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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996 .
-------------------------------
/_/ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to ______________.
Commission file number 0-19827
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HYMEDIX, INC.
(Exact name of registrant, as specified in its charter)
Delaware 22-3279252
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2235 Route 130, Dayton, New Jersey 08810
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (908) 274-2288
-------------
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes /X/ No ___
State the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1996
----- ----------------------------------
Common 5,713,500
Transitional Small Business Disclosure Format (Check one): Yes No /X/
Page 1 of 33
Exhibit Index begins on Page 12
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HYMEDIX, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995. 3
Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and March 31, 1995. 4
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and March 31, 1995. 5
Notes to Consolidated Interim Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
Page 2 of 33
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HYMEDIX, INC. AND SUBSIDIARY
Consolidated Balance Sheets (Note 1)
ASSETS
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
CURRENT ASSETS:
Cash $ 109,339 $ 31,295
Short-term investments 43,172 151,731
Accounts receivable 138,941 31,258
Inventories 412,541 477,938
Prepaid expenses and other current assets 59,850 57,227
----------- -----------
Total current assets 763,843 749,449
PROPERTY AND EQUIPMENT, NET 183,323 206,174
PATENTS, NET 148,537 156,397
----------- -----------
Total assets $ 1,095,703 $ 1,112,020
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 3,031,843 $ 3,031,843
Accounts payable and accrued expenses 1,911,589 1,844,935
Deferred revenue 131,250 100,000
Liabilities related to discontinued operation 59,222 59,222
----------- -----------
Total current liabilities 5,133,904 5,036,000
----------- -----------
LONG-TERM DEBT (Note 2) 150,000 0
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
8% Senior Convertible Preferred Stock, $3.00
par value, 800,000 shares authorized, 10,190
shares issued and outstanding 30,570 30,570
Preferred Stock, $.01 par value, 150 shares
authorized, issued and outstanding 2 2
Common Stock, $.001 par value, 20,000,000
shares authorized, 5,713,500 shares issued
and outstanding 5,713 5,713
Additional paid-in capital 15,642,174 15,635,301
Accumulated deficit (18,366,660) (18,095,566)
Subscription receivable (1,500,000) (1,500,000)
----------- -----------
Total Stockholders' deficit (4,188,201) (3,923,980)
------------ ------------
Total liabilities and stockholders' deficit $ 1,095,703 $ 1,112,020
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HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
-------------------------
1996 1995
----------- -----------
REVENUES:
Net product sales $ 445,735 $ 320,844
License and distribution fees 150,000 0
Research and development contracts 103,750 187,348
----------- -----------
Total revenues 699,485 508,192
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COSTS AND EXPENSES:
Cost of sales 224,712 76,254
Selling, general and administrative 525,330 456,853
Research and development 171,227 142,334
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Total costs and expenses 921,269 675,441
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Loss from operations (221,784) (167,249)
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INTEREST (EXPENSE) INCOME
Interest expense (49,824) (55,266)
Interest income 514 1,347
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Total interest expense, net (49,310) (53,919)
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Net loss $ (271,094) $ (221,168)
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NET LOSS PER COMMON SHARE $ (0.05) $ (0.04)
=========== ============
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 5,713,500 5,713,500
=========== ===========
Page 4 of 33
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HYMEDIX, INC. AND SUBSIDIARY
Consolidated Statements Of Cash Flows (Note 1)
(Unaudited)
Three Months Ended
March 31,
-------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (271,094) $ (221,168)
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Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 30,711 30,814
(Increase) decrease in:
Accounts receivable (107,683) (96,874)
Inventories 65,397 (117,510)
Other current assets (2,623) 17,955
Increase (decrease) in:
Accounts payable and accrued expenses 66,654 (16,686)
Deferred revenue 31,250 30,152
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Total adjustments 83,706 (152,149)
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Net cash used by operating activities (187,386) (373,317)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of equipment 0 650
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Net cash provided by investing activities 0 650
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 150,000 107,480
Stock offering and merger costs 6,873 (2,088)
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Net cash provided by financing activities 156,873 105,392
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Net decrease in cash (30,515) (267,275)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 183,026 393,330
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 152,511 $ 126,055
=========== ===========
Page 5 of 33
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HYMEDIX, INC. AND SUBSIDIARY
Notes to Interim Consolidated Financial Statements
1. MERGER AND REINCORPORATION
HYMEDIX, Inc. (the "Company") was incorporated in Delaware on
December 20, 1993, as a wholly-owned subsidiary of Servtex International
Inc. (the "Predecessor"). On February 23, 1994, the Predecessor merged
with and into HYMEDIX, Inc., and, concurrently, a wholly-owned subsidiary
of the Predecessor was merged with and into HYMEDIX International, Inc.
("HYMEDIX International"), a privately-held Delaware corporation, which
resulted in HYMEDIX International becoming a wholly-owned subsidiary of
HYMEDIX, Inc. HYMEDIX International was incorporated in October, 1985
under the name Kingston Technologies, Inc.
The unaudited consolidated financial statements have been prepared
based upon financial statements of HYMEDIX, Inc. and its wholly owned
subsidiary, HYMEDIX, International, Inc.
2. LONG-TERM DEBT
During the first quarter of 1996, the Company issued a convertible
bond in the principal amount of $150,000 (the "September Bond") pursuant
to a Convertible Bond Purchase Agreement effective March 5, 1996, by and
among the Company, HYMEDIX International and Su Chen Huang. The September
Bond bears interest at a rate of 7% per annum and matures on September 5,
1997. The September Bond is convertible in whole at any time prior to
payment or prepayment into one hundred fifty thousand (150,000) shares of
common stock of the Company. Interest on the September Bond is payable at
maturity or upon prepayment or conversion thereof.
In April of 1996, the Company issued convertible bonds in the
aggregate principal amount of $1,000,000 (the "June Bonds") pursuant to a
Convertible Bond Purchase Agreement effective February 27, 1996, by and
among the Company, HYMEDIX International, First Taiwan Investment and
Development, Inc. and the Purchasers (as defined therein). The June Bonds
bear interest at a rate of 7% per annum and mature on June 1, 1997. The
June Bonds are convertible in whole or in part at any time prior to
payment or prepayment into one thousand (1,000) shares of common stock of
the Company for each one thousand dollars ($1,000) of principal amount
outstanding. Interest on the June Bonds is payable at maturity or upon
prepayment or conversion thereof. The June Bonds may be subject to
mandatory prepayment by the Company under certain circumstances.
3. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the accompanying financial statements
of the Company reflect all adjustments, consisting of normal recurring
accruals, necessary to present fairly, in all material respects, the
Company's financial position as of March 31, 1996 and December 31, 1995
and the results of operations for the three months ended March 31, 1996
and 1995. The results of operations for interim periods are not
necessarily indicative of the results to be expected for an entire fiscal
year.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. Actual results could differ
materially from those projected in the forward-looking statements as
a result of the risk factors set forth below. The industry in which
the Company competes is characterized by rapid changes in technology
and frequent new product introductions. The Company believes that its
long-term growth depends largely on its ability to continue to
enhance existing products and to introduce new products and
technologies that meet the continually changing requirements of
customers. While the Company has devoted significant resources to the
development of new products and technologies, there can be no
assurance that it can continue to introduce new products and
technologies on a timely basis or that certain of its products and
technologies will not be rendered noncompetitive or obsolete by its
competitors.
Overview
HYMEDIX, Inc. ("HYMEDIX") was incorporated in Delaware on December 20,
1993 as a wholly-owned subsidiary of Servtex International Inc. (the
"Predecessor"). On February 23, 1994, the Predecessor merged with and into
HYMEDIX, Inc. and, concurrently, a wholly-owned subsidiary of the Predecessor
was merged with and into HYMEDIX International, Inc. ("HYMEDIX International")
which resulted in HYMEDIX International becoming a wholly-owned subsidiary of
HYMEDIX. As used in this Form 10-QSB, unless the context otherwise requires, the
term "Company" collectively means HYMEDIX, HYMEDIX International and their
respective predecessors. HYMEDIX International was incorporated in October, 1985
under the name Kingston Technologies, Inc.
Results of Operations
Revenues
The Company's total revenues for the three months ended March 31, 1996
were $699,485 versus $508,192 for the same period in 1995, an increase of 37.6%.
For the three months ended March 31, 1996, the increased revenues over the same
period in 1995 came mainly from (1) increased sales of $124,891 as a result of
sales increases from skin care products, offset by sales decreases in wound care
products and HYPAN(R) hydrogels; (2) a fee of $150,000 paid by ProCyte
Corporation related to a licensing agreement; and (3) decreased income of
$83,598 from the research and development contracts.
Costs and Expenses
Cost of sales for the three months ended March 31, 1996 were $224,712
versus $76,254 for the same period in 1995, an increase of $148,458 or 194.7%.
The increase for the three months ended March 31, 1996 was attributable to the
38.9% increase in net product sales coupled with a change in product mix towards
the lower margin skin care products for the period. Selling, general and
administrative expenses increased 15.0% to $525,330, for the three months ended
March 31, 1996 from $456,853 for the same period of 1995. The increase was
principally due to higher legal expenses incurred for the defense of two
lawsuits previously filed against the Company. The research and development
costs for the three months ended March 31, 1996 were $171,227, as compared to
$142,334 for the same period in 1995, an increase of 20.3%, resulting from
increased work days and costs of the research and development staff.
Page 7 of 33
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Interest Expense, Net
Total interest expense, net, decreased to $49,310 for the three months
ended March 31, 1996 from $53,919 for the same period in 1995, mainly
attributable to a one-time non-recurring interest accrual of $5,046.00 in the
prior year period.
As a result of the increased costs and expenses described above for the
three months ended March 31, 1996 as compared to the same period of the prior
year and the increased revenues described above for the same period of 1996
versus the prior year, the Company incurred a net loss of $271,094, for the
three months ended March 31, 1996, as compared to the net loss of $221,168 for
the same period in 1995.
Liquidity, Capital Resources and Changes in Financial Condition
The Company had $152,511 in cash and cash equivalents on hand on March 31,
1996 versus $183,026 on December 31, 1995. The working capital deficit of
$(4,370,061) on March 31, 1996 represents an increase of $83,510 from the
previous year-end deficit level of $(4,286,551). The increase in working capital
deficit was primarily attributable to the net loss incurred in the three-month
period ended March 31, 1996.
During the first quarter of 1996, the Company issued a convertible bond in
the principal amount of $150,000 (the "September Bond") pursuant to a
Convertible Bond Purchase Agreement effective March 5, 1996, by and among the
Company, HYMEDIX International and Su Chen Huang. The September Bond bears
interest at a rate of 7% per annum and matures on September 5, 1997. The
September Bond is convertible in whole at any time prior to payment or
prepayment into one hundred fifty thousand (150,000) shares of common stock of
the Company. Interest on the September Bond is payable at maturity or upon
prepayment or conversion thereof.
As of March 31, 1996, long-term debt reflected an increase of $150,000
from the prior year end level due to the issuance of the September Bond.
In April of 1996, the Company issued convertible bonds in the aggregate
principal amount of $1,000,000 (the "June Bonds") pursuant to a Convertible Bond
Purchase Agreement effective February 27, 1996, by and among the Company,
HYMEDIX International, First Taiwan Investment and Development, Inc. and the
Purchasers (as defined therein). The June Bonds bear interest at a rate of 7%
per annum and mature on June 1, 1997. The June Bonds are convertible in whole or
in part at any time prior to payment or prepayment into one thousand (1,000)
shares of common stock of the Company for each one thousand dollars ($1,000) of
principal amount outstanding. Interest on the June Bonds is payable at maturity
or upon prepayment or conversion thereof. The June Bonds may be subject to
mandatory prepayment by the Company under certain circumstances.
During the third quarter of 1994 the Company's total stockholders' equity
fell below the minimum $1,000,000 of capital and surplus necessary to maintain
its listing on the NASDAQ SmallCap Market. Consequently, NASDAQ delisted the
Company's common stock from the NASDAQ SmallCap Market on October 27, 1994. The
Company is in compliance with all other NASDAQ requirements and is in the
process of seeking alternatives to increase its capital to above the required
level. However, there can be no assurance that these efforts will be successful.
In the meantime, HYMEDIX shares continue being traded on the Over The Counter
Electronic Bulletin Board under the symbol HYMX.
While management believes the Company will have adequate resources to
finance its operations in 1996, it continues to seek and evaluate financing
alternatives. In the event that cash flow from operations and the anticipated
proceeds from the issuance of the convertible bonds are not sufficient to
Page 8 of 33
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finance the Company's operations in 1996, there is no assurance that other
sources of funds will be available to the Company.
Risk Factors and Cautionary Statements
When used in this Form 10-QSB and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer, the
words or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under this caption "Risk
Factors and Cautionary Statements," that could cause actual results to differ
materially from historical earnings and those presently anticipated or
projected. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
wishes to advise readers that the factors listed below could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company will NOT undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
(bullet) The Company's revenues and income are derived primarily from the
development and commercialization of medical and skin care products. The medical
and skin care products industry is highly competitive. Such competition7 could
negatively impact the Company's market share and therefore reduce the Company's
revenues and income.
(bullet) Competition may also result in a reduction of average unit prices
paid for the Company's products. This, in turn, could reduce the percentage of
profit margin available to the Company for its product sales.
(bullet) The Company's future operating results are dependent on its
ability to develop, produce and market new and innovative products and
technologies, and to successfully enter into favorable licensing and
distribution relationships. There are numerous risks inherent in this complex
process, including rapid technological change and the requirement that the
Company develop procedures to bring to market in a timely fashion new products
and services that meet customers' needs.
(bullet) Historically, the Company's operating results have varied from
fiscal period to fiscal period; accordingly, the Company's financial results in
any particular fiscal period are not necessarily indicative of results for
future periods.
(bullet) The Company may offer a broad variety of products and technologies
to customers around the world. Changes in the mix of products and technologies
comprising revenues could cause actual operating results to vary from those
expected.
(bullet) The Company's success is partly dependent on its ability to
successfully predict and adjust production capacity to meet demand, which is
partly dependent upon the ability of external suppliers to deliver components
and materials at reasonable prices and in a timely matter; capacity or supply
constraints, as well as purchase commitments, could adversely affect future
operating results.
Page 9 of 33
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(bullet) The Company offers its products and technologies directly and
through indirect distribution channels. Changes in the financial condition of,
or the Company's relationship with, distributors, licensees and other indirect
channel partners, could cause actual operating results to vary from those
expected.
(bullet) The Company does business and continues to seek to develop business
on a worldwide basis. Global and/or regional economic factors and potential
changes in laws and regulations affecting the Company's business, including
without limitation, currency exchange rate fluctuations, changes in monetary
policy and tariffs, and federal, state and international laws regulating its
products, could impact the Company's financial condition or future results of
operations.
(bullet) The market price of the Company's securities could be subject to
fluctuations in response to quarter to quarter variations in operating results,
market conditions in the medical and skin care products industry, as well as
general economic conditions and other factors external to the Company.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1. Convertible Bond Purchase Agreement, effective February 27,
1996, by and among the Company, HYMEDIX International,
First Taiwan Investment and Development, Inc., and the
Purchasers (as defined therein).
10.2. Convertible Bond Purchase Agreement, effective March 5,
1996, by and among the Company, HYMEDIX International,
and Su Chen Huang.
(b) Reports on Form 8-K.
None.
Page 10 of 33
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SIGNATURES
In accordance with the requirements 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.
HYMEDIX, INC.
(Registrant)
Date: May 13, 1996 By: /s/ Joseph Y. Peng
--------------------
Joseph Y. Peng
President (Principal Executive Officer),
Treasurer
Date: May 13, 1996 By: /s/ William G. Gridley, jr.
-----------------------------
William G. Gridley, jr.
Chief Financial Officer (Principal
Financial Officer and Principal
Accounting Officer)
Secretary, Director
Page 11 of 33
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TABLE OF EXHIBITS
Exhibit No. Page Number
- ---------- -----------
10.1 Convertible Bond Purchase Agreement, effective
February 27, 1996, by and among the Company,
HYMEDIX International, First Taiwan Investment
and Development, Inc., and the Purchasers (as
defined therein).................................... 13
10.2 Convertible Bond Purchase Agreement, effective
March 5, 1996, by and among the Company, HYMEDIX
International, and Su Chen Huang.................... 25
Page 12 of 33
EXHIBIT 10.1
Page 13 of 33
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CONVERTIBLE BOND PURCHASE AGREEMENT
HYMEDIX International, Inc., a Delaware Corporation (the "Company"), and
HYMEDIX, Inc., the holder of all of the Common Stock of the Company, hereby
agree, effective February 27, 1996 with First Taiwan Investment and Development,
Inc. ("First Taiwan"), an investment banking firm, and with each Bond Purchaser
(the "Purchaser", or together, the "Purchasers") as follows:
ARTICLE I
PURCHASE AND SALE OF CONVERTIBLE BONDS
1.01 The Bonds.
The Company and HYMEDIX, Inc. have authorized the issuance and sale to the
Purchasers of the Company's Convertible Bonds (the "Bonds") due June 1, 1997 in
the aggregate amount of One Million Dollars ($1,000,000) in the form attached
hereto as Exhibit A. The Company agrees to issue and deliver the Bonds to the
Purchasers against payment by wire transfer on or before March 1, 1996 to First
Taiwan for subsequent transfer into a special bank or money market account (the
"Special Account") set up by the Company and by First Taiwan in which
withdrawals will be controlled jointly by the Company and by an Officer of First
Taiwan with authority to jointly authorize withdrawals from the Special Account.
1.02 Representations.
The Company represents and warrants that it is a corporation, duly
organized and validly existing under the laws of the State of Delaware, and that
it has all the requisite corporate power and has taken all the actions required
to make the execution and delivery of this Agreement and of the Bonds the valid
and enforceable obligations they purport to be. Each Agreement and each Bond
have been duly executed and delivered on behalf of the Company and each
constitutes the legal, valid and binding obligation of the Company enforceable
in accordance with its terms. No authorizations, consents or approvals of any
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court or governmental authority, agency or instrumentality is or will be
required by the Company for the execution and delivery by the Company of this
Agreement and the Bond. The execution and delivery of this Agreement and Bond
are not in conflict with any obligation or covenant or with any existing
provision of the Company's charter, by-laws or agreements to which the Company
is bound, and none of those agreements take precedence over the obligations
contained in this Agreement.
HYMEDIX, Inc. represents and warrants that it is a corporation duly
organized and validly existing under the laws of the State of Delaware, and that
it has all the requisite corporate power and has taken all the actions required
to make the execution and delivery of this Agreement the valid and enforceable
contractual obligations they purport to be. HYMEDIX, Inc. has authorized and
reserved that number shares of its Common Stock which will enable it to honor
its obligations for the issuance of Common Stock under the conversion features
of the Bonds.
The Purchaser represents and warrants that it is acquiring the Bond for
its own account, and not with a view to distribution or resale thereof, subject
to the condition that the Bond is assignable and the disposition of the Bond
shall at all times be within the control of the Purchaser. The Purchaser
represents that it understands that the Common Stock of the Company (which in
all other respects is the same as the presently issued and outstanding Common
Stock of the Company) which it would receive upon conversion of the Bond will
bear a legend indicating that the securities have not been registered for sale
until such time as the securities are registered or transferred pursuant to the
provisions of Rule 144 of the Securities Act of 1933.
Page 15 of 33
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ARTICLE II
COVENANTS
2.01 Financial Statements.
The Company covenants and agrees that so long as the Bonds are outstanding
it will deliver to First Taiwan for distribution to the Purchasers (i) audited
financial statements of the Company and HYMEDIX, Inc. within 120 days of the
close of each fiscal year; (ii) unaudited financial statements of the Company
and HYMEDIX, Inc, within 45 days of the close of each calendar quarter; and
(iii) copies of all press releases and information provided to shareholders. So
long as the Bonds are outstanding, the Company and HYMEDIX, Inc. will make their
books and records available with reasonable notice to a Purchaser or its duly
authorized representative.
2.02 Other Indebtedness.
The Company covenants and agrees that so long as the Bonds are outstanding
it will not incur any indebtedness that is senior to the Bonds, either by its
terms or by the pledging of security of any kind, without the written permission
of Purchasers of the Bonds representing a majority of the amount of Bonds then
outstanding. None of the present indebtedness of the Company is senior to the
Bonds, and the Company covenants and agrees that it will not take any actions
which would cause any of the present indebtedness of the Company to become
senior to the Bonds.
2.03 Prepayment.
The Company may prepay the Bonds in whole or in part after giving
Purchasers thirty (30) days written notice, provided, however, that during the
30 days, a Purchaser may elect to (1) convert, (2) accept prepayment, or (3)
decline prepayment for all or part of its investment. The Company covenants and
agrees that if and when it receives from ProCyte Corporation ("ProCyte") all or
part of the One Million Dollars ($1,000,000) milestone
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payment which is due from ProCyte upon the introduction by ProCyte of a third
product licensed by the Company to ProCyte, the Company will (1) transfer a
sufficient amount of the funds received to First Taiwan to prepay all (or, if
insufficient, part of) the outstanding Bonds, (2) will immediately notify the
Purchasers of the receipt of these funds from ProCyte, and (3) after giving
Purchasers thirty (30) days in which to decide whether to convert their Bonds to
Common Stock in whole or in part or to demand prepayment, will use the funds
received as necessary to prepay those Bonds on which payment has been demanded.
2.04 Special Account.
The Company covenants and agrees to open a special banking or money market
account (the "Special Account") in which withdrawals by the Company require two
signatures, one of which shall be that of a duly authorized Officer of the
Company, and one of which shall be a fully authorized Officer of First Taiwan
(together the "Signatories"). Each Purchaser agrees that First Taiwan shall have
the power to authorize, from time to time if necessary, one of its Officers to
exercise his judgement on the appropriateness of withdrawals by the Company; to
cosign Company withdrawal checks or cosign wire transfer instructions to the
Company; and to withdraw funds from the Special Account for return to the
Purchasers to reduce principal and accrued interest on their Bonds. The Company
has submitted a 1996 Budget to First Taiwan and to the Investors (the "Budget")
which is attached hereto as Exhibit B. Once the Special Account is opened, the
Company agrees to deposit to the Special Account all income items as they are
received by wire transfer to the Special Account. Normally the Signatories will
move funds to the Company's regular banking account in the first week of each
month in accordance with anticipated expenditures for that month reflected in
the Budget. The Company agrees to keep First Taiwan closely informed of its cash
position, and First Taiwan agrees that its designated Signatory will keep
closely informed of the Company's cash resources and requirements, including
unexpected
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ones as they occur so that decisions can be made to handle unusual needs in a
timely manner. The Company agrees to furnish First Taiwan with 1997 Budget prior
to December 15, 1996 unless all the Bonds have been either prepaid or converted
prior to that date. The 1997 Budget will be reviewed by First Taiwan and the
Purchasers, then attached to this agreement as Exhibit C prior to January 15,
1997. The 1997 Budget will then be used by the Signatories in the same manner as
the 1996 Budget was used to guide the Signatories on decisions for withdrawals
from the Special Account. The parties agree that the Signatories may in their
discretion invest all or part of the balance in the Special Account in interest
bearing accounts or under their joint control in short term money market funds
provided that proceeds from the sale of such investments or funds must be
credited back to the Special Account. When all the Bonds have been either paid
or converted, the balance in the Special Account, or in any investment accounts
under control of the Signatories, will be transferred by the Signatories to the
Company's regular banking account.
2.05 Dilution
HYMEDIX, Inc. covenants and agrees that so long as any of the Bonds are
outstanding it will not issue any Common Stock for consideration of less than
$1.00/share without the written permission of the holders of at least 50% of the
then outstanding Bonds.
ARTICLE III
CONVERSION
3.01 Conversion Rate.
The Bonds are convertible in whole or in part at any time prior to payment
or prepayment into One Thousand (1,000) Shares of the Common Stock of HYMEDIX,
Inc. for each One Thousand Dollars ($1,000) of principal amount outstanding. In
the event of prepayment, the Company shall give written notice to all Purchasers
through First Taiwan of its intent to prepay a stated principal amount of the
Bonds. Purchasers will be given thirty
Page 18 of 33
<PAGE>
(30) days from the date of notice to decide whether to convert, in whole or in
part, or accept prepayment, in whole or in part. In the absence of written
notice of conversion from a Purchaser within thirty days, the Company will
assume that a Purchaser desires to receive its share of the Prepayment, and will
remit funds accordingly. The principal amount of the Bonds being prepaid by the
Company will be divided pro rata among the unconverted Bonds remaining
outstanding after the thirty (30) day notice period has expired. Upon receipt of
written notice from a Purchaser of its decision to convert its Bonds, HYMEDIX,
Inc. will issue in the name of that Purchaser One Thousand (1,000) unregistered
shares (or fraction thereof) of its Common Stock for each One Thousand Dollars
($1,000) principal amount (or fraction thereof) of Bonds being converted in
return for the Bond tendered for conversion. First Taiwan agrees to handle
receipt of tendered Bonds and to deliver Common Stock (and, in the case of
partial conversions, new Bonds) for this exchange.
3.02 Interest Payments upon Conversion.
Interest on the Bonds is payable at maturity or upon prepayment of a Bond.
Interest is also payable upon conversion of a Bond. The Purchaser will receive
an interest check for the accrued interest due to the date when notice of
conversion is received. In the case of partial prepayment or partial conversion,
interest will be paid on the amount prepaid or converted.
3.03 Registration.
Shares issued upon conversion ("Conversion Shares") will initially be
unregistered Common Stock of the Company bearing a legend reading substantially
as follows:
"The securities represented hereby have been placed under Regulation
S of the Securities Act of 1933 and have not been registered under
the Securities Act of 1933 or applicable state securities laws.
These securities have been
Page 19 of 33
<PAGE>
acquired for investment and not with a view to distribution and
resale, and may not be mortgaged, pledged, hypothecated or
otherwise transferred without an effective registration for such
securities under the Securities Act of 1933 or applicable state
securities laws, or without an opinion of counsel reasonably
satisfactory to the Company that registration is not required under
such Act or applicable state securities laws."
HYMEDIX, Inc. agrees that whenever it proposes to register any of its Common
Stock under the Securities Act, it will give Purchasers written notice of its
intent and to the extent practicable will afford holders of Conversion Shares
the opportunity to include some or all of their Conversion Shares in the
registration. Conversion Shares may be eligible for sale by nonresident aliens
of the United States to nonresident aliens of the United States under Regulation
S of the Securities Act.
ARTICLE IV
MISCELLANEOUS
4.01 Withholding Taxes.
Each Purchaser agrees to supply the Company upon request with an I.R.S.
Form W-8 indicating that under current law the Company is not required to make
any deductions or withholdings from any amount payable to the Purchaser under
the Bond.
4.02 Acceleration.
If Purchasers representing over fifty percent (50%) of the outstanding
Bonds at the time give written notice to the Company that the Company is in
breach of a covenant of this Agreement, and the Company fails to cure that
breach within thirty (30) days, those Purchasers representing over fifty percent
(50%) of the then outstanding Bonds can declare the Bond to be immediately due
and payable.
Page 20 of 33
<PAGE>
4.03 Notices.
All notices, requests, demands and other communications provided for
hereunder shall be made in writing (including fax) to Purchasers:
First Taiwan Investment and Development, Inc.
15/F, 563, Chung Hsiao East Road
Section 4
Taipei, Taiwan 10516
to the Company:
President
HYMEDIX International, Inc.
2235 Route 130
Dayton, New Jersey 08810
Fax: 908 274-2426
to HYMEDIX, Inc.:
President
HYMEDIX, Inc.
2235 Route 130
Dayton, New Jersey 08810
Fax: 908 274-2426
Notice to the Company shall entail notice to HYMEDIX, Inc.
4.04 Governing Law.
This Agreement together with the Bond shall be governed by, and construed
in accordance with, the laws of the State of New Jersey.
Page 21 of 33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
HYMEDIX International, Inc. First Taiwan Investment and Development, Inc.
By: /s/ Joseph Y. Peng By: /s/ Hsin-Chung Chang
---------------------------- -----------------------------------
Title: President... Title: Vice President
HYMEDIX, Inc. Purchaser
By: /s/ Joseph Y. Peng
--------------------------- ---------------------------------------
Title: President
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE UNITED STATES OR TO U.S.
PERSONS, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE ACT,
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR UNLESS AN EXEMPTION
UNDER SUCH ACT IS THEN AVAILABLE.
Page 22 of 33
<PAGE>
HYMEDIX INTERNATIONAL, INC.
CONVERTIBLE BOND DUE JUNE 1, 1997
February 27, 1996
For value received, HYMEDIX INTERNATIONAL, INC., a Delaware corporation
(the "Company") hereby promises to pay to the order of _______________________
on June 1, 1997 such principal sum as may be drawn down from time to time
pursuant to the Convertible Bond Purchase Agreement dated as of February 27,
1996 as set forth on its attached Exhibit A and in no event shall such principal
amount exceed $_______________ , and to accrue and pay interest on the unpaid
balance thereof at the rate of seven percent (7%) per annum, such interest being
payable on June 1, 1997 or upon prepayment or conversion of this Bond.
This Bond has been issued by the Company pursuant to the Convertible Bond
Purchase Agreement dated as of February 27, 1996 between the Company, HYMEDIX,
Inc. (the parent of the Company), First Taiwan and the Purchaser of this Bond
(the "Purchaser"), and the Purchaser is entitled to the benefits of that
Agreement.
This Bond may be prepaid in whole or in part at any time upon thirty (30)
days written notice to the Purchaser by the Company without penalty. This Bond
may be converted in whole or in part at any time prior to maturity or to
prepayment upon ten (10) days written notice to the Company by the Purchaser
into one thousand shares (or fraction thereof) of the Common Stock of HYMEDIX,
Inc. for each $1,000.00 (or fraction thereof) converted.
Page 23 of 33
<PAGE>
This Bond shall become immediately due and payable upon written demand by
the Purchaser if the Company seeks relief from creditors by voluntarily or
involuntarily entering into bankruptcy proceedings of any kind. This Bond may
become immediately due and payable by acceleration under Article 4.02 of the
Convertible Bond Purchase Agreement.
IN WITNESS WHEREOF, this Bond has been duly executed on behalf of the
undersigned on February 27, 1996.
HYMEDIX INTERNATIONAL, INC.
By:
-----------------------------------
Title:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE UNITED STATES OR TO U.S.
PERSONS, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE ACT,
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR UNLESS AN EXEMPTION
UNDER SUCH ACT IS THEN AVAILABLE.
Page 24 of 33
EXHIBIT 10.2
Page 25 of 33
<PAGE>
CONVERTIBLE BOND PURCHASE AGREEMENT
HYMEDIX International, Inc., a Delaware Corporation (the "Company"), and
HYMEDIX, Inc., the holder of all of the Common Stock of the Company, hereby
agree, effective March 5, 1996 with Su Chen Huang (the "Purchaser") as follows:
ARTICLE I
PURCHASE AND SALE OF $150,000 CONVERTIBLE BOND
1.01 The Bond.
The Company and HYMEDIX, Inc. have authorized the issuance and sale to the
Purchaser of the Company's Convertible Bond (the "Bond") due September 5, 1997
in the aggregate amount of One Hundred Fifty Thousand Dollars ($150,000) in the
form attached hereto as Exhibit A. The Company agrees to issue and deliver the
Bond to the Purchaser against payment by check or by wire transfer on March 5,
1996.
1.02 Representations.
The Company represents and warrants that it is a corporation, duly
organized and validly existing under the laws of the State of Delaware, and that
it has all the requisite corporate power required to make the execution and
delivery of this Agreement and of the Bond the valid and enforceable obligations
they purport to be. The Agreement and the Bond have been duly executed and
delivered on behalf of the Company and each constitutes the legal, valid and
binding obligation of the Company enforceable in accordance with its terms. No
authorizations, consents or approvals of any court or governmental authority,
agency or instrumentality is or will be required by the Company for the
execution and delivery by the Company of this Agreement and the Bond. The
execution and delivery of this Agreement and Bond are not in conflict with any
obligation or covenant or with any existing provision of the Company's charter,
by-laws or agreements to which the Company is bound, and none of those
agreements take precedence over the obligations contained in this Agreement.
HYMEDIX, Inc. represents and warrants that it is a corporation duly
organized and validly existing under the laws of the State of Delaware, and that
it has all the requisite corporate power required to make the execution and
delivery of this Agreement the valid and enforceable contractual obligation it
purports to be. HYMEDIX, Inc. has authorized and
Page 26 of 33
<PAGE>
reserved that number shares of its Common Stock which will enable it to honor
its obligation for the issuance of Common Stock under the conversion features of
the Bond.
The Purchaser represents and warrants that he is acquiring the Bond for
his own account, and not with a view to distribution or resale thereof, subject
to the condition that the Bond is assignable and the disposition of the Bond
shall at all times be within the control of the Purchaser. The Purchaser
represents that he understands that the Common Stock of the Company (which in
all other respects is the same as the presently issued and outstanding Common
Stock of the Company) which he would receive upon conversion of the Bond will
bear a legend indicating that the securities have not been registered for sale
until such time as the securities are registered or transferred pursuant to the
provisions of Rule 144 of the Securities Act of 1933. The Purchaser represents
that he is a Qualified Investor as defined in the Securities Act of 1933.
ARTICLE II
COVENANTS
2.01 Financial Statements.
The Company covenants and agrees that so long as the Bond is outstanding
it will deliver to the Purchaser (i) audited financial statements of the Company
and HYMEDIX, Inc. within 120 days of the close of each fiscal year; (ii)
unaudited financial statements of the Company and HYMEDIX, Inc. within 45 days
of the close of each calendar quarter; and (iii) copies of all press releases
and information provided to shareholders. So long as the Bond is outstanding,
the Company and HYMEDIX, Inc. will make their books and records available with
reasonable notice to the Purchaser or his duly authorized representative.
2.02 Prepayment.
The Company may repay the Bond after giving the Purchaser thirty (30) days
written notice, provided, however, that during the 30 days, the Purchaser may
elect to (1) convert, (2) accept prepayment, or (3) refuse prepayment. The
Purchaser may at his option request prepayment on 30 days written notice. If the
Company has ample funds at that time, it can, at its discretion, prepay the
Bond. If the Purchaser requests prepayment on June 1, 1997, the Company waives
discretion, and will prepay the Bond on June 1, 1997.
2.03 Dilution
HYMEDIX, Inc. covenants and agrees that so long as the Bond is outstanding
it will not issue any Common Stock for consideration of less than $1.00/share
without the written permission of the Purchaser.
Page 27 of 33
<PAGE>
ARTICLE III
CONVERSION
3.01 Conversion Rate.
The Bond is convertible at any time prior to payment or prepayment into
One Hundred Fifty Thousand (150,000) Shares of the Common Stock of HYMEDIX, Inc.
upon ten (10) days written notice from the Purchaser. In the event of
prepayment, the Company shall give written notice to the Purchaser of its intent
to prepay the Bond. The Purchaser will be given thirty (30) days from the date
of notice to decide whether to convert, or accept prepayment. In the absence of
written notice of conversion from the Purchaser within thirty days, the Company
will assume that the Purchaser desires to receive the Prepayment, and will remit
funds accordingly. Upon receipt of written notice from the Purchaser of his
decision to convert his Bond, HYMEDIX, Inc. will issue in the name of the
Purchaser One Hundred Fifty Thousand (150,000) unregistered shares of its Common
Stock.
3.02 Interest Payments upon Conversion.
Interest on the Bond is payable annually at the rate of 7% per annum at
maturity, or upon prepayment of the Bond. Interest is also payable upon
conversion of the Bond. In case of conversion, the Purchaser will receive an
interest check for the accrued interest due to the date when notice of
conversion is received.
3.03 Registration.
Shares issued upon conversion ("Conversion Shares") will initially be
unregistered Common Stock of the Company bearing a legend reading substantially
as follows:
"The securities represented hereby have been placed under Regulation
S of the Securities Act of 1933 and have not been registered under
the Securities Act of 1933 or applicable state securities laws.
These securities have been acquired for investment and not with a
view to distribution and resale, and may not be mortgaged, pledged,
hypothecated or otherwise transferred without an effective
registration for such securities under the Securities Act of 1933 or
applicable state securities laws, or without an opinion of counsel
reasonably satisfactory to the Company that registration is not
required under such Act or applicable state securities laws."
HYMEDIX, Inc. agrees that whenever it proposes to register any of its Common
Stock under the Securities Act, it will give the Purchaser written notice of its
intent and to the
Page 28 of 33
<PAGE>
extent practicable will afford him the opportunity to include some or all of his
Conversion Shares in the registration.
ARTICLE IV
MISCELLANEOUS
4.01 Acceleration.
So long as his Bond is outstanding, the Purchaser may give written notice
to the Company that the Company is in breach of a covenant of this Agreement,
and if the Company fails to cure that breach within thirty (30) days, the
Purchaser may declare the Bond to be immediately due and payable.
4.02 Notices.
All notices, requests, demands and other communications provided for
hereunder shall be made in writing (including fax) to the Purchaser:
Mr. Su Chen Huang
98, 661 Alley
Chung Hua Road
Yung Kang City
Tainan Hsien
Taiwan
to the Company:
President
HYMEDIX International, Inc.
2235 Route 130
Dayton, New Jersey 08810
Fax: 908 274-2426
to HYMEDIX, Inc.:
President
HYMEDIX, Inc.
2235 Route 130
Dayton, New Jersey 08810
Fax: 908 274-2426
Page 29 of 33
<PAGE>
Notice to the Company shall entail notice to HYMEDIX, Inc.
4.03 Governing Law.
This Agreement together with the Bond shall be governed by, and construed
in accordance with, the laws of the State of New Jersey.
Page 30 of 33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
HYMEDIX International, Inc. Purchaser
By: /s/ Joseph Y. Peng /s/ Su Chen Huang
--------------------------- --------------------------
Title: President Su Chen Huang
HYMEDIX, Inc.
By: /s/ Joseph Y. Peng
---------------------------
Title: President
Introducing Broker
/s/ Tai-Hwa Terry Ho
--------------------------
Tai-Hwa Terry Ho
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE UNITED STATES OR TO U.S.
PERSONS, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE ACT,
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR UNLESS AN EXEMPTION
UNDER SUCH ACT IS THEN AVAILABLE.
Page 31 of 33
<PAGE>
EXHIBIT A
HYMEDIX INTERNATIONAL, INC.
CONVERTIBLE BOND DUE SEPTEMBER 5, 1997
March 5, 1996
For value received, HYMEDIX INTERNATIONAL, INC., a Delaware corporation
(the "Company") hereby promises to pay to the order to Su Chen Huang on
September 5, 1997 the principal sum of One Hundred Fifty Thousand Dollars
($150,000) and to accrue and pay interest on the unpaid balance thereof at the
rate of eight percent (7%) per annum, such interest being payable at maturity,
or upon prepayment or conversion.
This Bond has been issued by the Company pursuant to the Convertible Bond
Purchase Agreement dated as of March 5, 1996 between the Company, HYMEDIX, Inc.
(the parent of the Company), and the Purchaser of this Bond (the "Purchaser"),
and the Purchaser is entitled to the benefits of that Agreement.
This Bond may be prepaid in whole or in part at any time upon thirty (30)
days written notice to the Purchaser by the Company without penalty. This Bond
may be converted at any time prior to maturity or to prepayment into One
Thousand (1,000) share of Common Stock of HYMEDIX, Inc. for each One Thousand
Dollars ($1,000) of principal converted.
This Bond shall become immediately due and payable upon written demand by
the Purchaser if the Company seeks relief from creditors by voluntarily or
involuntarily entering
Page 32 of 33
<PAGE>
into bankruptcy proceedings of any kind. This Bond may become immediately due
and payable by acceleration under Article 4.02 of the Convertible Bond Purchase
Agreement.
IN WITNESS WHEREOF, this Bond has been duly executed on behalf of the
undersigned on March 5, 1996.
HYMEDIX INTERNATIONAL, INC.
By: /s/ Joseph Y. Peng
---------------------
Title: President
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED IN THE UNITED STATES OR TO U.S.
PERSONS, EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S OF THE ACT,
ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR UNLESS AN EXEMPTION
UNDER SUCH ACT IS THEN AVAILABLE.
Page 33 of 33
