PAGE>
Hydromer, Inc.
Index to the Financial Statements
June 30, 1998 and 1997
Page
Independent Auditors' Report .......................................... 1
Financial Statements
Balance Sheets .................................................... 4
Statements of Income .............................................. 4
Statement of Stockholders' Equity ................................. 4
Statements of Cash Flows .......................................... 5
Notes to the Financial Statements ................................. 6-12
<PAGE>
Rosenberg Rich Baker Berman & Company
[LETTERHEAD]
Independent Auditors' Report
To the Board of Directors and Stockholders of
Hydromer, Inc.
We have audited the accompanying balance sheets of Hydromer, Inc. as of June 30,
1998 and 1997 and the related statements of income, stockholders' equity, 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 audits 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 Hydromer, Inc. as of June 30,
1998 and 1997, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Rosenberg Rich Baker Berman & Company
Bridgewater, New Jersey
August 25, 1998
1
<PAGE>
Hydromer, Inc.
Balance Sheets
<TABLE>
<CAPTION>
June 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 783,475 $ 716,045
Trade receivables less allowance for doubtful accounts of $8,831 in
1998 and 1997 497,579 431,150
Inventory 176,131 148,753
Prepaid expenses 71,708 77,567
Other 42,083 --
Deferred tax asset 236,235 100,000
----------- -----------
Total Current Assets 1,807,211 1,473,515
Property and Equipment, net 1,585,209 271,743
Deferred Tax Asset -- 262,856
Other 100,117 11,968
----------- -----------
Total Assets 3,492,537 2,020,082
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable 42,563 29,213
Accrued expenses 232,432 167,678
Current portion of mortgage payable 56,667 --
Current portion of deferred rental income 115,500 --
Income tax payable -- 40,223
Total Current Liabilities 447,162 237,114
----------- -----------
Long term portion of mortgage payable 793,333 --
Long term portion of deferred rental income 224,906 --
----------- -----------
Total Liabilities 1,465,401 237,114
----------- -----------
Stockholders' Equity
Common stock - no par value, authorized 6,000,000 shares, 4,378,904
issued and 4,367,987 shares outstanding 2,922,708 2,922,708
Contributed capital 577,750 577,750
Accumulated deficit (1,467,182) (1,711,350)
Treasury stock, 10,917 common shares at cost (6,140) (6,140)
----------- -----------
Total Stockholders' Equity 2,027,136 1,782,968
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,492,537 $ 2,020,082
=========== ===========
</TABLE>
See notes to the financial statements.
2
<PAGE>
Hydromer, Inc.
Statements of Income
Year Ended June 30,
------------------------
1998 1997
----------- -----------
Revenues
Sales of products and services $ 989,527 $ 1,062,772
Royalties, options and licenses 1,371,043 999,254
----------- -----------
2,360,570 2,062,026
Cost of Sales 203,636 242,025
----------- -----------
Gross Profit 2,156,934 1,820,001
Operating Expenses 1,654,468 1,521,278
----------- -----------
Operating Income 502,466 298,723
----------- -----------
Other Income (Expense)
Interest income 33,394 14,047
Interest expense (1,969) --
Other income 131 --
----------- -----------
Total Other Income 31,556 14,047
----------- -----------
Income Before Provision for (Benefit from) Taxes 534,022 312,770
Provision for (Benefit from) Income Taxes 158,487 (31,624)
----------- -----------
Net Income $ 375,535 $ 344,394
=========== ===========
Earnings Per Common Share $ .09 $ .08
=========== ===========
Weighted Average Number of Common Shares Outstanding 4,367,987 4,367,987
=========== ===========
See notes to the financial statements.
3
<PAGE>
Hydromer, Inc.
Statement of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------------ Contributed Accumulated -----------------------
Shares Amount Capital Deficit Shares Amount Total
---------- ----------- ----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance June 30, 1996 4,378,904 $ 2,922,708 $ 577,750 $(2,055,744) 10,917 $ (6,140) $ 1,438,574
Net Income -- -- -- 344,394 -- -- 344,394
---------- ----------- ----------- ----------- --------- ----------- -----------
Balance June 30, 1997 4,378,904 2,922,708 577,750 (1,711,350) 10,917 (6,140) 1,782,968
Dividends Paid -- -- -- (131,367) -- -- (131,367)
Net Income -- -- -- 375,535 -- -- 375,535
---------- ----------- ----------- ----------- --------- ----------- -----------
Balance June 30, 1998 4,378,904 $ 2,922,708 $ 577,750 $(1,467,182) 10,917 $ (6,140) $ 2,027,136
========== =========== =========== =========== ========= =========== ===========
</TABLE>
See notes to the financial statements.
4
<PAGE>
Hydromer, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 375,535 $ 344,394
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities
Depreciation and amortization 77,941 43 326
Changes in Assets and Liabilities
Trade receivables (66,429) 193,121
Inventory (27,378) 22,607
Prepaid expenses 5,859 (32,305)
Deferred tax asset 126,621 (69,331)
Other assets (130,232) (2,093)
Accounts payable and accrued liabilities 78,104 104,274
Income taxes payable (40,223) 36,707
----------- -----------
Net Cash Provided by Operating Activities 399,798 640,700
----------- -----------
Cash Flows From Investing Activities
Cash purchases of property and equipment (1,051,000) (92,555)
Proceeds from mortgage on new building 850,000 --
Cash dividends paid (131,368) --
----------- -----------
Net Cash (Used in) Investing Activities (332,368) (92,555)
----------- -----------
Net Increase in Cash and Cash Equivalents 67,430 548,145
Cash and Cash Equivalents at Beginning of Year 716,045 167,900
----------- -----------
Cash and Cash Equivalents at End of Year $ 783,475 $ 716,045
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 1,969 $ --
Income taxes $ 44,878 $ --
</TABLE>
NON-CASH DISCLOSURES OF CASH FLOW IN FORMATION
In 1998 the Company financed a portion of their acquisition of property
with a prepaid lease to Biosearch Medical Products, Inc. for $346,500.
See notes to the financial statements.
5
<PAGE>
Hydromer, Inc.
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Hydromer, Inc. (The Company) is a polymer research and development
company based in Branchburg, New Jersey. The Company develops polymer
complexes for commercial markets in the medical and industrial fields
primarily in the United States. The Company obtains patent rights on
certain products from which royalty revenues are received.
Cash and Cash Equivalents
Cash and cash equivalents consist of short term investments with
original maturities of three months or less.
Inventories
Inventories are valued at the lower of cost, determined by the
first-in, first-out method, or market and include appropriate amounts
of labor and overhead.
Depreciation
The cost of property and equipment is depreciated on a straight-line
method over the estimated useful lives of the assets: 10 years for
machinery and equipment, 3-5 years for furniture and office equipment
and the term of the lease for leasehold improvements. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or
loss is reflected in income for the period. Repairs and maintenance
which do not extend the useful lives of the related assets are
expensed as incurred.
Patents
Expenses associated with new patent applications are prepaid until the
patents are approved at which time they are amortized over the life of
the patent, typically 20 years. Prepaid expenses associated with
patents which are not approved or abandoned are expensed in the period
in which such patents are not approved or abandoned. Maintenance fees
associated with existing patents are written off over 12 months. At
June 30, 1998 and 1997, no new patents had been approved and
accordingly, no amortization expense has been recognized.
Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the bases of
assets and liabilities for financial and income tax reporting. The
deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled.
Deferred taxes also are recognized for operating losses that are
available to offset future federal income taxes.
Earnings Per Share
Earnings per share, in accordance with the provisions of Financial
Accounting Standards Board Statement No. 128. "Earnings Per Share", is
computed by dividing net income by the weighted average number of
shares of common stock outstanding during the period. Common stock
equivalents were not included in computing diluted earning per share
since their effects would be antidilutive.
<PAGE>
Hydromer, Inc.
Notes to the Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Concentration of Credit and Business Risk
The Company maintains cash balances in a financial institution.
Accounts at the institution are insured by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. At times, throughout the
year, the Company may maintain certain account balances which exceed
the FDIC insured limits. The Company provides credit in the normal
course of business to customers. Ongoing credit evaluations of its
customers are performed, and allowances for doubtful accounts are
based on factors surrounding the credit risk of specific customers,
historical trends, and other information.
Advertising
Advertising costs are expensed as incurred except for tangible assets,
such as printed advertising materials, which are expensed as consumed.
Advertising expense was $8,743 and $3,569 for the years ended June 30,
1998 and 1997, respectively. Advertising included in prepaid expense
on the balance sheet at June 30, 1998 and 1997 were $7,725 and $0,
respectively.
Research and Development
Research and development costs are charged to operations when incurred
and are included in operating expenses. The amounts charged in 1998
and 1997 were $512,107 and $304,631, respectively.
Major Customers
The Company sold products and collected royalty income representing
more than 10% of its total revenues for the year ended June 30, 1998
and 1997, to three customers.
Revenue Recognition
Revenue from product sales are recognized at the time of shipment
provided that collection of the resulting receivable is probable.
Revenue from royalties are recognized upon the sale of certain
products by licensees with whom the Company has licensing agreements.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
INVENTORY
Inventory consists of:
June 30,
----------------------
1998 1997
--------- ---------
Finished goods $ 102,689 $ 86,580
Raw materials 73,442 62,173
---------- ---------
$ 176,131 $ 148,753
========== =========
7
<PAGE>
Hydromer, Inc.
Notes to the Financial Statements
PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
June 30,
--------------------------
1998 1997
----------- -----------
Land $ 472,410 $ --
Building 752,453 --
Machinery and equipment 598,300 476,765
Furniture and fixtures 128,443 108,906
Leasehold improvements 215,077 189,605
----------- -----------
2,166,683 775,276
Less accumulated depreciation and amortization (581,474) (503,533)
----------- -----------
$ 1,585,209 $ 271,743
=========== ===========
Depreciation expense charge to operations was $77,941 and $43,326 in 1998 and
1997, respectively.
LONG-TERM DEBT
Long-term debt is comprised of the following:
Mortgage note
Due in equal monthly installments of $4,722 plus
interest through June 1, 2003 secured by the land,
building, machinery and equipment and all rents
from leases currently and subsequently entered
into $850,000
Less: Current Maturities 56,667
--------
Long-term Debt, Net of Current Maturities $793,333
========
The mortgage note bears interest at a rate of 200 basis points over the banks
fully absorbed five year cost of funds, adjusted every five years. The interest
rate for the first five year period is 8%.
Year ended June 30,
------------------- ----------
1999 $ 56,667
2000 56,667
2001 56,667
2002 56,667
2003 56,667
Thereafter 509,998
---------
$ 793,333
=========
8
<PAGE>
Hydromer, Inc.
Notes to the Financial Statements
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and equivalents, accounts receivable, accounts
payable and accrued expenses approximates fair value because of the short
maturity of these instruments. The fair value of the Company's long term
debt approximates its carrying value and is based on the current rates
offered to the Company for debt of the same remaining maturities with
similar collateral requirements.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
INCOME TAXES
The income tax provision (benefit) is comprised of the following:
Federal State Total
--------- --------- ---------
Year Ended June 30, 1998
Current $ -- $ 17,872 $ 17,872
Deferred 140,615 -- 140,615
--------- --------- ---------
$ 140,615 $ 17,872 $ 158,487
========= ========= =========
Year Ended June 30, 1997
Current $ -- $ 36,707 $ 36,707
Deferred (68,331) -- (68,331)
--------- --------- ---------
$ (68,331) $ 36,707 $ (31,624)
========= ========= =========
A reconciliation between taxes computed at the federal statutory rate
and the consolidated effective tax rate follows:
June 30,
----------------
1998 1997
----- -----
Federal statutory tax rate 34.0% 39.0%
Surtax exemptions -- (5.4)
State income tax - net of federal tax benefit (4.6) (5.8)
Permanent and other differences 0.3 (37.9)
29.7% (10.1)%
===== =====
The temporary differences causing such deferred tax benefits are
primarily due to net operating loss carryforwards.
At June 30, 1998, the Company has net operating loss carry forwards
for federal income tax purposes of $734,807, which are available to
offset future Federal taxable income, if any. The federal net
operating loss carryforwards expire as follows:
Federal
---------
2000 $ 106,573
2001 198,315
2002 138,889
2003 58,675
2010 232,355
---------
$ 734,807
=========
9
<PAGE>
Hydromer, Inc.
Notes to the Financial Statements
INCOME TAXES, Continued
For June 30, 1998 and 1997 it is reasonably certain that all the temporary
differences will reverse in future years, therefore no valuation allowance
is provided. Using the applicable federal tax of 34% each year, the
deferred tax assets and liabilities are as follows:
June 30,
-----------------------
1998 1997
--------- ---------
Current deferred tax asset $ 249,835 $ 100,000
Current deferred tax liability (13,600) 262,856
--------- ---------
Net Deferred Tax Asset $ 236,235 $ 362,856
========= =========
STOCK OPTIONS AND AWARDS
On January 23, 1992, the Board of Directors granted options to purchase
12,000 shares of common stock of the Company which were to expire on
January 22, 1997, with 4,000 shares being exercisable immediately, 4,000
becoming exercisable one year from the date of the grant, and the final
4,000 becoming exercisable two years from the date of the grant. The
exercise price of $0.625 per share was equal to the market price at the
date of the grant. At June 30, 1997, the 12,000 options exercisable under
this arrangement have expired.
On January 22, 1998 the Board of Directors authorized a stock option plan
for senior management. Under the plan, senior management would be issued
stock options in an amount equal to 3% of the incremental market cap of the
Company divided by the stock price at June 30th in each of the next three
years. The incremental market cap of the Company is defined as the number
of outstanding shares at the end of each year multiplied by the increase in
the market value per share for each year. These options would be equally
divided by the number of participants in the plan. As of June 30, 1998,
there were three participants. The plan was effective July 1, 1998. The
market cap of the company on July 1, 1998 was $3,010,496. The first options
will be issued under this plan as of June 30, 1999.
On January 22, 1998 the Board of Directors also authorized a stock option
plan for the Chief Executive Officer (CEO). Under the plan, the CEO would
be issued stock options in an amount equal to 3% of the incremental market
cap of the Company divided by the stock price at June 30th in each of the
next three years. The incremental market cap of the Company is defined as
the number of outstanding shares at the end of each year multiplied by the
increase in the market value per share for each year. The plan was
effective July 1, 1998. The market cap of the company on July 1, 1998 was
$3,010,496. The first options will be issued under this plan as of June 30,
1999.
On January 22, 1998 the company issued 25,000 stock options to a senior
executive as part of his employment agreement. These options vest 100% in 6
months and are priced at $0.875 per share. The Company also issued 60,000
stock options to the same executive that will vest once the company is
listed on a regional or national exchange. The vesting will be at the rate
of 20,000 shares immediately upon listing and 5,000 shares at the end of
each of the next 8 quarters from listing date. The price of the options
will be the listing price or $2.00, whichever is higher.
On January 22, 1998 the Board of Directors approved an option plan for
active directors that would give each active director of the Company 5,000
options with a strike price on September 1, 1998, the date of record and
each subsequent year on the record date.
10
<PAGE>
Hydromer, Inc.
Notes to the Financial Statements
STOCK OPTIONS AND AWARDS, Continued
A summary of activity under the plan for the years ending June 30, 1998 and
1997 is as follows:
Common Stock Options Outstanding
Shares
--------
Balance, June 30, 1996 12,000
Granted --
Exercised --
Canceled 12,000
-------
Balance, June 30, 1997 --
=======
Granted 85,000
Exercised --
Canceled --
--------
Balance, June 30, 1998 85,000
========
Shares exercisable at June 30, 1998 --
========
Weighted average fair value of
options granted during 1998 $ 1.67
========
Following is a summary of the status of options outstanding at June 30,
1998:
Outstanding Options
---------------------------------------------------------
Weighted
Average Weighted
Remaining Average
Exercise Contractual Exercise
Price Range Number Life Price
------------- ------------- ------------- -----------
.875-2.00 85,000 5 Years $1.67
RETIREMENT PLAN
The Company sponsors a qualified 401(k) plan covering substantially all
full time employees under which eligible employees can defer a portion of
their annual compensation. The Company made no matching contribution to the
plan during the years ended June 30, 1998 and 1997. Effective August 1,
1998, the Company will match 25% up to 6% of salary.
11
<PAGE>
Hydromer, Inc.
Notes to the Financial Statements
LEASES
The Company leases its facility under an operating lease. Total rental
expense for the years ended June 30, 1998 and 1997 were $79,375 and
$81,000, respectively. The lease calls for payment by the Company of all
operating costs such as utilities, maintenance, taxes and liability
insurance.
Future minimum rental commitments for the next five years as of June 30,
1998 on the aforementioned lease is as follows:
1999 $ 91,250
2000 101,875
2001 43,750
2002 and Thereafter --
----------
$ 236,875
==========
RELATED PARTY TRANSACTIONS
The Company and Biosearch Medical Products, Inc. (BMP) are related parties
since certain shareholders hold a substantial ownership interest and are
members of management in both companies. During 1998 and 1997, the Company
sold materials and services to BMP for $45,019 and $31,257, respectively.
The Company also earned royalty income from BMP of $25,894 and $43,171 for
the years ended June 30, 1998 and 1997, respectively. Total amounts owed to
the Company by BMP were $25,093 and $19,794 at June 30, 1998 and 1997,
respectively.
In addition, BMP provides engineering and secretarial services to Hydromer.
These expenses amounted to $17,393 and $10,090 and for the years ended June
30, 1998 and 1997, respectively. Amounts owed to BMP at June 30, 1998 and
1997, respectively, were $3,811 and $597.
In 1998 and 1997, the Company purchased furniture and equipment from BMP
for $500 and $46,000, respectively.
Also, during 1997, the Company leased equipment and space from BMP, on a
week-to-week basis. Total rental expense paid to BMP was $10,000 and $6,000
for the years ended June 30, 1998 and 1997, respectively.
On June 12, 1998, the Company purchased a facility and land from BMP for
$850,000 in cash and a pre-paid lease to BMP of $346,500. The land and
building has an appraised value of $1,370,000. BMP will occupy
approximately 75% of the building and Hydromer the remaining 25%.
RECLASSIFICATIONS
Certain items in the June 30, 1997 report have been reclassified to conform
to current year classifications. Such reclassifications had no effect on
previously reported net income.
SUBSEQUENT EVENT
Subsequent to the year ended June 30, 1998, the Board of Directors declared
a cash dividend of $.03 per share. The amount of the cash dividend totals
approximately $131,000.
SALE OF 35 INDUSTRIAL PARKWAY, SOMERVILLE, NJ
This Agreement of Sale made this 30th day of March, 1998, by and between
Biosearch Medical Products, Inc. a New Jersey Corporation, with its principle
place of business at 35 Industrial Parkway, Somerville, N.J. 08876 ("Seller")
and Hydromer, Inc. a New Jersey Corporation, with its principle place of
business at 35 Columbia Road, North Branch, N.J. 08876 ("Purchaser")
WITNESSETH:
WHEREAS, The Seller is the owner of certain real property premises located
in the municipality of Branchburg, County of Somerset, and State of New Jersey;
and
WHEREAS, Purchaser desires to purchase said premises from Seller; and
WHEREAS, the parties hereto desire to set forth their mutual understandings
and agreements with respect to the sale and purchase of said premises.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto agree as follows:
1. AGREEMENT TO SELL: Seller hereby agrees to sell and Purchaser hereby
agrees to purchase those real property premises consisting of approximately 6.2
acres situated in the Township of Branchburg, County of Somerset and State of
New Jersey. The premises are commonly known as 35 Industrial Parkway,
Somerville, New Jersey and are also known as Lot 3D, Block 13, as shown on the
current tax map of the Township of Branchburg. The premises are more
specifically described on Schedule A attached hereto and made a part hereof. All
machinery and trade fixtures are not included in the sale.
2. PURCHASE PRICE: The purchase price for the premises shall be Eight
Hundred Fifty Thousand Dollars ($850,000) and a 3 year lease back of approx
16,500 sq. ft. from Purchaser to Seller beginning on the date of closing said
terms of lease are set forth on Schedule B1 attached hereto, subject to
adjustments as hereinafter provided in Paragraph 8, payable as follows:
(a) Upon execution hereof, the receipt of which is
hereby acknowledged, to be held in escrow by escrow agent
pending closing and pursuant to the provisions of Paragraph
4 $ 85,000
(b) Balance to be paid at closing of title by
certified, bank, cashier's, or attorneys' trust
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-2
- --------------------------------------------------------------------------------
account check or pursuant to Seller's wire instructions $ 765,000
(c) A three year fully paid lease of approx. 16,500
square feet, which the parties value at $ 346,500. $ 346,500
Total Purchase Price $1,196,500
3. TITLE:
(a) Title to the premises shall be good, marketable, with title valid of
record, and insurable by a title insurance company of Purchaser's choice
authorized to do business in the State of New Jersey, subject to the following
exceptions which shall be deemed "Permitted Exceptions":
Subject to a mortgage given by seller to the New Jersey Economic Development
Authority which seller will satisfy with part of the Purchase Price.
Subject to all other exceptions of record which would not render title to the
premises unmarketable, nor would materially interfere with the Purchaser's
Intended Use of the premises, or:
(i) Laws, regulations or ordinances of federal, state, county or local
entities or agencies having jurisdiction over the premises, provided same
do not prohibit the use and enjoyment of the premises for Purchaser's
Intended Use, as described in Paragraph 6(a)(i) below.
(ii) Easements, covenants, and restrictions of record, provided the
same have not been violated, would not render title to the premises
unmarketable, nor would materially interfere with the Purchaser's Intended
Use of the premises.
(iii) Such state of facts as would be shown on an accurate survey of
the premises, provided such facts do not render title to the premises
unmarketable, would not materially interfere with Purchaser's Intended Use
of the premises, nor would reveal encroachments onto the premises from
adjoining properties or from the premises onto adjoining properties.
The existence of mortgages on the premises shall not constitute a
non-Permitted Exception, provided the outstanding principal balance and accrued
interest due and owing thereon is less than the balance of the purchase price
described in Paragraph 2(b). In the event the amounts due under such mortgages
are
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-3
- --------------------------------------------------------------------------------
less than the balance of the purchase price described in Paragraph 2(c), then
the Purchaser shall be permitted to use a portion of the closing proceeds to
satisfy such amounts.
(b) Within thirty (30) days from the date hereof, Purchaser shall procure a
preliminary certificate of title from a title insurance company of Purchaser's
choice licensed to do business in the State of New Jersey. Purchaser shall
promptly notify Seller, in writing, of any title exceptions set forth in such
preliminary certificate or in any amendments thereto which are not Permitted
Exceptions. Seller shall then have a thirty (30) day period after such notice to
clear or remove the non-Permitted Exceptions to the satisfaction of Purchaser
and Purchaser's title company.
(c) In the event Seller is unable, after due diligence, to remove the
non-Permitted Exceptions and deliver title as required in Paragraph 3(a) above,
Purchaser shall have the right either to accept such title as Seller is able to
convey, without abatement of the purchase price, or to terminate this Agreement.
4. ESCROW AGENT AND DEPOSIT:
(a) The escrow agent referred to in Paragraph 2 above shall be Smith,
Stratton, Wise, Herher & Brennan, attorneys at Law, (600 College Road-East,
Princeton, N.J. 08540) (hereinafter referred to as "Escrow Agent"). The Escrow
Agent shall hold the deposit and interest accrued thereon (hereinafter "escrow
funds") pursuant to an ESCROW AGREEMENT, the form being attached to this
AGREEMENT as Schedule C.
(b) Upon closing of title, the Escrow Agent shall deliver the escrow funds
to Seller. Purchaser shall be entitled to a credit against the purchase price
for the deposit but not the interest.
(c) In the event that pursuant to this Agreement or by mutual consent of
Seller and Purchaser this Agreement is terminated, the Escrow Agent shall
deliver the deposit and all interest earned thereon to the Purchaser. In that
event, the Purchaser herein agrees to execute any and all documents necessary to
confirm that Purchaser shall be liable to any taxing authority for taxes with
respect to such interest. The Purchaser's obligation herein shall survive the
termination of this Agreement.
(d) In the event that there is no closing, nor a termination of this
Agreement in accordance with its terms or by mutual consent of Seller and
Purchaser, and/or one party shall allege default or breach by the other party as
the cause, the Escrow Agent shall continue to hold said escrow funds pending an
order from a court of competent jurisdiction or mutual consent of Seller and
Purchaser.
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-4
- --------------------------------------------------------------------------------
(e) Notwithstanding the terms of subparagraphs (c) and (d) above, the
parties hereto agree that the question of which party is entitled to the deposit
and when shall be governed by other paragraphs of this Agreement other than this
Paragraph 4, and that this Paragraph 4 shall determine the procedures by which
the Escrow Agent shall make disbursements. If Seller claims at any time that it
is entitled to the escrow funds on account of any default by Purchaser, Seller
shall notify Escrow Agent, in writing, requesting payment to Seller. If within
ten (10) days of Escrow Agent's receipt of such notice Purchaser has not
objected to the payment thereof to Seller, Escrow Agent shall pay same to
Seller. If Purchaser objects, then subparagraph (d) above shall apply. If on the
date set for closing Purchaser does not object, in writing, to the payment of
the escrow funds to Seller in accordance with Paragraph 4(b), then Escrow Agent
shall pay to Seller such sums. If Purchaser objects, in writing, to such
payment, then subparagraph 4(d) above shall apply. If Purchaser claims at any
time that it is entitled to the return of the escrow funds in accordance with
this Agreement, Purchaser shall notify the Escrow Agent, in writing, of its
claim for same. If within ten (10) days of Escrow Agent's receipt of such notice
Seller has not objected to the payment thereof to Purchaser, Escrow Agent shall
pay same to Purchaser. If Seller objects, then the provisions of subparagraph
4(d) shall apply. Both Seller and Purchaser agree that in connection with any
written notification to be given to the Escrow Agent, a copy of such written
notification shall be served upon the other party and the party giving such
notice shall have the unconditional obligation to provide Escrow Agent with
evidence satisfactory to Escrow Agent that a copy of the written demand has been
delivered to the other party. Each party undertakes the obligation to provide
such notice and provide evidence of such notice to Escrow Agent. Until such
obligation has been satisfied, any time period described in this subparagraph
(e) shall not commence to run.
(f) The Seller and Purchaser acknowledge that the Escrow Agent has
represented both Purchaser and Seller in different matters but such fact shall
not disqualify Escrow Agent from representing the Purchaser in this transaction.
(g) Seller and Purchaser agree that upon Escrow Agent's disbursement of the
escrow funds to Seller or to Purchaser, in accordance with the terms set forth
hereinabove or upon deposit thereof with a court of competent jurisdiction, the
Escrow Agent shall have no further obligation under this Agreement or with
respect of the escrow funds.
5. TERMINATION OF AGREEMENT: If, pursuant to the terms of this Agreement,
this Agreement shall be terminated or canceled then subject to Paragraph 4
hereof, Escrow Agent shall return the escrow funds to Purchaser and neither
Seller nor Purchaser shall have any further liability to the other.
6. PURCHASER'S INTENDED USE: Seller and Purchaser agree that Purchaser is
purchasing the premises for the purpose of utilizing the premises for research
and
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-5
- --------------------------------------------------------------------------------
development of polymers and polymer based product, including but not limited the
storage and mixing of chemicals used for, and the coating of medical/industrial
devices subject to all federal state and municipal laws and regulations. Seller
represents that to Seller's best knowledge, the premises can be so used in a
lawful manner provided Buyer meets all legal requirements at its own expense.
7. PURCHASER'S CONTINGENCIES: It is understood and agreed that the
obligation of Purchaser to purchase the premises is expressly contingent upon
the achievement or satisfaction of all of the following conditions, any or all
of which the Purchaser shall have the right to waive, in whole or in part. The
Purchaser shall not have the right to extend any time periods referred to herein
unless such extension is agreed to in writing signed by both Seller and
Purchaser. Said conditions are as follows:
(a) Purchaser obtaining a commitment (the "Commitment") from any bank ("the
Lender") for a mortgage loan (the "Loan") in the amount of not less then
$722,500 with interest at the prevailing rates and terms reasonable to
Purchaser. Purchaser agrees to make immediate application for such Loan and
promptly comply with all of such Lender's reasonable requirements in connection
with such Loan. Purchaser shall proceed with due diligence to obtain such
commitment. In the event Purchaser has not obtained the Commitment from the
Lender within thirty (30) days of the date on which Seller and Purchaser have
both duly executed this Agreement and each has received a fully executed
counterpart thereof (the "Execution Date"), either party may terminate this
Agreement by written notice sent before close of business, May 4, 1998 or this
contingency is waived.
(b) Environmental. Seller will deliver an approval of a negative
declaration issued by the NJ DEP dated January 12, 1998 pursuant to the
Industrial Site Recovery Act (N.J.S.A. 13:1K-6 et seq.). Purchaser will review
and accept this document, subject to a representation by Seller at closing that
there are no material changes and further subject to: 1. acceptance by lender
and 2. no requirement by the NJ DEP for a subsequent filing.
If at any time any seepage, presence of or exposure to any hazardous
substance or chemical, toxic or other waste (collectively "Hazardous
Substances") occurs or exists on the premises, then Purchaser may terminate this
Agreement.
(c) Feasibility Study
(i) The Purchaser shall have a period of thirty (30) days from the
Execution Date ("Feasibility Period") in which to make such zoning, legal,
title, engineering, soil, environmental, geological and other technical studies,
tests, investigations and inquiries as shall deem necessary and appropriate, all
at the Purchaser's sole cost and expense, in order to determine whether the
premises is
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-6
- --------------------------------------------------------------------------------
suitable for Purchaser's use.
(ii) In the event that the Purchaser determines, that as a result of the
tests, studies and investigations, that it is unwilling to proceed with the
acquisition of the premises because the premises is not suitable for Purchaser's
purposes, the Purchaser shall have the right, upon written notice to the Seller
delivered on or before the 30th day of the Feasibility Period, to cancel this
Agreement in which event the Deposit heretofore paid by the Purchaser shall be
returned and there shall be no further liability or obligation on the part of
either party hereto.
(iii) From and after the date hereof, the Purchaser shall have the right to
enter upon the premises for the purpose of making, at its sole cost and expense,
the various tests, studies and investigations, authorized herein. Additionally,
the Purchaser agrees to indemnify, defend and hold harmless the Seller herein
from and against any claims, damage or losses caused by the Purchaser's entry
upon the premises. This indemnification and hold harmless agreement extends to
any loss occasioned to the premises or the Seller resulting from the conduct or
access of the Purchaser's representative as well as by its contractors,
subcontractors, business invitees and/or licensees.
(iv) The Purchaser agrees to restore the premises promptly following the
completion of the tests herein permitted to the condition of said premises
immediately prior to the Purchaser's entry thereon.
If the contingencies set forth in this Paragraph 7 are not satisfied within
the applicable contingency period and the Agreement is terminated in accordance
with the terms hereof, the Escrow Agent shall refund the Deposit to Purchaser
and neither party shall have any further liability to the other hereunder."
Purchaser agrees to use reasonable diligence and act in good faith in
pursuit of the satisfaction of all contingencies.
In connection with the satisfaction of contingencies, Seller, without
charge to Purchaser but without assuming any financial obligation, agrees to
fully cooperate with Purchaser and execute all applications, confirmations and
other documents necessary to permit Purchaser to satisfy contingencies. In
connection with any contingency, Purchaser shall advise Seller, in writing, by
the date when Purchaser shall have the right to terminate this Agreement for
non-satisfaction of the contingency or shall have satisfied the contingency
whether or not Purchaser (a) has satisfied the contingency, or (b) is
terminating this Agreement for non-satisfaction. If by such date Purchaser has
not so advised Seller, then at any time commencing on the next day thereafter,
Seller shall have the right to terminate this Agreement by written notice to
Purchaser thereof. If neither Seller nor Purchaser has terminated this
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-7
- --------------------------------------------------------------------------------
Agreement by reason of non-satisfaction of a contingency, nor Purchaser has
advised Seller that such contingency has been satisfied, then the time period
within which such contingency can be satisfied shall continue until the earlier
of (i) Seller's written notification to Purchaser that this Agreement has been
terminated for non-satisfaction of contingency, (ii) Purchaser's written
notification to Seller that this Agreement has been terminated for
non-satisfaction of contingency, or (iii) Purchaser's notification to Seller
that the contingency has been satisfied or waived. It is the intention of this
paragraph to provide that this Agreement shall not automatically terminate nor
will any contingency be deemed automatically satisfied on any contingency period
termination date unless and until Seller and/or Purchaser, as applicable, shall
have affirmatively advised the other party as to the status of the matter.
8. CLOSING AND DELIVERY OF DOCUMENTS: Closing of title shall take place on
or about June 1, 1998 or within thirty (30) days of the waiver or satisfaction
of all of Purchaser's Contingencies, whichever date shall first occur, at such
time as is convenient for and agreed to by the parties. At the closing which
will take place at the premises, Seller shall deliver a Deed of Bargain and Sale
with Covenant against Grantors Acts, an affidavit of title, a corporate
resolution authorizing the sale, an affidavit that the Seller is not a foreign
person as defined in Section 1445 of the Internal Revenue Code ("FIRPTA
Affidavit") and shall deliver and/or execute such other documents as Purchaser's
title insurance company and/or mortgage lender may reasonably request or
require. Seller agrees that it shall not convey title pursuant to a power of
attorney. In the event Purchaser obtains a survey of the premises from a
surveyor licensed in the State of New Jersey, Seller agrees to use a legal
description in accordance with such survey, provided such survey is certified to
Seller, a copy of which shall be provided to Seller by Purchaser in advance of
closing. Seller and Purchaser agree to exchange copies of the closing documents
not less than five (5) days prior to closing.
9. ADJUSTMENTS AT CLOSING: At the time of closing and delivery of deed,
taxes, water and sewer charges, if applicable, shall be adjusted between Seller
and Purchaser as of the closing date with charges for the day of closing
attributable to the Seller. Seller shall bear the expense of payment of the
realty transfer fee. Real estate taxes shall be apportioned on the basis of the
calendar year for which assessed, except that if the closing date shall occur
before the final tax rate is fixed, the apportionment of taxes shall be
tentative, based upon the parties' best knowledge of the current year's
assessments. At such time as the full year's taxes are known, the parties shall
thereafter adjust as of the date of closing based upon the full year's taxes.
Seller shall pay all roll-back taxes relating to farmland assessment whenever
such assessment may be imposed by the taxing authority. The obligations of this
paragraph with regard to any adjustments or payments subsequent to closing for
real property taxes shall survive closing.
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-8
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10. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER
Seller is the owner of the premises and has the authority to enter into this
transaction.
Seller is a corporation, duly organized, validly existing and in good standing
in the State of New Jersey. Seller has full power and authority to consummate
the sale of the premises as set forth herein, and all requisite actions required
by law to authorize the execution, delivery and performance of this Agreement
have been taken.
Seller has not received any notice of any violation of any federal, state or
municipal laws, ordinances, orders, rules, regulations or requirements affecting
any portion of the premises. In the event of the issuance of any written notice
of violations after the date hereof, but prior to the Closing, Seller agrees to
correct such violations or to allow Purchaser a credit at Closing to make such
corrections.
Seller has received no notice and has no knowledge of any pending improvements,
liens or special assessments to be made against the premises by any governmental
authority.
No portion of the premises is, and the Seller has not received any notice and
has no knowledge that any portion of the premises will be, subject to or
affected by any condemnation of similar proceeding.
The Seller has no knowledge of any existing action, suit or proceeding affecting
the premises or any portion thereof or relating to, or arising out of the
ownership, management or operation of the premises, in any court or before or by
any federal, state, county or municipal department, commission, board, bureau or
agency or other governmental instrumentality other then a suit by the present
Mortgagee, Summit Bank, NA in foreclosure. (Summit Bank v Biosearch Medical
Products, Inc. docket BER-L-10086-97 Bergen County, suit on contract; Summit
Bank v Biosearch Medical Products, Inc. docket F-18439-97 suit on Foreclosure),
it being the intention of Purchaser and Seller to satisfy and discharge the
Mortgage held by Summit Bank at the closing.
No person, firm or other entity has any right of first refusal, option or any
other right of any nature to acquire the premises or any portion thereof or any
interest therein.
Neither the execution and delivery of this Agreement nor the consummation of the
sale provided for herein will constitute a violation or breach by Seller of any
provision of any agreement or other instrument to which Seller is a party or to
which Seller may be subject although not a party, or will result in or
constitute a violation or breach of any judgement, order, writ, injunction or
decree issued against Seller.
There are no tenants or occupants, leases, mortgages or other liens or
encumbrances,
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SALE OF 35 INDUSTRIAL PARKWAY Page-9
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or other agreements affecting the operation of the premises.
Seller represents that there are no existing contracts for advertising,
janitorial services, maintenance contracts, or purchase contracts or for other
services which would be binding on the Purchaser after Closing or affect the
premises being conveyed. All valid bills and claims for labor performed and
materials furnished to or for the benefit of the premises for all periods prior
to the Closing Date will be paid in full by Seller.
All public utilities required for the operation of the premises either enter the
premises through adjoining public streets, or if they pass through adjoining
private land, do so in accordance with valid irrevocable easements which run to
the benefit of the owner of the premises.
Seller has maintained and will maintain through the Closing Date such insurance
coverage as is adequate to insure the premises at full replacement cost.
To the best of Seller's knowledge, the premises are in full compliance with all
New Jersey and Federal environmental laws, including, without limitation, ISRA,
the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23, et seq.,
and the regulations promulgated thereunder, and all other rules and regulations
of the New Jersey Department of Environmental Protection and Energy ("DEPE") and
its various divisions. Seller has not dumped or disposed of, suffered or
permitted dumping and disposal or, nor cleaned up any "Hazardous Substances", as
such term is defined in N.J.S.A. 13:1 K-8(d) on or upon any portion of the
premises. To the best of Seller's knowledge, the premises has not been used for
any of the aforementioned purposes, or subjected to any such occurrences. Prior
to the Closing Date, Seller shall prevent the dumping or disposal of any
Hazardous Substances on or upon any portion of the premises. Seller hereby
agrees to defend, indemnify, and hold Buyer harmless from and against any and
all claims, losses, judgments, liabilities, damages and expenses (including with
limitation cleanup costs and attorneys' fees arising by reason of any of the
aforesaid or an action against the Seller under this indemnity) arising directly
or indirectly from, out of, or by reason of any breach of this Section or the
release of any Hazardous Substances prior to Closing. If any of the aforesaid
representations are not true at the time of Closing, the Purchaser shall be
permitted to terminate the Agreement and receive the return of the Deposit
together with all accumulated interest.
Survival. The representation, warranties and covenants of the Seller listed
above are true and complete as of the Execution Date and Seller will reaffirm
their truth and completeness as of the Closing Date. All such representations,
warranties and covenants shall survive the Closing.
10A. PRE-CLOSING COVENANTS OF SELLER.
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SALE OF 35 INDUSTRIAL PARKWAY Page-10
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Seller covenants and agrees that subsequent to the Execution Date and until
the Closing:
Seller shall deliver the premises at the Closing Date in the same condition
as it is on the Execution Date subject to ordinary wear and tear.
Without the prior written consent of Purchaser in each instance, the Seller
shall not enter into, renew, amend or extend any lease or enter into any new
tenancy of any nature.
Seller shall not suffer, cause or permit any change in the condition of the
premises including, without limitation, the duping of any garbage, Hazardous
Substances (as defined in N.J.S.A. 58:10-23.1lb(k), or of any fill or other
materials, or the removal of any fill, soil or vegetation from the premises.
Seller shall not suffer, cause or permit any use or the occupancy of the
premises pending the Closing.
In the event the Seller receives written notice from any governmental
agency of any violation of any governmental rule, statute, ordinance or
regulation affecting any portion of the premises, Seller shall promptly cure
such violation, at its sole cost and expense, prior to the Closing. Seller shall
provide Purchaser with copies of all such notices and any responses thereto.
The risk of loss or damage to the premises by or as a result of any cause
until the Closing Date is assumed by and shall be the responsibility of Seller.
Certificate of Occupancy or other Governmental Approval. In the event that
the Township of Branchburg requires the obtaining of Certificate of Occupancy,
Certificate of Continuing Occupancy or any other type of governmental approval
as a prerequisite for Closing, it shall be the obligation of the Seller to
obtain same at its sole cost and expense. Seller shall make any repairs required
to the premises for the issuance of said certificates or approvals, provided
however, Seller has no duty to repair or modify the premises if said repair or
modification is related to the activity or proposed activity of Purchaser.
11. POSSESSION AND PRECLOSING ENTRY: Purchaser may enter into and upon the
said lands and premises upon delivery of deed and from thence take the rents,
issues and profits for its own use; provided, however, that Purchaser shall have
the right, from time to time, to enter upon the premises prior to the date of
closing hereunder for the purpose of conducting inspections, surveys and tests
related to Purchaser's Intended Use and for satisfying of the Purchaser's
Contingencies. Purchaser shall indemnity and hold Seller harmless from any and
all liability for damage to persons or property arising from such entry prior to
the closing date.
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SALE OF 35 INDUSTRIAL PARKWAY Page-11
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12. ASSESSMENTS: If at the time for the delivery of the deed the premises,
or any part thereof, shall be or shall have been affected by a special
governmental assessment or assessments which are or may become payable in annual
installments of which the first installment is then due or has been paid, then
for the purpose of this Agreement, all of the unpaid installments of any such
assessment, including those which are to become due and payable after the
delivery of the deed, shall be deemed to be due and payable and to be liens upon
the premises affected thereby and shall be paid and discharged by Seller upon
delivery of the deed. Unconfirmed improvements or assessments, if any, shall be
paid and allowed by Seller on account of the purchase price if the improvement
or work has been commenced on or before the date hereof. Seller represents to
the best of its knowledge that there are no unconfirmed improvements or
assessments for improvements contemplated for the premises.
13. REAL ESTATE BROKERAGE COMMISSION: Seller and Purchaser mutually
represent and warrant to each other that there are no real estate brokers that
either have dealt in connection with the negotiation of this Agreement.
The parties hereto agree to save each other harmless and indemnify each
other from any losses, damages, judgments and costs, including legal fees, which
a party may suffer if the other party breaches its obligations hereunder or if
the representation of the other party contained herein proves untrue or if the
claim is made against the indemnifying party.
14. RISK OF LOSS: Risk of loss, by reason of fire or other casualty, shall
remain with Seller until the time of closing. In the event of fire or other
casualty to the premises, Seller shall advise Purchaser within ten (10) days
thereof If all or a material part of the premises is destroyed by fire or other
casualty, Purchaser shall have the right to terminate this Agreement. For
purposes hereof, a material damage shall be damage, the restoration or repair
cost of which shall, as estimated by Seller's insurance company, exceed
$200,000. In connection with any non-material casualty, Seller shall cause all
repairs to be made on or before closing. In connection with any material
casualty which does not result in Purchaser's termination of this Agreement,
Purchaser shall have the right to require Seller to repair the premises, in
which case the time for closing shall be extended as required to allow for such
repair, or to purchase the premises in accordance herewith, without abatement of
purchase price, and receive an assignment of proceeds of such insurance.
15. CONDEMNATION: In the event condemnation or eminent domain proceedings
shall be commenced by any governmental or quasi-governmental authority having
jurisdiction therefor against all or any part of the premises, Seller shall
promptly notify Purchaser and provide Purchaser with all information concerning
such proceedings. Purchaser may, at its option, by giving written notice to
Seller within forty-five (45) days after its receipt of the notice of such
proceedings,
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SALE OF 35 INDUSTRIAL PARKWAY Page-12
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terminate this Agreement.
In the event Purchaser does not elect to terminate this Agreement, then any
award in condemnation and/or unpaid claims and rights in connection with such
condemnation shall be assigned to Purchaser at closing, or if paid to Seller
prior thereof, shall be credited against the unpaid balance of the purchase
price due at closing. If Purchaser determines not to terminate this Agreement,
Seller shall not adjust or settle any condemnation awards without the prior
written approval of Purchaser and shall allow Purchaser to participate in all
proceedings.
16. FLOOD HAZARD AREA: If the premises are within a flood hazard area,
Purchaser shall have the right to terminate this Agreement. Purchaser agrees to
obtain a flood hazard certification within 30 days from the date hereof.
17. BOUNDARY LINES: Seller represents that there are no encroachments from
the premises onto adjoining properties or from adjoining properties onto the
premises.
18. NOTICES: All notices, demands or communications hereunder shall be sent
by registered or certified mail, postage prepaid, return receipt requested, to
the following addresses first appearing.
19. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement
between the parties hereto. No amendment or modification hereof shall have any
force or effect unless in writing and executed by all parties.
20. BINDING EFFECT: This Agreement shall be binding upon and inure to the
benefit of the parties hereto, their respective legal representatives, their
heirs, executors, administrators, successors and assigns.
21. GOVERNING LAW: This Agreement shall be construed in accordance with the
laws of the State of New Jersey.
22. HEADINGS: The article headings contained in this Agreement are for
reference only for the convenience of the parties. They shall not be deemed to
constitute a part of this Agreement nor shall they alter or supersede the
contents of the paragraphs themselves.
23. SURVIVAL: Whenever the context of this Agreement allows, expressly
provides, or reasonably implies a continuing obligation, such continuing
obligation shall survive the closing of title and delivery of the deed and shall
not merge therein.
24. RECORDING OF AGREEMENT: Seller and Purchaser agree that this Agreement
will not be recorded.
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SALE OF 35 INDUSTRIAL PARKWAY Page-13
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25. LIENS AGAINST THE PREMISES: All sums paid by Purchaser pursuant to the
terms of this Agreement shall be returned to Purchaser upon Purchaser's
termination of this Agreement and the same shall constitute liens against the
premises.
26. LOAN OF DOCUMENTS: Purchaser agrees that it will make available copies
of its title insurance policy, present deed, proposed deed, 1994 ISRA submission
and Resolution by the Board of Directors of Seller, authorizing the sale. Seller
shall also make available to Purchaser plans and specifications utilized by
Seller in connection with any applications made by Seller for any governmental
approvals or in connection with the construction of any improvements on the
premises.
27. CALCULATION OF TIME PERIODS: With respect to any time periods set forth
herein which are calculated from the date of this Agreement, it is understood
and agreed that such time period commences from the date of final execution of
this Agreement by all parties hereto, including execution of any riders or
amendments hereto. The date of this Agreement shall be the date the last
signatory executes this Agreement and any such riders or amendments.
28. DEFAULT BY PURCHASER/LIOUIDATED DAMAGES: The parties hereto agree that
in the event Purchaser shall default under this Agreement, the actual damages
which Seller would suffer would be mathematically difficult to calculate. The
parties hereto agree in good faith to estimate the amount of such damages which
would reasonably compensate the Seller for such a default. Such amount is equal
to $85,000. Accordingly, in the event of any default by Purchaser, Seller shall
be entitled to liquidated damages in the sum of $85,000. The balance of the
deposit, if any, together with interest, shall be returned to Purchaser.
29. COUNTERPARTS: This Agreement will be signed in any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument.
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SALE OF 35 INDUSTRIAL PARKWAY Page-14
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IN WITNESS WHEREOF, the undersigned have set their hands and seals the day
and year first above written.
Biosearch Medical Products. Inc., Seller
by: __________________________
Robert Keller, Vice President
Hydromer, Inc., Purchaser
by: __________________________
Ken Brice, Vice President
Date: ________________________
<PAGE>
SALE OF 35 INDUSTRIAL PARKWAY Page-15
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Schedule A
LEGAL DESCRIPTION:
BEGINNING at the most northerly corner of Lot 3D, as shown on "Plan of Major
Subdivision-Final Plat: Industrial Property of Herbert Vollers-Readington Road,
situated in Branchburg Twp., Somerset County" dated September 1965, revised
April 1967, which map was filed in the Somerset County Clerks's Office as Map
No. 1139 and from said Beginning point running; (1) South 66 degrees, 06
minutes, 44 seconds East, 531 .87 feet along the southerly property line of the
Central Railroad Company of New Jersey to a point and corner of Lot 3A as shown
on the map herein referred to; thence (2) South 24 degrees, 15 minutes West,
493.73 feet along Lot 3A to the center line of Industrial Parkway; thence (3)
North 65 degrees, 45 minutes West, 658.13 feet along the center line of
Industrial Parkway; thence (4) North 38 degrees, 41 minutes, 12 seconds East,
506.36 feet to the point and place of BEGINNING. Containing 6.2 aces more or
less.
The above description includes all of Lot 3D as shown on "Plan of Major
Subdivision-Final Plat: Industrial Property of Herbert Vollers-Readington Road,
situated in Branchburg Twp., Somerset County" dated September 1965, revised
April 1967, which map is filed in the Somerset County Clerk's Office as Map No.
1139.
Being the same premises conveyed to Fabri-Kal Corporation by deed of Herbert D.
Vollers and Nancy V. Vollers, his wife, dated July 16, 1970, and recorded in the
Somerset County Clerk's Office in Deed Book 1229 at page 848.
Together with all rights of Fabri-Kal Corporation under deed dated December 29,
1972, to the Township of Branchburg and recorded in the Somerset County Clerk's
Office in Deed Book 1274 at page 591.
Also being the same premises conveyed to Biosearch Medical Products, Inc. by
deed of Fabri-Kal Corporation, dated September 9, 1980, and recorded in the
Somerset County Clerk's Office in Deed Book 1427 at page 620.
Further being made subject to agreements, covenants, easements and restrictions
of record and such facts as an inspection and accurate survey would disclose.
<PAGE>
Lease
HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
Premises-35 Industrial Parkway, Somerville, NJ
36 Months
<PAGE>
Lease
HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
Premises-35 Industrial Parkway, Somerville, NJ
36 Months
THIS LEASE is made as of the twelfth day of June, 1998, between Hydromer,
Inc. (hereinafter referred to as "Landlord") and Biosearch Medical Products,
Inc. (hereinafter referred to as "Tenant").
SECTION 1
DEMISE AND BASIC RENT
Landlord hereby rents to Tenant and Tenant hereby rents from Landlord,
approx. 1 6,500 sq. ft. in the east side of the building, commonly known as 35
Industrial Parkway, Somerville, NJ, the east side being identified as Schedule A
attached hereto, (hereinafter referred to as the "Premises"), in its "As Is"
condition, for the term of beginning on the day of that the real estate
containing the premises is conveyed by Tenant to Landlord and ending on 36
months later, at seven Dollars ($7.00) per sq ft. per year, the amount of three
hundred and forty six thousand five hundred dollars ($346,500) ("Prepaid Rent")
being acknowledged as received by Landlord from Tenant as part of the sale of
the real estate in which the Premises is part and parcel therein to be utilized
by Tenant at the rate of $9,625 per month (herein the "Basic Rent").
SECTION 2
ADDITIONAL RENT, TAXES, ASSESSMENTS, ETC.
If the premises is separately metered for utilities, Tenant will pay such
bills else Tenant will pay 65% of all utility bills for the entire building. All
other costs of operation (such as but not limited to taxes, building insurance,
grounds upkeep, snow removal and other like costs) are to be shared equally
("Additional rent").
SECTiON 3
AFFIRMATIVE COVENANTS OF TENANT
Tenant, jointly and severally if more than one, hereby covenants with
Landlord as follows:
(A) to pay any Additional Rent within Ten (10) days of date of invoice
therefor;
(B) to keep the Premises in good order; and
(C) to surrender the peaceful and quiet possession of the Premises at
the end of the term or any shorter period, broom clean and in as good
condition as when received (normal wear and tear and damage from
insured events excepted).
SECTION 3A
ADDITIONAL TERMS
1. Landlord shall pay for the cost of construction of interior demising walls
which shall be finished on both sides together with the doors to be located
therein. All other interior modifications shall be
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-2
36 months
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the responsibility of the Tenant.
2. Landlord will reimburse Tenant for any electricity or utilities used by
Landlord on Tenant's meters.
3. Landlord will grant Tenant access to the loading dock to load trucks.
4. Landlord recognizes there is a security system covering the entire premises
and Tenant will disconnect the sensors in the non-leasehold from the system.
5. Tenant has the right to park up to 3 trailers and 2 refuse containers in the
rear parking lot for storage, provided no municipal ordinances are violated. At
the end of the lease these trailers and containers shall promptly removed.
SECTION 4
NEGATIVE COVENANTS OF TENANT
Tenant hereby covenants that Tenant will not do, suffer or permit any of
the following:
(A) anything to be done in or about the Premises which will contravene
any policy of insurance against loss by fire;
(B) violate the Certificate of Occupancy for the Premises or use, or
permit to be used, the Premises for the purposes other than those
allowed by the zoning ordinances of the Township of Branchburg;
SECTION 5
QUIET ENJOYMENT
The Landlord covenants that he shall do nothing to affect the Tenant's
right to peaceably and quietly have, hold and enjoy the Premises for the term
herein mentioned, subject to the provisions of this Lease and to any mortgage or
deed of trust to which this Lease shall be subordinate.
SECTION 6
ALTERATIONS
Tenant shall not make any alterations or additions to the Premises without
the prior written consent of Landlord. Any alterations, additions or repairs the
Tenant shall be permitted to make shall be done at Tenant's own expense.
Landlord shall make all alteration to secure the Premises from the other
parts of the building, including installing separate meters to insure Tenant
does not pay for any part of the non-leasehold.
SECTION 7
EXPIRATION OF LEASE
Upon expiration of this Lease Tenant shall deliver as soon afterwards as a
received from the state of New Jersey, an approval of a negative declaration
regarding the premises pursuant to the
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-3
36 months
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Industrial Site Recovery Act (N.J.S.A. 13:1 K-6 et seq.) (hereinafter, ISRA).
In the event Tenant does not surrender the premises to Landlord upon the
expiration of this Lease, Tenant shall pay a holdover rent of $19,250 for each
month of holdover. This is not an election of remedies and Landlord may take any
other action to remove Tenant allowed by law or equity.
SECT1ON 8
EFFECT OF DESTRUCTION
If the Premises shall be destroyed or rendered untenantable by fire or
unavoidable accident, or if the building in which the Premises are located is so
damaged that Landlord shall elect to demolish it or rebuild it, the tenancy
hereby created shall be thereby terminated, and, provided Tenant is not in
default at the time of such destruction, Landlord shall refund the unused
portion of the Prepaid Rent, payable in 4 equal installments over a 4 month
period. Landlord at its own expense shall purchase insurance if available to
insure this obligation and add it to any insurance policy as a rider if
available. Such refund obligation may be set off against any obligation of
Tenant to Landlord under section 1 2, below.
SECTION 9
INSURANCE
Tenant shall provide and keep in force during the term of this Lease
general liability insurance for injury or damage to persons or property in or
upon the Premises during the term of this Lease. The said policy shall be with
limits not less than one million Dollars ($1,000,000) in respect of any one
person, in respect of any one accident and in respect of property damage and
shall also contain an endorsement protecting the Landlord for water damage and
sprinkler damage liability with respect to property other than the Landlord's.
Landlord shall insure the building including the premises as Landlord deems
fit. Tenant shall have the right to purchase any additional insurance to cover
losses of Tenant.
Tenant shall also furnish insurance for such other hazards and in such
amounts as Landlord may reasonably require. Landlord reserves the right at any
time and from time to time to require the limits for any of the insurance under
this Section to be increased to limits which Landlord deems reasonable. Tenant
shall provide a certificate evidencing such insurance to Landlord. Landlord
shall be a named insured on any such policy. No such policy may be canceled
without ten days prior notice to Landlord.
SECTION 10
REPAIRS
Tenant shall keep the Premises in good condition and repair and shall
redecorate, paint and renovate the Premises as may be necessary to keep them in
good condition and repair and good appearance and in compliance with the laws
and regulations applicable to Tenant's business.
SECTION 11
SUBORDINATION
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-4
36 months
================================================================================
This Lease is and shall be subject and subordinate to all present and
future mortgages, deeds of trust or underlying leases affecting the Premises.
Tenant shall execute any instrument which may be deemed necessary or desirable
by Landlord to further effect or to evidence the subordination of this Lease to
any such mortgage, deed of trust or underlying lease.
SECTION 12
INDEMNIFICATION
Tenant agrees to indemnify and hold harmless the Landlord, each mortgagee,
ground or underlying lessor of the Premises from and against any and all
liabilities, damages, claims, losses, judgments, causes of action, costs and
expenses (including reasonable counsel fees and legal expenses) which may be
incurred by Landlord or any such mortgagee or underlying lessor relating to or
arising out of any breach by Tenant of (i) its obligations to be performed under
this Lease, or (ii) the carelessness, negligence or improper conduct of Tenant,
its agents, contractors, employees, invitees or licensees, or (iii) arising out
of the use and occupancy of the Premises or any work or thing whatsoever done or
any condition created in or about the Premises during the term of this Lease. In
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant, upon notice from Landlord, shall resist and defend such action or
proceeding. Tenant shall be entitled to a credit against such indemnification in
the amount of any unused, pre-paid basic rent in the event that the Premises are
destroyed or rendered untenantable by Tenant's act or omission hereunder.
SECTION 13
EXCULPATION
The term "Landlord" as used in this Lease means only the holder, for the
time being, of the Landlord's interest under this Lease so that in the event of
any transfer of title to the Premises, the Landlord shall be and hereby is
entirely free and relieved of all obligations of Landlord hereunder accruing
after such transfer. Tenant acknowledges that there is absolutely no personal
liability on the part of the Landlord, its successor or assigns with respect to
any of the terms, covenants and conditions of this Lease, and that Tenant shall
look solely to the equity of Landlord in the Building for the satisfaction of
each and every remedy of Tenant in the event of any breach by Landlord of any of
the terms, covenants and conditions of this Lease to be performed by Landlord.
SECTION 14
BINDING EFFECT
This Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their personal representatives, successors and assigns, and
sub-tenants.
SECTION 15
ASSIGNMENT/SUBLET
Provided Tenant is not in default, Tenant shall have the unrestricted right
to assign this prepaid lease or sub-let the premises provided the assignee or
sub-tenant as the case may be agrees to be bound by the provisions of this
lease, provided however, Landlord shall have the: (i) option of exercising a
right of first refusal to prevent such sub-lease or assignment by the payment of
a monthly rate of $9,625 times the number of months left in this pre-paid lease,
provided further such right shall be exercised, within 10 days of the receipt of
a written notice by Tenant to Landlord.
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-5
36 months
================================================================================
This payment shall be made in 4 equal installments over a 4 month period or (ii)
in the event the Basic Rent paid by such assignee/subtenant exceeds $7.00/sq.
ft. per year, Landlord may elect not to exercise its option of first refusal in
consideration for payment of 50% of the monthly amount by which
assignee/subtenant's Basic Rent exceeds a rate of $7.00 per square foot per
year.
SECTION 16
APPLICABLE LAW
The Lease shall be interpreted and construed in accordance with the laws of
the State of New Jersey (excluding New Jersey conflict of laws) and by the state
courts of New Jersey.
SECTION 17
CAPTIONS
The captions appearing in this Lease are inserted only as a matter of
convenience and do not define, limit, construe or describe the scope or intent
of the Sections of this Lease nor in any way affect this Lease.
SECTION 18
TENANT'S DEFAULT
A default under this lease by Tenant shall exist if any of the following
occurs:
(a) If Tenant fails to pay Additional Rent or any other sum required
to be paid hereunder within ten (10) days of when due; or
(b) If Tenant fails to perform any term, covenant or condition of this
Lease except those requiring the payment of money, and Tenant fails to
cure such breach within thirty (30) days after written notice from
Landlord where such breach could be reasonably cured within
such thirty (30) day period; provided, however, where such failure
could not reasonably be cured within the thirty (30) day period, that
Tenant shall not be in default if it commences such performance within
the thirty (30) day period and diligently thereafter prosecutes the
same to completion; or
(c) If Tenant shall have abandoned or vacated the Premises for more
than ten (10) consecutive days except by reason of fire or other
casualty pursuant to Section 8 of this Lease.
SECTION 19
REMEDIES
Upon a default, Landlord shall have the following remedies, in addition to
all other rights and remedies provided by law or otherwise provided in this
Lease, to which Landlord may resort cumulatively or in the alternative:
(a) Landlord may continue this Lease in full force and effect, and
this Lease shall continue in full force and effect as long as Landlord
does not terminate this Lease, and Landlord shall have the right to
collect Additional Rent and other charges when due or at the
Landlord's option to set off against the Prepaid Rent.
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-6
36 months
================================================================================
In addition, for the period of any default, any unpaid Additional Rent
shall accrue interest at the annualized rate equal to the Prime Rate
in the Wall Street Journal plus 2% compounded monthly.
(b) Landlord may terminate Tenant's right to possession of the
premises at any time by given written notice to that effect, and relet
the Premises or any part thereof. On giving the notice, all of
Tenant's rights in the Premises, shall terminate. Upon such
termination, Tenant shall surrender and vacate Premises, and Landlord
may re-enter and take possession of the Premises and all remaining
improvements or property and eject Tenant or any of Tenant's
sub-tenants, assignees or other person or persons claiming any right
under or through Tenant. This Lease may also be terminated by a
judgement specifically providing for termination. Any termination
under this Article shall not release Tenant from the payment of any
sum then due Landlord or from any claim for damages or Additional Rent
or other sum previously accrued or then accruing against Tenant. Upon
such termination Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises or any part
thereof, including, without limitation, legal fees and expenses,
broker's commissions, expenses of cleaning and restoration, repair or
redecorating the Premises required by reletting and like costs which
at Landlord's option may be set off against the unused Prepaid Rent.
Provided, however, upon such termination, Tenant shall be entitled to
a credit in the amount of any unused prepaid Basic Rent, which credit
if any shall be paid in 4 equal monthly installments.
Reletting may be for a period shorter or longer then the remaining
term of this Lease. Acts of maintenance, efforts to relet the Premises
or the appointment of a receiver on Landlord's initiative to protect
Landlord's interest under this Lease shall not constitute a
termination or interfere of or with Tenant's right to possession.
In the event Landlord terminates Tenant's right to possession under
this section and occupies the premises, Tenant shall immediately be
entitled to a credit in the amount of any unused Prepaid Rent, which
credit if any shall be paid in 4 equal monthly installments.
(c) In the event of a breach by Tenant of any of the terms hereof,
Landlord shall have the right of injunction to restrain the same.
(d) Landlord and Tenant hereby mutually, knowingly, irrevocably,
voluntarily and intentionally waive trial by jury in any action,
proceeding or counterclaim brought by either party hereto against the
other in any way connected with this Lease. Each party further
warrants and represents that it has reviewed this waiver with legal
counsel and that each waived its jury trial rights following
consultation with legal counsel. This waiver shall apply to any and
all subsequent amendments and any other agreements relating to the
subject matter hereof. In the event of litigation, this lease may be
filed as a written consent to a trial by court, sitting without jury.
SECTION 20
NO WAIVER
The failure of either party to insist, in any one instances, upon strict
performance of any covenants of this Lease, or to exercise any options herein
contained, shall not be construed as a waiver or relinquishment for the future,
of such covenant or option, but the same shall continue and remain in
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-7
36 months
================================================================================
full force and effect. Even though Landlord has consented that this Lease may be
assigned or the premises sublet, any assignee may not further assign or any
sub-tenant may not sublet without express consent in writing by Landlord.
WITNESS the hands and seals of the parties hereto as of the day and year
first above written.
ATTEST/WITNESS: LANDLORD-Hydromer, Inc.
__________________________ BY: _______________________(SEAL)
ATTEST/WITNESS: TENANT-Biosearch Medical Products, Inc.
__________________________ BY: _______________________(SEAL)
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-8
36 months
================================================================================
Schedule A
Partition of premises into 16,500 sq ft leasehold.
******INSERT DRAWING HERE*****
<PAGE>
Schedule A
[GRAPHIC OMITTED]
Graphical Presentation of 35 Industrial Parkway
<PAGE>
[GRAPHIC OMITTED]
Graphical Presentation of Parking Plan for Hydromer & Biosearch
Note PNCBANK
$850,000.00 June 12, 1998
FOR VALUE RECEIVED, Hydromer, Inc., a New Jersey Corporation (the "Borrower"),
with an address at 35 Columbia Road, Branchburg, New Jersey 08876, promises to
pay to the order of PNC Bank, National Association (the "Bank"), in lawful money
of the United States of America in immediately available funds at such location
as the Bank may designate from time to time, the principal sum of Eight Hundred
Fifty Thousand Dollars ($850,000.00), together with interest accruing on the
outstanding principal balance from the date hereof as provided below:
Initially, the Loan will be repaid in monthly payments of principal in the
sum of Four Thousand Seven Hundred Twenty-Two Dollars and Twenty-Two Cents
($4,722.22), plus interest at the fixed rate of eight percent (8.0%%) per annum
beginning with the payment due on July 1, 1998 and on the first day of each and
every month thereafter until June 1, 2003. Subject to the Call Options set forth
below, on June 1, 2003 and June 1, 2008 (collectively an "Interest Rate
Adjustment Date") there will be an interest rate adjustment on the Loan at which
time the interest rate on the Loan will be adjusted to a new rate equal to the
higher of (i) the rate of interest set forth on the Closing Date, or (ii) two
hundred (200) basis points over the Bank's fully absorbed five (5) year cost of
funds on each respective Interest Rate Adjustment Date, as determined in Bank's
sole discretion, rounded to the next highest one-eighth of one percent (0.125%),
and the Loan will then continue to be repaid in monthly payments of principal in
the sum of Four Thousand Seven Hundred Twenty-Two Dollars and Twenty-Two Cents
($4,722.22), plus interest at the new rate set forth on a respective Interest
Rate Adjustment Date. Subject to the Call Options set forth below, and the
interest rate adjustments set forth herein, the entire balance of principal and
interest is due and payable in full on June 1, 2013 (the "Maturity Date"). This
is a fifteen (15) year Loan with Call Options and two (2) interest rate
adjustments on the fifth (5th) and tenth (10th) anniversaries of the Loan.
The Bank shall have the right to call the Loan due and payable on the 5th
anniversary of the first day of the month following the month in which the
closing occurs, and at each 5th anniversary date thereafter, if in the sole and
absolute opinion of the Bank, (i) there has been any material deterioration in
the value of the Collateral or in the Borrower's financial condition, or (ii)
the Borrower has not performed satisfactorily under the terms and conditions of
the Loan Documents. If the Bank elects to exercise the Call Option, the Bank
will notify the Borrower 120 days before the prescribed anniversary date and the
Borrower will have the later of (1) 180 days from the Call Date, or (2) the
anniversary date in question, to pay the Loan in full.
Interest will be calculated on the basis of a year of 360 days for the
actual number of days in each interest period. If any payment under this Note
shall become due on a Saturday, Sunday or public holiday under the laws of the
State where the Bank's office indicated above is located, such
<PAGE>
payment shall be made on the next succeeding business day and such extension of
time shall be included in computing interest in connection with such payment.
The Borrower hereby authorizes the Bank to charge the Borrower's deposit account
at the Bank for any payment when due hereunder. Payments received will be
applied to charges, fees and expenses (including attorneys' fees), accrued
interest and principal in any order the Bank may choose, in its sole discretion.
Late Payments; Default Rate. If the Borrower fails to make any payment of
principal, interest or other amount coming due pursuant to the provisions of
this Note within ten (10) calendar days of the date due and payable, the
Borrower also shall pay to the Bank a late charge equal to five percent (5.0%)
of the amount of such payment. Such ten (10) day period shall not be construed
in any way to extend the due date of any such payment. The late charge is
imposed for the purpose of defraying the Bank's expenses incident to the
handling of delinquent payments and is in addition to, and not in lieu of, the
exercise by the Bank of any rights and remedies hereunder, under the other Loan
Documents or under applicable laws, and any fees and expenses of any agents or
attorneys which the Bank may employ. Upon maturity, whether by acceleration,
demand or otherwise, and at the option of the Bank upon the occurrence of any
Event of Default (as hereinafter defined) and during the continuance thereof,
this Note shall bear interest at a rate per annum (based on a year of 360 days
and actual days elapsed) which shall be five (5) percentage points (5.0%) in
excess of the interest rate in effect from time to time under this Note but not
more than the maximum rate allowed by law (the "Default Rate"). The Default Rate
shall continue to apply whether or not judgment shall be entered on this Note.
Prepayment. Notwithstanding anything contained herein to the contrary, upon any
prepayment by or on behalf of the Borrower (whether voluntary, on default or
otherwise), the Bank may require, if it so elects, the Borrower to pay the Bank
as compensation for the cost of being prepared to advance fixed rate funds
hereunder an amount equal to the Cost of Prepayment. "Cost of Prepayment" means
an amount equal to the present value, if positive, of the product of (a) the
difference between (i) the yield, on the beginning date of the applicable
interest period, of a U.S. Treasury obligation with a maturity similar to the
applicable interest period minus (ii) the yield on the prepayment date, of a
U.S. Treasury obligation with a maturity similar to the remaining maturity of
the applicable interest period, and (b) the principal amount to be prepaid, and
(c) the number of years, including fractional years, from the prepayment date to
the end of the applicable interest period. The yield on any U.S. Treasury
obligation shall be determined by reference to Federal Reserve Statistical
Release H.15(519) "Selected Interest Rates". For purposes of making present
value calculations, the yield to maturity of a similar maturity U.S. Treasury
obligation on the prepayment date shall be deemed the discount rate. The Cost of
Prepayment shall also apply to any payments made after acceleration of the
maturity of this Note while a Fixed Rate is in effect.
Other Loan Documents. This Note is issued in connection with a mortgage, loan
agreement, guaranty and other loan documents, the terms of which are
incorporated herein by reference (the "Loan Documents"), and is secured by the
property described in the Loan Documents (if any) and by such other collateral
as previously may have been or may in the future be granted to the Bank to
secure this Note.
2
<PAGE>
Events of Default. The occurrence of any of the following events will be deemed
to be an "Event of Default" under this Note: (i) the nonpayment of any
principal, interest or other indebtedness under this Note within ten (10) days
of its due date; (ii) the occurrence of any event of default or default and the
lapse of any notice or cure period under any Loan Document or any other debt,
liability or obligation to the Bank of Borrower; (iii) the filing by or against
Borrower of any proceeding in bankruptcy, receivership, insolvency,
reorganization, liquidation, conservatorship or similar proceeding, or any
assignment by Borrower for the benefit of creditors, or any levy, garnishment,
attachment or similar proceeding is instituted against any property of Borrower
held by or deposited with the Bank; (iv) a default with respect to any other
indebtedness of Borrower for borrowed money, if the effect of such default is to
cause or permit the acceleration of such debt; (v) the commencement of any
foreclosure proceeding, execution or attachment against any collateral securing
the obligations of Borrower to the Bank; (vi) the entry of a final judgment
against Borrower and the failure of such Borrower to discharge the judgment
within ten (10) days of the entry thereof; (vii) in the event that this Note is
secured, the failure of any Borrower to provide the Bank with additional
collateral if in the opinion of the Bank at any time or times, the market value
of any of the collateral securing this Note or any guarantee has depreciated;
(viii) any material adverse change in the business, assets, operations,
financial condition or results of operations of Borrower; (ix) any
representation or warranty made by Borrower to the Bank in any Loan Document, or
any other documents now or in the future securing the obligations of Borrower to
the Bank, is false, erroneous or misleading in any material respect; or (x) the
failure of Borrower to observe or perform any covenant or other agreement with
the Bank contained in any Loan Document or any other documents now or in the
future securing the obligations of Borrower to the Bank. Notwithstanding the
foregoing, the Lender will provide the Borrower with a fifteen (15) day notice
and opportunity to cure "Non-Monetary Defaults" (e.g. events of default other
than payments of principal, interest, taxes, insurance, and other monetary
payments), if such Non-Monetary Defaults are capable of being cured. Notice and
opportunity to cure will not be necessary for a voluntary bankruptcy by the
Borrower. In the event that the Non-Monetary Default is of such a nature that it
cannot be cured within such fifteen (15) day period, and if the Borrower shall
be diligently pursuing the cure of the Non-Monetary Default, then such period to
cure shall be extended for a period not to exceed sixty (60) days.
Upon the occurrence of an Event of Default: (a) if an Event of Default specified
in clause (iii) above shall occur, the outstanding principal balance and accrued
interest hereunder together with any additional amounts payable hereunder shall
be immediately due and payable without demand or notice of any kind; (b) if any
other Event of Default shall occur, the outstanding principal balance and
accrued interest hereunder together with any additional amounts payable
hereunder, at the option of the Bank and without demand or notice of any kind
may be accelerated and become immediately due and payable; (c) at the option of
the Bank, this Note will bear interest at the Default Rate from the date of the
occurrence of the Event of Default; and (d) the Bank may exercise from time to
time any of the rights and remedies available to the Bank under the Loan
Documents or under applicable law.
Right of Setoff. In addition to all liens upon and rights of setoff against the
money, securities or other property of the Borrower given to the Bank by law,
the Bank shall have, with respect to the Borrower's obligations to the Bank
under this Note and to the extent permitted by law, a contractual possessory
security interest in and a contractual right of setoff against, and the Borrower
hereby
3
<PAGE>
assigns, conveys, delivers, pledges and transfers to the Bank all of the
Borrower's right, title and interest in and to, all deposits, moneys, securities
and other property of the Borrower now or hereafter in the possession of or on
deposit with, or in transit to, the Bank whether held in a general or special
account or deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to the Borrower. Every such right of setoff shall
be deemed to have been exercised immediately upon the occurrence of an Event of
Default hereunder without any action of the Bank, although the Bank may enter
such setoff on its books and records at a later time.
Miscellaneous. No delay or omission of the Bank to exercise any right or power
arising hereunder shall impair any such right or power or be considered to be a
waiver of any such right or power or any acquiescence therein, nor shall the
action or inaction of the Bank impair any right or power hereunder. The Borrower
agrees to pay on demand, to the extent permitted by law, all costs and expenses
incurred by the Bank in the enforcement of its rights in this Note and in any
security therefor, including without limitation reasonable fees and expenses of
the Bank's counsel. If any provision of this Note is found to be invalid by a
court, all the other provisions of this Note will remain in full force and
effect. The Borrower and all other makers and indorsers of this Note hereby
forever waive presentment, protest, notice of dishonor and notice of
non-payment. The Borrower also waives all defenses based on suretyship or
impairment of collateral. If this Note is executed by more than one Borrower,
the obligations of such persons or entities hereunder will be joint and several.
This Note shall bind the Borrower and the heirs, executors, administrators,
successors and assigns of the Borrower, and the benefits hereof shall inure to
the benefit of Bank and its successors and assigns.
This Note has been delivered to and accepted by the Bank and will be deemed to
be made in the State of New Jersey. This Note will be interpreted and the rights
and liabilities of the parties hereto determined in accordance with the laws of
the State where the Bank's office indicated above is located, excluding its
conflict of laws rules. The Borrower hereby irrevocably consents to the
exclusive jurisdiction of any state or federal court for the county or judicial
district where the Bank's office indicated above is located, and consents that
all service of process be sent by nationally recognized overnight courier
service directed to the Borrower at the Borrower's address set forth herein and
service so made will be deemed to be completed on the business day after deposit
with such courier; provided that nothing contained in this Note will prevent the
Bank from bringing any action, enforcing any award or judgment or exercising any
rights against the Borrower individually, against any security or against any
property of the Borrower within any other county, state or other foreign or
domestic jurisdiction. The Borrower acknowledges and agrees that the venue
provided above is the most convenient forum for both the Bank and the Borrower.
The Borrower waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Note.
WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS THE
BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS NOTE, ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS
NOTE OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING
4
<PAGE>
AND VOLUNTARY. THE BORROWER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE WAIVER OF JURY TRIAL, AND HAS BEEN
ADVISED BY COUNSEL AS NECESSARY OR APPROPRIATE.
WITNESS the due execution hereof as a document under seal, as of the date first
written above, with the intent to be legally bound hereby.
ATTEST: Hydromer, Inc., a New Jersey Corporation
/s/ /s/
- ----------------------------- -----------------------------------------
Kenneth P. Brice, President and
Chief Financial Officer
<PAGE>
Mortgage and PNCBANK
Security Agreement
THIS MORTGAGE AND SECURITY AGREEMENT (this "Mortgage") is made as of June
12, 1998, by Hydromer, Inc., a New Jersey Corporation, with an address of 35
Columbia Road, Branchburg, New Jersey 08876 (the "Mortgagor") in favor of PNC
BANK, NATIONAL ASSOCIATION (the "Mortgagee"), with an address at 500 College
Road East, Princeton, New Jersey 08540.
WHEREAS, the Mortgagor is the owner of a certain tract or parcel of land
known as 35 Industrial Parkway, in the Township of Branchburg, County of
Somerset and State of New Jersey a/k/a Block 17, Lot 3.04 on the Tax Map and
described in Exhibit A attached hereto and made a part hereof, together with the
improvements now or hereafter erected thereon; and
WHEREAS, the Mortgagor has borrowed from the Mortgagee, or is providing a
guaranty of a borrowing from the Mortgagee, or is granting a lien pursuant to
this Mortgage as collateral security for a borrowing from the Mortgagee, in an
amount not to exceed the principal sum of Eight Hundred Fifty Thousand Dollars
($850,000.00) (the "Loan"), which Loan is evidenced by one or more promissory
notes or guaranties in favor of the Mortgagee dated of even date with this
Mortgage (the "Note");
NOW, THEREFORE, for the purpose of securing the payment and performance of
the following obligations (collectively called the "Obligations"):
(A) the Loan, the Note and all other loans, advances, debts, liabilities,
obligations, covenants and duties owing by the Mortgagor to the Mortgagee of any
kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under any agreement, instrument or
document, whether or not for the payment of money, whether arising by reason of
an extension of credit, opening of a letter of credit, loan or guarantee or in
any other manner, whether arising out of overdrafts on deposit or other accounts
or electronic funds transfers (whether through automatic clearing houses or
otherwise) or out of the Mortgagee's non-receipt of or inability to collect
funds or otherwise not being made whole in connection with depository transfer
check or other similar arrangements, whether direct or indirect (including those
acquired by assignment or participation), absolute or contingent, joint or
several, due or to become due, now existing or hereafter arising, and any
amendments, extensions, renewals or increases and all costs and expenses of the
Mortgagee incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including but
not limited to reasonable attorneys' fees and expenses.
(B) Any sums advanced by the Mortgagee or which may otherwise become due
pursuant to the provisions of the Note or this Mortgage or pursuant to any other
document or instrument at any time delivered to the Mortgagee to evidence or
secure any of the Obligations or which otherwise
<PAGE>
relate to any of the Obligations (as the same may be amended, supplemented or
replaced from time to time, the "Loan Documents").
The Mortgagor, for good and valuable consideration, receipt of which is hereby
acknowledged, and intending to be legally bound hereby, does hereby give, grant,
bargain, sell, convey, assign, transfer, mortgage, hypothecate, pledge, set over
and confirm unto the Mortgagee and does agree that the Mortgagee shall have a
security interest in the following described property, all accessions and
additions thereto, all substitutions therefor and replacements and proceeds
thereof, and all reversions and remainders of such property now owned or held or
hereafter acquired (the "Property"), to wit:
(a) All of the Mortgagor's estate in the premises described in Exhibit A,
together with all of the easements, rights of way, privileges, liberties,
hereditaments, gores, streets, alleys, passages, ways, waters, watercourses,
rights and appurtenances thereunto belonging or appertaining, and all of the
estate, right, title, interest, claim and demand whatsoever of the Mortgagor
therein and in the public streets and ways adjacent thereto, either in law or in
equity (the "Land");
(b) All the buildings, structures and improvements of every kind and
description now or hereafter erected or placed on the Land, and all facilities,
fixtures, machinery, apparatus, appliances, installations, machinery and
equipment, including, without limitation, all building materials to be
incorporated into such buildings, all electrical equipment necessary for the
operation of such buildings and heating, air conditioning and plumbing equipment
now or hereafter attached to, located in or used in connection with those
buildings, structures or other improvements (the "Improvements");
(c) All rents, issues and profits arising or issuing from the Land and the
Improvements (the "Rents") including, but not limited to, the Rents arising or
issuing from all leases and subleases now or hereafter entered into covering all
or any part of the Land and Improvements (the "Leases"), all of which Leases and
Rents are hereby assigned to the Mortgagee by the Mortgagor. The foregoing
assignment shall be an absolute assignment of all of the Mortgagor's entire
interest in the Rents. The foregoing assignment shall also include, without
limitation, all fees, charges, accounts or other payments for the use or
occupancy of rooms and other public facilities in hotels, motels, or other
lodging properties, and all cash or securities deposited under Leases to secure
performance of lessees of their obligations thereunder, whether such cash or
securities are to be held until the expiration of the terms of such leases or
applied to one or more installments of rent coming due prior to the expiration
of such terms. The foregoing assignment extends to Rents arising both before and
after the commencement by or against the Mortgagor of any case or proceeding
under any Federal or State bankruptcy, insolvency or similar law. The Mortgagor
will execute and deliver to the Mortgagee, on demand, such assignments and
instruments as the Mortgagee may require to confirm, maintain and continue the
assignment hereunder;
(d) All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or liquidated claims;
2
<PAGE>
(e) And without limiting any of the other provisions of this Mortgage, the
Mortgagor, as debtor, expressly grants unto the Mortgagee, as secured party, a
security interest in all those portions of the Property which may be subject to
the Uniform Commercial Code provisions applicable to secured transactions under
the laws of any state, and the Mortgagor will execute and deliver to the
Mortgagee on demand such financing statements and other instruments as the
Mortgagee may require in order to perfect and maintain such security interest
under the UCC on the aforesaid collateral.
To have and to hold the same unto the Mortgagee, its successors and
assigns, forever.
Provided, however, that if the Mortgagor shall pay to the Mortgagee the
Obligations, and if the Mortgagor shall keep and perform each of its other
covenants, conditions and agreements set forth herein and in the other Loan
Documents, then, upon the termination of all obligations, duties and commitments
of the Mortgagor under the Obligations and this Mortgage, and subject to the
provisions of Section 24 hereof, the estate hereby granted and conveyed shall
become null and void.
1. Representations and Warranties. The Mortgagor represents and warrants to the
Mortgagee that the Mortgagor has good and marketable title to an estate in fee
simple absolute in the Land and Improvements and has all right, title and
interest in all other property constituting a part of the Property, in each case
free and clear of all liens and encumbrances, except as may otherwise be set
forth on an Exhibit B hereto. This Mortgage is a valid and enforceable first
lien on the Property (except as set forth on Exhibit B hereto), and the
Mortgagee shall, subject to the Mortgagor's right of possession prior to an
Event of Default, quietly enjoy and possess the Property. The Mortgagor shall
preserve such title as it warrants herein and the validity and priority of the
lien hereof and shall forever warrant and defend the same to the Mortgagee
against the claims of all persons.
2. Affirmative Covenants. Until all of the Obligations shall have been
fully paid, satisfied and discharged the Mortgagor shall:
a. Payment and Performance of Obligations. Pay or cause to be paid and
perform all Obligations when due as provided in the Loan Documents.
b. Legal Requirements. Promptly comply with and conform to all present
and future laws, statutes, codes, ordinances, orders and regulations and
all covenants, restrictions and conditions which may be applicable to the
Mortgagor or to any of the Property (the "Legal Requirements").
c. Impositions. Before interest or penalties are due thereon and
otherwise when due, the Mortgagor shall pay all taxes of every kind and
nature, all charges for any easement or agreement maintained for the
benefit of any of the Property, all general and special assessments
(including, without limitation, any condominium or planned unit development
assessments, if any), levies, permits, inspection and license fees, all
water and sewer rents and charges, and all other
3
<PAGE>
charges and liens, whether of a like or different nature, imposed upon or
assessed against the Mortgagor or any of the Property (the "Impositions").
Within thirty (30) days after the payment of any Imposition, the Mortgagor
shall deliver to the Mortgagee evidence acceptable to the Mortgagee of such
payment. The Mortgagor's obligations to pay the Impositions shall survive
the Mortgagee's taking title to the Property through foreclosure,
deed-in-lieu or otherwise.
d. Maintenance of Security. Use, and permit others to use, the
Property only for its present use or such other uses as permitted by
applicable Legal Requirements and approved in writing by the Mortgagee. The
Mortgagor shall keep the Property in good condition and order and in a
rentable and tenantable state of repair and will make or cause to be made,
as and when necessary, all repairs, renewals, and replacements, structural
and nonstructural, exterior and interior, foreseen and unforeseen, ordinary
and extraordinary, provided, however, that no structural repairs, renewals
or replacements shall be made without the Mortgagee's prior written
consent. The Mortgagor shall not remove, demolish or alter the Property nor
commit or suffer waste with respect thereto, nor permit the Property to
become deserted or abandoned. The Mortgagor covenants and agrees not to
take or permit any action with respect to the Property which will in any
manner impair the security of this Mortgage.
3. Leases. The Mortgagor shall not (I) execute an assignment or pledge of
the Rents and/or the Leases other than in favor of the Mortgagee; (ii) accept
any prepayment of an installment of any Rents prior to the due date of such
installment; or (iii) enter into or amend any of the terms of any of the Leases
without the Mortgagee's prior written consent. Any or all leases or subleases of
all or any part of the Property shall be subject in all respects to the prior
written consent of the Mortgagee, shall be subordinated to this Mortgage and to
the rights of the Mortgagee and, together with any and all rents, issues or
profits relating thereto, shall be assigned at the time of execution to the
Mortgagee as additional collateral security for the Obligations, all in such
form, substance and detail as is satisfactory to the Mortgagee in its sole
discretion.
4. Due on Sale Clause. The Mortgagor shall not sell, convey or otherwise
transfer any interest in the Property (whether voluntarily or by operation of
law), or agree to do so, without the Mortgagee's prior written consent,
including but not limited to (I) any sale, conveyance, assignment, or other
transfer of (including installment land sale contracts), or the grant of a
security interest in, all or any part of the legal and/or equitable title to the
Property; (ii) any lease of all or any portion of the Property; or (iii) any
sale, conveyance, assignment, or other transfer of, or the grant of a security
interest in, any share of stock of the Mortgagor, except in favor of the
Mortgagee. Any default under this paragraph shall cause an immediate
acceleration of the indebtedness secured by the Note without any demand by the
Mortgagee.
5. Insurance. The Mortgagor shall keep the Property continuously insured,
in an amount not less than the cost to replace the Property or an amount not
less than eighty percent (80%) of the full insurable value of the Property,
whichever is greater, against loss or damage by fire, with extended coverage and
against other hazards as the Mortgagee may from time to time require. The
Mortgagor shall also maintain comprehensive general public liability insurance,
in an amount of not
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less than required by the Mortgagee, property damage and Workers' compensation
insurance, builder's risk insurance with respect to any construction, or
reconstruction and contractual liability insurance for obligations of the
Mortgagor under the Leases, with an insurance company or companies satisfactory
to the Mortgagee, and in such total amounts (other than the foregoing fire and
extended coverage insurance) as the Mortgagee may require from time to time.
Such insurance shall include protection for continuation of income for a period
of twelve (12) months, in the event of any damage caused by the perils referred
to above. All policies, including policies for any amounts carried in excess of
the required minimum and policies not specifically required by the Mortgagee,
shall be in form satisfactory to the Mortgagee, shall meet all coinsurance
requirements of the Mortgagee, shall be maintained in full force and effect,
shall be assigned to the Mortgagee, with premiums prepaid, as collateral
security for payment of the Obligations, shall be endorsed with a standard
mortgagee clause in favor of the Mortgagee and shall provide for at least thirty
(30) days notice of cancellation to the Mortgagee. Such insurance shall also
name the Mortgagee as an additional insured under the comprehensive general
public liability policy and the Mortgagor shall also deliver to the Mortgagee a
copy of the replacement cost coverage endorsement. If the Property is located in
an area which has been identified by any governmental agency, authority or body
as a flood hazard area or the like, then the Mortgagor shall maintain a flood
insurance policy covering the Property in an amount not less than the original
principal amount of the Loan or the maximum limit of coverage available under
the federal program, whichever amount is less.
6. Rights of Mortgagee to Insurance Proceeds. In the event of loss, the
Mortgagee shall have the exclusive right to adjust, collect and compromise all
insurance claims, and the Mortgagor shall not adjust, collect or compromise any
claims under said policies without the prior written consent of the Mortgagee.
Each insurer is hereby authorized and directed to make payment under said
policies, including return of unearned premiums, directly to the Mortgagee
instead of to the Mortgagor and the Mortgagee jointly, and the Mortgagor
appoints the Mortgagee as the Mortgagor's attorney-in-fact to endorse any draft
therefor. All insurance proceeds may, at the Mortgagee's sole option, be applied
to all or any part of the Obligations and in any order (notwithstanding that
such Obligations may not then otherwise be due and payable) or to the repair and
restoration of any of the Property under such terms and conditions as the
Mortgagee may impose.
7. Installments for Insurance. Taxes and Other Charges. The Mortgagor
shall, if requested by the Mortgagee, pay to the Mortgagee monthly, an amount
equal to one-twelfth (1/12) of the annual premiums for the insurance policies
referred to hereinabove and the annual Impositions and any other item which at
any time may be or become a lien upon the Property (the "Escrow Charges"). The
amounts so paid shall be used in payment of the Escrow Charges so long as no
Event of Default shall have occurred. No amount so paid to the Mortgagee shall
be deemed to be trust funds, nor shall any sums paid bear interest. The
Mortgagee shall have no obligation to pay any insurance premium or Imposition if
at any time the funds being held by the Mortgagee for such premium or Imposition
are insufficient to make such payments. Upon the occurrence of an Event of
Default, the Mortgagee shall have the right, at its election, to apply any
amount so held against the Obligations due and payable in such order as the
Mortgagee may deem fit, and the Mortgagor
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hereby grants to the Mortgagee a lien upon and security interest in such amounts
for such purpose.
8. Condemnation. The Mortgagor, immediately upon obtaining knowledge of the
institution of any proceedings for the condemnation or taking by eminent domain
of any of the Property, shall notify the Mortgagee of the pendency of such
proceedings. The Mortgagee may participate in any such proceedings and the
Mortgagor shall deliver to the Mortgagee all instruments requested by it to
permit such participation. Any award or compensation for property taken or for
damage to property not taken, whether as a result of such proceedings or in lieu
thereof, is hereby assigned to and shall be received and collected directly by
the Mortgagee, and any award or compensation shall be applied, at the
Mortgagee's option, to any part of the Obligations and in any order
(notwithstanding that any of such Obligations may not then be due and payable)
or to the repair and restoration of any of the Property under such terms and
conditions as the Mortgagee may impose.
9. Environmental Matters.
a. For purposes of this Section 9, the term "Environmental Laws" shall mean
all federal, state and local laws, regulations and orders, whether now or in the
future enacted or issued, pertaining to the protection of land, water, air,
health, safety or the environment. The term "Regulated Substances" shall mean
all substances regulated by Environmental Laws, or which are known or considered
to be harmful to the health or safety of persons, or the presence of which may
require investigation, notification or remediation under the Environmental Laws.
The term "Contamination" shall mean the discharge, release, emission, disposal
or escape of any Regulated Substances into the environment.
b. The Mortgagor represents and warrants (I) that no Contamination is
present at, on or under the Property and that no Contamination is being or has
been emitted onto any surrounding property; (ii) all operations and activities
on the Property have been and are being conducted in accordance with all
Environmental Laws, and the Mortgagor has all permits and licenses required
under the Environmental Laws; (iii) no underground or aboveground storage tanks
are or have been located on or under the Property; and (iv) no legal or
administrative proceeding is pending or threatened relating to any environmental
condition, operation or activity on the Property, or any violation or alleged
violation of Environmental Laws. These representations and warranties shall be
true as of the date hereof, and shall be deemed to be continuing representations
and warranties which must remain true, correct and accurate during the entire
duration of the term of this Mortgage.
c. The Mortgagor shall ensure, at its sole cost and expense, that the
Property and the conduct of all operations and activities thereon comply and
continue to comply with all Environmental Laws. The Mortgagor shall notify the
Mortgagee promptly and in reasonable detail in the event that the Mortgagor
becomes aware of any violation of any Environmental Laws, the presence or
release of any Contamination with respect to the Property, or any governmental
or third party claims relating to the environmental condition of the Property or
the conduct of operations or
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<PAGE>
activities thereon. The Mortgagor also agrees not to permit or allow the
presence of Regulated Substances on any part of the Property, except for those
Regulated Substances (I) which are used in the ordinary course of the
Mortgagor's business, but only to the extent they are in all cases used in a
manner which complies with all Environmental Laws; and (ii) those Regulated
Substances which are naturally occurring on the Property. The Mortgagor agrees
not to cause, allow or permit the presence of any Contamination on the Property.
d. The Mortgagee shall not be liable for, and the Mortgagor shall
indemnify, defend and hold the Mortgagee and all of its officers, directors,
employees and agents, and all of their respective successors and assigns
harmless from and against all losses, costs, liabilities, damages, fines,
claims, penalties and expenses (including, without limitation, reasonable
attorneys', consultants' and contractors' fees, costs incurred in the
investigation, defense and settlement of claims, as well as costs incurred in
connection with the investigation, remediation or monitoring of any Regulated
Substances or Contamination) that the Mortgagee may suffer or incur (including,
without limitation, as holder of the Mortgage, as mortgagee in possession or as
successor in interest to the Mortgagor as owner of the Property by virtue of a
foreclosure or acceptance of a deed in lieu of foreclosure) as a result of or in
connection with (I) any Environmental Laws (including, without limitation, the
assertion that any lien existing or arising pursuant to any Environmental Laws
takes priority over the lien of the Mortgage); (ii) the breach of any
representation, warranty, covenant or undertaking by the Mortgagor in this
Section 9; (iii) the presence on or the migration of any Contamination or
Regulated Substances on, under or through the Property; or (iv) any litigation
or claim by the government or by any third party in connection with the
environmental condition of the Property or the presence or migration of any
Regulated Substances or Contamination on, under, to or from the Property.
e. Upon the request of the Mortgagee, the Mortgagor shall execute and
deliver an Environmental Indemnity Agreement satisfactory in form and substance
to the Mortgagee, to more fully reflect the representations, warranties,
covenants and indemnities of the Mortgagor with respect to the Environmental
Laws.
10. Inspection of Property. The Mortgagee shall have the right to enter
upon the Property at any reasonable hour for the purpose of inspecting the
order, condition and repair of the buildings and improvements erected thereon,
as well as the conduct of operations and activities on the Property. The
Mortgagee may enter the Property (and cause the Mortgagee's employees, agents
and consultants to enter the Property), upon prior written notice to the
Mortgagor, to conduct any and all environmental testing deemed appropriate by
the Mortgagee in its sole discretion. The environmental testing shall be
accomplished by whatever means the Mortgagee may deem appropriate, including,
but not limited to, the taking of soil samples and the installation of ground
water monitoring wells or other intrusive environmental tests. The Mortgagor
shall provide the Mortgagee (and the Mortgagee's employees, agents and
consultants) reasonable rights of access to the Property as well as such
information about the Property and the past or present conduct of operations and
activities thereon as the Mortgagee shall reasonably request.
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11. Events of Default. The occurrence of any one or more of the following
events shall constitute an "Event of Default" hereunder: (a) any Event of
Default (as defined in any of the Obligations); (b) any default under any of the
Obligations that does not have a defined set of "Events of Default" and the
lapse of any notice or cure period provided in such Obligations with respect to
such default; (C) demand by the Mortgagee under any of the Obligations that have
a demand feature; (d) the failure by the Mortgagor to perform any of its
obligations under this Mortgage or under any Environmental Indemnity Agreement
executed and delivered pursuant to Section 9(e) hereof; (e) falsity, inaccuracy
or material breach by the Mortgagor of any written warranty, representation or
statement made or furnished to the Mortgagee by or on behalf of the Mortgagor;
(f) an uninsured material loss, theft, damage, or destruction to any of the
Property, or the entry of any judgment against the Mortgagor or any lien against
or the making of any levy, seizure or attachment of or on the Property; (g) the
failure of the Mortgagee to have a first priority mortgage lien on the Property;
(h) any indication or evidence received by the Mortgagee that the Mortgagor may
have directly or indirectly been engaged in any type of activity which, in the
Mortgagee's discretion, might result in the forfeiture of any property of the
Mortgagor to any governmental entity, federal, state or local; (I) foreclosure
proceedings are instituted against the Property upon any other lien or claim,
whether alleged to be superior or junior to the lien of this Mortgage; (j) the
failure by the Mortgagor to pay any Impositions as required under Section 2(C)
hereof, or to maintain in full force and effect any insurance required under
Section 5 hereof; or (k) the filing by or against the Mortgagor of any
proceeding in bankruptcy, receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding, or any assignment by the Mortgagor for
the benefit of creditors.
12. Rights and Remedies of Mortgagee. If an Event of Default occurs, the
Mortgagee may, at its option and without demand, notice or delay, do one or more
of the following:
a. The Mortgagee may declare the entire unpaid principal balance of
the Obligations, together with all interest thereon, to be due and payable
immediately.
b. The Mortgagee may (I) institute and maintain an action of mortgage
foreclosure against the Property and the interests of the Mortgagor
therein, (ii) institute and maintain an action on any instruments
evidencing the Obligations or any portion thereof, and (iii) take such
other action at law or in equity for the enforcement of any of the Loan
Documents as the law may allow, and in each such action the Mortgagee shall
be entitled to all costs of suit and attorneys' fees.
c. The Mortgagee may, in its sole and absolute discretion: (I) collect
any or all of the Rents, including any Rents past due and unpaid, (ii)
perform any obligation or exercise any right or remedy of the Mortgagor
under any Lease, or (iii) enforce any obligation of any tenant of any of
the Property. The Mortgagee may exercise any right under this subsection
(c), whether or not the Mortgagee shall have entered into possession of any
of the Property, and nothing herein contained shall be construed as
constituting the Mortgagee a "mortgagee in possession", unless the
Mortgagee shall have entered into and shall continue to be in actual
possession of the Property. The Mortgagor hereby authorizes and directs
each and every present and future tenant of any of the Property to pay all
Rents directly to the Mortgagee and to perform all other obligations of
that tenant
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for the direct benefit of the Mortgagee, as if the Mortgagee were the
landlord under the Lease with that tenant; immediately upon receipt of a
demand by the Mortgagee to make such payment or perform such obligations.
The Mortgagor hereby waives any right, claim or demand it may now or
hereafter have against any such tenant by reason of such payment of Rents
or performance of obligations to the Mortgagee, and any such payment or
performance to the Mortgagee shall discharge the obligations of the tenant
to make such payment or performance to the Mortgagor.
d. The Mortgagee shall have the right, in connection with the exercise
of its remedies hereunder, to the appointment of a receiver to take
possession and control of the Property and/or to collect the Rents, without
notice and without regard to the adequacy of the Property to secure the
Obligations. The Mortgagee or a receiver, while in possession of the
Property, shall have the right to make repairs and to make improvements
necessary or advisable in its or his opinion to preserve the Property, or
to make and keep them rentable to the best advantage, and the Mortgagee may
advance moneys to a receiver for such purposes. Any moneys so expended or
advanced by the Mortgagee or by a receiver shall be added to and become a
part of the Obligations secured by this Mortgage.
13. Application of Proceeds. The Mortgagee shall apply the proceeds of any
foreclosure sale of, or other disposition or realization upon, or Rents or
profits from, the Property to satisfy the Obligations in such order of
application as the Mortgagee shall determine in its exclusive discretion.
14. Mortgagee's Right to Protect Security. The Mortgagee is hereby
authorized to do any one or more of the following, irrespective of whether an
Event of Default has occurred: (a) appear in and defend any action or proceeding
purporting to affect the security hereof or the rights or powers of the
Mortgagee hereunder; (b) purchase such insurance policies covering the Property
as it may elect if the Mortgagor fails to maintain the insurance coverage
required hereunder; and (C) take such action as the Mortgagee may determine to
pay, perform or comply with any Impositions or Legal Requirements, to cure any
Events of Default and to protect its security in the Property.
15. Appointment of Mortgagee as Attorney-in-Fact. The Mortgagee, or any
officer of the Mortgagee, is hereby irrevocably appointed attorney-in-fact for
the Mortgagor (without requiring any of them to act as such), such appointment
being coupled with an interest, to do any or all of the following: (a) collect
the Rents after the occurrence of an Event of Default; (b) settle for, collect
and receive any awards payable under Section 8 hereof from the authorities
making the same; and (C) execute, deliver and file such financing statements and
other instruments as the Mortgagee may require in order to perfect and maintain
its security interest under the Uniform Commercial Code on any portion of the
Property.
16. Certain Waivers. The Mortgagor hereby waives and releases all benefit
that might accrue to the Mortgagor by virtue of any present or future law
exempting the Property, or any part of the proceeds arising from any sale
thereon from attachment, levy or sale on execution, or
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providing for any stay of execution, exemption from civil process or extension
of time for payment, and, unless specifically required herein, all notices of
the Mortgagor's default or of the Mortgagee's election to exercise, or the
Mortgagee's actual exercise of any option under this Mortgage or any other Loan
Document. The Mortgagor waives all rights or defenses arising by reason of any
"one action" or "anti-deficiency" law, or any other law which may prevent the
Mortgagee from bringing any action against the Mortgagor, including a claim for
deficiency to the extent the Mortgagee is otherwise entitled to a claim for
deficiency, before or after the Mortgagee's commencement or completion of any
foreclosure action or any other action to exercise its remedies hereunder or
otherwise available at law or in equity.
17. No Merger. There shall be no merger of the interest or estate created
by this Mortgage with any other interest or estate in the Property at any time
held by or for the benefit of the Mortgagee or any subsidiary or affiliate in
any capacity, without the express prior written consent of the Mortgagee.
18. Mortgage Secures Future Advances. This Mortgage is given for the
purpose of creating a lien on real property in order to secure not only existing
indebtedness, but also future advances, whether such advances are obligatory or
to be made at the option of the Mortgagee, or otherwise, and whether made before
or after default or maturity or other similar events, to the same extent as if
such future advances were made on the date of the execution hereof, although
there may be no advance made at the time of the execution hereof and although
there may be no indebtedness outstanding at the time any advance is made. The
types of future advances secured by and having priority under this Mortgage
shall include, without limitation, (I) advances and readvances of principal
under the Note or other Loan Documents and (ii) disbursements and other advances
for the payment of taxes, assessments, maintenance charges, insurance premiums
or costs relating to the Property, for the discharge of liens having priority
over the lien of this Mortgage, for the curing of waste of the Property and for
the payment of service charges and expenses incurred by reason of default and
including late charges, attorneys' fees and court costs, together with interest
thereon. The lien of this Mortgage, as to third persons with or without actual
knowledge thereof, shall be valid as to all such indebtedness and future
advances, from the date of recordation, to the extent permitted by the laws of
the state in which the Property is situated. The total amount of the
indebtedness secured by this Mortgage may decrease or increase from time to
time, but the total unpaid principal balance at any one time shall not exceed
the maximum principal amount of the Obligations.
19. Notices. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt if delivered personally to the Mortgagor or the
Mortgagee, or if sent by facsimile transmission with confirmation of delivery,
or by nationally recognized overnight courier service, to the address set forth
above or to such other address as the Mortgagor or the Mortgagee may give to the
other in writing for such purpose.
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20. Preservation of Rights. No delay or omission on the part of the
Mortgagee to exercise any right or power arising hereunder will impair any such
right or power or be considered a waiver of any such right or power or any
acquiescence therein, nor will the action or inaction of the Mortgagee impair
any right or power arising hereunder. The Mortgagee's rights and remedies
hereunder are cumulative and not exclusive of any other rights or remedies which
the Mortgagee may have under other agreements, at law or in equity. The
Mortgagee may exercise any one or more of its rights and remedies without regard
to the adequacy of its security.
21. Illegality. In case any one or more of the provisions contained in this
Mortgage should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
22. Changes in Writing. No modification, amendment or waiver of any
provision of this Mortgage nor consent to any departure by the Mortgagor
therefrom, will in any event be effective unless the same is in writing and
signed by the Mortgagee, and then such waiver or consent shall be effective only
in the specific instance and for the purpose for which given. No notice to or
demand on the Mortgagor in any case will entitle the Mortgagor to any other or
further notice or demand in the same, similar or other circumstance.
23. Entire Agreement. This Mortgage (including the documents and
instruments referred to herein) constitutes the entire agreement and supersedes
all other prior agreements and understandings, both written and oral, between
the Mortgagor and the Mortgagee with respect to the subject matter hereof.
24. Survival; Successors and Assigns. This Mortgage will be binding upon
and inure to the benefit of the Mortgagor and the Mortgagee and their respective
heirs, executors, administrators, successors and assigns; provided, however,
that the Mortgagor may not assign this Mortgage in whole or in part without the
prior written consent of the Mortgagee and the Mortgagee at any time may assign
this Mortgage in whole or in part; and provided, further, that the rights and
benefits under Sections 9, 10 and 26 hereof shall also inure to the benefit of
any persons or entities who acquire title or ownership of the Property from or
through the Mortgagee or through action of the Mortgagee (including but not
limited to a foreclosure, sheriffs or judicial sale). The provisions of Sections
9, 10 and 26 hereof shall survive the termination, satisfaction or release of
this Mortgage, the foreclosure of this Mortgage or the delivery of a deed in
lieu of foreclosure.
25. Interpretation. In this Mortgage, the singular includes the plural and
the plural the singular; words importing any gender include the other genders;
references to statutes are to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; the word "or"
shall be deemed to include "and/or", the words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation".
Section headings in this Mortgage are included for convenience of reference only
and shall not constitute a part of this Mortgage for any other purpose. If this
Mortgage is executed by more than one party as Mortgagor, the obligations of
such persons or entities will be joint and several.
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26. Indemnity. The Mortgagor agrees to indemnify each of the Mortgagee, its
directors, officers and employees and each legal entity, if any, who controls
the Mortgagee (the "Indemnified Parties") and to hold each Indemnified Party
harmless from and against any and all claims, damages, losses, liabilities and
expenses (including, without limitation, all fees of counsel with whom any
Indemnified Party may consult and all expenses of litigation or preparation
therefor) which any Indemnified Party may incur or which may be asserted against
any Indemnified Party in connection with or arising out of the matters referred
to in this Mortgage or in the other Loan Documents by any person, entity or
governmental authority (including any person or entity claiming derivatively on
behalf of the Mortgagor), whether (a) arising from or incurred in connection
with any breach of a representation, warranty or covenant by the Mortgagor, or
(b) arising out of or resulting from any suit, action, claim, proceeding or
governmental investigation, pending or threatened, whether based on statute,
regulation or order, or tort, or contract or otherwise, before any court or
governmental authority, which arises out of or relates to this Mortgage, any
other Loan Document, or the use of the proceeds of the Loan; provided, however,
that the foregoing indemnity agreement shall not apply to claims, damages,
losses, liabilities and expenses solely attributable to an Indemnified Party's
gross negligence or willful misconduct. The indemnity agreement contained in
this Section shall survive the termination of this Mortgage, payment of any Loan
and assignment of any rights hereunder. The Mortgagor may participate at its
expense in the defense of any such action or claim.
27. Governing Law and Jurisdiction. This Mortgage has been delivered to and
accepted by the Mortgagee and will be deemed to be made in the State where the
Mortgagee's office indicated above is located. This Mortgage will be interpreted
and the rights and liabilities of the Mortgagor and the Mortgagee determined in
accordance with the laws of the State where the Mortgagee's office indicated
above is located, except that the laws of the State where the Property is
located (if different from the State where such office of the Mortgagee is
located) shall govern the creation, perfection and foreclosure of the liens
created hereunder on the Property or any interest therein. The Mortgagor hereby
irrevocably consents to the exclusive jurisdiction of any state or federal court
for the county or judicial district where the Mortgagee's office indicated above
is located, and consents that all service of process be sent by nationally
recognized overnight courier service directed to the Mortgagor at the
Mortgagor's address set forth herein and service so made will be deemed to be
completed on the business day after deposit with such courier; provided that
nothing contained in this Mortgage will prevent the Mortgagee from bringing any
action, enforcing any award or judgment or exercising any rights against the
Mortgagor individually, against any security or against any property of the
Mortgagor within any other county, state or other foreign or domestic
jurisdiction. The Mortgagor acknowledges and agrees that the venue provided
above is the most convenient forum for both the Mortgagee and the Mortgagor. The
Mortgagor waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Mortgage.
28. Waiver of Jury Trial. THE MORTGAGOR IRREVOCABLY WAIVES ANY AND ALL
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY
NATURE RELATING TO THIS MORTGAGE, ANY
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DOCUMENTS EXECUTED IN CONNECTION WITH THIS MORTGAGE OR ANY TRANSACTION
CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE MORTGAGOR ACKNOWLEDGES THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
29. Loan Subject to Modification. This Mortgage secures a loan which by its
terms is subject to modification as defined in N.J.S.A. 46:9-8.1.
30. True and Correct Copy. THE MORTGAGOR ACKNOWLEDGES THAT THE MORTGAGOR
HAS RECEIVED, WITHOUT CHARGE, A TRUE AND CORRECT COPY OF THIS MORTGAGE.
The Mortgagor acknowledges that it has read and understood all the provisions of
this Mortgage, including the waiver of jury trial, and has been advised by
counsel as necessary or appropriate.
ATTEST: Hydromer, Inc., a New Jersey Corporation
/s/ ILLEGIBLE /s/ Kenneth P. Brice
- ------------------------------- ----------------------------------------
Kenneth P. Brice, Vice President and
Chief Financial Officer
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SCHEDULE "A"
LEGAL DESCRIPTION
ALL that tract or parcel of land and premises, situate, lying and being in the
Township of Branchburg in the County of Somerset and State of New Jersey, more
particularly described as follows:
BEGINNING at the most northerly corner of Lot 30, as shown on "Plan of Major
Subdivision-Final Plat; Industrial Property of Herbert Vollers-Readington Road,
situated in Branchburg Twp., Somerset County" dated September 1965, revised
April 1967, which map was filed in the Somerset County Clerk's Office as Map No.
1139 and from said Beginning point running
1. South 66 degrees 06 minutes 44 seconds East, 531.87 feet along the southerly
property line of the Central Railroad Company of New Jersey to a point and
corner of Lot 3A as shown on the map herein referred to; thence
2. South 24 degrees 15 minutes West, 493.73 feet along line of Industrial
Parkway; thence
3. North 65 degrees 45 minutes West. 658.13 feet along Industrial Parkway;
thence
4. North 38 degrees 41 minutes 12 seconds East, 506.36 place of BEGINNING.
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW JERSEY :
:ss
COUNTY OF MIDDLESEX :
BE IT REMEMBERED that on June 12, 1998 before me, the subscriber,
personally appeared Kenneth P. Brice, the Vice President and Chief Financial
Officer of Hydromer, Inc., a New Jersey Corporation, and who, I am satisfied, is
the person who executed the within instrument and he did acknowledge that he
signed, sealed and delivered the same as such officer aforesaid and that the
within instrument is the voluntary act and deed of such corporation made by
virtue of a Resolution of its Board of Directors.
Witnesseth my hand and seal.
/s/ Robert D. Frawley
-------------------------------------
ROBERT D. FRAWLEY
ATTORNEY AT LAW
STATE OF NEW JERSEY
14
Lease
HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
Premises-35 Industrial Parkway, Somerville, NJ
36 Months
<PAGE>
Lease
HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
Premises-35 Industrial Parkway, Somerville, NJ
36 Months
THIS LEASE is made as of the ______ day of __________, 1998, between
Hydromer, Inc. (hereinafter referred to as "Landlord") and Biosearch Medical
Products, Inc. (hereinafter referred to as "Tenant").
SECTION 1
DEMISE AND BASIC RENT
Landlord hereby rents to Tenant and Tenant hereby rents from Landlord,
approx. 16,500 sq. ft. in the east side of the building, commonly known as 35
Industrial Parkway, Somerville, NJ, the east side being identified as Schedule A
attached hereto, (hereinafter referred to as the "Premises"), in its "As Is"
condition, for the term of beginning on the day of that the real estate
containing the premises is conveyed by Tenant to Landlord and ending on 36
months later, at seven Dollars ($7.00) per sq. ft. per year, the amount of three
hundred and forty six thousand five hundred dollars ($346,500) ("Prepaid Rent")
being acknowledged as received by Landlord from Tenant as part of the sale of
the real estate in which the Premises is part and parcel therein to be utilized
by Tenant at the rate of $9,625 per month (herein the "Basic Rent").
SECTION 2
ADDITIONAL RENT, TAXES, ASSESSMENTS, ETC.
If the premises is separately metered for utilities, Tenant will pay such bills
else Tenant will pay 65% of all utility bills for the entire building. All other
costs of operation (such as but not limited to taxes, building insurance,
grounds upkeep, snow removal and other like costs) are to be shared equally
("Additional rent").
SECTION 3
<PAGE>
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AFFIRMATIVE COVENANTS OF TENANT
Tenant, jointly and severally if more than one, hereby covenants with
Landlord as follows:
(A) to pay any Additional Rent within Ten (10) days of date of invoice
therefor;
(B) to keep the Premises in good order; and
(C) to surrender the peaceful and quiet possession of the Premises at the
end of the term or any shorter period, broom clean and in as good condition
as when received (normal wear and tear and damage from insured events
excepted).
SECTION 3A
ADDITIONAL TERMS
1. Landlord shall pay for the cost of construction of interior demising walls
which shall be finished on both sides together with the doors to be located
therein. All other interior modifications shall be the responsibility of the
Tenant.
2. Landlord will reimburse Tenant for any electricity or utilities used by
Landlord on Tenant's meters.
3. Landlord will grant Tenant access to the loading dock to load trucks.
4. Landlord recognizes there is a security system covering the entire premises
and Tenant will disconnect the sensors in the non-leasehold from the system.
5. Tenant has the right to park up to 3 trailers and 2 refuse containers in the
rear parking lot for storage, provided no municipal ordinances are
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35 Industrial Parkway, Somerville, N.J. page-3
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violated. At the end of the lease these trailers and containers shall promptly
removed.
SECTION 4
NEGATIVE COVENANTS OF TENANT
Tenant hereby covenants that Tenant will not do, suffer or permit any of
the following:
(A) anything to be done in or about the Premises which will contravene any
policy of insurance against loss by fire;
(B) violate the Certificate of Occupancy for the Premises or use, or permit
to be used, the Premises for the purposes other than those allowed by the
zoning ordinances of the Township of Branchburg;
SECTION 5
QUIET ENJOYMENT
The Landlord covenants that he shall do nothing to affect the Tenant's
right to peaceably and quietly have, hold and enjoy the Premises for the term
herein mentioned, subject to the provisions of this Lease and to any mortgage or
deed of trust to which this Lease shall be subordinate.
SECTION 6
ALTERATIONS
Tenant shall not make any alteration or additions to the Premises without
the prior written consent of Landlord. Any alterations, additions or repairs the
Tenant shall be permitted to make shall be done at Tenant's own expense.
Landlord shall make all alteration to secure the Premises from the other
parts of the building, including installing separate meters to insure
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35 Industrial Parkway, Somerville, N.J. page-4
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Tenant does not pay for any part of the non-leasehold.
SECTION 7
EXPIRATION OF LEASE
Upon expiration of this Lease Tenant shall deliver as soon afterwards as a
received from the state of New Jersey, an approval of a negative declaration
regarding the premises pursuant to the Industrial Site Recovery Act (N.J.S.A.
13:1 K-6 et seq.) (hereinafter, ISRA).
In the event Tenant does not surrender the premises to Landlord upon the
expiration of this Lease, Tenant shall pay a holdover rent of $19,250 for each
month of holdover. This is not an election of remedies and Landlord may take any
other action to remove Tenant allowed by law or equity.
SECTION 8
EFFECT OF DESTRUCTION
If the Premises shall be destroyed or rendered untenantable by fire or
unavoidable accident, or if the building in which the Premises are located is so
damaged that Landlord shall elect to demolish it or rebuild it, the tenancy
hereby created shall be thereby terminated, and, provided Tenant is not in
default at the time of such destruction, Landlord shall refund the unused
portion of the Prepaid Rent, payable in 4 equal installments over a 4 month
period. Landlord at its own expense shall purchase insurance if available to
insure this obligation and add it to any insurance policy as a rider if
available. Such refund obligation may be set off against any obligation of
Tenant to Landlord under section 12, below.
SECTION 9
INSURANCE
Tenant shall provide and keep in force during the term of this
<PAGE>
LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-5
36 months
================================================================================
Lease general liability insurance for injury or damage to persons or property in
or upon the Premises during the term of this Lease. The said policy shall be
with limits not less than one million Dollars ($1,000,000) in respect of any
one person, in respect of any one accident and in respect of property damage and
shall also contain an endorsement protecting the Landlord for water damage and
sprinkler damage liability with respect to property other than the Landlord's.
Landlord shall insure the building including the premises as Landlord deems
fit. Tenant shall have the right to purchase any additional insurance to cover
losses of Tenant.
Tenant shall also furnish insurance for such other hazards and in such
amounts as Landlord may reasonably require. Landlord reserves the right at any
time and from time to time to require the limits for any of the insurance under
this Section to be increased to limits which Landlord deems reasonable. Tenant
shall provide a certificate evidencing such insurance to Landlord. Landlord
shall be a named insured on any such policy. No such policy may be canceled
without ten days prior notice to Landlord.
SECTION 10
REPAIRS
Tenant shall keep the Premises in good condition and repair and shall
redecorate, paint and renovate the Premises as may be necessary to keep them in
good condition and repair and good appearance and in compliance with the laws
and regulations applicable to Tenant's business.
SECTION 11
SUBORDINATION
This Lease is and shall be subject and subordinate to all present and
future mortgages, deeds of trust or underlying leases affecting the Premises.
Tenant shall execute any instrument which may be deemed
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necessary or desirable by Landlord to further effect or to evidence the
subordination of this Lease to any such mortgage, deed of trust or underlying
lease.
SECTION 12
INDEMNIFICATION
Tenant agrees to indemnify and hold harmless the Landlord, each mortgagee,
ground or underlying lessor of the Premises from and against any and all
liabilities, damages, claims, losses, judgments, causes of action, costs and
expenses (including reasonable counsel fees and legal expenses) which may be
incurred by Landlord or any such mortgagee or underlying lessor relating to or
arising out of any breach by Tenant of (i) its obligations to be performed under
this Lease, or (ii) the carelessness, negligence or improper conduct of Tenant,
its agents, contractors, employees, invitees or licensees, or (iii) arising out
of the use and occupancy of the Premises or any work or thing whatsoever done or
any condition created in or about the Premises during the term of this Lease. In
case any action or proceeding be brought against Landlord by reason of any such
claim, Tenant, upon notice from Landlord, shall resist and defend such action or
proceeding. Tenant shall be entitled to a credit against such indemnification in
the amount of any unused, pre-paid basic rent in the event that the Premises are
destroyed or rendered untenantable by Tenant's act or omission hereunder.
SECTION 13
EXCULPATION
The term "Landlord" as used in this Lease means only the holder, for the
time being, of the Landlord's interest under this Lease so that in the event of
any transfer of title to the Premises, the Landlord shall be and hereby is
entirely free and relieved of all obligations of Landlord hereunder accruing
after such transfer. Tenant acknowledges that there is absolutely no personal
liability on the part of the Landlord, its successor or assigns with respect to
any of the terms, covenants and
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35 Industrial Parkway, Somerville, N.J. page-7
36 months
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conditions of this Lease, and that Tenant shall look solely to the equity of
Landlord in the Building for the satisfaction of each and every remedy of Tenant
in the event of any breach by Landlord of any of the terms, covenants and
conditions of this Lease to be performed by Landlord.
SECTION 14
BINDING EFFECT
This Lease shall be binding upon and shall inure to the benefit of the
parties hereto and their personal representatives, successors and assigns, and
sub-tenants.
SECTION 15
ASSIGNMENT/SUBLET
Provided Tenant is not in default, Tenant shall have the unrestricted right
to assign this pre-paid lease or sub-let the premises provided the assignee or
sub-tenant as the case may be agrees to be bound by the provisions of this
lease, provided however, Landlord shall have the: (i) option of exercising a
right of first refusal to prevent such sub-lease or assignment by the payment of
a monthly rate of $9,625 times the number of months left in this pre-paid lease,
provided further such right shall be exercised within 10 days of the receipt of
a written notice by Tenant to Landlord. This payment shall be made in 4 equal
installments over a 4 month period or (ii) in the event the Basic Rent paid by
such assignee/subtenant exceeds $7.00/sq. ft. per year, Landlord may elect not
to exercise its option of first refusal in consideration for payment of 50% of
the monthly amount by which assignee/subtenant's Basic Rent exceeds a. rate of
$7.00 per square foot per year. SECTION 16 APPLICABLE LAW
The Lease shall be interpreted and construed in accordance with the laws of
the State of New Jersey (excluding New Jersey conflict of
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LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-8
36 months
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laws) and by the state courts of New Jersey.
SECTION 17
CAPTIONS
The captions appearing in this Lease are inserted only as a matter of
convenience and do not define, limit, construe or describe the scope or intent
of the Sections of this Lease nor in any way affect this Lease.
SECTION 18
TENANT'S DEFAULT
A default under this lease by Tenant shall exist if any of the following occurs:
(a) If Tenant fails to pay Additional Rent or any other sum required to be
paid hereunder within ten (10) days of when due; or
(b) If Tenant fails to perform any term, covenant or condition of this
Lease except those requiring the payment of money, and Tenant fails to cure
such breach within thirty (30) days after written notice from Landlord
where such breach could be reasonably cured within such thirty (30) day
period; provided, however, where such failure could not reasonably be cured
within the thirty (30) day period, that Tenant shall not be in default if
it commences such performance within the thirty (30) day period and
diligently thereafter prosecutes the same to completion; or
(c) If Tenant shall have abandoned or vacated the Premises for more than
ten (10) consecutive days except by reason of fire or other casualty
pursuant to Section 8 of this Lease.
SECTION 19
REMEDIES
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Upon a default, Landlord shall have the following remedies, in addition to
all other rights and remedies provided by law or otherwise provided in this
Lease, to which Landlord may resort cumulatively or in the alternative:
(a) Landlord may continue this Lease in full force and effect, and this
Lease shall continue in full force and effect as long as Landlord does not
terminate this Lease, and Landlord shall have the right to collect
Additional Rent and other charges when due or at the Landlord's option to
set off against the Prepaid Rent.
In addition, for the period of any default, any unpaid Additional Rent
shall accrue interest at the annualized rate equal to the Prime Rate in the
Wall Street Journal plus 2% compounded monthly.
(b) Landlord may terminate Tenant's right to possession of the premises at
any time by given written notice to that effect, and relet the Premises or
any part thereof. On giving the notice, all of Tenant's rights in the
Premises, shall terminate. Upon such termination, Tenant shall surrender
and vacate Premises, and Landlord may re-enter and take possession of the
Premises and all remaining improvements or property and eject Tenant or any
of Tenant's sub-tenants, assignees or other person or persons claiming any
right under or through Tenant. This Lease may also be terminated by a
judgement specifically providing for termination. Any termination under
this Article shall not release Tenant from the payment of any sum then due
Landlord or from any claim for damages or Additional Rent or other sum
previously accrued or then accruing against Tenant. Upon such termination
Tenant shall be liable immediately to Landlord for all costs Landlord
incurs in reletting the Premises or any part thereof, including, without
limitation, legal fees and expenses, broker's commissions, expenses of
cleaning and restoration, repair or redecorating the Premises required by
reletting and like costs which at Landlord's option may be set off against
the unused
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Prepaid Rent. Provided, however, upon such termination, Tenant shall be
entitled to a credit in the amount of any unused prepaid Basic Rent, which
credit if any shall be paid in 4 equal monthly installments.
Reletting may be for a period shorter or longer then the remaining term of
this Lease. Acts of maintenance, efforts to relet the Premises or the
appointment of a receiver on Landlord's initiative to protect Landlord's
interest under this Lease shall not constitute a termination or interfere
of or with Tenant's right to possession.
In the event Landlord terminates Tenant's right to possession under this
section and occupies the premises, Tenant shall immediately be entitled to
a credit in the amount of any unused Prepaid Rent, which credit if any
shall be paid in 4 equal monthly installments.
(c) In the event of a breach by Tenant of any of the terms hereof, Landlord
shall have the right of injunction to restrain the same.
(d) Landlord and Tenant hereby mutually, knowingly, irrevocably,
voluntarily and intentionally waive trial by jury in any action, proceeding
or counterclaim brought by either party hereto against the other in any way
connected with this Lease. Each party further warrants and represents that
it has reviewed this waiver with legal counsel and that each waived its
jury trial rights following consultation with legal counsel. This waiver
shall apply to any and all subsequent amendments and any other agreements
relating to the subject matter hereof. In the event of litigation, this
lease may be filed as a written consent to a trial by court, sitting
without jury.
SECTION 20
NO WAIVER
The failure of either party to insist, in any one instances, upon strict
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35 Industrial Parkway, Somerville, N.J. page-1l
36 months
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performance of any covenants of this Lease, or to exercise any options herein
contained, shall not be construed as a waiver or relinquishment for the future,
of such covenant or option, but the same shall continue and remain in full force
and effect. Even though Landlord has consented that this Lease may be assigned
or the premises sublet, any assignee may not further assign or any sub-tenant
may not sublet without express consent in writing by Landlord.
WITNESS the hands and seals of the parties hereto as of the day and year
first above written.
ATTEST/WITNESS: LANDLORD-Hydromer, Inc.
/s/ [illegible] BY: /s/ [illegible]
- ------------------------------- --------------------------- (Seal)
ATTEST/WITNESS TENANT-Biosearch Medical Products,
Inc.
/s/ Martin [illegible] BY: /s/ [illegible]
- ------------------------------- --------------------------- (Seal)
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LEASE - HYDROMER, Inc. to BIOSEARCH MEDICAL PRODUCTS, Inc.
35 Industrial Parkway, Somerville, N.J. page-12
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Schedule A
Partition of premises into 1 6,500 sq ft leasehold.
******INSERT DRAWING HERE*****
<PAGE>
Schedule A
[Graphical Presentation of
35 Industrial Parkway]
<PAGE>
[Graphical Presentation of
Parking Plan for Hydromer (X)
+ Biosearch (B)]
HYDROMER, INC.
35 Columbia Road
Branchburg, NJ 08876-3518
NOTICE OF 1998 ANNUAL MEETING OF STOCKHOLDERS
To be held October 21, 1998
The Annual Meeting of the Shareholders of HYDROMER, Inc. (the "Company")
will be held on Wednesday, October 21, 1998, at the Corporate Headquarters of
Hydromer, 35 Columbia Road, Branchburg, New Jersey at 10 o'clock a.m. for the
following purpose, as more fully described in the accompanying Proxy Statement:
1. To elect directors of the Company for the ensuing year.
2. To ratify the selection by the Board of Directors of Rosenberg Rich
Baker Berman & Company as the Company's independent accountants for
fiscal 1999.
3. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The close of business on September 1, 1998 has been fixed by the Board of
Directors as the record date for the determination of shareholders entitled to
notice of, and to vote at the Meeting.
By Order of the Board of Directors
/s/ Robert D. Frawley
---------------------------------
Robert D. Frawley, Secretary
Branchburg, New Jersey
September 11, 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE IN
ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
PROXY STATEMENT
This Proxy Statement, which will be mailed commencing on or about September 15,
1998 to the persons entitled to receive the accompanying Notice of Annual
Meeting of Shareholders, is provided in connection with the solicitation of
Proxies on behalf of the Board of Directors of HYDROMER, INC. for use at the
Annual Meeting of Shareholders to be held at the Corporate Headquarters of
Hydromer, 35 Columbia Road, Branchburg, New Jersey at 10 o'clock a.m. on October
21, 1998 and at any adjournment thereof, for the purposes set forth in such
Notice. The Company's executive office is located at 35 Columbia Road,
Branchburg, New Jersey 08876-3518.
At the close of business on September 1, 1998, the record date stated in the
accompanying Notice, the Company had 4,367,987 outstanding shares of Common
Stock without par value ("Common Stock"), each of which is entitled to one vote
with respect to each matter to come before the Meeting. The Company has 10,917
shares of Common Stock, which are Treasury Stock and not entitled to vote. The
Company has no class or series of stock outstanding other than the Common Stock.
As of September 1, 1998, Manfred F. Dyck, Chairman of the Board and a director
of the Company, beneficially owned approximately 38.51% of the outstanding
Common Stock of the Company, and his wife Ursula M. Dyck, a director of the
Company, beneficially owned an additional 3.62% of the Common Stock. Such
ownership may enable such shareholders to exercise a controlling influence over
the Company's affairs.
I. ELECTION OF DIRECTORS
Five directors will be elected at the Annual Meeting of Shareholders, each to
serve for one year and until a successor shall have been duly chosen and
qualified. Each director is elected by a plurality of votes cast. It is the
intention of each of the persons named in the accompanying form of Proxy to vote
the shares represented thereby in favor of the five nominees listed in the
following table, unless otherwise instructed in the Proxy. In case any of the
nominees is unable or declines to serve, such persons reserve the right to vote
the shares represented by such Proxy for another person duly nominated by the
Board of Directors in his or her stead or, if no other person is so nominated,
to vote such shares only for the remaining nominees. The Board of Directors has
no reason to believe that any person named will be unable or will decline to
serve. Certain information concerning the nominees for election as directors is
set forth below. Such information was furnished by them to the Company.
Name of Nominee and Certain
Biographical Information
MANFRED F. DYCK, age 63; Chief Executive Officer of Biosearch Medical Products,
Inc. (manufacturer and distributor of enteral feeding systems) since 1975;
Chairman of the Board of the Company since June 1983 and Chief Executive of the
Company since July of 1989; President from 1980 to June 1983; Director of
Biosearch Medical Products Inc. since 1975; Director of the Company since 1980.
Manfred and Ursula Dyck are husband and wife.
MAXWELL BOROW, M.D., age 72, Medical Doctor, retired Chief of Surgery at
Somerset Medical Center (hospital) from 1985-1994, Chief of Vascular Surgery at
Somerset Medical Center from 1978-1985; Director of the Company since 1990.
URSULA M. DYCK, age 64; Director of the Company since 1980. Ursula and Manfred
Dyck are wife and husband.
DIETER HEINEMANN, age 60; Specialist, Frankfurt, Germany Stock Exchange since
prior to 1987. Director of the Company since 1991.
ROBERT H. BEA, age 45; Vice President of Quality Assurance & Regulatory Affairs
of Siemens Hearing Instruments, Inc. since 1994; Vice President of Quality
Assurance and Regulatory Affairs of Biosearch Medical
1
<PAGE>
Products, Inc. from 1992- 1994; Previously, he worked at Johnson & Johnson where
he held positions of increasing responsibility in Quality/Regulatory affairs
from 1973-1991. Director of the Company since 1996.
Stock Owned
September 1, 1998 (1) Beneficially as of Percent of Class
- --------------------- ------------------ ----------------
MANFRED F. DYCK, 1,682,173(2) 38.51%
MAXWELL BOROW, M.D., 6,000 Less than 1%
URSULA M. DYCK, 158,076(3) 3.62%
DIETER HEINEMANN, 565,125(4) 12.94%
ROBERT H. BEA -0- --
(1) As of September 1, 1998, except as otherwise indicated below, each nominee
has sole voting and investment power with respect to all shares shown in the
table as beneficially owned by such nominee.
(2) Includes an aggregate of 23,676 shares held by Mr. Dyck as custodian for
certain of his children and does not include 186,908 shares held with sole
voting investment power by Mr. Dyck's children and relatives of Mr. Dyck's, as
to which Mr. Dyck disclaims beneficial ownership, or shares held by Ursula M.
Dyck, his wife.
(3) Includes an aggregate of 23,076 shares held by Mrs. Dyck as custodian for
certain of her children and does not include 140,756 shares held with sole
voting and investment power by Mrs. Dyck's children, as to which Mrs. Dyck
disclaims beneficial ownership, or shares held by Manfred F. Dyck, her husband,
individually or as custodian.
(4) Does not include 135,000 shares held by the wife and children of Mr.
Heinemann as to which he disclaims beneficial ownership.
During the past year, the Board of Directors of the Company met four times. Dr.
Borow attended 75% of the meetings and all other Directors attended 100% of the
meetings.
Since May of 1990, directors have been compensated at the rate of $750 per
meeting for directors meetings attended in person, and $200 per meeting for
telephone conference meetings. In addition, directors may attend operational
meetings with Company management, and will be compensated at the rate of $500
per meeting for attendance at such meetings. No such operational meetings were
held in the fiscal year 1998.
The Board of Directors of the Company does not have a separate Nominating
Committee, Audit Committee or Compensation Committee. These functions are
performed by the Board at its meetings.
Five Directors are standing for election at the annual meeting.
Executive Officers
Manfred F. Dyck has been Chairman of the Board of the Company since June 1983
and a Director of the Company since its inception. Mr. Dyck served as Chief
Executive Officer of the Company from its inception until October 1986, and as
of August 1989, reassumed the duties of Chief Executive Officer. Mr. Dyck has
been Chief Executive Officer and a Director of Biosearch Medical Products Inc.
since 1975.
2
<PAGE>
Kenneth P. Brice has been Vice-President, Chief Financial Officer since
September 1997. Prior to joining Hydromer, Mr. Brice was President of CFO
Resources, Inc., a company that provides financial resources to other companies.
Mr. Brice previously was Vice-President and Chief Financial Officer of Digital
Solutions, Inc., a NJ based Professional Employer Organization. From September
1992 to February 1995, he was Vice-President and Corporate Controller for
Interim Services, Inc., a large international temporary help firm located in Ft.
Lauderdale, Fl.
Joseph A. Ehrhard has been Vice-President of New Business and R&D since February
1998. Prior to joining Hydromer, Mr. Ehrhard was Director of R&D for the Golden
Cat Division of Ralston-Purina in St. Louis, Mo. Mr. Ehrhard was previously
Director of R&D in Worldwide Absorbent Products and Materials Research for
Johnson & Johnson in New Jersey. From June 1987 through January 1995, he was in
R&D at Procter & Gamble Company, most recently as Section Head of Global New
Technology Development in Personal Cleansing in Cincinnati, OH.
Robert J. Moravsik has been Vice-President and General Counsel since April 1998.
He also serves in the same capacity for Biosearch Medical Products, Inc. and
affiliated company since 1987. Prior to that he was Vice-President and General
Counsel to Fisher Stevens, Inc., a subsidiary of the Bureau of National Affairs.
Robert D. Frawley has been Secretary of the Company since January 1984. Mr.
Frawley has been an attorney in private practice since December 1985. He is
employed by the law firm of Smith, Stratton, Wise, Heher and Brennan, Princeton,
New Jersey since February 1994. From December 1983 to December 1985, Mr. Frawley
was Vice President - Corporate Counsel and Secretary of Biosearch Medical
Products Inc.
Compensation of Executive Officers
The following table sets forth information concerning cash compensation paid or
accrued by the Company during the fiscal year ended June 30, 1998, to the CEO
and for each of the executive officers of the Company whose total cash
compensation exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Name
and Other Annual Restricted
Principle Compensation($) Stock Options LTIP All Other
Position Year Salary($) Bonus($) (1) Awards /SARs($) Payouts Compensation
- --------------- ---- ------ ------ ------------- -------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Manfred F. Dyck, 1995 50,000 - - - - - -
Chairman, 1996 52,500 - 5,000
President, CEO 1997 64,257 25,687 6,250
1998 82,500 23,660 5,000
</TABLE>
The aggregate value of restricted shares of the Company held by Manfred F. Dyck
as of June 30, 1998 was approximately $1,997,580 (includes only shares held
directly, does not include option or shares held as custodian.)
(1) Amount of Automobile Allowance, which was paid in the year shown.
3
<PAGE>
Stock Options
In 1984 the Board of Directors conferred upon Manfred F. Dyck, Chairman of the
Board of the Company, the authority to grant to, among others, employees of the
Company including executive officers, options to purchase up to 15,000 shares of
the Common Stock of the Company at an exercise price of $1.00 per share, and
upon such other terms and conditions as the Chairman may determine. No such
options were granted during the 1998 fiscal year.
On January 22, 1998 the Board of Directors authorized a stock option plan for
senior management. Under the plan, senior management would be issued stock
options in an amount equal to 3% of the incremental market cap of the Company
(defined as # of outstanding shares times share price) divided by the stock
price at June 3oth in each of the next three years. These options would be
equally divided but the number of participants in the plan. As of June 30, 1998,
there were three participants. The plan was effective July 1, 1998. The market
cap of the company on July 1, 1998 was $3,010,496. The first options will be
issued under this plan as of June 30, 1999.
On January 22, 1998 the company issued 25,000 stock options to a senior
executive as part of his employment agreement. These options vest 100% in 6
months and are priced at $0.875 per share. The Company also issued 60,000 stock
options to the same executive that will vest once the company gets listed on a
regional or national exchange. The vesting will be at the rate of 20,000 shares
will vest immediately upon listing. 5,000 shares will vest at the end of each of
the next 8 quarters from listing date. The price of the options will be the
listing price or $2.00, whichever is higher.
On January 22, 1998 the Board of Directors approved an option plan for active
directors that would give each active director of the Company 5,000 options with
a strike price on September 1, 1998, the date of record and each subsequent year
on the record date.
On August 12, 1998 the Board of Directors authorized a stock option plan for
Manfred Dyck, Chairman and CEO. Under the plan, he would be issued stock options
in an amount equal to 3% of the incremental market cap of the Company (defined
as # of outstanding shares times share price) divided by the stock price at June
3oth in each of the next three years. The plan was effective July 1, 1998. The
market cap of the company on July 1, 1998 was $3,010,496. The first options will
be issued under this plan as of June 30, 1999.
Certain Agreements with Directors and Executive Officers
Manfred F. Dyck has served as Chairman, Chief Executive Officer and President of
the Company since July of 1989. He serves the Company approximately 5 days per
month, not to exceed 20% of his time. He is compensated by a salary of $100,000
per annum effective August 12, 1998 and a car allowance of $5,000 per annum. He
also participates in a management bonus program based upon Company
profitability.
Robert Moravsik serves the company 4 days per week in his current capacity as
Vice-President, and General Counsel. He holds the same position at Biosearch
Medical Products for the remaining 20% of his time.
Information Concerning Certain Shareholders
The shareholders (including any "group" as that term is used in Section 13(d)
(3) of the Securities Exchange Act of 1934) who, to the knowledge of the Board
of Directors of the Company, owned beneficially more than 5% of the outstanding
Common Stock as of September 1, 1998, and all directors and officers of the
Company as a group, and their respective shareholdings (according to information
furnished by them to the Company), are set forth in the following table. Except
as indicated in the footnotes to the table, all of such shares are owned with
sole voting and investment power.
4
<PAGE>
Shares of Common
Stock Owned
Name and Address Beneficially (1) Percent of Class
- ---------------- ---------------- ----------------
Manfred F. Dyck 1,682,173(2)(3) 38.52%
255 Holland Road
Far Hills, NJ 07931
Ben A Posdal 355,361 8.14%
Post Office Box 23632
Tampa, FL 33623
Dieter Heinemann 565,125(4) 12.92%
Goldbergweg 64
60599 Frankfurt AM
Federal Republic of Germany
All Directors and Officers 2,412,374(2)(4)(5) 55.23%
As a group (8 persons)
(1) As of September 1, 1998, except as otherwise indicated below, each nominee
had sole voting and investment power with respect to all shares shown in the
table as beneficially owned by such nominee.
(2) Includes an aggregate of 23,676 shares held by Mr. Dyck as custodian for
certain of his children and does not include 186,908 shares held with sole
voting and investment power by Mr. Dyck's children and relatives of Mr. Dyck..
(3) Does not include 158,076 shares held by Ursula M. Dyck, Mr. Dyck's wife,
individually and as custodian, and pursuant to exercisable options.
(4) Does not include 135,000 shares held by the wife and children of Mr.
Heinemann as to which he disclaims beneficial ownership.
(5) Includes 250 shares held by an officer as custodian for a child. Includes an
aggregate of 23,076 shares held by Mrs. Dyck as custodian for certain of her
children.
Other Information Concerning Directors, Officers and Shareholders
During 1998 and 1997, the Company sold materials and services to Biosearch
Medical Products, Inc., (BMP), its former parent, for $45,019 and $31,257,
respectively. The Company also earned royalty income from BMP of $25,894 and
$43,171 for the years ended June 30, 1998 and 1997, respectively. Total amounts
owed to the Company by BMP were $25,093 and $19,794 at June 30, 1998 and 1997,
respectively. In addition, BMP provides engineering and secretarial services to
Hydromer. These expenses amounted to $17,393 and $10,090 for the years ended
June 30, 1998 and 1997, respectively. Amounts owed to BMP at June 30, 1998 and
1997, respectively, were $3,811 and $597. In 1998 and 1997, the Company
purchased furniture and equipment from BMP for $500 and $46,000, respectively.
Also, during 1998 and 1997, the Company leased equipment and space from
Biosearch Medical Products, Inc., on a week-to-week basis. Total rental expense
paid to BMP was $10,000 for the year ended 1998 and $6,000 for the year ended
June 30,1997.
On June 12, 1998, the Company purchased the Biosearch Medical Products facility
and land for $850,000 in cash and a pre-paid lease of $345,000. The transaction
was funded with a 15-year mortgage at a local bank. The mortgage carries an
interest rate of 200 basis points over the Bank's fully absorbed five-year cost
of funds, adjusted every 5 years. The interest rate for the first 5-year period
is 8.0%. The land and building has an appraised value of $1,370,000. Biosearch
Medical Products will occupy approximately 75% of the building and Hydromer the
remaining 25%. Manfred F. Dyck who is a director and executive officer of the
Company is
5
<PAGE>
also a director and Chief Executive Officer of BMP, and hold approximately 20%
of the Common Stock of BMP on a fully diluted basis. The Company believes that
the terms of the foregoing arrangements are fair and equitable to both parties.
Robert J. Moravsik, Vice-President and General Counsel of the Company also
serves as Vice-President and General Counsel of Biosearch Medical Products, Inc.
In the event a conflict exists outside counsel is retained to represent
Hydromer's interests. In the fiscal year ended June 30, 1998, the firm of Smith,
Stratton, Wise, Heher and Brennan represented Hydromer in the purchase of the
building from Biosearch.
Robert D. Frawley, Secretary of the Company, is of counsel to the law firm of
Smith, Stratton, Wise, Heher and Brennan, Princeton, New Jersey. By agreement
with the Company, Mr. Frawley provides legal counsel to the Company on a
fee-for-service basis. Smith, Stratton, Wise, Heher & Brennan is expected to
render legal services in the future.
II. RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
Subject to ratification by the stockholders, the Board of Directors, has
selected the firm of Rosenberg Rich Baker Berman & Company as the Company's
independent public accountants for the current year.
Representatives of Rosenberg Rick Baker Berman & Company are expected to be
present at the Annual Meeting. They will have the opportunity to make a
statement if they desire to do so and will also be available to respond to
appropriate questions from stockholders.
III. OTHER MATTERS
The Board of Directors of the Company does not know of any other matters which
may be brought before the meeting. However, if any such other matters are
properly presented for action, it is the intention of the persons named in the
accompanying form of Proxy to vote the shares represented thereby in accordance
with their judgment on such matters.
IV. MISCELLANEOUS
If the accompanying form of Proxy is executed and returned, the shares
represented thereby will be voted in accordance with the terms of the Proxy,
unless the proxy is revoked by written notice addressed to and received by the
Secretary of the Corporation. If no directions are indicated in such Proxy, the
shares represented thereby will be voted in the election of directors in favor
of the nominees proposed by the Board of Directors, and in favor of ratification
of The Independent Certified Public Accountants. Any Proxy may be revoked at any
time before it is exercised. The casting of a ballot at the Meeting by a
shareholder who may theretofore have given a Proxy will not have the effect of
revoking the same unless the shareholder so notifies the Secretary of the
meeting in writing at any time prior to the voting of the shares represented by
the Proxy.
Votes that are withheld and broker nonvotes will be treated as shares that are
present for purposes of determining a quorum. Withheld votes will be excluded in
determining whether a nominee for director or the ratification of independent
certified public accountants, has received a plurality of the votes cast.
All costs relating to the solicitation of Proxies will be borne by the Company.
Proxies may be solicited by mail and the Company may pay brokers and other
persons holding shares of stock in their names or those of their nominees for
their reasonable expenses in sending soliciting materials to their principals.
It is important that Proxies be returned promptly. Shareholders who do not
expect to attend the Meeting in person are urged to mark, sign and date the
accompanying form of Proxy and mail it in the enclosed return envelope, which
requires no postage if mailed in the United States, so that their vote can be
recorded.
6
<PAGE>
V. EXCHANGE ACT COMPLIANCE
Section 16(a) of the Securities Exchange Act requires that certain of the
Company's officers, directors and persons who own more than ten percent of a
registered class of the Company's securities, file reports of ownership and
changes in ownership of the Company's securities with the Securities Exchange
Commission. Officers, directors and greater than ten percent shareholders are
required to provide the Company with copies of the forms they file.
Based solely upon its review of copies of such forms received by the Company,
and upon representations by the Company's officers and directors regarding
compliance with the filing requirements, the company believes that in Fiscal
1998, all filing requirements applicable to its officers, directors and ten
percent shareholders were complied within a timely manner.
Shareholder Proposals
Shareholder proposals intended to be presented at the 1999 Annual Meeting of
Shareholders of the Company must be received by the Company by May 22, 1999 in
order to be considered for inclusion in the Company's Proxy Statement relating
to such meeting.
Branchburg, New Jersey
September 11, 1998
By Order of the Board of Directors
/s/ Robert D. Frawley
----------------------------------
Robert D. Frawley
Secretary
7
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