<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
--------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission file number 0-20580
LIFE MEDICAL SCIENCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 14-1745197
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) identification No.)
214 Carnegie Center, Princeton, NJ 08540
(Address of principal executive offices)
(Zip Code)
(609) 452 - 0707
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES[X] No[_]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.001 Par Value - 7,831,486 shares outstanding at August 8,1996
<PAGE>
LIFE MEDICAL SCIENCES, INC.
INDEX
Page
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Statements of Operations (unaudited) for the 3
three month and six month periods ended June 30, 1995 and 1996
Condensed Balance Sheets (unaudited) as of December 31, 4
1995 and June 30, 1996
Condensed Statements of Cash Flows (unaudited) for the 5
six month periods ended June 30, 1995 and 1996
Notes to Condensed Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operations
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
Exhibit Index 11
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ -----------------------------------
1995 1996 1995 1996
----------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
Royalty income $ 47,976 $ 28,921 $ 160,341 $ 91,126
----------- ------------ ---------------- --------------
Operating expenses:
Research and development expenses 606,748 416,217 978,038 957,502
General and administrative expenses 303,573 480,802 586,108 902,218
----------- ------------ ---------------- --------------
Operating expenses 910,321 897,019 1,564,146 1,859,720
----------- ------------ ---------------- --------------
(Loss) from operations (862,345) (868,098) (1,403,805) (1,768,594)
Interest income 52,148 121,728 80,597 159,338
Interest expense (710) (1,446)
----------- ------------ ---------------- --------------
Net (loss) $ (810,197) $ (747,080) $ (1,323,208) $ (1,610,702)
=========== ============ ================ ==============
Net (loss) per share $ (0.18) $ (0.11) $ (0.30) $ (0.27)
=========== ============ ================ ==============
Weighted average shares outstanding 4,400,649 6,676,765 4,354,926 6,061,575
</TABLE>
3
<PAGE>
LIFE MEDICAL SCIENCES, INC.
BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
----------------- -----------------
1995 1996
----------------- -----------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,827,530 $ 15,679,629
Other current assets 19,559 273,997
----------------- -----------------
Total current assets 3,847,089 15,953,626
Furniture and equipment-at cost (less accumulated
depreciation of $41,957 and $56,131) 96,570 93,860
Deposits 21,322 9,620
----------------- -----------------
TOTAL $ 3,964,981 $ 16,057,106
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Capital lease obligation $ 2,468 $ 2,684
Accounts payable 40,675 70,259
Accrued expenses 147,398 236,341
----------------- -----------------
Total current liabilities 190,541 309,284
Capital lease obligation 15,160 13,763
Deferred royalty income 643,622 567,819
Other liabilities 14,678 0
----------------- -----------------
Total liabilities 864,001 890,866
Stockholders' equity:
Preferred stock, $.01 par value; shares authorized - 5,000,000;
none issued
Common stock, $.001 par value; shares authorized -
23,750,000; issued and outstanding - 5,422,320 and 7,772,153 5,422 7,772
Additional paid-in capital 19,429,815 33,103,427
Accumulated deficit (16,334,257) (17,944,959)
----------------- -----------------
Total stockholders' equity 3,100,980 15,166,240
----------------- -----------------
TOTAL $ 3,964,981 $ 16,057,106
================= =================
</TABLE>
4
<PAGE>
LIFE MEDICAL SCIENCES, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------------------------------
1995 1996
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (1,323,208) $ (1,610,702)
Adjustments to reconcile net (loss) to net cash
(used in) operations:
Depreciation 12,561 14,174
Deferred royalty income 75,803
Changes in operating assets and liabilities:
Decrease in accounts receivable 56,193
Decrease in other receivables 952,024
Decrease (increase) in other assets and deposits 53,229 (242,736)
Increase (decrease) in accounts payable and accrued expenses (20,394) 103,849
---------------- ----------------
Net cash (used in) operating activities (269,595) (1,811,218)
---------------- ----------------
Cash flows from investing activities:
Purchase of equipment (25,768) (11,464)
---------------- ----------------
Net cash (used in) investing activities (25,768) (11,464)
---------------- ----------------
Cash flows from financing activities:
Payments on capitalized lease (1,181)
Proceeds from issuance of common stock, net of expenses 2,592,250 13,675,962
---------------- ----------------
Net cash provided by financing activities 2,592,250 13,674,781
---------------- ----------------
Net increase in cash and cash equivalents 2,296,887 11,852,099
Cash and cash equivalents at beginning of period 1,979,615 3,827,530
---------------- ----------------
Cash and cash equivalents at end of period $ 4,276,502 $ 15,679,629
================ ================
</TABLE>
5
<PAGE>
LIFE MEDICAL SCIENCES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
A) Basis of Presentation
The accompanying condensed financial statements do not include all of
the information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles, but in the opinion of management, contain all adjustments
(which consist of only normal recurring adjustments) necessary for a fair
presentation of such financial information. Results of operations for
interim periods are not necessarily indicative of those to be achieved for
full fiscal years. These condensed financial statements should be read in
conjunction with the audited financial statements for the year ended
December 31, 1995 included in the Company's annual report on Form 10-K
filed with the Securities and Exchange Commission.
B) Net (loss) Per Share
The net loss per share is computed using the weighted average number
of common shares outstanding during each period, as modified in accordance
with certain rules of the Securities and Exchange Commission. Outstanding
options and warrants have not been considered since their effect would be
antidilutive.
C) Capital
The Company's Registration Statement pertaining to its offering of
2,300,000 shares of common stock (initial offering of 2,000,000 shares plus
an additional 300,000 shares issued due to the exercise of the
underwriters' over allotment option) was declared effective by the
Securities and Exchange Commission on May 3, 1996. The proceeds of the
offering were approximately $13.4 million, including proceeds received upon
exercise of the underwriters' over-allotment option and after deducting
underwriting discounts and commissions and offering expenses. The Company
intends to use the proceeds from the offering to fund continued clinical
trials, research and development and for general corporate purposes.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Life Medical Sciences, Inc. (the "Company") is a biotechnology company
engaged in the development and commercialization of innovative and cost-
effective medical products for therapeutic applications. The Company's proposed
products are derived from its two proprietary platform technologies: (i) its in-
situ (occurring on or at a body site) tissue culturing technology, and (ii) its
polymer technology. Products currently under development focus on wound
healing, stimulating hair regrowth, improving the success rate of autologous fat
transplantation and preventing or reducing post-operative surgical adhesions.
Since its inception, the Company has been engaged primarily in research and
development of its technologies, commercialization of the Sure-Closure/TM
/System ("Sure-Closure") and organizational activities. In September 1993, the
Company began selling the Sure-Closure products. The Company built and
supported a direct sales organization of 24 sales representatives calling on
surgeons. To date, all revenues have been derived from sales of the Sure-
Closure products or royalties thereon. In July 1994, the Company sold its Sure-
Closure product line for initial payments aggregating $4 million plus a 10%
royalty on net sales through June 2004. Following the sale of the Sure-Closure
System, sales and marketing expenses were eliminated.
Certain statements in this Report under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including, without limitation,
statements regarding future cash requirements. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: delays in product development;
problems or delays with clinical trails; failure to receive or delays in
receiving regulatory approval; lack of enforceability of patents and proprietary
rights; or changes in business strategy or development plans.
Results of Operations
The Company earned revenues from royalties on product sales of Sure-Closure
of $28,921 and $91,126 for the three months and six months ended June 30, 1996,
respectively, which compares to $47,976 and $160,341 for the corresponding
periods of 1995. The royalty income recognized during the three month period
ended June 30, 1996, represents royalties from Sure-Closure product sales of the
first quarter of 1996.
The Company incurred research and development expenses of $416,217 and
$606,748 for the three months ended June 30, 1996 and 1995, respectively, and
$957,502 and $978,038 for the six months ended June 30, 1996 and 1995,
respectively. These expenses represent expenditures on the Company's in-situ
tissue culturing technology and products derived therefrom, polymer technology
and products derived therefrom and other products. Research and development
expenses are expected to continue to increase in future quarters as the Company
continues to develop its in-situ tissue culturing technology products and
polymer technology products and expands clinical trials for these and other
products.
General and administrative expenses, which consist of compensation for
management, professional fees, investor relations expenses and materials,
consulting expenses and travel expenses, were $480,802 and $303,573 for the
three months ended June 30, 1996 and 1995, respectively, and $902,218 and
$586,108 for the six months ended June 30, 1996 and 1995, respectively. The
increase is attributable to salaries and related expenses associated with
additional management and increased expenses in connection with the investor
relation effort as the Company increased its scale of operations. General and
administrative expenses are expected to continue to increase in future quarters
as the Company continues to increase its scale of operations.
Interest income was $121,728 and $52,148 for the three months ended June
30, 1996 and 1995, respectively and $159,338 and $80,597 for the six months
ended June 30, 1996 and 1995, respectively. The increase for the periods
presented is primarily attributable to an increased cash balance.
Interest expense of $710 for the three months ended June 30, 1996 and
$1,446 for the six months ended June 30, 1996 was from a capital lease entered
into to acquire office equipment. There was no interest expense for the
corresponding periods of 1995.
The Company's net loss was $747,080 and $810,197 for the three months
ended June 30, 1996 and 1995, respectively, and $1,610,702 and $1,323,208 for
the six months ended June 30, 1996 and 1995, respectively. The Company expects
to incur additional losses in the future.
7
<PAGE>
Liquidity and Capital Resources
The Company had cash and cash equivalents of $15,679,629 and $3,827,530 at
June 30, 1996 and December 31, 1995, respectively. The increase in cash results
from the funds provided from the public offering consummated during the second
quarter of 1996, less expenditures made for funding the Company's operations and
expenses in connection with the Company's public offering.
In May 1996, the Company completed a public offering of 2,300,000 shares of
common stock (initial offering of 2,000,000 shares plus an additional 300,000
issued due to the exercise of the underwriters' over-allotment option) and
received net proceeds of approximately $13.4 million, including proceeds
received upon the exercise of the underwriters' over-allotment option and after
deducting underwriting discounts and commissions and offering expenses. The
Company intends to use the proceeds from the offering to fund continued clinical
trials, research and development and for general corporate purposes.
Although the Company believes that the net proceeds from the offering,
together with available cash, will be sufficient to meet its cash requirements
for approximately the next 24 months, there can be no assurance that the Company
will not require additional financing during that time or that financing will be
available on acceptable terms or at all. The Company will be required, however,
to raise substantial additional funds to continue the clinical development and
commercialization of its products and to fund the growth that is expected to
occur if any of its products are approved for marketing. The Company plans to
seek such additional funding through collaborative arrangements with strategic
partners, licensing arrangements for certain of its products and additional
public or private financing, including equity financing. Any additional equity
financing may be dilutive to stockholders. There can be no assurance that such
arrangements or financing will be available as needed or on terms acceptable to
the Company. Insufficient funds may require the Company to delay, scale back or
eliminate some or all of its research and development programs and manufacturing
and marketing efforts or require it to license to third parties certain products
or technologies that the Company would otherwise seek to commercialize itself.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders of Life Medical Sciences, Inc.
was held on May 30, 1996.
(b) The following four Directors were reelected at the Annual Meeting:
Dr. Herbert Moskowitz
Coy Ecklund
Joel L. Gold
Irwin M. Rosenthal
(c) The vote was as follows for the ratification of Richard A. Eisner &
Company, LLP as the Company's independent public accountantS:
For: 4,055,694
Against: 13,650
Abstain: 11,590
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.39 Employment Agreement dated May 29, 1996 between Registrant
and Robert P. Hickey
10.40 Employment Agreement dated May 30, 1996 between Registrant
and Dr. Herbert Moskowitz
27. Financial Data Schedule
(b) Reports on Form 8-K
A report on Form 8-K was filed on June 20, 1996 to announce the
appointment of Robert P. Hickey as the Company's President and CEO.
9
<PAGE>
SIGNATURES
Pursuant to 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.
Life Medical Sciences, Inc.
(Registrant)
Date: August 8, 1996 /s/ Donald W. Fallon
--------------------------------
Donald W. Fallon
Vice President and Chief Financial Officer
(Duly Authorized Officer & Principal
Financial Officer)
10
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- -------------------------------- --------
10.39 Employment Agreement dated May 29, 1996
between Registrant and Robert P. Hickey
10.40 Employment Agreement dated May 30, 1996
between Registrant and Dr. Herbert Moskowitz
27 Financial Data Schedule
11
<PAGE>
EXHIBIT 10.39
EMPLOYMENT AGREEMENT
THIS AGREEMENT (together with all exhibits hereto, the "Agreement"),
made in Princeton, New Jersey as of the 29th day of May 1996, between Life
Medical Sciences, Inc., a Delaware corporation (the "Company") and Robert P.
Hickey the undersigned individual ("Executive").
In consideration of the mutual covenants and agreements hereinafter
set forth, the Company and Executive agree as follows:
1. Agreement Term.
--------------
The term of this Agreement shall be the five-year period
commencing on May 29, 1996 (the "Employment Date") and ending on the fifth
anniversary of the Employment Date (the "Agreement Term").
2. Employment.
----------
(a) Employment by the Company. Executive agrees to be employed by
-------------------------
the Company for the Agreement Term upon the terms and subject to the conditions
set forth in this Agreement. Executive shall have the title, and report to the
person or persons, specified on the Exhibit to this Agreement. Executive shall
have such duties as may be prescribed by the Company and shall serve in such
other and/or additional position(s) as the Company may determine from time to
time. Executive, if appointed to the Board of Directors of the Company and, for
no additional compensation, agrees to serve for so long as the Company shall
request. The Company will at all times treat the Executive with dignity, honesty
and respect, and will provide Executive with such resources as in the Company's
judgement shall enable the Executive to discharge his responsibilities.
(a) Performance of Duties. Throughout the Agreement Term,
---------------------
Executive shall faithfully and diligently perform Executive's duties in
conformity with the directions of the Company and serve the Company to the best
of Executive's ability. Executive shall devote Executive's entire working time,
attention and energies to the business and affairs of the Company, subject to
vacations and sick leave as provided herein and in accordance with Company
policy.
(b) Place of Performance. During the Agreement Term, Executive
--------------------
shall, subject to travel requirements on behalf of the Company, be based at the
Company's offices in Princeton, New Jersey or such other location(s) as the
Company may determine and, in this regard, Executive shall maintain Executive's
personal residence in such city or such other location within reasonable access
to Executive's place of employment.
<PAGE>
1. Compensation and Benefits.
-------------------------
(a) Base Salary. The Company agrees to pay to Executive for
-----------
employment hereunder a base salary ("Base Salary") at the annual rate of
$225,000. The Base Salary shall be increased prospectively on each anniversary
of the Employment Date during the Agreement Term, by such amount as the Board of
Directors of the Company shall determine is necessary and appropriate to give
effect to increases in the cost of living. The Base Salary shall be payable in
installments consistent with the Company's payroll practices then in effect.
(b) Benefits and Perquisites; Bonus. Executive shall be entitled
-------------------------------
to participate in, to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, including medical and savings and
retirement plans, and receive the benefits and perquisites, generally provided
to employees of the same level and responsibility as Executive. Executive shall
be entitled to four weeks vacation during each year of the Agreement Term.
Nothing in this Agreement shall preclude the Company from terminating or
amending from time to time any employee benefit plan or program. Executive shall
be eligible for bonuses, at such times and in such amounts as shall be
determined at the discretion of the Board of Directors of the Company based on
their assessment of Executive's performance of his duties and on the financial
performance of the Company. The Company shall obtain life insurance coverage
(assuming the Executive is insurable) on the life and for the benefit of the
Executive in an amount equal to twice the amount of the Base Salary then in
effect. The Company shall be entitled to all dividends, if any, which may be
paid under the policy. The Executive represents that the Executive is currently
in good health.
(c) Travel and Business Expenses; Car Allowance. Upon submission
-------------------------------------------
of itemized expense statements in the manner specified by the Company, Executive
shall be entitled to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Executive in the performance of Executive's
duties under this Agreement in accordance with the policies and procedures
established by the Company from time to time for employees of the same level and
responsibility as Executive.
(d) Grant of Option and Terms Thereof. The Company hereby agrees
---------------------------------
that, on the date hereof, it will grant to Executive, pursuant to the Company's
1992 Stock Option Plan, as amended (the "Plan"), an option (the "Option") to
purchase up to Two Hundred Fifty Thousand (250,000) shares of the Company's
common stock (the "Option Shares"). The exercise price for each Option Share
will be the closing price of the Company's common stock as reported in the Wall
Street Journal for the Employment Date. The Option will vest and become
exercisable over a four-year period commencing on the date of grant, with one-
fifth vesting and becoming exercisable on the date of grant and on each of the
first, second, third and fourth anniversaries of the date of grant, subject to
termination as provided for in the Plan, and further subject to termination in
the event that (i) Executive breaches any term hereof, (ii) Executive's
employment hereunder is terminated by the Company for Cause (as hereinafter
defined), or (iii) Executive voluntarily terminates his employment hereunder.
The Option will expire as to each installment
-2-
<PAGE>
five years from the date of vesting. The terms (including exercisability) of the
Option shall otherwise be governed by the Plan, as well as the applicable option
agreement to be entered into pursuant to the terms of the Plan. Notwithstanding
the foregoing, if a Change of Ownership (as hereinafter defined) of the Company
occurs, then, upon such occurrence, the vesting schedule of the Option shall
accelerate by two years so that three-fifths of the Option will have vested on
the Employment Date and the remaining two-fifths will vest in equal amounts on
the first and second anniversaries of the Employment Date. For purposes of the
preceding sentence, "Change of Ownership" means acquisition and control of at
least 51% of the Company's outstanding voting securities by a single entity.
(e) No Other Compensation or Benefits; Payment. The compensation
------------------------------------------
and benefits specified in Sections 3 and 5 of this Agreement shall be in lieu of
any and all other compensation and benefits. Payment of all compensation and
benefits to Executive hereunder shall be made in accordance with the relevant
Company policies in effect from time to time, including normal payroll
practices, and shall be subject to all applicable employment and withholding
taxes.
(f) Cessation of Employment. In the event Executive shall cease
-----------------------
to be employed by the Company for any reason, then Executive's compensation and
benefits shall cease on the date of such event, except as otherwise provided
herein or in any applicable employee benefit plan or program.
2. Exclusive Employment; Noncompetition.
------------------------------------
(a) No Conflict; No Other Employment. During the period of
--------------------------------
Executive's employment with the Company, Executive shall not engage in any
activity which conflicts or interferes with or derogates from the performance of
Executive's duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain or profit,
except as approved in advance in writing by the Board of Directors of the
Company.
(b) No Competition. Without limiting the generality of the
--------------
provisions of Sections 2(b) or 4(a), during the period of Executive's employment
with the Company, and for a period of two years thereafter (the "Restricted
Period"), Executive shall not, directly or indirectly, own, manage, operate,
join, control, participate in, invest in or otherwise be connected or associated
with, in any manner, including as an officer, director, employee, partner,
stockholder, joint venturer, lender, consultant, advisor, agent, proprietor,
trustee or investor, any Competing Business located in the United States or in
any other location where the Company operates or sells its products or services;
provided, however, that if Executive's employment hereunder is terminated by the
Company under Section 5(d), then the provisions of this Section 4(b) shall
remain in effect only if the Company shall not have breached its obligation to
pay to Executive amounts as severance pursuant to Section 5(d).
-3-
<PAGE>
(i) As used in this Agreement, the term "Competing
Business" shall mean any business or venture which engages in any business
area, or sells or provides products or services that compete or overlap
with any business area, in which the Company engages or is actively
developing products or technology to engage in at any time during the
Agreement Term, or any business or venture which sells or provides products
or services that compete or overlap with the products or services as sold
or provided, or are being actively developed to be sold or provided, by the
Company at any time during the Agreement Term.
(ii) For purposes of this Section 4(b), the term "invest"
shall not preclude an investment in not more than one percent (1%) of the
outstanding capital stock of a corporation whose capital stock is listed on
a national securities exchange or included in the NASDAQ Stock Market, so
long as Executive does not have the power to control or direct the
management of, or is not otherwise associated with, such corporation.
(c) No Solicitation. During the Restricted Period, Executive
---------------
shall not solicit or encourage any employee or consultant of the Company to
leave the employ, or cease his or her relationship with, the Company for any
reason, nor employ or retain such an individual in a Competing Business or any
other business.
(d) Company Customers. Executive shall not, during the
-----------------
Restricted Period, directly or indirectly, contact, solicit or do business with
any "customers" (as hereinafter defined) of the Company for the purpose of
selling or providing any product or service then sold or provided by the Company
to such customers or being actively developed to be sold or provided to such
customers during Executive's employment by the Company or at the time of
termination of Executive's employment hereunder.
For the purposes of the provisions of this Section 4(d),
"customer" shall include any entity that purchased any product or service from
the Company within twelve months of the termination of Executive's employment
hereunder, without regard to the reason for such termination. The term
"customer" also includes any former customer or potential customer of the
Company which the Company has solicited within twelve months of such
termination, for the purpose of selling or providing any product or service then
sold or provided, or then actively being developed to be sold or provided, by
the Company.
(e) Modification of Covenants. The restrictions against
-------------------------
competition set forth in this Section 4 are considered by the parties to be
reasonable for the purposes of protecting the business of the Company. However,
if any such restriction is found by any court of competent jurisdiction to be
unenforceable because it extends for too long a period of time or over too great
a range of activities or in too broad a geographic area, it shall be interpreted
to extend only over the maximum period of time, range of activities or
geographic area as to which it may be enforceable.
-4-
<PAGE>
3. Termination of Employment.
-------------------------
(a) Termination. The Company may terminate Executive's employment
-----------
for Cause (as hereinafter defined) in which case the provisions of Section 5(b)
shall apply. The Company may also terminate Executive's employment in the event
of Executive's Disability (as hereinafter defined), in which case the provisions
of Section 5(c) shall apply. The Company may also terminate the Executive's
employment for any other reason by written notice to Executive, in which case
the provisions of Section 5(d) shall apply. If Executive's employment is
terminated by reason of Executive's death, retirement or voluntary resignation,
the provisions of Section 5(b) shall apply.
(b) Termination for Cause; Termination by Reason of Death or
--------------------------------------------------------
Retirement or Voluntary Resignation. (1) In the event that Executive's
- -----------------------------------
employment hereunder is terminated during the Agreement Term (i) by the Company
for Cause (as hereinafter defined), (ii) by reason of Executive's death or
retirement or (iii) by reason of Executive's voluntary resignation, then the
Company shall pay to Executive, within thirty (30) days of the date of such
termination, only the Base Salary through such date of termination.
(2) For purposes of this Agreement,
"Cause" shall mean (i) conviction of any crime (whether or not involving the
Company) constituting a felony in the jurisdiction involved; (ii) engaging in
any substantiated act involving moral turpitude; (iii) engaging in any act
which, in each case, subjects, or if generally known would subject, the Company
to public ridicule or embarrassment; (iv) gross neglect or misconduct in the
performance of Executive's duties hereunder; (v) willful or repeated failure or
refusal to perform such duties as may be relegated to Executive commensurate
with Executive's position; or (vi) breach of any provision of this Agreement by
Executive.
(3) In the event the Company desires to
terminate Executive's employment for Cause as defined in clauses (iv), (v) or
(vi) of the definition thereof, the Company shall first attempt to resolve the
matter(s) at issue through a meeting between Executive and the Chairman of the
Board for Directors of the Company. If such meeting fails to resolve the
matter(s), then Executive will meet with the Board of Directors of the Company
and attempt to resolve the matter(s). The decision of the Board of Directors of
the Company as to the matter(s) shall be final and binding on the parties and
not subject to review or appeal by any other person.
(c) Disability. If, as a result of Executive's incapacity due to
----------
physical or mental illness, Executive shall have been absent from Executive's
duties hereunder on a full time basis for either (i) ninety (90) days within any
six-month period, or (ii) sixty (60) consecutive days, and within thirty (30)
days after written notice of termination is given shall not have returned to the
performance of Executive's duties hereunder on a full time basis, the Company
may terminate Executive's employment hereunder for "Disability". In that event,
the Company shall pay to Executive, within thirty (30) days of the date of such
termination, only the Base Salary through such date of termination. During any
period that Executive fails to perform Executive's duties hereunder as a result
of incapacity due to physical or mental illness (a "Dis-
-5-
<PAGE>
ability Period"), Executive shall continue to receive the compensation and
benefits provided by Section 3 hereof until Executive's employment hereunder is
terminated; provided, however, that the amount of compensation and benefits
received by Executive during the Disability Period shall be reduced by the
aggregate amounts, if any, payable to Executive under disability benefit plans
and programs of the Company or under the Social Security disability insurance
program.
(d) Termination By Company For Any Other Reason. In the event that
-------------------------------------------
Executive's employment hereunder is terminated by the Company during the
Agreement Term for any reason other than as provided in Sections 5(b) or 5(c)
hereof, then the Company shall pay to Executive, within thirty (30) days of the
date of such termination, the Base Salary through such date of termination and,
in lieu of any further compensation and benefits for the balance of the
Agreement Term, severance pay equal to the Base Salary that Executive would have
otherwise received during the period of six months from the effective date of
such termination, commencing with such date of termination at the times and in
the amounts such Base Salary would have been paid; provided, however, that in
the event that Executive shall breach Sections 4 or 6 hereof, in addition to any
other remedies the Company may have in the event Executive breaches this
Agreement, the Company's obligation pursuant to this Section 5(d) to continue
such payments of salary shall cease and Executive's rights thereto shall
terminate and shall be forfeited.
(e) No Further Liability; Release. Payment made and performance by
-----------------------------
the Company in accordance with this Section 5 shall operate to fully discharge
and release the Company and its directors, officers, employees, subsidiaries,
affiliates, stockholders, successors, assigns, agents and representatives from
any further obligation or liability with respect to Executive's employment and
termination of employment. Other than paying Executive's Base Salary through
the date of termination of Executive's employment and making any severance
payment pursuant to and in accordance with this Section 5 (as applicable), the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives shall have no
further obligation or liability to Executive or any other person under this
Agreement. The Company shall have the right to condition the payment of any
severance or other amounts pursuant to Sections 5(c) or 5(d) hereof upon the
delivery by Executive to the Company of a release in form and substance
satisfactory to the Company of any and all claims Executive may have against the
Company and its directors, officers, employees, subsidiaries, affiliates,
stockholders, successors, assigns, agents and representatives arising out of or
related to Executive's employment by the Company and termination of such
employment.
-6-
<PAGE>
4. Confidential Information.
------------------------
(a) Existence of Confidential Information. The Company owns and has
-------------------------------------
developed and compiled, and will develop and compile, certain proprietary
technology, know-how and confidential information which have great value to its
business (referred to in this Agreement, collectively, as "Confidential
Information"). Confidential Information includes not only information disclosed
by the Company to Executive, but also information developed or learned by
Executive during the course or as a result of employment with the Company, which
information shall be the property of the Company. Confidential Information
includes all information that has or could have commercial value or other
utility in the business in which the Company is engaged or contemplates
engaging, and all information of which the unauthorized disclosure could be
detrimental to the interests of the Company, whether or not such information is
specifically labelled as Confidential Information. By way of example and
without limitation, Confidential Information includes any and all information
developed, obtained, licensed by or to or owned by the Company concerning trade
secrets, techniques, know-how (including research data, designs, plans,
procedures, merchandising, marketing, distribution and warehousing know-how,
processes, and research records), software, computer programs, and any other
intellectual property created, used or sold (through a license or otherwise) by
the Company, product know-how and processes, innovations, discoveries,
improvements, research, development, test results, reports, specifications,
data, formats, marketing data and plans, business plans, strategies, forecasts,
unpublished financial information, orders, agreements and other forms of
documents, price and cost information, merchandising opportunities, expansion
plans, budgets, projections, customer, supplier, licensee, licensor and
subcontractor identities, characteristics, agreements and operating procedures,
and salary, staffing and employment information.
(b) Protection of Confidential Information. Executive acknowledges
--------------------------------------
and agrees that in the performance of duties hereunder Executive develops and
acquires, and the Company discloses to and entrusts Executive with, Confidential
Information which is the exclusive property of the Company and which Executive
may possess or use only in the performance of duties for the Company. Executive
also acknowledges that Executive is aware that the unauthorized disclosure of
Confidential Information, among other things, may be prejudicial to the
Company's interests, an invasion of privacy and an improper disclosure of trade
secrets. Executive shall not, directly of indirectly, use, make available,
sell, disclose or otherwise communicate to any corporation, partnership,
individual or other third party, other than in the course of Executive's
assigned duties and for the benefit of the Company, any Confidential
Information, either during the Agreement Term or thereafter. In the event
Executive desires to publish the results of Executive's work for or experiences
with the Company through literature, interviews or speeches, Executive will
submit requests for such interviews or such literature or speeches to the Board
of Directors of the Company at least fourteen (14) days before any anticipated
dissemination of such information for a determination of whether such disclosure
is in the best interests of the Company, including whether such disclosure may
impair trade secret status or constitute an invasion of privacy. Executive
agrees not to publish, disclose or otherwise disseminate such information
without the prior written approval of the Board of Directors of the
-7-
<PAGE>
Company.
(c) Delivery of Records, Etc. In the event Executive's employment
------------------------
with the Company ceases for any reason, Executive will not remove from the
Company's premises without its prior written consent any records, notes,
notebooks, files, drawings, documents, equipment, materials and writings
received from, created for or belonging to the Company, including those which
relate to or contain Confidential Information, or any copies thereof. Upon
request or when employment with the Company terminates, Executive will
immediately deliver the same to the Company.
5. Invention and Patents.
---------------------
(a) Executive will promptly and fully disclose to the Company any
and all inventions, discoveries, trade secrets and improvements, whether or not
patentable or whether or not they are made, conceived or reduced to practice
during working hours or using the Company's data or facilities, which Executive
shall develop, make, conceive or reduce to practice during Executive's
employment by the Company, either solely or jointly with others (collectively,
"Developments"). All such Developments shall be the sole property of the
Company, and Executive hereby assigns to the Company, without further
compensation, all his right, title and interest in and to such Developments and
any and all related patents, patent applications, copyrights, copyright
applications, trademarks and trade names in the United States and elsewhere.
(b) Executive shall keep and maintain adequate and current written
records of all Developments (in the form of notes, sketches, drawings and as may
be specified by the Company), which records shall be available to and remain the
sole property of the Company at all times.
(c) Executive shall assist the Company in obtaining and enforcing
patent, copyright and other forms of legal protection for the Developments in
any country. Upon request, Executive shall sign all applications, assignments,
instruments and papers and perform all acts necessary or desired by the Company
and to enable the Company its successors, assigns and nominees, to secure and
enjoy the full exclusive benefits and advantages thereof.
(d) Executive understands that Executive's obligations under this
section will continue after the termination of his employment with the Company
and that, whether during or after his employment, Executive shall perform such
obligations without further compensation, except for reimbursement of expenses
incurred at the request of the Company.
-8-
<PAGE>
6. Assignment and Transfer.
-----------------------
(a) Company. This Agreement shall inure to the benefit of and be
-------
enforceable by, and may be assigned by the Company to, any purchaser of all or
substantially all of the Company's business or assets, any successor to the
Company or any assignee thereof (whether direct or indirect, by purchase,
merger, consolidation or otherwise). The Company will require any such
purchaser, successor or assignee to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such purchase, succession or assignment had taken
place.
(b) Executive. Executive's rights and obligations under this
---------
Agreement shall not be transferable by Executive by assignment or otherwise, and
any purported assignment, transfer or delegation thereof shall be void;
provided, however, that if Executive shall die, all amounts then payable to
Executive hereunder shall be paid in accordance with the terms of this Agreement
to Executive's devisee, legatee or other designee or, if there be no such
designee, to Executive's estate.
7. Miscellaneous.
-------------
(a) Other Obligations. Executive represents and warrants that he is
-----------------
not a party to any other employment agreement and that neither Executive's
employment with the Company nor Executive's performance of Executive's
obligations hereunder will conflict with or violate or otherwise are
inconsistent with any other agreements to which Executive is or has been a party
or with any other obligations, legal or otherwise, which Executive may have.
(b) Nondisclosure; Prior Employers. Executive will not disclose to
------------------------------
the Company, or use, or induce the Company to use, any proprietary information,
trade secrets or confidential business information of others. Executive
represents and warrants that Executive has returned all property, proprietary
information, trade secrets and confidential business information belonging to
all prior employers.
(c) Cooperation. Following termination of employment with the
-----------
Company, Executive shall cooperate with the Company, as requested by the
Company, to affect a transition of Executive's responsibilities and to ensure
that the Company is aware of all matters being handled by Executive.
(d) Protection of Reputation. During the Agreement Term and
------------------------
thereafter, Executive agrees that he will take no action which is intended, or
could reasonably be expected, to harm the Company or its reputation or which
could reasonably be expected to lead to unwanted or unfavorable publicity to the
Company.
-9-
<PAGE>
(e) Governing Law; Arbitration.
--------------------------
(i) Governing Law. This Agreement, including the validity,
-------------
interpretation, construction and performance of this Agreement, shall be
governed by and construed in accordance with the laws of the State of New Jersey
applicable to agreements made and to be performed in such state without regard
to such states conflicts of law principles.
(ii) Arbitration. Subject to Section 9(k) hereof, any
-----------
controversy or claim which arises out of or relating to this Agreement, or the
breach thereof shall be settled by arbitration in accordance with the Rules of
the American Arbitration Association then in effect. The controversy or claim
shall be submitted to three arbitrators, one of whom shall be chosen by the
Employee, one of whom shall be chosen by the Company, and one of whom shall be
chosen by the two so selected. The party desiring arbitration shall give written
notice to the other party of its desire to arbitrate the particular matter in
question, naming the arbitrator selected by it. If the other party shall fail
within a period of 15 days after such notice shall have been given to reply in
writing naming the arbitrator chosen as above provided, or if the two
arbitrators selected by the parties shall fail within 15 days after their
selection to agree upon the third arbitrator, then either party may apply to the
American Arbitration Association for the appointment of an arbitrator to fill
the place so remaining vacant. The decision of any two of the arbitrators shall
be final and binding upon the parties hereto. Judgement upon the award rendered
by the arbitrators may be entered in any court having jurisdiction thereof. The
proceedings shall be held in New York, New York. The arbitrators shall have no
power to award punitive or exemplary damages or to ignore or vary the terms of
this Agreement, and shall be bound to apply controlling law. Arbitration shall
be binding and the remedy for the settlement of the controversy or claims
(except as set forth in the preceding paragraph of this Section).
(f) Entire Agreement. This Agreement (including the Exhibits hereto)
----------------
contains the entire agreement and understanding between the parties hereto in
respect of the subject matter hereof and supersedes, cancels and annuls any
prior or contemporaneous written or oral agreements, understandings, commitments
and practices between them respecting the subject matter hereof, including all
prior employment agreements, if any, between the Company and Executive, which
agreement(s) hereby are terminated and shall be of no further force or effect.
(g) Amendment. This Agreement may be amended only by a writing which
---------
makes express reference to this Agreement as the subject of such amendment and
which is signed by Executive and, on behalf of the Company, by its duly
authorized officer.
(h) Severability. If any term, provision, covenant or condition of
------------
this Agreement or part thereof, or the application thereof to any person, place
or circumstance, shall be held to be invalid, unenforceable or void, the
remainder of this Agreement and such term, provision, covenant or condition
shall remain in full force and effect, and any such invalid, unenforceable or
void term, provision, covenant or condition shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same and the remainder of this Agreement valid,
enforceable and lawful. In this
-10-
<PAGE>
regard, Executive acknowledges that the provisions of Sections 4 and 6 are
reasonable and necessary for the protection of the Company.
(i) Construction. The headings and captions of this Agreement are
------------
provided for convenience only and are intended to have no effect in construing
or interpreting this Agreement. The language in all parts of this Agreement
shall be in all cases construed according to its fair meaning and not strictly
for or against the Company or Executive. The use herein of the word "including,"
when following any general provision, sentence, clause, statement, term or
matter, shall be deemed to mean "including, without limitation". As used herein,
"Company" shall mean the Company and its subsidiaries and any purchaser of,
successor to or assignee (whether direct or indirect, by purchase, merger,
consolidation or otherwise) of all or substantially all of the Company's
business or assets which is obligated to perform this Agreement by operation of
law, agreement pursuant to Section 7 hereof or otherwise. As used herein, the
words "day" or "days" shall mean a calendar day or days.
(j) Nonwaiver. Neither any course of dealing nor any failure or
---------
neglect of either party hereto in any instance to exercise any right, power or
privilege hereunder or under law shall constitute a waiver of any other right,
power or privilege or of the same right, power or privilege in any other
instance. All waivers by either party hereto must be contained in a written
instrument signed by the party to be charged and, in the case of the Company, by
its duly authorized officer.
(k) Remedies for Breach. The parties hereto agree that Executive is
-------------------
obligated under this Agreement to render personal services during the Agreement
Term of a special, unique, unusual, extraordinary and intellectual character,
thereby giving this Agreement peculiar value, and, in the event of a breach or
threatened breach of any covenant of Executive herein, the injury or imminent
injury to the value and the goodwill of the Company's business could not be
reasonably or adequately compensated in damages in an action at law.
Accordingly, Executive expressly acknowledges that the Company shall be entitled
to specific performance, injunctive relief or any other equitable remedy against
Executive, without the posting of a bond, in the event of any breach or
threatened breach of any provision of this Agreement by Executive (including
Sections 4 and 6 hereof). Without limiting the generality of the foregoing, if
Executive breaches Sections 4 or 6 hereof, such breach will entitle the Company
to enjoin Executive from disclosing any Confidential Information to any
Competing Business, to enjoin such Competing Business from receiving Executive
or using any such Confidential Information and/or to enjoin Executive from
rendering personal services to or in connection with such Competing Business.
The rights and remedies of the parties hereto are cumulative and shall not be
exclusive, and each such party shall be entitled to pursue all legal and
equitable rights and remedies and to secure performance of the obligations and
duties of the other under this Agreement, and the enforcement of one or more of
such rights and remedies by a party shall in no way preclude such party from
pursuing, at the same time or subsequently, any and all other rights and
remedies available to it.
-11-
<PAGE>
(l) Notices. Any notice, request, consent or approval required or
-------
permitted to be given under this Agreement or pursuant to law shall be
sufficient if in writing, and if and when sent by certified or registered mail,
return receipt requested, with postage prepaid, to Executive's residence (as
reflected in the Company's records or as otherwise designated by Executive on
thirty (30) days' prior written notice to the Company) or to the Company's
principal executive office, attention: Chairman of the Board (with copies to the
General Counsel), as the case may be. All such notices, requests, consents and
approvals shall be effective upon being deposited in the United States mail.
However, the time period in which a response thereto must be given shall
commence to run from the date of receipt on the return receipt of the notice,
request, consent or approval by the addressee thereof. Rejection or other
refusal to accept, or the inability to deliver because of changed address of
which no notice was given as provided herein, shall be deemed to be receipt of
the notice, request, consent or approval sent.
(m) Assistance in Proceedings, Etc. Executive shall, without
------------------------------
additional compensation, during and after expiration of the Agreement Term, upon
reasonable notice, furnish such information and proper assistance to the Company
as may reasonably be required by the Company in connection with any legal or
quasi-legal proceeding, including any external or internal investigation,
involving the Company or any of its affiliates or in which any of them is, or
may become, a party.
(n) Survival. Cessation or termination of Executive's employment
--------
with the Company shall not result in termination of this Agreement. The
respective obligations of Executive and rights and benefits afforded to the
Company as provided in this Agreement shall survive cessation or termination of
Executive's employment hereunder. This Agreement shall not terminate upon, and
shall remain in full force and effect following, expiration of the Agreement
Term and all rights and obligations of the parties hereto as and to the extent
provided herein shall survive such expiration.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed on its behalf by an officer thereunto duly authorized and Executive has
duly executed this Agreement, all as of the date and year first written above.
LIFE MEDICAL SCIENCES, INC.
By:
--------------------------------------
Name:
Title:
-----------------------------------------
ROBERT P. HICKEY
-12-
<PAGE>
Exhibit
-------
Title:
President and Chief Executive Officer
Persons to Whom Executive Shall Report:
Chairman of the Board of Directors of the Company
<PAGE>
EXHIBIT 10.40
EMPLOYMENT AGREEMENT
--------------------
This AGREEMENT made as of this 30th day of May 1996, by and between
Life Medical Sciences, Inc., a Delaware corporation (hereinafter, "the Employer"
or "Employer"), and Dr. Herbert Moskowitz (hereinafter, "the Executive" or
"Executive").
W I T N E S S E T H:
-------------------
WHEREAS, Executive presently serves as an officer of Employer and
WHEREAS, Employer wishes to provide for Executive's employment as
Chairman of the Board of Directors on the terms hereinafter set forth.
Accordingly, Employer and Executive hereby agree as follows:
1. Commencing on the Effective Date, as hereinafter defined, of this
Agreement, Employer employs Executive as Chairman of the Board of Directors to
perform the duties normally incident to such position. Executive will at all
times represent and promote the best interests of the shareholders in all
Company matters. Executive shall be responsible for keeping the Board of
Directors of Employer informed of Employer's activities and progress. Employer
shall use its best efforts to cause Executive to be elected as a director at
every stockholder's meeting at which directors are elected and to use its best
efforts to cause Executive be re-elected Chairman of the Board of Directors for
so long as this agreement remains in effect and Executive continues to be re-
elected to the Board by Shareholders.
1. Executive agrees to devote such time, efforts, skills and
attention as Executive deems necessary to fulfill Executive's duties and
responsibilities under this Agreement the Executive's good faith determination
of the amount of time necessary to fulfill Executive's duties and
responsibilities under this Agreement shall be binding on Employer.
2. The term of this Agreement shall commence as of May 30, 1996 (the
"Effective Date") and shall terminate five years thereafter (the "Initial
Term"), unless sooner terminated as hereinafter provided, and shall be
automatically renewed for successive one-year periods thereafter unless at least
ninety days prior to the end of the Initial Term or any renewal term Executive
or Employer shall give written notice to the other that this Agreement shall not
be renewed.
3. Employer will pay to Executive as compensation for all services
to be rendered by Executive hereunder a salary at the rate of One Hundred Ninety
One Thousand and 00/100 Dollars (the "Base Salary") per year during the Initial
Term and thereafter subject to such increases, if any, as may be approved by and
in the discretion of the Board of Directors of Employer provided, however, that
-------- -------
in any event on each anniversary of the date of this Agreement, the Base Salary
shall be adjusted and increased as against the Base Salary prior to such
adjustment by the same percentage as the rise in the Consumer Price Index for
the New York region maintained by the Bureau of Labor Statistics for the
preceding calendar year. The
<PAGE>
Base Salary shall be payable twice monthly.
4. Employer may pay to Executive bonuses (in cash or stock options)
as may be approved by and in the discretion of the Board of Directors of
Employer.
5. Employer will reimburse Executive for all reasonable travel and
business expenses incurred by Executive in connection with performance of
Executive's services including, but not limited to, telephone service, meals,
lodging, and secretarial support as determined by the Executive.
6. Executive will be afforded participation in all benefit plans and
programs which are currently afforded or during the term of this Agreement are
offered to other executives of Employer, including, without limitation, group
insurance, health, hospital, dental, major medical, life and disability
insurance and stock option plans or other similar fringe benefits on the same
terms as such benefits are available to executives of Employer generally.
Executive, at his option, may elect to receive from the Company, as an
alternative to health and insurance benefits as defined in this paragraph, an
amount equal to the amount that the Company would have paid to provide such
benefits for Executive. Such amount will be paid and will be adjusted quarterly
for any changes in the cost of such coverage.
7. Executive will be entitled to four weeks vacation during the
Initial Term and any renewal term of this Agreement. Executive, at his option,
shall be entitled to receive payment for any unused vacation or accrue such
vacation time.
8. During the Initial Term and any renewal term, Employer will pay
Executive a travel allowance equal to the then-current maximum allowable rate
under Internal Revenue Service guidelines multiplied by the number of miles
actually driven by Executive in performance of Executive's services under this
Agreement.
9. (a) Employer will obtain life insurance coverage, (assuming
Executive is insurable) on the life of and for the benefit of Executive in an
amount equal to twice the amount of the Base Salary of Executive then in effect.
Except that as provided in paragraph 7 herein above, Executive, at his election,
may receive an amount equal to the insurance premiums that otherwise would have
been paid, by the Company, on behalf of Executive.
(b) Executive agrees that Employer in Employer's discretion, may
apply for and procure in the name of Executive and for Employer's benefit life
insurance in any amount or amounts considered advisable but not less than One
Million 00/100 ($1,000,000) Dollars and that Executive shall have no right,
title or interest therein.
(c) Executive represents and warrants that to the best of
Executive's knowledge Executive is in good health and that to the best of
Executive's knowledge Executive will qualify and be acceptable for life
insurance in the minimum amount of One Million 00/100 ($1,000,000) Dollars.
-2-
<PAGE>
(d) Executive agrees to submit to any medical or other
examination and to execute and deliver any application or other instrument
necessary to effectuate such life insurance.
10. In the event of Executive's death during the term of this
Agreement, this Agreement shall terminate immediately, provided, however, that
Executive's legal representatives shall be entitled to receive within 60 days
after the termination of this Agreement, in addition to any other amounts
payable to Executive hereunder, the Base Salary which would otherwise have been
due Executive had Executive worked through the end of the month in which
Executive died plus six additional months of the Base Salary in effect on the
date of Executive's death.
11. If during the term of this Agreement, Executive is unable to
perform Executive's duties hereunder on account of illness or other incapacity,
and such illness or other incapacity shall continue for a period of more than
three consecutive months or more than 120 days (whether or not consecutive)
during any twelve-month period, Employer shall have the right, on thirty days'
notice to Executive, given after such three month or 120-day period, to
terminate this Agreement. In the event of any such termination Employer shall be
obligated to pay to Executive within 30 days after the termination of this
Agreement, in addition to any other amounts payable to Executive hereunder, the
Base Salary which would otherwise be due Executive until the expiration of the
month of employment during which the termination occurred plus six additional
months of the Base Salary in effect on the date of such termination. If, prior
to the date specified on such notice, Executive's illness or incapacity shall
have terminated and Executive shall have taken up the performance of Executive's
duties hereunder, Executive shall be entitled to resume Executive's employment
hereunder as though such notice had not been given. Employer's Board of
Directors shall determine in good faith, upon consideration of medical evidence
satisfactory to it, whether Executive by reason of physical or mental disability
shall be unable to perform the services required of Executive hereunder.
12. If Employer shall terminate Executive's employment hereunder for
Cause, as hereinafter defined, Employer will pay to Executive within ten days
after the termination of this Agreement an amount equal to the amount which
Executive would have earned as the Base Salary hereunder through the end of the
then current month in which such termination or departure occurred plus three
additional months of the Base Salary in effect on the date of such termination.
Cause shall mean a conviction of a felony directly and materially affecting
Employer.
13. If Executive's employment shall terminate for any reason other
than for death, illness or incapacity, or Cause, as stated in paragraphs 11, 12
and 13 respectively of this agreement, then, in such event Employer shall pay to
Executive within 30 days of the termination date, in addition to any other
amounts payable to Executive hereunder, the base salary due Executive through
the termination date plus an amount equal to six months of the
-3-
<PAGE>
Executives base salary then in effect. This provision of the agreement shall be
operative regardless of who terminates the agreement or how long the agreement
has been in effect.
14. Executive covenants and agrees with Employer that Executive has
not and will not, during Executive's employment with Employer and thereafter,
directly or indirectly, use, communicate, disclose or disseminate to anyone
(except to the extent reasonably necessary for Executive to perform his duties
hereunder, except as required by law or except if generally available to the
public otherwise than through use, communication, disclosure or dissemination by
the Executive) any materials, documents or records containing confidential
information concerning the businesses or affairs of Employer or of any of its
affiliates or subsidiaries which Executive may have acquired in the course of or
as incident to Executive's employment or prior dealings with Employer or with
any of its affiliates or subsidiaries, including, without limitation, customer
lists, business or trade secrets of, or methods or techniques used by Employer
of any of its affiliates or subsidiaries in or about their respective
businesses, or any information whatsoever concerning the customers or suppliers
of any of them.
15. Executive covenants and agrees with Employer that Executive has
not, and will not during Executive's employment with Employer and for a period
of six months after the termination of Executive's employment with Employer, in
any manner, directly or indirectly, (i) induce or attempt to influence any
present or future officer, employee, lessor, lessee, licensor, licensee or agent
of Employers or its subsidiaries or its affiliates to leave its respective
employ or solicit or divert or service any customers or clients of Employer or
its subsidiaries or its affiliates or (ii) alone or as a partner, officer,
director, employee, consultant or stockholder (except for ownership of no more
than 1% of the capital stock) of any corporation, partnership or other entity be
competitive with the business of Employer or its subsidiaries or affiliates. For
purposes of subdivision (ii) above of this paragraph 16, a business shall be
presumed to be competitive if it conducts in whole or in part anywhere in the
United States any business in which Employer, its subsidiaries or affiliates has
engaged in or engages in during the term of Executive's employment with Employer
or which Employer, its subsidiaries or affiliates contemplated engaging in
during the term of this Agreement and began engaging in within six months
subsequent to the termination of this Agreement.
16. Employer acknowledges that Executive has substantial interest and
activities in the medical field. Nothing herein shall restrict or otherwise
limit Executive from managing Executive's private investments or conducting
activities which are not competitive with the businesses of Employer. Executive
shall be permitted to serve as a director of companies which are not competitive
with the businesses of Employer, so long as such services do not interfere with
the performance of Executive's duties under this Agreement.
17. Executive acknowledges that the remedy at law for any breach or
threatened breach by the Executive of the covenants contained in paragraphs 15
and 16, would be wholly inadequate, and therefore the Employer or its
subsidiaries or its affiliates shall be entitled to preliminary and permanent
injunctive relief and specific performance thereof. Paragraphs 15 and 16,
constitute independent and separable covenants that shall be enforceable
-4-
<PAGE>
notwithstanding rights or remedies that the Employer or its subsidiaries or its
affiliates may have under any other provision of this Agreement, or otherwise.
If any or all of the provisions of paragraph 15 and 16 are held to be
unenforceable for any reason whatsoever, it shall not in any way invalidate or
affect the remainder or this Agreement which shall remain in full force and
effect. If the period of time or geographical areas specified in paragraphs 15
and 16 are determined to be unreasonable in any judicial proceeding, the period
of time or areas of restriction shall be reduced so that this Agreement may be
enforced in such areas and during such period of time as shall be determined to
be reasonable.
18. The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach thereof.
19. Any and all notices referred to herein shall be sufficient if
furnished in writing and sent by certified mail, return receipt requested, to
the respective parties at the addresses set forth below, or such other address
as either party may from time to time designate in writing.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
To Executive: To Employer:
- --------------------------------------------------------------------------------
<S> <C>
Dr. Herbert Moskowitz Life Medical Sciences, Inc.
616 Washington Court 214 Carnegie Center
Guilderland, New York 12084 Princeton, New Jersey 08549
- --------------------------------------------------------------------------------
With copies in each case to: Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
New York, New York 10012
Attention: Irwin M. Rosenthal
- --------------------------------------------------------------------------------
</TABLE>
20. This Agreement shall be binding upon, and shall inure to the
benefit of, Employer and its successors and assigns, and Executive and
Executive's legal representatives, heirs, legatees and distributees, but neither
this Agreement nor any rights hereunder shall be assignable, encumbered or
pledged by Executive.
21. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes any and
all prior written or oral agreements between Employer and Executive with respect
to the subject matter hereof. No modification, amendment or waiver of any of the
provisions of this Agreement shall be effective unless in writing and signed by
both parties hereto.
22. (a) If any controversy or dispute arises under, out of or in
relation to any of the provisions hereof which cannot be settled by the parties
within twenty (20) days after the same shall arise, such controversy or dispute
shall be submitted for arbitration in New York, New York before a panel of three
arbitrators, one of which shall be selected by the party initiating such
arbitration, one of which shall be selected by the other party and the third of
which (hereinafter referred to as the "Third Arbitrator") shall be selected by
----------------
the two arbitrators so selected; provided, however, that in the event that such
-------- -------
other arbitrators shall not agree on
-5-
<PAGE>
the selection of the Third Arbitrator, the Third Arbitrator shall be selected by
the American Arbitration Association located in New York, New York. Any dispute
or controversy submitted to arbitration in accordance with the provisions of
this Section 26 shall be determined by such arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association then
existing.
(b) The arbitrators may award any relief which they shall deem proper
in the circumstances, without regard to the relief which would otherwise be
available to any party in a court of law or equity including, without
limitation, an award of money damages, specific performance, injunctive relief
and/or declaratory relief. The award and findings of the arbitrators shall be
conclusive and binding upon all of the parties hereto, whether or not all
parties hereto participate in the arbitration proceeding, and judgment upon the
award may be entered in any court of competent jurisdiction upon the application
of any party.
(c) Employer agrees to pay all costs and expenses including but not
limited to all reasonable legal fees incurred by Executive in pursuing and/or
enforcing his rights under this agreement. Expenses and costs will be paid
within 10 days of submission to the Company by Executive and will not be
recoverable in the event of an adverse legal decision against the Executive.
(d) Notwithstanding the foregoing, the parties reserve the right to
seek and obtain injunctive relief, whether in the form of a temporary
restraining order, preliminary injunction, injunction to enforce an arbitration
award, or other order of similar import, from any court of competent
jurisdiction prior to, during or after commencement or prosecution of
arbitration proceedings or the final decision and award of the arbitrators.
23. This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same Agreement.
24. If any provision or part of any provision of this Agreement is
held for any reason to be unenforceable, the remainder of this Agreement shall
nevertheless remain in full force and effect.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of this 30th day of May 1996.
LIFE MEDICAL SCIENCES, INC.
By:
-------------------------------------
Name:
Title:
----------------------------------------
Dr. Herbert Moskowitz
-7-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECOND
QUARTER 1996 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-START> APR-01-1996 JAN-01-1996
<PERIOD-END> JUN-30-1996 JUN-30-1996
<CASH> 15,679,629 15,679,629
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 15,953,626 15,953,626
<PP&E> 149,991 149,991
<DEPRECIATION> 56,131 56,131
<TOTAL-ASSETS> 16,057,106 16,057,106
<CURRENT-LIABILITIES> 309,284 309,284
<BONDS> 0 0
0 0
0 0
<COMMON> 7,772 7,772
<OTHER-SE> 15,158,468 15,158,468
<TOTAL-LIABILITY-AND-EQUITY> 16,057,106 16,057,106
<SALES> 0 0
<TOTAL-REVENUES> 28,921 91,126
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 897,019 1,859,720
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 710 1,446
<INCOME-PRETAX> (747,080) (1,610,702)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (747,080) (1,610,702)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (747,080) (1,610,702)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> (.11) (.27)
</TABLE>
