<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-KSB
|X| Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended April 30, 1997
/ / Transition Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from _________________ to __________________.
Commission File No. 0-27028
EMBRYO DEVELOPMENT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3832099
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
750 Lexington Avenue
New York, New York 10022
(Address of Principal (Zip Code)
Executive Officers)
Registrant's telephone number, including area code: (212) 355-8484
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Sections 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of the Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10K-SB
or any amendment to this Form 10-KSB. [X]
Issuer's revenues for its most recent fiscal year were $287,000.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the closing price of such stock as
of July 8, 1997, was approximately $1,514,062.50.
Number of shares outstanding of the issuers common stock, as of July 8,
1997, was 4,845,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
1
<PAGE>
PART I
Item 1. BUSINESS.
Embryo Development Corporation, is a development stage Delaware
corporation (the "Company" or "Embryo"), which was organized in March 1995 to
develop, acquire, manufacture and market various bio-medical devices. The
Company currently markets products in four (4) distinct market segments;
hydrogel materials, emergency medical equipment, apnea monitoring devices and
peritoneal dialysis warming devices. In addition, the Company has licensed
several patents for products one (1) of which is being developed to be sold in
the medical field. The Company has not derived any significant revenues since
its inception.
On February 6, 1997 the Company, through its majority owned subsidiary
Hydrogel Design Systems, Inc. ("HDS"), acquired certain of the assets of two (2)
related companies, Novatech, Inc. and Alternative Design Systems R & D Group.
HDS acquired all rights and assets, including proprietary formulas and
methodology, necessary to manufacture, market, sell and distribute hydrogel
materials and apnea monitoring devices and associated products. Hydrogel is a
product used in wound care as well as a component of a variety of medical
devices including, cardiac defibrillator pads and various types of electrodes.
HDS has also entered into a contract for the purchase of manufacturing equipment
which has been financed through a long-term note and security agreement between
HDS and Becton Dickinson Transdermal Systems, a division of Becton Dickinson and
Company, a customer of HDS and a manufacturer and distributor of medical devices
and diagnostic systems.
In addition, the Company is also a party to seven (7) license
agreements (the "License Agreements") and two (2) royalty sharing agreements
(the "Royalty Sharing Agreements") with Dr. Lloyd Marks which provide for the
exclusive license of seven medical devices and the sharing of royalties of two
(2) medical devices, all of which have been developed by Dr. Marks ("Marks
Medical Devices"). Five (5) of the Marks Medical Devices have been patented in
the United States, and one (1) is subject to a pending patent application. Both
of the Royalty Sharing Agreements are in connection with Marks Medical Devices
for which Dr. Marks has received patents in the United States. The Marks Medical
Devices include a safety needle, adjustable blood pressure cuff, a multi
function fluid communication control system and stereoscopic fluoroscopy
apparatus. Dr. Marks has also entered into a consulting agreement with the
Company to assist in the commercial exploitation of the licensed devices. In
addition, Dr. Marks has given the Company a right of first refusal on any
devices he should develop in the future.
The Company owns five (5) medical devices and has the exclusive
licensing rights to one
2
<PAGE>
(1) medical device in the areas of emergency medical equipment and peritoneal
dialysis warming devices ("C.F. Medical Devices"). Two (2) of the devices, the
Hot-Sack II(TM) and Hot-Sack II+(TM), are used in connection with the warming of
peritoneal dialysis solution. Four (4) of the devices, Hot-Sack(R),
Res-Q-Air(R), Therm-O-Drug(TM) and an electronic stethoscope, are devices used
for emergency rescue operations and by other emergency medical technicians.
Three of the devices (Hot-Sack(R), Res-Q-Air(R) and Therm-O-Drug(TM) ) have
received all necessary regulatory approval under the FDA's "510(k) review"
process and the Company believes that the additional two (2) products (Hot-Sack
II(TM) and Hot-Sack II+(TM)) are covered by the FDA's approval of Hot-Sack(R) or
would independently qualify for 510(k) approval.
HDS PRODUCTS
The major focus of HDS is the manufacture of hydrogel materials, on an
original equipment manufacturer ("OEM") basis, for the manufacture of medical
devices, drug delivery products, wound care and cosmetics products. Hydrogel is
manufactured by introducing a polymer (solid) into water, creating a feed mix.
The feed mix is used to coat a web material (or scrim) and two outer linings are
applied creating sheets of hydrogel. These sheets are then introduced to a high
energy field, which is accomplished by using an electron beam accelerator. The
introduction of a high energy field causes the release of hydrogen atoms which
in turn causes carbon molecule covalent bonding. This is commonly referred to as
crosslinking. This creates longer chains of the polymer in the gel which
increases its molecular integrity, giving the gel unique characteristics which
make it useful in a variety of products. By varying the percent of solids in the
feed mix, the amount of crosslinking (which is determined by the amount of
energy introduced), the type of polymer, scrim and lining used, a wide variety
of gels with distinctly different characteristics may be produced.
The Company believes that HDS's proprietary mixing and beam operation
technology allow it to make superior quality products at competitive prices. HDS
currently provides product to several Fortune 500 companies, as well as other,
smaller companies. These customers are using the HDS hydrogel for wound
dressings, transdermal drug delivery systems and electrodes.
HDS currently mixes the gel and outsources the beam processing.
However, HDS has purchased an electron beam and has leased space in Langhorne,
PA, where it is building an electron beam irradiation facility. The facility is
scheduled to be on-line in the fourth quarter of calendar year 1997. Management
anticipates that in addition to housing the electron beam and hydrogel mixing
room, the facility will house the warehousing and distribution operations of the
emergency medical, apnea monitoring and peritoneal dialysis products.
HDS also sells a variety of wire and cable products to resellers which
are used for infant monitors. The products are generally used for infants with
health problems that result in a need for monitors which are attached to
electrodes. HDS primarily purchases parts and assembles a variety of kits for
use with the monitors.
3
<PAGE>
MARKS MEDICAL DEVICES.
The Company has seven (7) licensing agreements with Dr. Lloyd Marks
which provide for the exclusive license to commercially exploit medical devices
that have been developed by Dr. Marks. Five (5) of the devices are the subject
of existing United States patents and one (1) device has a patent application
pending.
Each of the Licensing Agreements provide that the Company receives the
exclusive right to develop, commercialize and sell each of the seven (7) medical
devices. In addition, the Company has two (2) Royalty Sharing Agreements with
Dr. Marks for patented medical devices. To date, the Company has focused its
resources on the development of the safety needle and has not pursued the
development of the other Marks Medical Devices. See "Certain Transactions."
Safety Needle The Company has aggressively pursued the development and
exploitation of Dr. Marks' patented safety needle design. The safety needle is a
needle which prevents accidental skin punctures, thereby preventing the spread
of infections or diseases to medical personnel. Although there are several
safety needles developed and on the market, almost all require a specific act by
the user to place it in its safe state. The Company believes that the few
designs which automatically cap the needle are mechanically complex and too
expensive to achieve commercial success. As a result, safety needles are neither
generally acceptable nor in common use.
The Company's safety needle requires no affirmative act on the part of
the user to deploy the protective mechanism. In addition, it is mechanically
simple and therefore inexpensive to manufacturer. The needle tip is never
exposed from its protective mechanism except when it is in the patient or an
Intramuscular ("IM") injection is about to be administered.
In May 1996, the Company entered into contract with two (2) different
firms to commence final design and manufacture of the Safety Needle.
Subsequently, the Company has terminated one of the contracts. The Company has
developed soft tooling which is being used to assess the manufacturing process
and validation of the hard tool design. Sample product has been manufactured
using the soft tooling. These samples are currently being shown to focus groups
and healthcare professionals in an effort to better evaluate the marketing
strategy of the product. A hard tool will be ordered from which a product will
be made which will be used for the data gathering required for FDA submission.
CF MEDICAL DEVICES
Emergency Medical Devices
The Company owns three (3) medical devices, Hot-Sack(TM),
Therm-o-Drug(TM) and an
4
<PAGE>
electronic stethoscope, and has the exclusive licensing rights to one (1)
medical device, Res-Q-Air(TM), all of which are used in medical rescue
operations by ambulances and other emergency medical technicians. The following
is a detailed explanation of these medical devices.
The Hot-Sack(R) - The Hot-Sack(R) warms two (2), one (1) liter
intravenous ("IV") bags in one hour. The Hot-Sack(TM) reduces the temperature
loss of the IV solution given to patients in extreme weather conditions and is
particularly useful in the treatment of patients suffering from hypothermia.
This device has received United States, Patent No. DES352606. The trademark
Hot-Sack(R) is a registered trademark as evidenced by United States Trademark
Certificate No. 1742230. The Hot-Sack(R) has received approval from the FDA, and
has been marketed since 1993 subject to the general control provisions of the
Federal Food, Drug and Cosmetic Act.
Res-Q-Air(R) - The Res-Q-Air(R) inhaled delivery system is an effective
method of core rewarming in cases of hypothermia giving the patient the ability
to inhale warm saturated air. This product makes warm saturated air available
for any emergency rescue operation. The Res-Q-Air(R) was designed and developed
at the University of Victoria, British Columbia. The Company has licensed the
exclusive right to manufacture, market and sell the Res-Q-Air(R) in the United
States, Canada and Worldwide, pursuant to a license agreement which expires on
May 8, 2000. In consideration for such license, the Company has agreed to pay
Rescue Products, Inc. a royalty of ten (10%) percent of the factory selling
price of all Res-Q-Air(R)'s sold. This device has received United States, Patent
No. 5,148,801. The Res-Q-Air(R) received approval from the FDA in 1993 and has
been marketed since 1993 subject to the general control provisions of the
Federal Food, Drug and Cosmetic Act.
Therm-O-Drug(TM) - Therm-O-Drug(TM) is a heated drug box which enables
medications to be stored at between 65o and 85o even when the temperature
outside the box is as low as 10o . The Therm-O- Drug(TM) is powered by either a
115 VAC or through a 12 volt vehicle power with an optional cigarette lighter
cable. Therm-O-Drug(TM) received required approval from the FDA under Section
510(k) in 1993 and has been marketed since 1993. Therefore the Company may
market the device subject to the general control provisions of the Federal Food,
Drug and Cosmetic Act.
Electronic Stethoscope - an electronic stethoscope which allows a
medical technician to hear a patient's heart and lungs clearly in a high noise
environment (up to 100db levels), without removing any of the patient's
clothing. The stethoscope also makes it possible to hear fetal sounds clearly
and to monitor blood pressure through clothing layers. Direct amplification
through the stethoscope combined with fixed and adjustable filters block out
excessive ambient noise and extraneous sounds which cause massive interference
with conventional stethoscopes. This allows monitoring of a patient's condition
and blood pressure during medivac or ambulance transportation. The electronic
stethoscope was developed by Dr. Andrew Weinberg, M.D. in cooperation with C.F.
The Company has acquired all rights to the stethoscope and an agreement with Dr.
Weinberg which has a term of twenty (25) years and under which the Company will
pay Dr. Weinberg a royalty of three (3%) percent of the retail price of each
stethoscope sold by the
5
<PAGE>
Company.
Peritoneal Dialysis Devices
The Company owns two (2) devices that are used in the warming of
peritoneal dialysis solution.
The Hot-Sack II(TM) - The Hot-Sack II(TM) is a portable and safe method
for warming peritoneal dialysis solutions. The Hot-Sack II(TM) warms one (1)
2000 milliliter bag of peritoneal dialysis solution in approximately one and
one-half (1 1/2) hours providing even heating with no hot spots and no
overheating. The device has an automatic temperature gauge to maintain the
solution at 98o Fahrenheit with no operator adjustments. It enables peritoneal
dialysis patients to have a convenient way to warm the dialysis solution. The
Company believes that this device is protected by the Company's Patent for The
Hot-Sack(R) and may be marketed based upon the FDA approval of The Hot-Sack(R)
subject to the control provisions of the Federal, Food, Drug and Cosmetic Act.
Hot-Sack II+(TM) - The Hot-Sack II+(TM) is a modified version of the
Hot-Sack II(TM) device for the heating of peritoneal dialysis solution. The
Hot-Sack II+(TM) was developed in cooperation with a worldwide distributor of
health products. The Company believes that this device is protected by the
Company's Patent on the Hot-Sack(R) and may be marketed based upon the FDA's
approval of Hot-Sack(R), subject to the general control provisions of the
Federal Food, Drug and Cosmetic Act.
Sales and Marketing
HDS hydrogel and other electron beam accelerator processed products are
being marketed both through internal contacts with a few world-wide health
distributors and through an outside sales force. HDS has entered into a contract
with a sales consultant experienced in electron beam accelerator processed
products and an outside agency. HDS has commenced solicitation of prospective
customers for hydrogel and electron beam accelerator processed products in
preparation for the completion of the plant facility in late 1997.
The HDS apnea monitor related products have an established market of
approximately 50 resellers. HDS, through its internal sales force, is seeking to
expand its customer base through increased marketing efforts and by bidding on
large volume supply contracts. Since this is a specialized field, the customer
base is limited.
The Company markets its C.F. Medical Devices through independent
distributors worldwide. The Company does not have written agreements with these
distributors and pays these distributors between 15-30% of the sales price of
each device. The Company also markets its
6
<PAGE>
products through print and media advertising directed at consumers, health care
professionals and long-term care facilities and product literature directed at
distributors of medical products, and by exhibiting its products at appropriate
medical conventions and meetings.
On July 25, 1995, the Company entered into a distributorship agreement
with Medical Marketplace, Inc., ("MMI") which provided that MMI would act as a
distributor of certain Marks Medical Devices in the State of California. In
consideration for such distribution, the Company agreed to sell to MMI the Marks
Medical Devices at fifty (50%) percent of their retail sales price. The
Distributorship Agreement has a term of five (5) years and may be terminated
upon the mutual consent of the parties upon thirty (30) days written notice.
Management will determine the appropriate marketing strategy for the
products which are currently in the development stage as these products come to
market.
Manufacturing
HDS is currently in the process of constructing an electron beam
accelerator in Langhorne, PA. This facility will serve as a manufacturing
facility for its hydrogel products as well as a contract irradiation facility.
In addition, the Company anticipates consolidating its other manufacturing and
warehousing operations into this facility. The facility is scheduled to be
completed in the fourth quarter of calendar 1997.
The Company's medical devices must be manufactured in compliance with
applicable regulatory requirements and at acceptable cost. Many of the Company's
competitors rely on third party manufacturers to produce and assemble some or
all of the components of their products. The Company's success depends to a
material degree upon its ability to contract with third parties to manufacture
the Company's proposed products according to the Company's designs and
specifications, in accordance with applicable regulations, and at a unit cost to
the Company that will permit the Company to market its products at an acceptably
competitive purchase price to its customers.
Management believes, although there can be no assurance, that the
Company will be able to maintain sources of manufacturing supply for its non-HDS
products that will satisfy the foregoing requirements.
Competition
Competition in the medical device industry is intense. There are many
companies and academic institutions that are capable of developing products of
similar design, and that have developed and are capable of developing products
based on other technologies, that are or may be competitive with the Company's
medical devices. Many of those companies and academic institutions are
well-established, have substantially greater financial and other resources than
the Company, and have established reputations for success in the development,
sale and service of
7
<PAGE>
products. These companies and academic institutions may succeed in developing
competing products that are more effective than those of the Company or that
receive FDA approval more quickly than the Company's products. The Company's
ability to compete will be dependent upon its ability to get products approved
by regulatory authorities and introduced to the market, including the
arrangement of a distribution network, and to provide products with advanced
performance features, none of which can be assured. In addition, the Company
must compete with other existing and new technologies in the allocation of
hospitals' capital spending budgets.
Government Regulation
The majority of the Company's products are subject to regulation by,
among other governmental entities, the United States Food and Drug
Administration ("FDA") and, to a lesser extent, correspondent state agencies. If
a device is subject to FDA regulation, compliance with its requirements usually
constitutes compliance with state regulation. In order to ensure that medical
products distributed for human use in the United States are safe and effective,
the FDA regulates the introduction, manufacture, advertising, labeling,
packaging, marketing and distribution of and record-keeping for such products.
In manufacturing some of its products, the Company must comply with FDA
regulations and is subject to various other FDA record-keeping requirements and
to inspections by the FDA. The Company believes that the manufacturing and
quality control procedures it will follow, will meet the requirements of these
regulations. The FDA would have the authority, in addition to less drastic
remedies, to order the Company to cease production of its products and to
request that the Company recall products already sold by the Company. The FDA
may conduct periodic inspections of the Company's facilities in order to confirm
regulatory compliance by the Company, but has not yet done so. If the FDA
believes that its regulations and other guidelines have not been followed, it
may seek to implement extensive enforcement powers, which were recently
strengthened by the enactment of the Safe Medical Devices Act of 1990. The FDA's
powers include the ability to ban products from the market, prohibit the
operation of manufacturing facilities and effect recalls of products from
customer locations and impose monetary civil penalties. The Company believes
that it is in substantial compliance with applicable FDA regulations.
Three (3) of the medical devices that the Company acquired from C.F.
and four (4) of the products acquired from Alternative Design Systems R & D
Group have been approved by FDA under a review process known as "510(k) review"
and the Company believes that an additional two (2) products (Hot-Sack II(TM)
and Hot-Sack II+(TM)) are covered by the FDA's approval of Hot Sack(TM) or would
qualify independently for 510(k) approval. In the 510(k) review process, a
manufacturer is mandated to demonstrate that a proposed product is
"substantially equivalent" to another product that was in commercial
distribution in the United States before May 26, 1976, in which event the review
process can take anywhere from three months to more than one year before FDA
grants clearance of the 510(k) pre-market notification. In cases where there is
no existing FDA-approved product "substantially equivalent" to the new proposed
product, the
8
<PAGE>
product is considered a "new" product. The new product requires a Pre-Market
Application ("PMA") which is a lengthier and more burdensome process and a
process which will require FDA approval prior to the product entering commercial
distribution. Although the Company believes that the Marks Medical Devices will
also qualify for approval under the 510(k) review process, the Company has not
submitted any applications to the FDA for the approval of any of these devices
and consequently has not received the approval of the FDA to market any of Marks
Medical Devices.
After clearance is given, the FDA has the power to withdraw the
clearance or require the Company to change the device or its manufacturing
process or labeling, to supply additional proof of its safety and effectiveness
or to recall, repair, replace or refund the cost of the medical device if it is
shown to be hazardous or defective. The process of obtaining clearance to market
products is costly and time consuming and can delay the marketing and sale of
the Company's products.
Health Care Industry. Legislation and regulations at both the federal and state
levels may be enacted which may change the methods by which health care
providers, including hospitals, physicians and home care dealers, are reimbursed
for costs of providing services to Medicare and Medicaid program beneficiaries.
Changes may also be made by third-party payors in coverage policies for various
items.
Patents, Proprietary Rights and Trademarks
The Company's policy is to file patent applications to protect
technology, inventions and improvements that are important to the development of
its business. The Company also relies on trade secret protection for its
confidential and proprietary information.
The Company has the exclusive license to six (6) medical devices of
which five (5) have been issued United States patents and the exclusive license
to one (1) medical device that has a U.S. patent application pending. There can
be no assurance that pending patent applications will be approved or that any
patents will provide competitive advantages for the Company's products or will
not be challenged or circumvented by competitors. The Company also relies on
trade secrets and proprietary know-how which it seeks to protect, in part,
through confidentiality agreements with employees, consultants and other
parties. There can be no assurance that these agreements will not be breached,
that the Company would have adequate remedies for any breach, or that the
Company's trade secrets will not otherwise become known to or independently
developed by competitors. The Company also holds a registered trademark on
Hot-Sack(R) and on SmartMed(TM) which is used on current products and may be
used on future products.
As part of the HDS asset acquisition, the Company also holds a
registered trademark on Buzz-Off(R) which may be used on future hydrogel related
products.
9
<PAGE>
Product Liability Insurance
Companies in the health care market are subject to lawsuits alleging
negligence, product liability and other legal theories, many of which involve
large claims and significant defense costs. The Company could be subject to
claims alleging personal injuries resulting from the use of its products. The
Company has obtained product liability insurance since it has commenced sales of
its products. However, there can be no assurance that such policies will be
sufficient to cover potential claims or the costs of any resulting litigation or
that a policy can be maintained in force at an acceptable cost to the Company. A
successful claim against the Company in excess of the Company's insurance
coverage could have a material adverse effect upon the Company's business and
results of operations. In addition, claims against the Company, regardless of
their merit or eventual outcome, also may have a material adverse effect upon
the Company's reputation. The Company currently has product liability coverage
of $1,000,000 and a $5,000,000 umbrella policy.
Employees
As of July 31, 1997, the Company and its majority-owned subsidiary
employed ten (10) full time persons, including two (2) in sales marketing and
product development, four (4) in general administration and finance, and four
(4) in production and setup of the new facility. The Company has never had a
work stoppage and its employees are not represented by a labor organization. The
Company considers its employee relations to be good.
Item 2. PROPERTIES.
The Company's corporate headquarters are in New York City. The
Company's lease is on a month to month basis at a rent of $5,000 per month. See
"Certain Transactions." The Company believes that these facilities are adequate
to meet its current needs and that suitable additional or alternative space will
be available as needed in the future on commercially reasonable terms.
In February 1997, the Company leased a 16,500 square foot facility in
Langhorne, PA. This facility will serve as the Company's
manufacturing/distribution center. The lease is for a term of seven years with
an annual rent of $116,000 which increase to $119,000 per annum over the term of
the lease. The facility is subleased to HDS for the full rental amount.
HDS also leases additional space in Carlstadt, New Jersey and in
Teterboro, New Jersey on a month to month basis which is currently being used
for production and distribution of products. On August 1, 1997 HDS closed its
Teterboro facility and the operations have been transferred to the Langhorne
facility.
10
<PAGE>
Item 3. LEGAL PROCEEDINGS.
The Company has been named in four (4) actions, three (3) of which are
seeking class certification of their claims against the Company and various
other defendants.
Morehead, et al. v. Advanced Voice Technologies, et al., (New York
Supreme Court, New York County); Control Touch Systems, Inc. v. Advanced Voice
Technologies, Inc., et al, (New York Supreme Court, New York County); Mott v.
Sterling Foster & Co., Inc., et al., (United States District Court, District of
South Carolina); Petit, et al. v. Sterling Foster & Co., Inc., et al., (United
States District Court, Eastern District of New York) These complaints against
numerous defendants including the Company allege violations of the Securities
Act of 1933 arising out of the November 1995 initial public offering of 1
million shares of Company common stock. According to the complaints, the
underwriter of the offering, Sterling Foster & Co., Inc. ("Sterling Foster"),
manipulated secondary market trading in shares of the Company's common stock
following the offering. The complaints further allege that the prospectus and
registration statement for the offering failed to disclose material facts, in
violation of federal and state securities laws. The complaints seek unspecified
damages. The Company and its officers and directors deny the allegation of the
complaints and are vigorously defending these actions.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to the Company's shareholders for vote during
the last quarter of its fiscal year.
11
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's securities commenced trading in the over-the-counter
market on the effectiveness of the Company's Initial Public Offering on November
18, 1995 in the form of Common Stock. The Common Stock is regularly quoted and
traded on the NASDAQ system.
The following table indicates the high and low bid prices for the
Company's Common Stock for the period up to June 30, 1997 based upon information
supplied by the NASDAQ system. Prices represent quotations between dealers
without adjustments for retail markups, markdowns or commissions, and may not
represent actual transactions.
Common Stock
Quoted Bid Price
High Low
1995 Calendar Year
Fourth Quarter 12 7/8 9 3/4
November 18, 1995 -
December 31, 1995
1996 Calendar Year
First Quarter 12 5/8 5 1/4
Second Quarter 6 7/8 4 3/4
Third Quarter 5 3/4 2 1/2
Fourth Quarter 2 5/8 1/2
1997 Calendar Year
First Quarter 2 1/2 1/2
Second Quarter 11/16 1/4
On July 8, 1997, the closing price of the Common Stock as reported on
the NASDAQ System was $.3125. On July 8, 1997, there were 136 holders of record
of common stock.
12
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Company had net working capital of $1,159,999 at April 30, 1997 which is
primarily due to the remainder of the proceeds from the public offering which
was completed in November 1995. Additionally, the Company has invested
approximately $750,000 of these proceeds in long-term investments. The Company
remains in its development stage as it has not yet derived significant revenues
from the sale of its products.
In January 1997, the Company entered into a subscription agreement to
acquire 50.04% of the Common Stock and 15,000,000 shares of Preferred Stock for
a combined voting interest of 92.9% of Hydrogel Design Systems, Inc. ("HDS").
HDS was formed to effect the asset acquisition described below. As consideration
for its interest, which consists of 1,251,000 shares of HDS Common Stock and
15,000,000 shares of HDS Series A Preferred Stock, the Company agreed to
contribute $150,000 in cash, 150,000 shares of its Common Stock, and the
commitment to make available to HDS a $500,000 8% revolving line of credit. In
February 1997, HDS acquired certain assets from two entities for an aggregate
purchase price of $150,000 in cash and 150,000 shares of Embryo Common Stock.
Assets acquired include property rights and technical data, machinery and
equipment, and inventory. The Embryo shares vest on the second anniversary date
of the closing only if HDS has earned $500,000 in cumulative gross revenues
derived from the sale of certain products during the two (2) year period. If, on
the vesting date, the fair market value of the shares is less than $900,000, the
parties may demand that HDS purchase all of the shares at an aggregate purchase
price of $900,000 in either cash and/or marketable securities.
The Company's statement of cash flows for the year ended April 30, 1997
reflects cash used in operating activities of approximately $1,126,000. This use
of cash is primarily attributable to general and administrative expenses,
product development and advertising and marketing expenses. Net cash provided by
investing activities approximated $847,000 representing the sale of investments
of approximately $1,196,000 which was used primarily to fund current operations.
In addition, $201,000 of these funds were used for the asset acquisition
described above and $148,000 was used to purchase property and equipment for
HDS. Net cash provided by financing activities of $150,000 represents the cash
contribution of a minority shareholder of HDS which was also utilized for
capital expenditures and the asset acquisition. HDS has also entered into a
contract for the purchase of manufacturing equipment for approximately $600,000,
which was provided by financing activities through the issuance of debt in the
same amount. The funds were transferred directly from the lender to the seller
of the equipment. The debt is evidenced by a promissory long-term note and
security agreement between HDS and Becton Dickinson and the note is to be repaid
between three (3) and six (6) years from the anniversary date, depending upon
the amount of revenue generated by HDS as a
13
<PAGE>
result of Becton Dickinson contracts.
The Company expects to incur substantial expenditures over the next 6
to 12 months for product development, to implement its sales and marketing plans
and to establish a manufacturing facility for HDS. The Company's management
believes that the Company's short and long-term investments will be sufficient
to fund its liquidity needs for at least the next 12 months.
Results of Operations
Since its inception, the Company's primary activities have consisted of
obtaining the exclusive license to seven (7) medical devices developed by Dr.
Lloyd Marks, developing a marketing strategy for the C.F. Medical Devices and
the start-up of HDS.
The Company has not derived significant revenues since its inception in
March 1995. The total revenue earned from inception of $435,260 is primarily a
result of the sale of the C.F. Medical Devices. HDS sales of hydrogel and apnea
monitor products represents approximately $115,000 of the revenue earned since
February 6,1997. As a result of the Company's start-up expenses and acquisition
of licenses and royalty rights for the products in the development stage, the
Company had an accumulated deficit of $3,530,474 as of April 30, 1997. The
Company expects to continue to incur operating losses until such time it can
generate significant revenues from the sale of its products.
Plan of Operation
On February 6, 1997, the Company, through its majority owned
subsidiary, HDS, entered into asset purchase agreements pursuant to which it
acquired certain assets from two entities. The two companies were engaged in the
business of manufacturing, marketing, selling and distributing hydrogel, a
aqueous polymer-based radiation ionized medical/consumer product, as well as
after-market components for apnea monitoring. Assets acquired include property
rights and technical data, machinery and equipment, and inventory. During the
next six (6) months HDS will seek to increase revenues from the sale of hydrogel
after-market apnea monitoring components primarily through increased marketing
efforts. The Company has also leased a facility in Langhorne, PA where it will
establish a manufacturing facility for the in-house production of hydrogel and
electronic beam processing of medical, cosmetic and pharmaceutical products. The
Company anticipates completion of the facility in the fourth calendar quarter of
1997.
In May of 1996 the Company entered into contracts with two different
firms to commence final design and manufacture of the Safety Needle, one of the
medical devices developed by Dr. Lloyd Marks. Toward that end, the Company has
implemented the manufacture of prototypes for this medical device and has held
focus groups with various medical professionals to refine and enhance the
device. The Company anticipates the development of a marketing strategy and
seeking FDA approval for this device in the next six (6) - nine (9) months.
During the next six (6) months, the Company will also continue to
conduct market
14
<PAGE>
research studies on the other six (6) medical devices it has licensed from Dr.
Marks in order to determine which of the devices are most commercially
marketable. The review will also include an analysis of the most efficient way
to market each of the devices. The Company will determine if it is more
efficient to license the products to third parties for development or to develop
and market the products itself. Within 12 months the Company intends to
implement the development and marketing of the most commercially viable and
potentially profitable medical devices. The Company also intends to undertake
clinical and beta tests to evaluate the products as they are being developed.
The Company may enter into discussions with unaffiliated third parties that may
be able to utilize, develop or market the devices in either a cooperative joint
venture or as a licensee. The relationship may also assist the Company in the
preparation of applications to the Food and Drug Administration in order to
receive approval to market the devices in the United States.
The Company is also seeking to increase revenues from the sale of the
C.F. Medical Devices primarily through increased demonstrations to the
appropriate interest groups.
The Company believes it has sufficient capital to fund the Company's
operations for the next 12 months.
Item 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See financial statements following Item 13 of this Annual
Report on Form 10-KSB.
Item 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
15
<PAGE>
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT.
Directors and Executive Officers
The names and ages of the directors, executive officers and
significant employees, and promoters of the Company are set forth below. All of
the directors are elected annually.
Name Age Position Held
Matthew L. Harriton 33 Chief Executive Officer, Chief Financial
Officer and Director
Donn M. Gordon 52 Chief Executive Officer and Director*
Michael Lulkin 44 Chairman of the Board of Directors
and Secretary
Steven F. Wasserman 39 Director**
Dr. Daniel Durchslag 52 Director
Dr. Lloyd Marks 45 Consultant
David Meridor 54 Consultant
*Employment of Donn M. Gordon was terminated on March 31, 1997.
**Steven F. Wasserman resigned as a Director of the Company on July 22, 1997.
Background of Executive Officers and Directors
Matthew L. Harriton has served as the Chief Financial Officer of the
Company since January 1996. In April 1997, Mr. Harriton became the Chief
Executive Officer and a Director of the Company. Prior to joining Embryo
Development Corporation, Mr. Harriton's professional experience included
positions at CIBC Wood Gundy Securities Corporation, Coopers & Lybrand, and The
First Boston Corporation. Mr. Harriton also serves as a director of Decor
Group, Inc., a public company which trades on the OTC Bulletin Board and is
involved in the home decorating industry. Mr. Harriton also serves as a
director of Superior Supplements, Inc., a public company which trades on the OTC
Bulletin Board and which manufactures and sells dietary supplements and
specialty nutritional supplements in bulk tablet, capsule and powder form. Mr.
Harriton
16
<PAGE>
also serves as a director of Perry's Majestic Beer, Inc., a public company which
trades on the OTC Bulletin Board and produces micro brewed beers. He is a
graduate of Lehigh University and received his M.B.A. from Duke University's
Fuqua School of Business.
Donn M. Gordon was the President and Chief Executive Officer of Westcon
Orthopedics, Inc. From 1989 to 1995. Westcon develops, manufactures and markets
specialty products to the Orthopedic and Podiatric markets. Prior to joining
Westcon, Mr. Gordon was Vice President and Chief Operating Officer of Cormed,
Inc., a developer/marketer of ambulatory infusion pumps and vascular access
devices. Mr. Gordon received his B.S. in Chemistry from Mommouth College and
his MBA in Marketing/Management from Southern Illinois University.
Michael Lulkin has served as a Chairman of the Board of Directors of
the Company since March 1995. Since May 1995, Mr. Lulkin has served as the
general counsel for PDK Labs, Inc., a manufacture of over-the-counter
pharmaceuticals which trades on The Nasdaq SmallCap Market. Prior to joining PDK
Labs, Mr. Lulkin was engaged in the private practice of law as a sole
practitioner for over 13 years. Mr. Lulkin also serves as a director of Decor
Group, Inc. Decor is a public company which trades on the OTC Bulletin Board and
is in the home decorating industry. He graduated from State University of New
York at Buffalo and received his J.D. from Emory University School of Law.
Steven F. Wasserman served on the Company's Board of Directors from
March, 1995 through July 22, 1997. Mr. Wasserman has been engaged in the
practice of law at the firm of Bernstein & Wasserman since 1984. See "Legal
Matters." Mr. Wasserman is a graduate of Union College and received his J.D.
from the Benjamin N. Cardozo School of Law.
Dr. Daniel Durchslag, DDS,, has been practicing General, Cosmetic and
Sports Dentistry in Beverly Hills, CA, since 1980. From 1973 until 1979, he was
an Associate Professor and Director of Clinics at the University of Southern
California School of Dentistry. He is a graduate of the University of Wisconsin
and Loyola University/Chicago College of Dental Surgery. He is presently Team
Dentist for the Los Angeles Raiders.
Dr. Lloyd Marks has been a consultant to the Company since March 31,
1995. Since 1994 he has been the chief of the division of pediatric cardiology
for the Children's Hospital of New Jersey and the New Jersey Medical School. He
is also an adjunct Professor of Biomedical Engineering at the New Jersey
Institute of Technology and Drexel University. From 1986 - 1994 Dr. Marks
served as a professor of pediatrics at Temple University of Medicine and from
1983 - 1986 he served as an assistant professor at the State University of New
York at Stony Brook. From 1986 - 1994 he also served as staff cardiologist and
director of the cardiovascular laboratory at St. Christopher's Hospital for
Children. Dr. Marks received his M.D. from the University of Michigan Medical
School and his B.S. in Electrical Engineering from Massachusetts Institute of
Technology.
David Meridor has been a consultant to the Company since August 1995.
From 1977-1992, Mr. Meridor was President, Chief Executive Officer and a
Director of Laser Industries Limited and since 1992
17
<PAGE>
has continued to serve as a Director. Laser Industries Limited is a public
Company which trades on the American Stock Exchange and which specializes in
surgical lasers. Mr. Meridor is currently a director of Laser Industries
Limited since 1995. Mr. Meridor has been Chairman of the Board of Directors of
Rosebud Medical Ltd., a healthcare company, whose shares are traded on the
Tel-Aviv Stock Exchange.
Each director of the Company is entitled to receive reasonable expenses
incurred in attending meetings of the Board of Directors of the Company. The
Directors receive no other compensation for serving on the Board of Directors.
The members of the Board of Directors intend to meet at least quarterly during
the Company's fiscal year, and at such other times duly called.
18
<PAGE>
Item 10. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------
Annual Compensation Awards Payouts
--------------------------------- -------- -----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All
Other Stock LTIP Other
Annual Awards Options/ Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation($) ($) SARs(#) ($) ($)
- ---------------------------- ---- --------- ------- ---------------- ----------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Donn Gordon, CEO(2) 1997 $91,000 $13,650 $6,000(1) --- 100,000 0 0
1996 77,250 11,400 7,575(1) --- 100,000 0 0
1995 6,333 0 500(1) --- 0 0 0
Matthew L. Harriton, CEO 1997 $90,000 $ 0 $ 0 --- 100,000 0 0
- --------------------
</TABLE>
(1) Represents auto allowance in accordance with March 1995 employment
agreement
(2) Employment of Donn M. Gordon was terminated on March 31, 1997.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(a) (b) (c) (d) (e)
% of Total Options
Number of Securities Options/SARs Granted Exercise or
Underlying Option/ to Employees in Base Price Expiration
Name SARs Granted (#) Fiscal Year (# Share) Date
- ---- -------------------- -------------------- ---------- ----------
<S> <C> <C> <C> <C>
Donn Gordon 100,000 50% $.5625 3/31/01
Matthew Harriton 100,000 50% .65 1/01/01
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SARs EXERCISES IN
LAST FISCAL YEAR AND FY-END
OPTIONS/SAR VALUES
(a) (b) (c) (d) (e)
Number of Value of
Securities Underlying Unexercised
Unexercised Options/ In-the-Money
SARs at FY-End (#) Options/SARs at
Shares Acquired Value Exercisable/ FY-End Exercisable
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- ---- ------------------ ------------ --------------------- -----------------
<S> <C> <C> <C> <C>
Donn Gordon 0 $ -0- 200,000/-0- $-0-/$-0-
Matthew Harriton 0 -0- 100,000/-0- -0-/-0-
</TABLE>
19
<PAGE>
Employment Agreements
Employment Agreements and Consulting Agreements
On March 31, 1995, the Company entered into a two (2) year employment
agreement with Donn Gordon to serve as the Company's Chief Executive Officer.
The agreement provided for Mr. Gordon to receive a salary of $76,000 per annum
the first year and $91,000 per annum the second year, and for Mr. Gordon to
devote all of his time to the performance of duties to the Company. The
agreement also provided for the payment of a bonus to Mr. Gordon, at the sole
discretion of the Board of Directors, which will be at least 15% of his base
salary and the issuance of options to purchase the aggregate amount of 200,000
shares of Common Stock, 100,000 of which were issued upon the completion of the
Company's initial public offering exercisable at the initial public offering
price of $5.00 and 100,000 of which were issued on March 31, 1997 and are
exercisable at $.5625. Mr. Gordon's contract expired on March 31, 1997 and was
not renewed by the Company.
The Company has entered into a four (4) year consulting agreement with
Dr. Lloyd Marks which provides for compensation of $75,000 per year. The
agreement also provides for the issuance to Dr. Marks of warrants to purchase
600,000 shares of the Company's Common Stock at $3.00 per share from January 1,
1996 through December 31, 1999. The agreement requires Dr. Marks to provide 12
hours of consulting services to the Company per month.
On August 29, 1995, the Company entered into a three (3) year
consulting agreement with David Meridor. The consulting agreement provides for
Mr. Meridor to render advice to the Company specifically concerning strategic
planning involving development of strategic sales and marketing plans in the
United States and internationally. The agreement which initially provided for a
monthly consulting fee of $5,000, was amended in March 1996 at which time the
Company issued 60,000 shares of Common Stock in lieu of the consulting fee. The
value of the Common Stock granted ($240,000) is being charged to operations
ratably over the remaining life of the consulting agreement. The agreement may
be terminated by either party upon thirty (30) days written notice.
On January 1, 1997 the Company entered into a two (2) year employment
agreement with Matthew L. Harriton which provides for a base salary of $90,000
for the first year and $100,000 for the second year, with provisions for a
discretionary bonus. The agreement also provides for the issuance to Mr.
Harriton of options to purchase 100,000 shares of the Company's Common Stock at
$.65 per share.
On February 6, 1997 the Hydrogel Design Corporation entered into five
(5) year employment agreements with both John Essmyer, as Chief Operating
Officer and Vice President of Research, and Michael Periera, as Chief Financial
Officer (the "Executives"). The agreements provide that each of the Executives
shall receive a base salary of $100,000 per annum, with provisions for a
discretionary bonus. The agreements also provided for bonuses of 250,000 shares
of common stock which were issued to each of the Executives upon execution of
their respective agreements.
20
<PAGE>
Stock Option Plans and Agreements
Incentive Option and Stock Appreciation Rights Plan -- As of
March, 1995, the Directors of the Company adopted and the stockholders of the
Company approved the adoption of the Company's 1995 Incentive Stock Option and
Stock Appreciation Rights Plan ("Incentive Option Plan"). The purpose of the
Incentive Option Plan is to enable the Company to encourage key employees and
Directors to contribute to the success of the Company by granting such employees
and Directors incentive stock options ("ISOs") as well as non-qualified options
and stock appreciation rights ("SARs").
The Incentive Option Plan will be administered by the Board of
Directors or a committee appointed by the Board of Directors (the "Committee")
which will determine, in its discretion, among other things, the recipients of
grants, whether a grant will consist of ISOs, non-qualified options or SARs or a
combination thereof, and the number of shares to be subject to such options and
SARs.
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee not less than the fair market value of the Common Stock on the
date the option is granted. Non-qualified options and freestanding SARs may be
granted with any exercise price. SARs granted in tandem with an option have the
same exercise price as the related option.
The total number of shares with respect to which options and SARs may
be granted under the Incentive Option Plan is 2,000,000. ISOs may not be granted
to an individual to the extent that in the calendar year in which such ISOs
first become exercisable the shares subject to such ISOs have a fair market
value on the date of grant in excess of $100,000. No option or SAR may be
granted under the Incentive Option Plan after March 15, 2005 and no option or
SAR may be outstanding for more than ten years after its grant. Additionally, no
option or SAR can be granted for more than five (5) years to a shareholder
owning 10% or more of the Company's outstanding Common Stock.
Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash or in shares of Common
Stock (based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. SARs may be settled, in the Board of Directors' discretion, in
cash, Common Stock, or in a combination of cash and Common Stock. The exercise
of SARs cancels the corresponding number of shares subject to the related
option, if any, and the exercise of an option cancels any associated SARs.
Subject to certain exceptions, options and SARs may be exercised any time up to
three months after termination of the holder's employment.
The Incentive Option Plan may be terminated or amended at any time by
the Board of
21
<PAGE>
Directors, except that, without stockholder approval, the Incentive Option Plan
may not be amended to increase the number of shares subject to the Incentive
Option Plan, change the class of persons eligible to receive options or SARs
under the Incentive Option Plan or materially increase the benefits of
participants.
To date no options or SARs have been granted under the Incentive Option
Plan. No determinations have been made regarding the persons to whom options or
SARs will be granted in the future, the number of shares which will be subject
to such options or SARs or the exercise prices to be fixed with respect to any
option or SAR.
Non-Qualified Option Plan -- As of March 1995, the Directors and
stockholders of the Company adopted the 1995 Non-Qualified Stock Option Plan
(the "Non-Qualified Option Plan"). The purpose of the Non-Qualified Option Plan
is to enable the Company to encourage key employees, Directors, consultants,
distributors, professionals and independent contractors to contribute to the
success of the Company by granting such employees, Directors, consultants,
distributors, professionals and independent contractors non-qualified options.
The Non-Qualified Option Plan will be administered by the Board of Directors or
the Committee in the same manner as the Incentive Option Plan.
The Non-Qualified Option Plan provides for the granting of
non-qualified options at such exercise price as may be determined by the Board
of Directors, in its discretion. The total number of shares with respect to
which options may be granted under the Non-Qualified Option Plan is 2,000,000.
Upon the exercise of an option, the holder must make payment of the
full exercise price. Such payment may be made in cash or in shares of Common
Stock (based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of an
option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time up
to three months after termination of the holder's employment or relationship
with the Company.
The Non-Qualified Option Plan may be terminated or amended at any time
by the Board of Directors, except that, without stockholder approval, the
Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Option Plan or materially increase
the benefits of participants.
22
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of July 22, 1997
with respect to the beneficial ownership of the outstanding Common Stock by (i)
any holder of more than five (5%) percent; (ii) each of the Company's officers
and directors; and (iii) the directors and officers of the Company as a group:
<TABLE>
<CAPTION>
Percentage Percentage (%)
Shares of (%) of of Total
Name and Address Common Common Shares of Combined
of Beneficial Owner Stock Owned Stock Preferred Stock Vote
- ------------------- ------------- ------------ --------------- --------------
<S> <C> <C> <C> <C>
M.D. Funding, Inc.(1) -- -- 6,000,000 55.3
5 Old Woods Drive
Harrison, NY 10528
Donna Field(1)(2) -- -- 6,000,000 55.3
5 Old Woods Drive
Harrison, NY 10528
Michael Lulkin(4) -- -- ---
305 Broadway
New York, NY 10007
Lloyd Marks(3) 600,000 11.0 --- 5.2
27 Great Springs Road
Bryn Mawr, PA 19010
Daniel Durchslag -- -- ---
9400 Brighton Way
Suite 402
Beverly Hills, CA 90210
Matthew L. Harriton(5) 100,000 2.0 --- .9
750 Lexington Avenue
New York, NY 10022
All directors and officers 100,000 2.0 --- .9
as a group (3 persons)
</TABLE>
(1) M.D. Funding, Inc. is a corporation which is wholly owned by Donna
Field, the beneficial owner of such shares. M.D. Funding, Inc. is
not affiliated with any of the
officers or directors of the Company.
(2) Includes 6,000,000 shares of Preferred Stock owned by M.D. Funding,
Inc., a corporation wholly owned by Ms. Field.
23
<PAGE>
(3) Includes a warrant to purchase 600,000 shares of Common Stock at an
exercise price of $3.00 per share commencing January 1, 1996 through
December 31, 1999.
(4) Does not include Class B Warrants to purchase 15,000 shares of Common
Stock.
(5) Includes an option to purchase 100,000 shares of Common Stock at $.65
per share.
24
<PAGE>
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 31, 1995 the Company entered into seven (7) License Agreements
with Lloyd A. Marks for the exclusive license of seven (7) separate medical
devices. The License Agreements provided for the following aggregate payments:
(i) $230,000 paid to Dr. Marks, at the closing of the
Company's initial public offering;.
(ii) issued to Dr. Marks of 400,000 shares of the
Company's Common Stock;
and
(iii) payment to Dr. Marks of 6% to 8% of the amount of
the net sales of the medical device.
Each of the agreements also provides for minimum payment obligations
commencing 2 1/2 years after the date of the agreement. The minimum payment
obligations are for each license as follows:
Agreement Minimum Payment
Year Obligation
--------- ---------------
9/30/97 $ 25,000
3/31/98 $ 25,000
9/30/98 $ 50,000
3/31/99 $ 50,000
9/30/99 $100,000
3/31/00 $100,000
3/31/01+ $200,000
If the minimum payment obligations are not met, Dr. Marks has the option to
revoke the applicable license.
On March 31, 1995, the Company entered into two (2) royalty sharing
agreements with Dr. Marks covering two (2) medical devices he had previously
licensed to unaffiliated third parties. The royalty sharing agreements provided
for the Company to pay Dr. Marks the aggregate amount of $20,000 paid at the
closing of the Company's initial public offering and
25
<PAGE>
the issuance of 50,000 shares of the Company's Common Stock. The agreements
provide for the Company to receive from Dr. Marks 50% of all royalties he should
receive on each of these medical devices.
On March 31, 1995, the Company entered into a consulting agreement with
Dr. Marks for Dr. Marks to provide consulting services to the Company for a
period of four (4) years. Dr. Marks has agreed to provide the Company at least
12 hours per month of consulting services in connection with the exploitation of
the License Agreement. The agreement provides for annual payments to Dr. Marks
of $75,000 per year and the issuance of a warrant to purchase 600,000 shares of
the Company's Common Stock at a purchase price of $3.00 per share.
The Company has entered into a month to month lease with Michael
Lulkin, Chairman of the Board of Directors, for the Company's headquarters at
$5,000.00 per month.
On September 14, 1995, the Company acquired five (5) medical devices
and the exclusive licensing rights to one (1) medical device from C.F.
Electronics, Inc. (the "C.F. Medical Devices"). Two (2) of the acquired medical
devices, the Hot-Sack II(TM) and Hot-Sack II+(TM) are used in connection with
the warming of peritoneal dialysis solution. Four (4) of the medical devices,
Hot-Sack(R), Res-Q-Air(R), Therm-O-Drug(TM) and an electronic stethoscope, are
devices used for emergency rescue operations and by other emergency medical
technicians. All of the medical devices acquired from C.F. have received all
necessary regulatory approvals and are in commercial distribution.
In November, 1995, the Company completed a public offering of 1,000,000
shares of Common Stock at $5.00 per share for an aggregate of $5,000,000. An
additional 150,000 shares were sold for gross proceeds of $750,000 to the
underwriter to cover over-allotments. In addition, the underwriter received an
option, for a nominal fee, to acquire 100,000 shares of Common Stock at an
exercise price of $6.75 per share. The option expires in November 2001.
Effective with the closing of the offering, the Company entered into a
five year consulting agreement with the underwriter. The unamortized balance of
the consulting fee of $91,667 was fully charged to operations in 1997 as a
result of the termination of the underwriter's operations.
In February 1996, the Company entered into two separate multi-year
consulting agreements. As consideration for these services, the Company issued
225,000 shares of Common Stock to each of the parties. The value of the Common
Stock granted ($1,800,000) is being charged to operations ratably over the lives
of the consulting agreements.
In January 1997, the Company entered into a subscription agreement to
acquire 50.04% of the Common Stock and 15,000,000 shares of Preferred Stock for
a combined voting interest of 92.9% of Hydrogel Design Systems, Inc. (HDS). HDS
was formed in October 1996 to
26
<PAGE>
effect the asset acquisition described below. As consideration for its interest,
the Company paid $150,000 cash, 150,000 shares of its Common Stock and made
available to HDS a $500,000 line of credit.
On February 6, 1997 the Company, through HDS, acquired substantially
all of the assets of two (2) related companies, Novatech, Inc. and Alternative
Design Systems R & D Group. In consideration for the payment of $150,000, and
the issuance of 150,000 shares of the Company's Common Stock (subject to certain
adjustments), the Company acquired certain rights and assets, including
proprietary formulas and methodology, necessary to manufacture, market, sell and
distribute Hydrogel and associated products. Hydrogel is a product used in the
manufacture of a variety of medical devices including, cardiac defibrillator
pads and various types of electrodes. HDS has also entered into a contract for
the purchase of manufacturing equipment for $600,000 which has been financed
through a long-term note and security agreement between HDS and Becton
Dickinson, a customer of HDS and a manufacturer and distributor of medical
devices and diagnostic systems.
In February 1997, HDS entered into a month to month lease for a
property owned by two of its executives at $3,000 per month.
M.D. Funding, Inc. may be deemed a parent of the Company as a result of
its control of the Company voting stock. M.D. Funding, Inc. is a corporation
which is wholly owned by Donna Field, the beneficial owner of such shares. M.D.
Funding, Inc. is not affiliated with any of the officers or directors of the
Company. See "Principal Stockholders."
General
The Company believes that material affiliated transactions and loans
between the Company and its directors, officers, principal shareholders or any
affiliates thereof have been and will be in the future on terms no less
favorable than could be obtained from unaffiliated third parties.
27
<PAGE>
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 7:
Index to Financial Statements and Schedules
Report of Independent Certified Public Accountants F-1
Balance sheet as of April 30, 1997 F-2
Statements of operations for the years ended F-3
April 30, 1997 and 1996
Statements of stockholders' equity for the years F-4
ended April 30, 1997 and 1996
Statements of cash flows for the years ended F-5
April 30, 1997 and 1996
Notes to financial statements F-6 - F-14
28
<PAGE>
(a)(3) Exhibits.
1.01* Form of Underwriting Agreement.
1.02* Form of Selected Dealers Agreement.
3.01* Certificate of Incorporation of the Company.
3.02* By-Laws of the Company.
4.01* Form of Warrant Agreement by and among the Company and
American Stock Transfer & Trust Company.
4.02 * Form of Underwriter's Share Purchase Option.
10.01* March 1995 Bridge Loan Agreements.
10.02* Consulting Agreement by and between Dr. Lloyd Marks
and the Company dated as of March 31, 1995.
10.03* Licensing Agreement by and between Dr. Lloyd Marks and
the Company re: SmartMonitor dated of March 31,1995.
10.04* Licensing Agreement by and between Dr. Lloyd Marks and
the Company re: Multi-Function Fluid Communication
Control System dated as of March 31, 1995.
10.05* Licensing Agreement by and between Dr. Lloyd Marks and
the Company re: Adjustable Blood Pressure Cuff and
Method of Measuring Blood Pressure dated of March 31,
1995.
10.06* Licensing Agreement by and between Dr. Lloyd Marks and
the Company re: Stereoscopic Fluoroscopy Apparatus
dated of March 31,1995.
10.07* Licensing Agreement by and between Dr. Lloyd Marks and
the Company re: Adjustable Blood Pressure Cuff and
Method of Using Same dated as of March 31,1995.
10.08* Licensing Agreement by and between Dr. Lloyd Marks and
the Company re: Multiple Cuff Blood Pressure System
dated of March 31,1995.
29
<PAGE>
10.09* Licensing Agreement by and between Dr. Lloyd Marks and
the Company re: Safety Needle dated of March 31,1995.
10.10* Royalty Sharing Agreement by Dr. Lloyd Marks and the
Company re: Computer Assisted Admittance
Plethysmography dated as of March 31, 1995.
10.11* Royalty Sharing Agreement by Dr. Lloyd Marks and the
Company re: Method of and Apparatus of Detecting
Cardiac Rhythm Disturbance dated as of March 31, 1995.
10.12* Employment Agreement by and between Donn Gordon and
the Company dated as of March 31, 1995.
10.13* Asset Purchase Agreement by and between C.F.
Electronics, Inc. and the Company dated September 14,
1995.
10.14* Supply Agreement by and between C.F. Electronics, Inc.
and the Company dated September 14, 1995.
10.15* Supplier - Produced Finished Goods Purchase Agreement
(the Company has filed a request seeking confidential
treatment of this agreement).
10.16* Consulting Agreement by and between the Company and
David Meridor dated August 29 1995.
10.17* Sublicensing Agreement by and between the Company and
Advanced Technologies International, Ltd. dated July
1995.
10.18* Distributorship Agreement by and between the Company
and Medical Marketplace, Inc. dated July 25, 1995.
10.19** Consulting Agreement by and between the Company and
Stanley Krasnoff dated February 12, 1996.
10.20** Consulting Agreement by and between the Company and
Randolph K. Pace dated February 12, 1996.
10.21+ Asset Purchase Agreement by and between Hydrogel
Design Systems, Inc. and Alternative Design Systems R
& D Group dated February 6, 1997.
10.22+ Asset Purchase Agreement by and between Hydrogel Design
Systems, Inc. and Novatech, Inc. dated February 6, 1997.
10.23+ Employment Agreement by John Essmyer and Hydrogel Design
30
<PAGE>
Systems, Inc. dated February 6, 1997.
10.24+ Employment Agreement by Michael Periera and Hydrogel
Design Systems, Inc. dated February 6, 1997.
10.25*** Employment Agreement by Matthew Harriton and the
Company dated January 1, 1997.
10.26*** Equipment Financing Agreement by Becton Dickinson and
Hydrogel Design Systems, Inc. dated January 24, 1997.
10.27+ Real Property Lease by and between the Company and
Circon Corporation dated January 1997.
+ Filed herewith.
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 No. 33-92366.
** Incorporated by reference to the Company's Form S-8 dated March 8,
1996.
*** Incorporated by reference to the Company's Form 10QSB dated January
31, 1997.
(B) Reports on Form 8-K.
None.
31
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: New York, New York
August 11, 1997
EMBRYO DEVELOPMENT CORPORATION
By: /s/ Matthew L. Harriton
__________________________
Matthew L. Harriton
Chief Executive Officer, Chief
Financial Officer, Principal
Accounting Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Michael Lulkin Chairman of the Board and August 11, 1997
- ----------------- Secretary
Michael Lulkin
/s/ Matthew L. Harriton Chief Executive Officer, August 11, 1997
- ------------------- Chief Financial Officer,
Matthew L. Harriton Principal Accounting Officer
and Director
/s/ Daniel Durchslag Director August 11, 1997
- -------------------
Daniel Durchslag
<PAGE>
EMBRYO DEVELOPMENT CORPORATION
AND SUBSIDIARY
(A Development Stage Company)
REPORT ON AUDITS OF
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1997 AND 1996
Page
----
Independent auditors' report F-1
Balance sheet F-2
Statements of operations F-3
Statement of stockholders' equity F-4
Statements of cash flows F-5
Notes to financial statements F-6 - F-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Embryo Development Corporation and Subsidiary
New York, New York
We have audited the accompanying consolidated balance sheet of Embryo
Development Corporation and Subsidiary (a development stage company) as of April
30, 1997 and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended April 30,
1997 and cumulative from inception, March 3, 1995 to April 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Embryo Development Corporation
and Subsidiary as of April 30, 1997 and the results of its operations and its
cash flows for each of the two years in the period ended April 30, 1997 and
cumulative from inception, March 3, 1995 to April 30, 1997, in conformity with
generally accepted accounting principles.
/s/ HOLTZ RUBENSTEIN & CO., LLP
-------------------------------
HOLTZ RUBENSTEIN & CO., LLP
Melville, New York
June 12, 1997
F-1
<PAGE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
APRIL 30, 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 280,199
Short-term investments 559,000
Investments in available-for-sale securities (Note 4) 299,414
Accounts receivable 117,598
Interest receivable 18,045
Inventories 48,496
Prepaid expenses and other current assets 181,784
-----------
Total current assets 1,504,536
INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES (Note 4) 749,966
PROPERTY, PLANT AND EQUIPMENT, net (Notes 5 and 7) 993,047
LICENSED TECHNOLOGY, net of accumulated
amortization of $447,025 (Note 6) 1,162,975
OTHER ASSETS 51,676
-----------
$ 4,462,200
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 319,537
Customer deposits 25,000
-----------
Total current liabilities 344,537
NOTE PAYABLE (Note 7) 600,000
-----------
INTEREST OF MINORITY HOLDERS IN SUBSIDIARY (Note 3) 50,777
-----------
COMMITMENTS AND CONTINGENCIES (Notes 9 and 10)
STOCKHOLDERS' EQUITY (Note 8):
Common stock, $.0001 par value; authorized 30,000,000
shares; 4,845,000 issued and outstanding 485
Preferred stock, $.0001 par value; authorized 15,000,000
shares; 6,000,000 issued and outstanding 600
Additional paid-in capital 8,443,775
Unearned compensation (1,447,500)
Deficit accumulated during the development stage (3,530,474)
-----------
Total equity 3,466,886
-----------
$ 4,462,200
===========
See notes to consolidated financial statements
F-2
<PAGE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION> Cumulative
Years Ended From Inception
April 30, March 3, 1995 to
1997 1996 April 30, 1997
--------------- ------------ -----------------
<S> <C> <C> <C>
REVENUES (Notes 6 and 12) $ 287,487 $ 147,773 $ 435,260
----------- ----------- -----------
COSTS AND EXPENSES:
Cost of sales 237,839 92,050 329,889
General and administrative (Note 9) 1,814,174 417,426 2,251,600
Research and development (Note 6) 185,678 92,766 718,444
Amortization (Note 6) 230,000 203,215 447,025
Interest (income) expense (Note 8) (133,729) 482,077 357,848
----------- ----------- -----------
2,333,962 1,287,534 4,104,806
----------- ----------- -----------
LOSS BEFORE MINORITY INTEREST (2,046,475) -- (3,669,546)
MINORITY INTEREST IN NET
LOSS OF SUBSIDIARY 139,072 -- 139,072
----------- ----------- -----------
NET LOSS $ (1,907,403) $(1,139,761) $(3,530,474)
============ =========== ===========
NET LOSS PER SHARE (Note 8) $ (.40) $ (.31) $ (.87)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING (Note 8) 4,728,274 3,636,685 4,078,430
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Note 8)
<TABLE>
<CAPTION>
Amount Common Stock Preferred Stock Additional
Per Par Par Paid-in Unearned
Share Shares Value Shares Value Capital Compensation
-------- --------- ------- ------- ------ --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock for cash at inception:
Common $ .05 2,400,000 $240 - $ - $ 108,936 $ -
Preferred .002 - - 6,000,000 600 10,224 -
Issuance of stock for licensed technology 3.00 325,000 33 - - 974,967 -
Issuance of stock for research
and development 3.00 125,000 12 - - 374,988 -
Issuance of stock in connection
with subscription agreement 3.00 180,000 18 - - 539,982 -
Net loss - - - - - -
---------- ---- --------- ---- ----------- -----------
Balance, April 30, 1995 3,030,000 303 6,000,000 600 2,009,097 -
Issuance of stock in connection with
initial public offering $5.00 1,150,000 115 - - 4,337,093 -
Issuance of stock in connection with
consulting agreements 4.00 510,000 51 - - 2,039,949 (2,040,000)
Compensation earned in connection with
consulting agreements - - - - - 97,500
Net loss - - - - - -
---------- ---- --------- ---- ----------- -----------
Balance, April 30, 1996 4,690,000 469 6,000,000 600 8,386,139 (1,942,500)
Issuance of stock for services 3.50 5,000 1 - - 17,499 -
Issuance of stock in connection with
investment in subsidiary .50 150,000 15 - - 74,985 -
Compensation earned in connection with
consulting agreements - - - - - 495,000
Issuance of stock by subsidiary
to minority holders - - - - (37,350) -
Amortization of unearned compensation
of minority holders-subsidiary - - - - 2,502 -
Net loss - - - - - -
---------- ---- --------- ---- ----------- -----------
Balance, April 30, 1997 4,845,000 $485 6,000,000 $600 $ 8,443,775 $(1,447,500)
========== ==== ========= ==== =========== ===========
<CAPTION>
Deficit
Accumulated
During the
Development
Stage Total
-------- -------
<S> <C> <C>
Issuance of stock for cash at inception:
Common $ - $ 109,176
Preferred - 10,824
Issuance of stock for licensed technology - 975,000
Issuance of stock for research
and development - 375,000
Issuance of stock in connection
with subscription agreement - 540,000
Net loss (483,310) (483,310)
------------ ------------
Balance, April 30, 1995 (483,310) 1,526,690
Issuance of stock in connection with
initial public offering - 4,337,208
Issuance of stock in connection with
consulting agreements - -
Compensation earned in connection with
consulting agreements - 97,500
Net loss (1,139,761) (1,139,761)
------------ ------------
Balance, April 30, 1996 (1,623,071) 4,821,637
Issuance of stock for services - 17,500
Issuance of stock in connection with
investment in subsidiary - 75,000
Compensation earned in connection with
consulting agreements - 495,000
Issuance of stock by subsidiary
to minority holders - (37,350)
Amortization of unearned compensation
of minority holders-subsidiary - 2,502
Net loss (1,907,403) (1,907,403)
------------ ------------
Balance, April 30, 1997 $ (3,530,474) $ 3,466,886
============ ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended Cumulative
April 30, From Inception
--------------------------------- March 3, 1995 to
1997 1996 April 30, 1997
-------------- -------------- ------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,907,403) $ (1,139,761) $ (3,530,474)
-------------- -------------- ------------------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 241,203 734,650 999,163
Minority interest in loss of subsidiary (139,072) - (139,072)
Non-cash consideration - consulting 517,500 97,500 615,000
Non-cash consideration - research
and development - - 440,000
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable (91,838) (25,760) (117,598)
Interest receivable 14,580 (32,625) (18,045)
Inventories 775 (22,276) (21,501)
Prepaid expenses and other current assets (71,340) (85,444) (156,784)
Other assets 3,771 (71,666) (67,895)
Increase in liabilities:
Accounts payable and accrued expenses 280,879 18,658 319,537
Customer deposits 25,000 - 25,000
-------------- -------------- ---------------
Total adjustments 781,458 613,037 1,877,805
-------------- -------------- ---------------
Net cash used in operating activities (1,125,945) (526,724) (1,652,669)
-------------- -------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in short-term investments (559,000) - (559,000)
Net sale (purchase) of investments in
available-for-sale securities 1,754,924 (2,804,304) (1,049,380)
Net cash paid for asset acquisition (200,588) - (200,588)
Purchase of licensed technology - (450,000) (450,000)
Purchase of plant and equipment (148,059) (17,313) (165,372)
-------------- -------------- ---------------
Net cash provided by (used in)
investing activities 847,277 (3,271,617) (2,424,340)
-------------- -------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 175,000 300,000
Proceeds from issuance of stock - - 120,000
Proceeds from issuance of subsidiary
stock to minority shareholder 150,000 - 150,000
Repayment of debt - (550,000) (550,000)
Proceeds of stock offering, net of deferred costs - 4,337,208 4,337,208
-------------- -------------- ---------------
Net cash provided by financing activities 150,000 3,962,208 4,357,208
-------------- -------------- ---------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (128,668) 163,867 280,199
CASH AND CASH EQUIVALENTS
at beginning of period 408,867 245,000 -
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS
at end of period $ 280,199 $ 408,867 $ 280,199
============== ============== ==============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1997 AND 1996
1. Organization and Nature of Operations:
Embryo Development Corporation (the "Company") is a Delaware Corporation
which was formed to develop, acquire, manufacture and market various bio-medical
devices.
In January 1997, the Company acquired a majority interest in Hydrogel
Design Systems, Inc. ("HDS") (see Note 3). HDS is engaged in the manufacture,
marketing, selling and distribution of hydrogel, an aqueous polymer-based
radiation ionized medical/consumer product, and after-market components for
apnea monitoring.
The Company and HDS are in the development stage, as defined in Statement
of Financial Accounting Standard No. 7, "Accounting and Reporting for
Development Stage Enterprises". To date, the Company has generated minimal sales
and devoted its efforts primarily to various organizational activities,
including negotiating of license agreements, developing its business strategy,
hiring management personnel, raising capital through an initial public offering
which was completed in November 1995 (see Note 8), and undertaking preliminary
activities for the commencement of operations. In February 1997, HDS acquired
certain assets and the ongoing business of a group of companies engaged in the
manufacture and distribution of hydrogel and after-market apnea monitoring
components. HDS is devoting substantial efforts to the establishment of a
manufacturing facility for its accelerator beam equipment used in the production
of hydrogel, anticipated to be completed during the year ended April 30, 1998,
and in contacting prospective customers of hydrogel and related accelerator beam
products. In September 1995, the Company purchased certain assets and the
on-going business of a medical products division of an existing business (see
Note 10). The Company has not generated any significant revenue to date and is
presently evaluating the commercial value of the products obtained under its
business acquisitions license agreements. Although the Company is constructing
its manufacturing facility and has obtained exclusive licenses for the
manufacture and marketing rights to certain medical devices, there can be no
assurance that the Company will be successful in marketing any such products.
2. Summary of Significant Accounting Policies:
a. Principles of consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its majority-owned subsidiary, HDS. Upon
consolidation, all significant intercompany accounts and transactions are
eliminated.
b. Depreciation and amortization
Depreciation is computed principally by the straight-line method over
the estimated useful lives of the related assets. Amortization of licensed
technology is computed using the straight-line method over the estimated useful
life of the related technology (7 years).
The Company provides for depreciation over the following estimated
useful lives:
Manufacturing equipment 10 years
Office equipment and fixtures 3-7 years
F-6
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
c. Inventories
Inventories, consisting principally of finished goods, are stated at
the lower of cost (first-in, first-out method) or market.
d. Investments
Short-term investments consist of bank certificates of deposits.
Investments in debt and equity securities are designated as trading,
held-to-maturity, or available for sale. Management considers the Company's
marketable securities, consisting principally of government and
government-backed securities, to be available-for-sale. Available-for-sale
securities are reported at amounts which approximate fair value.
e. Concentration of credit risk
Financial instruments which potentially expose the Company to
concentration of credit risk, include cash deposits in excess of federally
insured limits, U.S. treasury notes and other government backed securities.
f. Income taxes
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities,
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
g. Statement of cash flows
For purposes of the statement of cash flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
h. Research and development costs
Research and development costs are expensed as incurred.
i. Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
j. Advertising
The Company charges to expense, advertising costs as incurred.
Advertising costs approximated $71,000 and $1,000 for the years ended April 30,
1997 and 1996, respectively.
k. Stock-based compensation
The Company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation to employees. Stock compensation to
non-employees is accounted for at fair value in accordance with Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation".
F-7
<PAGE>
2. Summary of Significant Accounting Policies: (Cont'd)
l. New standards
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share" ("Statement 128"), which simplifies the
standards for computing earnings per share previously used and makes them
comparable to international standards. The Statement is effective for financial
statements issued for periods ending after December 15, 1997, and earlier
application is not permitted. The Company does not believe that the adoption of
this Statement will have a material effect to its financial statements.
3. Investment in HDS:
In January 1997, the Company entered into a subscription agreement to
acquire 1,251,000 shares of HDS common stock and 15,000,000 shares of HDS Series
A preferred stock. HDS was formed to effect the asset acquisition described in
Note 10b. As consideration for its interest, the Company contributed $150,000 in
cash, 150,000 shares of its common stock, and the commitment to make available
to HDS a $500,000, 8% revolving line of credit.
At April 30, 1997, the Company's ownership of HDS represented 50.04% of
the common stock and 92.9% of total voting shares.
4. Investments in Available-for-Sale Securities:
Investments in available-for-sale securities consist of the following at
April 30, 1997:
Current:
Guaranteed by the U.S. Government:
Federal National Mortgage Notes $ 299,414
===========
Non-current:
Guaranteed by the U.S. Government:
Federal Farm Credit Notes $ 249,966
U.S. Treasury Notes 500,000
-----------
$ 749,966
===========
5. Property, Plant and Equipment:
Property, plant and equipment, at cost, consist of the following at April
30, 1997:
Manufacturing equipment $ 226,275
Office equipment and fixtures 63,721
Leasehold improvements 50,334
Projects in progress 664,642
-------------
1,004,972
Less accumulated depreciation and amortization 11,925
-------------
$ 993,047
============
During the year ended April 30, 1997, $12,500 of interest was capitalized
in connection with the construction of certain projects in progress.
F-8
<PAGE>
6. License Agreements:
In March 1995, the Company entered into seven license agreements for the
rights to manufacture and market seven medical devices for an aggregate purchase
price of $1,430,000. The consideration consisted of the issuance of $230,000 in
notes and 400,000 shares of the Company's common stock. In addition, the seller
is entitled to royalties, ranging from 6% - 8% of net revenues, as defined, of
the licensed products sold. The agreements are in effect over the lives of the
respective patents.
Each of the seven agreements also provide for minimum payment obligations
commencing 2 1/2 years after the date of the agreements. The agreements provide
that the licensor may terminate the licenses if the minimum royalty payments are
not made. The minimum payment obligations for each license are as follows:
Minimum Payment
Agreement Year Obligation
------------------------ -----------------
September 30, 1997 $ 25,000
March 31, 1998 $ 25,000
September 30, 1998 $ 50,000
March 31, 1999 $ 50,000
September 30, 1999 $100,000
March 31, 2000 $100,000
March 31, 2001 $200,000
The Company also entered into royalty sharing agreements under which it
is entitled to 50% of the royalties received by the licensor under license
agreements for two medical devices. Consideration under these agreements
consisted of the issuance of $20,000 in notes and 50,000 shares of the Company's
common stock. The royalty sharing agreements are in effect over the lives of the
underlying agreements. In addition, the Company has the right to license the
patents for the products in the event the underlying licenses are terminated.
The common stock issued under these agreements were valued at $3 per
share.
The medical devices underlying five of these license and royalty sharing
agreements were deemed to be in the development stage, and accordingly, the
consideration paid ($440,000) was charged to operations (research and
development) in the period ended April 30, 1995. The consideration for the
remaining four agreements ($1,160,000) was recorded as licensed technology.
7. Note Payable:
On January 24, 1997, HDS entered into a financing agreement with a
customer for the purchase of $600,000 of manufacturing equipment from a third
party. The agreement consists of a promissory note in the amount of $600,000
which bears interest at 8% per annum and is due between three (3) and six (6)
years from the anniversary date, depending upon the amount of products the
customer has ordered from HDS. The funds were transferred directly from the
lender to the seller of the equipment. The note is collateralized by the related
equipment.
8. Stockholders' Equity:
a. Capitalization
The Company's authorized capitalization consists of 30,000,000 shares
of common stock and 15,000,000 shares of preferred stock. All stock has a $.0001
par value. Each share of common and preferred has one vote in all matters. In
the event of any liquidation, holders of the issued and outstanding shares of
preferred stock will be entitled to receive, prior to any distribution to the
holders of common stock, the sum of $.10 per share.
F-9
<PAGE>
8. Stockholders' Equity: (Cont'd)
b. Initial capitalization
In March 1995, the Company issued 2,400,000 shares of common stock
and 6,000,000 shares of preferred stock ("Founders' Stock") for an aggregate
amount of $120,000.
c. Subscription agreements
In March 1995, the Company entered into subscription agreements in
connection with a bridge loan in the aggregate amount of $300,000, (the "Bridge
Loans"). In connection with the Bridge Loan, the Company issued the aggregate
amount of 180,000 Bridge Units, each Bridge Unit consisting of one share of
Common Stock and one Class B Warrant. Each Class B Warrant entitles the holder
to acquire one share of common stock at an exercise price of $10 per share. The
promissory notes issued in connection with the Bridge Loan were repaid with
interest at 8% on November 22, 1995, with the proceeds from the public offering.
The 180,000 shares of the Company's common stock represented a financing cost of
$540,000 ($3 per share) which was amortized in full upon the successful
completion of the public offering.
d. Public offering
In November 1995, the Company completed a public offering of
1,000,000 shares of common stock at $5.00 per share for an aggregate of
$5,000,000. An additional 150,000 shares were sold for gross proceeds of
$750,000 to the underwriter to cover over-allotments. In addition, the
underwriter received an option, for a nominal fee, to acquire 100,000 shares of
common stock at an exercise price of $6.75 per share. The option expires in
November 2001.
Effective with the closing of the offering, the Company entered into
a consulting agreement with the underwriter. The underwriter ceased operations
in 1997, and the unamortized balance of the consulting fee ($91,667) was charged
to operations in the year ended April 30, 1997.
e. Issuance of securities
In July 1996, the Company issued 5,000 shares of common stock to its
medical advisory board for services. The value of the common stock granted
($17,500) was charged to operations.
In May 1996, the Company issued a five-year warrant, exercisable at
any time, for the purchase of 100,000 shares of common stock of the Company at
$6 per share. The warrant was issued in connection with the termination of a
sublicensing agreement.
f. Consulting agreements
In February 1996, the Company entered into two separate multi-year
consulting agreements. As consideration for these services, the Company issued
225,000 shares of common stock to each of the parties. The value of the common
stock granted ($1,800,000) is being charged to operations ratably over the lives
of the consulting agreements.
In August 1995, the Company entered into a three-year consulting
agreement for services related to the development of strategic sales and
marketing plans in the United States and internationally. The agreement, which
initially provided for a monthly consulting fee of $5,000, was amended in March
1996, at which time the Company issued 60,000 shares of common stock in lieu of
the monthly consulting fee. The value of the common stock granted ($240,000) is
being charged to operations ratably over the remaining life of the consulting
agreement.
F-10
<PAGE>
8. Stockholders' Equity: (Cont'd)
g. Stock option plan
The Company has adopted a Non-qualified Option Plan (the "Plan")
covering 2,000,000 shares of common stock of the Company. Options under the Plan
are granted at terms set by the Board of Directors at the time of issuance.
The Company has also adopted an Incentive Option and Stock
Appreciation Rights Plan (the "Incentive Option Plan") covering 2,000,000 shares
of the Company's common stock. Incentive stock options under the Incentive
Option Plan are granted at an exercise price (not less than the fair market
value) at the date of grant. Non-qualified options and freestanding stock
appreciation rights may also be granted with any exercise price.
To date, no options or stock appreciation rights have been granted
under either plan.
h. Loss per share
Loss per share was computed by dividing net loss by the weighted
number of shares outstanding. Common stock equivalents have been excluded as
their effect would be anti-dilutive.
As noted in Note 8d, the Company has completed an initial public
offering ("IPO"). Pursuant to SEC rules, common stock issued for consideration
below the IPO price during the 12 months before the filing of the registration
statement has been included in the weighted average number of shares, using the
treasury stock method, as if such shares had been outstanding for all periods
presented.
i. Reserved shares
Common shares reserved at April 30, 1997 are as follows:
Incentive stock option plan 2,000,000
Non-qualified stock option plan 2,000,000
Class B Warrants 180,000
Consultant warrants 600,000
Underwriter's options 100,000
Key employee options 300,000
Other 100,000
------------
5,280,000
============
9. Commitments and Contingencies:
a. Class action lawsuits
Class Action complaints have been filed naming as defendants the
Company and certain Board members. The Class Actions assert that the underwriter
of the Company's initial public offering and other defendants engaged in various
violations of the federal securities laws. The Company and Board members deny
that they engaged in any improper conduct or any violations of any federal
securities laws and intend to vigorously defend the action. Although the
ultimate disposition of legal proceedings cannot be predicted with certainty,
management does not believe that they should result in a materially adverse
effect on the Company's financial position.
F-11
<PAGE>
9. Commitments and Contingencies: (Cont'd)
b. Employment agreement
(i) On January 1, 1997, the Company entered into a two-year
employment agreement with an officer. The agreement calls for annual
compensation of $90,000 the first year and $100,000 in the second year with a
minimum bonus of 10% per annum of the prior year's salary. The officer was also
granted options to purchase 100,000 shares of the Company's common stock at an
exercise price of $.65 per share, the market price at the time the agreement was
executed.
(ii) HDS has entered into five-year employment agreements with three
executives which provide for minimum annual salaries aggregating $242,000. In
addition, HDS granted to two executives 500,000 shares of its common stock
(valued at $100,000), which will be earned by the executives over the terms of
their employment.
In 1995, the Company granted an officer an option to purchase
100,000 shares of the Company's common stock at an exercise price of $5 per
share and 100,000 shares, exercisable commencing March 1997, at an exercise
price equal to the fair market value at March 31, 1997 ($.5625). These options
are exercisable over a four-year period.
c. Consulting agreement
In 1995, the Company has entered into a four-year consulting
agreement with the licensor of the medical devices discussed in Notes 4 and 6.
The agreement provides for an annual consulting fee of $75,000. In addition, the
consultant was issued warrants to purchase 600,000 shares of the Company's
common stock at an exercise price of $3 per share.
d. Lease
On February 14, 1997, the Company entered into a seven-year operating
lease for premises to be used for offices and manufacturing. The lease provides
for annual minimum lease payments ranging from $116,000 to $119,000. The lease
contains a five-year renewal option and provides that the Company shall pay for
insurance, taxes and maintenance. In addition, the lease contains an escalation
clause based upon increases in the consumer price index for years four through
seven.
The Company and HDS lease two operating facilities from its
executives on a month-to-month basis. Rent expense under these leases
approximate $68,500 and $25,000 during the years ended April 30, 1997 and 1996.
Aggregate rent expense approximated $113,700 and $28,900 for the
years ended April 30, 1997 and 1996, respectively.
e. Purchase commitments
HDS had outstanding purchase commitments for property, plant and
equipment of approximately $326,000 at April 30, 1997.
F-12
<PAGE>
10. Business Combinations:
a. In September 1995, the Company entered into an agreement to
purchase certain assets and the ongoing business of the Medical Division of C.F.
Electronics, Inc. ("CF"). Under the agreement, the Company acquired CF's medical
products for consideration of $450,000, of which $45,000 was paid upon closing
and the balance ($405,000) was paid on December 12, 1995 from the proceeds from
the public offering. The Company also purchased CF's finished goods inventory
and demonstration equipment.
In addition, the Company entered into a five year "Supply Agreement"
with CF, which provides for CF to supply the Company with certain products at a
price equal to CF's cost (as defined) plus 10%. The Agreement provides for
minimum payments to CF during its first two years.
b. On February 6, 1997, HDS acquired certain assets from a group of
entities for an aggregate purchase price of $150,000 in cash and 150,000 shares
of Embryo Common Stock (valued at $75,000). Assets acquired include property
rights and technical data, machinery and equipment, and inventory. The Embryo
shares vest on the second anniversary date of the agreement only if HDS has
earned $500,000 in cumulative gross revenue derived from the sale of certain
products during the two (2) year period. If, on the vesting date, the fair
market value of the shares is less than $900,000, the parties may demand that
HDS purchase all of the shares at an aggregate purchase price of $900,000 in
either cash and/or marketable securities. Expenses of approximately $51,000 were
incurred in connection with this acquisition. This acquisition has been
accounted for as a purchase.
As a result of this transaction, the following was recorded at February
6, 1997:
Inventories $ 27,000
Property and equipment 240,000
Other assets 9,000
----------
$ 276,000
==========
Pro forma consolidated information assuming the transaction had taken
place as of May 1, 1995, is as follows:
<TABLE>
<CAPTION>
April 30,
---------
1997 1996
-------------- -----------
<S> <C> <C>
Revenues $ 792,714 $ 1,298,195
============== ============
Net loss $ 1,934,726 $ 1,125,651
============== ============
Net loss per share $ (.40) $ (.30)
============== ============
Weighted average number of shares outstanding 4,844,164 3,786,685
========= =========
</TABLE>
11. Income Taxes:
Net deferred income tax asset is comprised of the following:
<TABLE>
<CAPTION>
April 30,
---------
1997 1996
-------------- -------------
<S> <C> <C>
Net operating loss carryforwards $ 1,752,000 $ 388,000
Unearned compensation (579,000) 39,000
Other 64,000 15,000
Valuation allowance (1,237,000) (442,000)
-------------- ------------
$ - $ -
============== ===========
</TABLE>
F-13
<PAGE>
12. Major Customers:
Sales to two customers approximated 18% and 14% of total revenues in
1997. Sales to one customer approximated 16% of total revenues in 1996.
13. Fair Value of Financial Instruments:
The methods and assumptions used to estimate the fair value of the
following classes of financial instruments were:
Current Assets, Short-Term Investments, Investments in Available-for-Sale
Securities and Current Liabilities: The carrying amount of cash and
temporary cash investments, current receivables and payables and certain
other financial instruments approximate their fair value.
Note Payable: The fair value of the note payable estimated using a
discounted cash flow analysis, based on the Company's assumed incremental
borrowing rates for similar types of borrowing arrangements. The carrying
amount at April 30, 1997 approximates fair value.
The carrying amount and fair value of the Company's financial instruments
at April 30, 1997 are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
---------- -----------
<S> <C> <C>
Cash and cash equivalents $ 280,200 $ 280,200
Short-term investments 559,000 559,000
Investments in available-for sale securities 1,049,400 1,049,400
Accounts receivable and interest receivable 135,600 135,600
Accounts payable and accrued expenses 319,500 319,500
Note payable 600,000 600,000
</TABLE>
14. Supplementary Information - Statements of Cash Flows:
Cash paid during the years for:
<TABLE>
<CAPTION>
Years Ended
April 30,
---------------------------------
1997 1996
---- ----
<S> <C> <C>
Interest, net of capitalized interest $ 822 $ 25,698
========= =========
Income taxes $ 13,984 $ 292
========= =========
</TABLE>
HDS financed the acquisition of $600,000 of manufacturing equipment
with a note payable. Additionally, $12,500 of interest expense was capitalized
during the year ended April 30, 1997.
F-14
<PAGE>
ASSET PURCHASE AGREEMENT
by and among
HYDROGEL DESIGN SYSTEMS, INC.,
ALTERNATIVE DESIGN SYSTEMS R & D GROUP,
JOHN ESSMYER
and
JANICE ESSMYER
Dated as of February 6, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of February 6, 1997 by and among
Hydrogel Design Systems, Inc., a Delaware corporation (the "Purchaser"),
Alternative Design Systems R & D Group, a New Jersey general partnership (the
"Seller"), and John Essmyer and Janice Essmyer (collectively, the "Partners").
W I T N E S S E T H :
WHEREAS, the Seller is engaged in the business of manufacturing,
marketing, selling and distributing products manufactured with Hydryogel (the
"Business"); and
WHEREAS, simultaneous with the execution of this asset purchase
agreement(the "Agreement"), the Purchaser, Embryo and the Partners have executed
an asset purchase agreement with NOVATECH, INC., a New Jersey corporation, (the
"Novatech Agreement") whereby pursuant to the terms of the two (2)
aforementioned asset purchase agreements, all of the assets of the Business(as
that term is defined herein and in the Novatech Agreement) of Seller and
Novatech will be sold to the Purchaser, including, but not limited to, any and
all formulas and methods of mixing and preparing Hydrogel products, as well as
any and all applications, both consumer and medical, for Hydrogel whether
presently in use or in development by the Seller and the Partners; and
WHEREAS, the Partners are the sole persons with a proprietary interest
in the Seller; and
WHEREAS, at the Closing (as hereinafter defined) the Seller will have
good and valid title to all of the assets comprising the Assets free and clear
of any liens or encumbrances(as hereinafter defined) which are related to the
conduct of the Business; and
WHEREAS, the Seller wishes to sell, and the Purchaser wishes to
purchase, the Assets, subject to the assumption by the Purchaser of certain
liabilities of the Seller comprising the Assumed Liabilities (as hereinafter
defined).
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Seller and the Purchaser hereby agree as
follows:
ARTICLE I
DEFINITIONS, PURCHASE OF THE ASSETS,
ASSUMPTION OF ASSUMED LIABILITIES, PURCHASE PRICE
1.1. Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
"Adjustment Date" has the meaning specified in Section 1.5(b).
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person; provided,
however, that for purposes of Section 3.16, controlling or controlled shall be
deemed to occur if any person holds or has the right to vote ten (10%) percent
or more of the voting stock of such other Person.
"Alternative Design" means Alternative Design Systems R & D Group, a
New Jersey general partnership, also referred to as the Seller.
"Assets" has the meaning specified in Section 1.2.
"Assigned Contracts and Leases" means the unexpired leases and
executory contracts (including without limitation, licenses and purchase orders)
set forth on Schedule 3.14, unless indicated otherwise therein.
"Assignment and Assumption Agreement" means an instrument substantially
in the form of Exhibit A attached hereto.
"Assumed Liabilities" has the meaning specified in Section 1.3.
"Bill of Sale" means an instrument substantially in the form of Exhibit
B attached hereto.
2
<PAGE>
"Business" has the meaning specified in the Recitals.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks are authorized or required by law to close in New York
City.
"Claim Notice" has the meaning specified in Section 8.2(a).
"Closing" has the meaning specified in Section 2.1(a).
"Closing Date Balance Sheet" means a balance sheet dated as of the
Closing Date prepared by an independent auditing firm reasonably acceptable to
the Purchaser.
"Code" has the meaning specified in Section 3.13.
"Cash Payment" has the meaning specified in Section 1.5(a).
"Due Diligence Period" has the meaning specified in Section 7.7.
"Embryo" means Embryo Development Corp., a Delaware corporation.
"Employment Agreement" has the meaning specified in Section 1.7.
"Environmental Law" means any and all present federal, state, local and
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, grants, franchises, licenses or agreements relating to (a) the
protection of the environment, health or workers safety; (b) pollution or
environmental contamination; or (c) the use, processing, distribution,
generation, treatment, storage, recycling, transportation, disposal, handling,
Release or threatened or potential Release of any Material of Environmental
Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means those assets of the Seller set forth on
Schedule 1.1(a).
3
<PAGE>
"Extension Payment" has the meaning specified in Section 2.1(a).
"Fair Market Value" has the meaning specified in Section 1.5(b).
"Governmental or Regulatory Body" means any government or political
subdivision thereof, whether federal, state, county, local or foreign, or any
agency, authority or instrumentality of any such government or political
subdivision.
"Indemnified Party" has the meaning specified in Section 8.2.
"Indemnifying Party" has the meaning specified in Section 8.2
"Intangible Property" has the meaning specified in Section 3.7.
"IRS" means the Internal Revenue Service.
"Leases" has the meaning specified in Section 3.15.
"Liabilities" has the meaning specified in Section 3.11.
"Lien" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Loss" and "Losses" have the meanings specified in Section 8.1(a).
"Material Adverse Effect" means any change or changes or effect or
effects that individually or in the aggregate are or may reasonably be expected
to be materially adverse to (a) the business or the assets, operations, income,
prospects or conditions (financial or otherwise) of the Seller or the
transactions contemplated by this Agreement or (b) the ability of any of the
Seller or the Partners to perform their respective obligations under this
Agreement.
4
<PAGE>
"Material Agreements" has the meaning specified in Section 3.14.
"Material of Environmental Concern" shall have the same meaning as
"Hazardous Substances" as defined in the Lease Agreement.
"Novatech" means Novatech, Inc., a New Jersey corporation.
"Partners" has the meaning specified in the introductory paragraph of
this Agreement.
"Non-Assumed Liabilities" has the meaning specified in Section 1.4.
"Permitted Liens" means (a) Liens for taxes not yet due and (b) the
Liens set forth on Schedule 1.1(b).
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock Company, trust, unincorporated organization,
Governmental or Regulatory Body or other entity.
"Plan" means any plan, fund, program, understanding, policy,
arrangement, contract or commitment, whether qualified or not qualified for
federal income tax purposes, whether formal or informal, whether for the benefit
of a single individual or more than one individual, which is in the nature of
(a) an employee pension benefit plan (as defined in ERISA ss. 3(2)), (b) an
employee welfare benefit plan (as defined in ERISA ss. 3(1)), or (c) an
incentive, deferred compensation, or other benefit arrangement for employees,
former employees, their dependents or their beneficiaries.
"Product" has the meaning specified in Section 3.23.
"Purchase Price" has the meaning specified in Section 1.5(a).
"Purchaser" has the meaning specified in the introductory paragraph of
this Agreement.
"Purchaser Group" has the meaning specified in Section
5
<PAGE>
8.1(a).
"Real Estate Documents" has the meaning specified in Section 3.15.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"Seller" has the meaning specified in the introductory paragraph of
this Agreement.
"Senior Management of the Seller" means any vice-president, director or
officer of the Seller.
"Tax" or "Taxes" mean all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign Taxing Authority,
including, without limitation, gross income, gross receipts, income, capital,
excise, property (tangible and intangible), sales, transfer, value added,
employment, payroll and franchise taxes and such terms shall include any
interest, penalties or additions attributable to or imposed on or with respect
to such assessments.
"Tax Report" means any return, report, information return, or other
document (including any related or supporting information) filed or required to
be filed with any federal, state, or local governmental entity or other
authority in connection with the determination, assessment or collection of any
Tax (whether or not such Tax is imposed on any of the Seller) or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"to the knowledge of the Seller" means to the best knowledge of the
Partners and the Senior Management of the Seller.
"Unaudited Balance Sheet" means the balance sheet of the Seller
prepared in-house for the period ending December 31, 1996 and attached hereto as
Exhibit E.
"Unaudited Financials" has the meaning specified in Section 3.10(a).
1.2 Purchase of the Assets. Subject to the terms and conditions
set forth in this Agreement, the Seller agrees that,
6
<PAGE>
on the Closing Date, it shall sell, transfer, assign, convey and deliver to the
Purchaser, and Purchaser agrees that, on the Closing Date, Purchaser shall
purchase, acquire and accept from the Seller, all of the assets owned, used or
held by the Seller to conduct the Business and as set forth on Schedule 1.2,
other than the Excluded Assets (said assets, together with all goodwill in
connection with the Business, are hereinafter collectively referred to as the
"Assets"), free and clear of all Liens other than Permitted Liens.
1.3 Assumption by the Purchaser of Certain Liabilities. Subject to the
terms and conditions set forth in this Agreement, Purchaser agrees that, on the
Closing Date, Purchaser shall assume and thereafter pay, perform or discharge,
as the case may be, the obligations and liabilities of the Seller outstanding on
the Closing Date set forth on Schedule 1.3(the "Assumed Liabilities"). The
Purchaser shall assume those insurance policies listed in Schedule 3.14(4) which
are assumable and shall maintain such policies or shall obtain similar policies
in similar amounts for a period of one (1) year from and after the Closing Date.
1.4 Non-Assumed Liabilities. The Purchaser shall not assume nor
be responsible for any liabilities or obligations of the Seller, other than the
Assumed Liabilities (the "Non-Assumed Liabilities").
1.5 Purchase Price for the Assets. (a) The consideration for the Assets
shall be in the aggregate amount of (i)$150,000 (excluding the assumption of the
Assumed Liabilities provided for herein), payable upon the Closing as defined in
Section 2.1 herein(the "Cash Payment").
1.6 Intentionally Omitted
1.7 Employment Agreement. As additional consideration, at the Closing,
the Partners shall each enter into an employment agreement with the Purchaser in
substantially the form set forth in Exhibit D attached hereto (the "Employment
Agreements").
1.8 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth on Schedule 1.8, which allocation shall
be provided to the Seller and the Partners by the Purchaser no later than March
1, 1997 and shall be agreed as set forth in Section 7.9 hereof. Except as
required
7
<PAGE>
by law, the parties hereby covenant and agree with each other that none of them
will take a position on any Tax Return, before any taxing authority charged with
the collection of any Tax, or in any judicial proceeding, that is in any way
inconsistent with the negotiated allocation.
1.9 Limitations on Assignment; Further Assurance. To the extent that
the assignment of any Assigned Contract and Lease to be assigned to the
Purchaser, as provided herein, shall require the consent of another party
thereto, this Agreement shall not constitute an agreement to assign the same if
an attempted assignment would constitute a breach thereof. To the extent
required, each of the Seller and the Partners agrees that it will use all
reasonable efforts to obtain the written consent of other parties to all
Assigned Contracts and Leases to the assignment thereof to the Purchaser. If any
such consent is not obtained, each of the Seller and the Partners shall use all
reasonable efforts to obtain the same and will cooperate with the Purchaser, as
appropriate, in any reasonable arrangement designed by the Purchaser to provide
the Purchaser, as appropriate, with the benefits hereunder and the Purchaser
shall assume all correlative obligations to effectuate such arrangement.
ARTICLE II
CLOSING
2.1 The Closing. (a) Upon satisfaction of the conditions contained in
Article VII of this Agreement, the consummation of the transactions contemplated
by this Agreement (the "Closing") shall be held at 10:00 a.m. (New York City
time) on February 6, 1997 (such date and time being referred to herein as the
"Closing Date") at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue,
New York, NY 10022 or, at the agreement of the parties, at such other place as
the parties may agree or by facsimile transmission, with the original signature
pages to be held in escrow by the Seller's counsel, subject to written release
by the Purchaser of the Purchaser's signature pages.
(b) At the Closing, the Seller and/or the Partners shall execute and
deliver or cause to be executed and delivered to the Purchaser, all documents
and instruments necessary to transfer to the Purchaser, all of the right, title
and interest of the Seller in and to the Assets, including, without limitation:
8
<PAGE>
(i) the Assignment and Assumption Agreement, signed
by the Seller;
(ii) a Bill of Sale, signed by the Seller;
(iii) An Assignment of a certain lease for real
property presently leased by the Seller and/or its related
Company for the real property known as 319-321 Hackensack
Street, Carlstadt, NJ; and
(iv) a legal opinion of the Seller's counsel and
the Partners' counsel as set forth in Section 2.2(d) hereof.
(c) At the Closing, the Purchaser shall:
(i) execute and deliver to the Seller the
Assignment and Assumption Agreement;
(ii) assume the Assumed Liabilities and pay the
outstanding principal amount and all accrued and unpaid
interest due in respect of the Seller's bank debt referred to
in Schedule 1.1(b) hereto;
(iii) deliver to the Seller in the form of a cashier's
check or by wire transfer the sum of $150,000 as set forth in
Section 1.5(a)(i) hereof.
(d) Intentionally Omitted.
2.2 Additional Actions to be Taken on the Closing Date.
(a) Closing Certificate of Seller. The Seller and the Partners shall
have delivered to the Purchaser a certificate signed by the Seller and the Chief
Executive Officer and the Chief Financial Officer of the Seller, as requested by
the Purchaser, dated the Closing Date, stating (i) that no material adverse
change has occurred in the condition (financial or otherwise), results of
operations, business, performance or properties of the Seller since Decmber 31,
1996, and (ii) all of the representations, warranties and covenants of each of
the Seller and the Partners contained in this Agreement are true, complete and
correct as of the Closing Date.
9
<PAGE>
(b) Liens. Each of the Seller and the Partners shall have satisfied and
discharged all Liens on the Assets, except for Permitted Liens and provided the
Purchaser with evidence of such satisfaction and discharge in form and substance
satisfactory to the Purchaser.
(c) Legal Opinions. The Purchaser shall have received the legal
opinions of legal counsel to the Partners and the Seller in form and substance
satisfactory to the Purchaser relating to the corporate standing and governance
of the Seller.
(d) Partnership Consent. The Purchaser shall have received a consent
to the transactions contemplated by this agreement signed by all of the partners
of the Seller.
(e) Compliance with Bulk Sales Act. The Seller and Partners shall
provide Purchaser with evidence of compliance with applicable bulk
sales/transfer laws and regulations in form and substance satisfactory to
Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE PARTNERS
SECTION 3. Representations and Warranties of the Seller and the
Partners. The Seller and the Partners represent and warrant to the Purchaser as
follows:
3.1 Organization and Qualification. The Seller is a general partnership
validly existing and in good standing under the laws of the State of New Jersey,
and has all requisite power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted and as proposed to be conducted. The
Seller is duly qualified to do business in each jurisdiction in which the nature
of its business or properties makes such qualification necessary, except where
the failure to do so would not have a Material Adverse Effect. The jurisdictions
in which the Seller is so qualified are set forth on Schedule 3.1.
3.2 Subsidiaries and Affiliates. Schedule 3.2 sets forth the name and
jurisdiction of organization of each subsidiary of
10
<PAGE>
the Seller.
3.3. Validity and Execution of Agreement. The Seller has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The partners of the Seller have each
approved the transactions contemplated pursuant to this Agreement and each of
the other agreements required to be entered into pursuant hereto by the Seller.
This Agreement and such other agreements and instruments have been duly executed
and delivered by the Seller and each constitutes the valid and binding
obligation of the Seller enforceable against it in accordance with its terms.
3.4. No Conflict. Neither the execution and delivery of this Agreement
nor the performance by the Seller of the transactions contemplated hereby will:
(a) violate or conflict with any of the provisions of the organizational
documents of the Seller; or (b) or result in the acceleration of, or entitle any
party to accelerate the maturity or the cancellation of the performance of any
obligation under, or result in the creation or imposition of any Lien in or upon
the Assets or constitute a default (or an event which might, with the passage of
time or the giving of notice, or both, constitute a default) under any contract,
any order, judgment, regulation or ruling of any Governmental or Regulatory Body
to which the Seller is a party or by which any of its property or assets may be
bound or affected or with any provision of any law, rule, regulation, order,
judgment, or ruling of any Governmental or Regulatory Body applicable to the
Seller.
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
outstanding orders, judgments, injunctions, investigations, awards or decrees of
any court, Governmental or Regulatory Body or arbitration tribunal by which the
Seller, or any of its securities, assets, properties or business is bound.
Except as set forth on Schedule 3.5, there are no actions, suits, claims,
investigations, legal, administrative or arbitral proceedings pending or, to the
knowledge of the Seller, threatened (whether or not the defense thereof or
liabilities in respect thereof are covered by insurance) against or affecting
the Seller, or any of its assets or properties, that, individually or in the
aggregate, could, if determined adversely
11
<PAGE>
to the Seller have a Material Adverse Effect, nor, to the knowledge of the
Seller, are there any facts which are likely to give rise to any such action,
suit, claim, investigation or legal, administrative or arbitral proceeding.
3.6 The Assets. The Seller owns outright and has good and marketable
title (except for leasehold interests specifically set forth on Schedule 3.15)
to all of the Seller's assets and properties (tangible and intangible),
including, without limitation, all of the assets and properties (except
capitalized leases) reflected on the Unaudited Financials, free and clear of any
Lien, other than Permitted Liens. The Assets sold pursuant hereto constitute all
of the assets necessary and appropriate for the conduct of the Business in
substantially the same manner as the Business has heretofore been conducted.
3.7 Intangible Property. Schedule 3.7 sets forth all patents,
trademarks, service marks, trade names, copyrights, logos and the like and
franchises, all applications for any of the foregoing, and all permits, grants
and licenses or other rights held or owned by running to or from the Seller
relating to any of the foregoing that are necessary in connection with the
Business (collectively, the "Intangible Property"), true and complete copies of
which have been delivered or made available to the Purchaser. To the knowledge
of the Seller, no patent, invention, trademark, service mark or trade name of
any other Person infringes upon, or is infringed upon by, any of the Intangible
Property and the Seller has not received any notice of any claim of infringement
of any other Person with respect to any of the Intangible Property or any
process or confidential information of the Seller, and the Seller does not know,
after diligent investigation, of any basis for any such charge or claim. Except
for the Intangible Property, no other intellectual property or intangible
property rights are required for the Seller to conduct the Business in the
ordinary course consistent with past practice. To the knowledge of the Seller,
all of the permits, applications and licenses relating to the Intangible
Property have been validly issued and any fees, relating to them have been fully
paid by the Seller. The Seller has not received any notice or inquiry
indicating, or claiming, that the manufacture, sale or use of any Product
infringes upon the patent or other intellectual property rights of any other
Person. Except as separately identified on Schedule 3.7, no approval or consent
of any person is needed so that the interest of the Seller in the Intangible
Property shall continue to be in full
12
<PAGE>
force and effect and enforceable by the Purchaser following the consummation of
the transactions contemplated hereby.
3.8 Inventory. The inventory of the Seller is or was, prior to the sale
thereof, in good and merchantable condition and suitable and usable or saleable
in the ordinary course of business, without mark-down or other discount (except
such mark-downs and discounts as are consistent with the Seller's prior
practices in the ordinary course of business), for the purposes for which
intended. The Seller is not aware of any material adverse condition affecting
the supply of inventory available to the Seller.
3.9 Intentionally Omitted.
3.10 Financial Statements. To the knowledge of the Seller, the
unaudited balance sheet of the Seller as of December 31, 1996, and the related
statement of income for the three (3) month period then ended, true and complete
copies of which have heretofore been delivered to the Purchaser, fairly present
the financial position of the Seller as at such date and the results of
operations of the Seller for the three (3) month period then ended, in each
case, in accordance with GAAP consistently applied for the periods covered
thereby (subject to normal year end adjustments and the absence of footnotes)
(the "Unaudited Financials").
3.11 Undisclosed Liabilities. To the knowledge of the Seller, except as
disclosed on Schedule 3.11, the Seller does not have any, direct or indirect,
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise
collectively, the "Liabilities"), that is not fully and adequately reflected or
reserved against on the Unaudited Financials or covered in full by insurance. To
the knowledge of the Seller, except as disclosed on Schedule 3.11, the Seller
does not have any Liabilities, whether or not of a kind required by GAAP to be
set forth on a financial statement, other than (a) Liabilities incurred since
December 31 ,1996 in the ordinary course of business (none of which is a
liability for a breach of contract, breach of warranty, tort or infringement
claim or lawsuit), none of which individually or in the aggregate, has had or
could reasonably be expected to have a Material Adverse Effect or (b)
Liabilities disclosed and reflected as liabilities on the
13
<PAGE>
Unaudited Financials.
3.12 No Material Adverse Change. Since December 31, 1996, there has
been no material adverse change in the Business, operations or condition
(financial or otherwise) of the Seller, or in the assets, liabilities, net worth
or properties of the Seller, and the Seller does not know of any such change
that is threatened, or has there been any damage, destruction or loss which
could have a Material Adverse Effect, whether or not covered by insurance.
3.13 Tax Matters. Except as disclosed in Schedule 3.13, (a) all Tax
Returns required to be filed with respect to the Seller have been duly filed and
were in all material respects true, complete and correct and filed on a timely
basis, (b) the Seller has paid all Taxes that are due, or claimed or asserted by
the IRS or any Taxing Authority to be due from the Seller for the periods
covered by such Tax Returns or Seller has duly and fully provided reserves
adequate to pay all Taxes in the Unaudited Financials, (c) the Seller has
complied in all material respects with all applicable laws relating to
withholding of Taxes (including withholding Taxes pursuant to Sections 1441 and
1442 of the Internal Revenue Service Code of 1986, as amended (the "Code") and
similar provisions under any other applicable laws) and the payment thereof over
to the Taxing Authorities (d) the income Tax Returns of the Seller have not been
audited or examined by any the Taxing Authority (including the IRS) for any
period for which the applicable statute of limitations period has not yet
expired and no statute of limitations for any such period has been extended.
3.14 Contracts and Other Agreements. Schedule 3.14 sets forth all
written agreements (and, to the knowledge of the Seller any oral agreement) and
arrangements to which either the Seller is a party or by or to which the Seller
or any of its assets or properties is bound or subject (collectively, the
"Material Agreements").
3.15 Real Estate. Schedule 3.15 sets forth a list and supplies
descriptions of (a) all real property owned by the Seller; (b) all leases,
subleases or other agreements (the "Leases") under which the Seller is lessor or
lessee of any real property; (c) all options held by the Seller or contractual
obligations on its respective part to purchase or acquire any interest in real
property (as set forth on Schedule 3.15) and (d)
14
<PAGE>
all options granted by the Seller or contractual obligations on any such
Persons' part to sell or dispose of any interest in real property (as set forth
on Schedule 3.15) (collectively, the "Real Estate Documents"). All of the Real
Estate Documents, true, correct and complete copies of which have been delivered
or made available to the Purchaser, are in full force and effect and the Seller
has not received any notice of any default hereunder, nor does the Seller
anticipate any such notice of default. Except as separately identified on
Schedule 3.15, no approval or consent of any person is needed for the Real
Estate Documents to continue to be in full force and effect and such documents
will not become unenforceable by the Purchaser following the consummation of the
transactions contemplated by this Agreement.
3.16 Transactions with Affiliates. Except as set forth on Schedule
3.16, no Affiliate of the Seller has: (a) borrowed money from or loaned money to
the Seller which remains outstanding; (b) any contractual or other claim,
express or implied, of any kind whatsoever against or by any Affiliate; (c) any
interest in any property or assets used by any Affiliate in their respective
businesses; or (d) engaged in any other transaction with any Affiliate (other
than employment relationships).
3.17 ERISA. (a) Except as set forth on Schedule 3.17, the Seller does
not sponsor, or maintain, or have any obligation to contribute to, or have any
liability under, nor is Seller otherwise a Party to, any Plan. None of the Plans
is a "multiemployer" plan with the meaning of Section 3(37) of ERISA and none of
the Plans is subject to Title IV of ERISA. Neither the Seller nor any ERISA
Affiliate has ever participated in nor had an obligation to contribute to any
"multiemployer plan" or any plan subject to Title IV of ERISA.
(b) With respect to each Plan, Seller has delivered to
Purchaser, or will make available during the Due Diligence Period, to the extent
applicable, a copy of (i) the plan document as currently in effect (or a written
description of any Plan for which there in no plan document) and all relevant
document related thereto, including but not limited to all current trust
agreements, insurance contracts, investment management contracts and
administrative service contracts, (ii) the three most recent annual reports
(Form 5500 Series) filed with the Internal Revenue Service, together with all
schedules, actuarial reports, accountant's statement and trustee reports, (iii)
all IRS
15
<PAGE>
determination letters and pending IRS determination letters, (iv) the most
recent summary of material modifications and other employee materials describing
such plan; (v) all records, notices and filings concerning IRS or Department of
Labor audits or investigations, "prohibited transactions" within the meaning of
Section 406 of ERISA or Section 4975 of the Code and "reportable events" within
the meaning of Section 4043 of ERISA; (vi) a schedule of participants who are no
longer active employees (and the beneficiaries of such participants) listing the
following: name, date of birth, date of hire, social security number and
termination date; (vii) a particularized list of any claims for benefits with
respect to which there is an unresolved dispute together with copies of any
written appeal pertaining thereto; and (viii) a copy of all administrative forms
utilized in the operation of the Plan, together with copies of all participant
elections and beneficiary designations filed pursuant to the Plan.
(c) Each Plan has been maintained, operated and administered
in compliance with its terms and any related documents or agreement and in
compliance with ERISA and the Code.
(d) Each Plan intended to qualify under Section 401(a) of the
Code (as designated on Schedule 3.17) is so qualified and each trust maintained
in connection with such Plan is tax-exempt under Section 501(a) of the Code.
(e) There are no pending or, to the knowledge of the Seller,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind by any court or
governmental agency with respect to any Plan.
(f) No Plan provides benefits, including without limitation,
death or medical benefits (whether or not insured), beyond retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits or retirement benefits under any "employee
pension plan" as that term is defined in Section 3 (2) of ERISA, or (ii)
deferred compensation benefits accrued as liabilities on the Unaudited
Financials.
(g) Neither a "prohibited transaction" within the meaning of
ERISA Section 406 or Code Section 4975 nor any breach of a duty imposed by Title
I of ERISA has occurred with respect
16
<PAGE>
to any Plan.
(h) With respect to each Plan that is a "group health plan"
within the meaning of ERISA Section 607(l) and that is subject to Code Section
4980B, Seller and each ERISA Affiliate have complied in all material respects
with the continuation coverage requirements of the Code and ERISA.
(i) Except as noted on Schedule 3.17, all contributions to,
and payments from, any Plan that may have been required to be made in accordance
with the Plan, or the Code or ERISA, have been timely made.
(j) Neither Seller nor any ERISA Affiliate has incurred or is
reasonably likely to incur any liability with respect to any plan or arrangement
that would be included in the definition of Plan hereunder but for the fact that
such plan or arrangement was terminated before the date of this Agreement.
3.18 Employees. The Seller is not a party to, and there does not
otherwise exist, any agreements with any labor organization, collective
bargaining or similar agreement with respect to employees of the Seller.
Schedule 3.18 sets forth: (a) the name and current annual salary, including any
bonus, if applicable, of all present officers and employees of the Seller whose
current annual salary, including any promised, expected or customary bonus,
equals or exceeds $50,000 and (b) the names and titles of all officers of the
Seller and of such trustee, fiduciary or plan administrator of each Plan of the
Seller. All health and health related employee benefits and other costs have
been paid or adequately reserved for on the Unaudited Financials. The Seller is
in compliance in all material respects with its obligations under all Federal,
state, and local statutes and ordinances, executive orders, regulations and
common law governing its employment practices with respect to the Seller. To the
knowledge of the Seller, there are no attempts being made to organize any
employees presently employed by the Seller.
3.19 Environmental Matters. The Seller is not in violation of, or
delinquent in respect to, any Environmental Law which violation or delinquency
would have a Material Adverse Effect and the Seller has obtained all permits,
licenses and other authorizations required under the Environmental Laws.
Schedule 3.19, which shall be provided to the Purchaser by the Seller and the
Partners no later than four (4) Business Days following the
17
<PAGE>
date of execution of this Agreement, lists all violations of, or delinquencies
with respect to, any Environmental Law (i) within the twenty four (24) month
period prior hereto and (ii) with respect to any such violation which remains
uncorrected, within the period of ownership by the Partners of any proprietary
interest in the Seller. Schedule 3.21, which shall be provided to the Purchaser
by the Seller and the Partners no later than four (4) Business Days following
the date of execution of this Agreement, includes a list of all such permits,
licenses and other authorizations.
3.20 Insurance. Schedule 3.20 sets forth a list and brief description
(specifying the insurer, the policy number or covering note number with respect
to binders and the amount of any deductible, describing the pending claims if
such claims exceed applicable policy limits, setting forth the aggregate amount
paid out under each such policy through the date hereof and the aggregate limit,
if any, of the insurer's liability thereunder) of all policies or binders of
fire, liability, product liability, workmen's compensation, vehicular,
unemployment and other insurance held by or on behalf of the Seller. Such
policies and binders are valid and enforceable in accordance with their terms in
all material risks and liabilities to the extent and in respect of amount, types
and risks insured, as are customary in the industries in which the Seller
operates. The Seller is not in default with respect to any material provision
contained in any such policy or binder and has not failed to give any notice or
present any claim under any such policy or binder in due and timely fashion.
Except for claims disclosed on Schedule 3.20, there are no outstanding unpaid
claims under any such policy or binder which have gone unpaid for more than
forty-five (45) days or as to which the carrier has disclaimed liability.
3.21 Licenses and Permits. Schedule 3.21 , which shall be provided to
the Purchaser by the Seller and the Partners no later than four (4) Business
Days following the date of execution of this Agreement, sets forth a list of the
governmental permits, licenses, registrations and other governmental consents
(federal, state and local) which the Seller has obtained and which are necessary
in connection with its operations and properties, and no others are required.
All such permits, licenses, registrations and consents are in full force and
effect and in good standing, and except as separately identified on Schedule
3.21, shall continue to be in full force and effect and in good
18
<PAGE>
standing following the consummation of the transactions contemplated by this
Agreement. The Seller has not received any notice of any claim of revocation and
to the knowledge of the Seller there is no event which might give rise to such a
claim. Additionally, Seller and Partners hereby represent and warrant that its
Business and facility have been registered with the Federal Food and Drug
Administration (the "FDA") and that the Seller and the Partners shall transfer
such FDA registration to the Purchaser as soon as possible following the signing
of this Agreement.
3.22 Compliance with Laws. Except as set forth on Schedule 3.19, the
Seller has complied in all respects with all applicable federal, state and local
laws, regulations and ordinances or any requirement of any Governmental or
Regulatory Body, court or arbitrator affecting the Business or the Assets the
failure to comply with which could have a Material Adverse Effect on the
Business or the Assets. Neither the Seller nor any of its representatives,
agents, employees or Affiliates has made or agreed to make any payment to any
Person which would be unlawful.
3.23 Products. Except as disclosed on Schedule 3.23, there are no
statements, citations or decisions by any Governmental or Regulatory Body that
any product manufactured, marketed or distributed at any time by the Seller
("Product") is defective or fails to meet in any material respect any standards
promulgated by any such Governmental or Regulatory Body. There have been no
recalls ordered by any such Governmental or Regulatory Body with respect to any
Product. There is no (a) fact relating to any Product that may impose upon the
Seller (or the Purchaser upon consummation of the transactions contemplated
hereby) a duty to recall any Product or a duty to warn customers of a defect in
any Product, other than defects about which the Seller has issued appropriate
and adequate warnings or (b) latent or overt design, manufacturing or other
defect in any Product.
3.24 Disclosure. Neither this Agreement, nor any Schedule or Exhibit to
this Agreement contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. All statements, documents, certificates or other items prepared or
supplied by the Seller or the Partners with respect to the transactions
contemplated hereby are true, correct and complete and contain no untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein
19
<PAGE>
not misleading.
3.25 Survival. All of the representations and warranties of the Seller
and the Partners contained herein shall survive the Closing Date until the date
upon which the liability to which any claim relating to any such representation
or warranty is barred by all applicable statutes of limitations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Organization and Qualification. The Purchaser is a corporation
validly existing and in good standing under the laws of the State of Delaware.
4.2 Validity and Execution of Agreement. The Purchaser has the full
legal right, capacity and power and all requisite corporate authority and
approval required to enter into, execute and deliver this Agreement and any
other agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The Board of Directors of the Purchaser
has approved the transactions contemplated by this Agreement and each of the
other agreements required to be entered into pursuant hereto by the Purchaser.
This Agreement and such other agreements and instruments have been duly executed
and delivered by the Purchaser and each constitutes the valid and binding
obligation of the Purchaser enforceable against it in accordance with its terms.
4.3 No Conflict. Neither the execution and delivery of this Agreement
nor the performance by the Purchaser of the transactions contemplated herein
will (a) violate or conflict with any of the provisions of its Certificate of
Incorporation or By-Laws or other organizational documents; and (b) violate or
conflict with any provision of any law, rule, regulation, order, judgment,
decree or ruling of any court or federal, state or local Governmental or
Regulatory Body applicable to the Purchaser.
4.4 Survival. All of the representations and warranties of the
Purchaser contained herein shall survive the Closing Date until the date upon
which the liability to which any claim relating to any such representation or
warranty is barred by all applicable statutes of limitations.
20
<PAGE>
4.5 Disclosure. Article IV of this Agreement does not contain an untrue
statement of a material fact or omit a material fact necessary to make the
statements contained herein not misleading. All statements, documents,
certificates or other items prepared or supplied by the Purchaser with respect
to the transaction contemplated hereby are true, correct and complete and
contain no untrue statement of a material fact or omit a material fact necessary
to make the statement contained therein not misleading.
ARTICLE V
Section 5. Intentionally Omitted.
ARTICLE VI
COVENANTS PENDING THE CLOSING
Section 6. Covenants of Seller and the Partners Pending the Closing.
Each of Seller and the Partners hereby agree and covenant to Purchaser that
prior to the Closing Date:
6.1 The Seller's Operation of the Business Prior to Closing. Each of
the Seller and the Partners agree that between the date of this Agreement and
the Closing Date, the Seller will:
(a) continue to operate the Business in the usual and ordinary course
and in substantial conformity with all applicable laws, ordinances, regulations,
rules, or orders, and will use its best efforts to preserve the Business and
preserve the continued operation of the Business with its customers, suppliers,
and others having business relations with Seller;
(b) not assign, sell, lease, or otherwise transfer or dispose of any of
the Assets, whether now owned or hereafter acquired, except in the normal and
ordinary course of business and in connection with its normal operation;
(c) maintain all of the Assets other than inventories in
21
<PAGE>
their present condition, reasonable wear and tear and ordinary usage excepted,
and maintain the inventories at levels normally maintained; and
(d) not (i) incur any liabilities (contingent or otherwise) outside of
the ordinary course of business, (ii) sell pledge or hypothecate any capital
stock (or securities exercisable or exchangeable for, or convertible into,
shares of capital stock) of the Seller, or (iii) engage in any transaction which
could adversely affect the transactions contemplated by this Agreement.
6.2 Access to Premises and Information. At reasonable times prior to
the Closing Date, Partners and Seller will provide Purchaser and its
representatives, with the consent of the Seller (which consent shall not be
unreasonably withheld or delayed), with reasonable access during business hours
to the assets, titles, contracts, and records of Seller and furnish such
additional information concerning the Business as Purchaser from time to time
may reasonably request; provided that Purchaser and its representatives shall
use all reasonable efforts to keep confidential from Seller's employees, the
purpose of any such access.
6.3 Employee Matters. Prior to the Closing Date, the Seller will not,
without Purchaser's prior written consent, enter into any material agreement
with its employees (or independent contractors), increase the rate of
compensation or bonus paid, payable to or to become payable to any employee, or
effect any changes in the management, personnel policies, or employee benefits,
except in accordance with existing employment practices.
6.4 Change of Name. On or prior to the Closing Date, Seller and the
Partners will take all action necessary or appropriate to permit Purchaser to
legally commence use of the Seller's name on the Closing Date.
6.5 Conditions and Best Efforts. The Seller and the Partners will use
their respective best efforts to effectuate the transactions contemplated by
this Agreement and to fulfill all the conditions of the obligations of the
Seller and the Partners under this Agreement, and will do all acts and things as
may be required to carry out their respective obligations under this Agreement
and to consummate and complete this Agreement.
22
<PAGE>
ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING
Section 7. Conditions Precedent to Purchaser's Obligations. The
obligation of Purchaser to purchase the Assets is subject to the fulfillment,
prior to or at the Closing Date, of each of the following conditions, any one or
portion of which may be waived in writing by Purchaser:
7.1 Representations, Warranties, and Covenants of Seller and Partner.
All representations and warranties made in this Agreement by the Seller and the
Partners shall be true as of the Closing Date as fully as though such
representations and warranties had been made on and as of the Closing Date, and,
as of the Closing Date, neither the Seller nor the Partners shall have violated
or shall have failed to perform in accordance with any covenant contained in
this Agreement.
7.2 Licenses and Permits. Purchaser shall have received from Seller all
licenses and permits from public authorities necessary to authorize the
ownership and operation of the Business.
7.3 Consents. Purchaser shall have obtained all necessary consents to
assignments of all parties to material contracts with the Seller.
7.4 Condition of the Business. There shall have been no material
adverse change in the business, operations condition (financial and otherwise)
or prospects of the Business since December 31, 1996.
7.5 Opinions of Counsel. The Seller and Partners shall have furnished
Purchaser with opinions of counsel for the Seller and the Partners in form and
substance reasonably satisfactory to Purchaser's counsel as described in Section
2.2(d). The Purchaser shall have furnished Seller and Partners with opinions of
counsel for the Purchaser in form and substance reasonably satisfactory to
Seller's and Partners' counsel.
7.6 No Suits or Actions. At the Closing Date, no suit, action, or
other proceeding shall have been threatened or instituted to restrain, enjoin,
or otherwise prevent the consummation of this Agreement or the transactions
contemplated
23
<PAGE>
thereby.
7.7 Due Diligence Investigation. The Purchaser shall carry out such
due diligence investigations, as its agents, attorney's and auditors deem
appropriate.
7.8 Intentionally Omitted
7.9 Delivery of Schedule 1.8 to the Seller and the Partners. The
Purchaser shall have delivered to the Seller and the Partners, no later than
March 1, a copy of Schedule 1.8, and the parties hereto shall have agreed upon
the allocation of the Purchase Price set forth therein and annexed said Schedule
to their respective counterparts of this Agreement.
7.10 Delivery of Schedules 3.19 and 3.21 to the Purchaser. The Seller
and the Partners shall have delivered to the Purchaser, no later than four (4)
Business Days following the date of execution of this Agreement, a copy of
Schedule 3.19 and Schedule 3.21 and the parties hereto shall have annexed said
Schedules to their respective counterparts of this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. (a) The Seller and the Partners agree to jointly
and severally indemnify, defend and hold harmless the Purchaser and its
respective shareholders, officers, directors, employees, and any Affiliates of
the foregoing, and their successors and assigns (collectively, the "Purchaser
Group") from and against any and all losses, liabilities (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including reasonable fees and disbursements of counsel and expenses of
investigation and defense), claims, Liens or other obligations of any nature
whatsoever (hereinafter individually, a "Loss" and collectively, "Losses")
which, directly or indirectly, arise out of, result from or relate to, (i) any
inaccuracy in or any breach of any representation or warranty of any of the
Seller or the Partners contained in Article III, (ii) any breach of any covenant
or agreement of any of the Partners or Seller, in each case contained in this
Agreement or in any other document contemplated by this Agreement and (iii) the
conduct of the Business prior to the Closing.
24
<PAGE>
(b) The Purchaser agrees to indemnify, defend and hold harmless each of
the Seller and its directors, officers, employees, and any Affiliates of the
foregoing, and their successors and assigns from and against any and all Losses
which, directly or indirectly, arise out of, result from or relate to any breach
of any covenant or agreement of the Purchaser contained in this Agreement or in
any other document contemplated by this Agreement or the conduct of the Business
by the Purchaser from and after the Closing Date.
8.2 Method of Asserting Claims. The party making a claim under this
Article VIII is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under this Article VIII is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Article
VIII shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the nature of the
specific basis for such claim or demand, and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim and demand; any such notice, together with any
notice given pursuant to Section 8.2(b) hereof, collectively being the "Claim
Notice"); provided, however, that any failure to give such Claim Notice will not
be deemed a waiver of any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are actually prejudiced. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably acceptable to the Indemnified Party) to represent the Indemnified
Party, and shall pay the fees and disbursements of such counsel with regard
thereto, provided, further, that any Indemnified Party is hereby authorized
prior to the date on which it receives written notice from the Indemnifying
Party designating such counsel, to retain counsel, whose fees and expenses shall
be at the expense of the Indemnifying Party, to file any motion, answer or other
pleading and take such other action which it reasonably shall deem necessary to
protect its interests or those of the Indemnifying Party until the date on which
the Indemnified Party receives such notice from the Indemnifying Party. After
the Indemnifying Party
25
<PAGE>
shall retain such counsel, the Indemnified Party shall have the right to retain
its own counsel, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless (i) the Indemnifying Party and the
Indemnified Party shall have mutually agreed to the retention of such counsel or
(ii) the named parties of any such proceeding (including any impleaded parties)
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. The Indemnifying Party shall not, in
connection with any proceedings or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one such firm for the
Indemnified Party (except to the extent the Indemnified Party retained counsel
to protect its (or the Indemnifying Party's) rights prior to the selection of
counsel by the Indemnifying Party). If requested by the Indemnifying Party, the
Indemnified Party agrees to cooperate with the Indemnifying Party and its
counsel in contesting any claim or demand which the Indemnifying Party or, where
permitted pursuant to this Agreement, by an Indemnified Party without the
consent of the Indemnified Party in the first case or the consent of the
Indemnifying Party in the second case, which consent shall not be unreasonably
withheld, unless such settlement shall be accompanied by a complete release of
the Indemnified Party in the first case or the Indemnifying Party in the second
case. Whether or not such release is obtained, the Person whose consent is
required may reasonably withhold consent if the proposed settlement would have a
Material Adverse Effect on its business or properties.
(b) In the event any Indemnified Party shall have a claim against any
Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not notify the Indemnified
Party within twenty (20) days of receipt of the Claim Notice that it disputes
such claim, the amount of such claim shall be conclusively deemed a liability of
the Indemnifying Party hereunder.
(c) So long as any right to indemnification exists pursuant to this
Article VIII, the affected parties each agree to retain all books, records,
accounts, instruments and documents reasonably related to the Claim Notice. In
each instance, the
26
<PAGE>
Indemnified Party shall have the right to be kept informed by the Indemnifying
Party and its legal counsel with respect to all significant matters relating to
any legal proceedings. Any information or documents made available to any party
hereunder, which information is designated as confidential by the party
providing such information and which is not otherwise generally available to the
public, or which information is not otherwise lawfully obtained from third
parties or not already within the knowledge of the party to whom the information
is provided (unless otherwise covered by the confidentiality provisions of any
other agreement among the parties hereto, or any of them), and except as may be
required by applicable law or requested by third party lenders to such party,
shall not be disclosed to any third Person (except for the representatives of
the party being provided with the information, in which event the party being
provided with the information shall request its representatives not to disclose
any such information which it otherwise required hereunder to be kept
confidential).
ARTICLE IX
POST-CLOSING COVENANTS OF THE PARTIES
9.1 Tax Matters. (a) The Seller and the Partners shall make available
to Purchaser on demand such information as shall reasonably be requested by
Purchaser to enable Purchaser to prepare and file timely its federal, state and
local income Tax Returns and all forms, schedules and attachments related
thereto.
(b) The Seller shall treat (and shall not make any election
inconsistent with treating) the transfers of the Assets to the Purchaser as a
taxable sale.
9.2 Non-Competition. The Partners and the Seller acknowledge that the
Seller's ownership of the Assets and their respective operation of the Business
has brought them in close contact with certain confidential affairs of the
Business not readily available to the public, and the Purchaser would not
purchase the Assets, but for the agreements and covenants of the Partners and
the Seller contained in this Section 9.2. The Partners and the Seller shall not
directly or indirectly, for a period of five (5) years following the Closing
Date,(i) engage in any business which is, or becomes competitive with the
Business, or (ii) become interested in any Person engaged in activities which
is, or becomes competitive with the Business as a partner,
27
<PAGE>
officer, director, shareholder, principal, agent, trustee, consultant, lender or
in any other relationship or capacity, except for investments by the Partners,
the Seller or its Affiliates in securities traded on a national stock exchange
or the over-the-counter market which do not exceed five (5) percent of the total
outstanding shares of such securities, or (iii) take any action outside the
ordinary course of business which could have a Material Adverse Effect on the
Business, the Assets or the Purchaser following the Closing Date. If any court
determines that this covenant, or any part thereof, is unenforceable because of
the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
9.3 Confidentiality. From and after the Closing Date, the Partner and
the Seller shall not disclose or furnish to any other Person, except to the
extent required by law or by order of any court or governmental agency, (a) any
information relating to the operations or financial status of any of the Seller,
the Business or the Purchaser which is not specifically a matter of public
record, (b) any trade secrets of the Business or the Purchaser or (c) the name,
address or other information relating to any supplier of the Business or the
Purchaser.
9.4 Confidentiality of Information. In the event that the transactions
contemplated by this Agreement are not consummated, or if this Agreement is
terminated, each party shall return to the other all information, including
without limitation customer lists, related to the other party or the other
party's business obtained by such party from the other party or its
representatives. In such event, each party acknowledges that all such
information is the confidential proprietary, information of the other party and
such party shall maintain such information in strict confidence and shall not
use such information in any business dealings or disclose such information to
any third party; provided however, that the restrictions contained herein shall
not apply to information obtained by such party (i) from public sources or (ii)
from individuals who are not thereby breaching the term of any confidentiality
agreement with the other party or (iii) if required to be disclosed by law. The
provisions of this Section 9.4 shall survive any termination of this Agreement.
9.5 Non-Solicitation of Suppliers and Employees. In the
28
<PAGE>
event that the transactions contemplated by this Agreement are not consummated,
or if this Agreement is terminated, the Purchaser shall not enter into any
contract for supplies or induce any other person to enter into any such contract
with any of the suppliers or vendors of the Seller whose names have been
disclosed by the Seller to the Purchaser as part of the Seller's confidential
information. In addition, the Purchaser hereby agrees not to hire or solicit the
hiring of any employee or salesperson of the Seller for a period of three (3)
years from the date hereof. The provisions of this Section 9.5 shall survive any
termination of this Agreement.
9.6 Closing Date Balance Sheet. Within thirty (30) days from and after
the Closing, the Seller and the Partners shall deliver to the Purchaser the
Closing Date Balance Sheet dated as of the Closing Date as set forth in Section
7.8 hereof.
ARTICLE X
MISCELLANEOUS
10.1 Sales and Transfer Taxes. All required filings under any
applicable Federal, state, foreign or local sales tax, stamp tax or similar laws
or regulations shall be made in a timely manner by the party responsible
therefor under such laws and regulations, and, at the Closing, such shall
deliver to the other parties either (a) proof of the payment of any sales tax
assessed pursuant to such filings or (b) statements of no sales tax due, as the
case may be. The parties agree to pay any and all transfer, sales or stamp taxes
and any similar taxes or assessments imposed on the transfer of the Assets and
the Assumed Liabilities in accordance with the terms of this Agreement, such
taxes and assessments to be borne equally by (i) the Seller and the Partners,
and (ii) the Purchaser; except that the Purchaser shall pay any applicable sales
tax.
10.2 Post-Closing Further Assurances. At any time and from time to time
after the Closing Date at the request of the Purchaser, and without further
consideration, the Seller and the Partners will execute and deliver, or cause
the execution and delivery of, such other instruments of sale, transfer,
conveyance, assignment and confirmation and take or cause to be taken such other
action as the Purchaser may reasonably deem necessary or desirable in order to
transfer, convey and assign more effectively to the Purchaser, to put the
Purchaser in actual
29
<PAGE>
possession and operating control of the Assets and the Business and to assist
the Purchaser in exercising all rights with respect thereto.
10.3 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telefaxed, sent by facsimile transmission or sent
by prepaid air courier or certified, registered or express mail, postage
prepaid. Any such notice shall be deemed to have been given (a) the succeeding
business day after receipt, if delivered in person, telegraphed, telexed, sent
by facsimile transmission and confirmed in writing within three (3) Business
Days thereafter or sent by prepaid air courier or (b) ten (10) Business Days
following the mailing thereof, if mailed by certified first class mail, postage
prepaid, return receipt requested, in any such case as follows (or to such other
address or addresses as a party may have advised the other in the manner
provided in this Section 10.3):
If to Seller or Partners, to:
421 Hackensack Street
Carlstadt, New Jersey 07072
Attention: John and Janice Essmyer
Telephone Number ( ) ___________________
Telecopier Number ( )___________________
with a copy to:
Sanford Amdur, Esq.
201 Route 17 North
Suite 404
Rutherford, New Jersey 07070
Telephone Number ( ) ____________
Telecopier Number ( ) ____________
Eugene Gorrin, Esq.
625 Main Street
Hackensack, New Jersey 07601
30
<PAGE>
Telephone Number: ( ) ____________
Telecopier Number: ( ) ___________
If to the Purchaser, to:
Hydrogel Design Systems, Inc.
750 Lexington Avenue
Suite 2750
New York, NY 10022
Attention: Matthew Harriton
Telephone Number (212) 355-8484
Telecopier Number (212) 980-6653
with a copy to:
Bernstein & Wasserman
950 Third Avenue
New York, NY 10022
Attn: Steven F. Wasserman, Esq.
Telephone Number (212) 826-0730
Telecopier Number (212) 371-4730
10.4 Accounting Fees. Purchaser herein, pursuant to a mutual
understanding by and among the parties, has agreed to incur and pay such
professional accounting fees incurred by the Seller and/or Purchaser for
purposes of this transaction, payable to the accounting firm of Bruce F.
Minkoff, C.P.A. At the time of the Closing, such professional fees shall be paid
for by Purchaser's remittance upon presentation of an invoice for these services
rendered.
10.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
10.6 Waivers and Amendments. This Agreement may be amended,
superseded, canceled, renewed or extended, and the terms
31
<PAGE>
hereof may be waived, only by a written instrument signed by the parties hereto
or, in the case of a waiver, by the party waiving compliance. No delay on the
part of any party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
10.7 Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law. All parties hereby consent to the venue and
jurisdiction of the courts, both federal and state, located in the State of New
York, County of New York, for any disputes arising out of this Agreement.
10.8 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law and any other purported assignment shall be null and void.
10.9 Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
10.10 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
10.11 Exhibits and Schedules. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
10.12 Effect of Disclosure on Schedules. Any item disclosed on any
Schedule shall only be deemed to be disclosed in connection with (a) the
specific representation and warranty to which such Schedule is expressly
referenced, (b) any specific representation and warranty which expressly
cross-references such Schedule and (c) any specific representation and warranty
to which any other Schedule to this Agreement is expressly
32
<PAGE>
referenced if such other Schedule expressly cross-references such
Schedule.
10.13 Limited Recourse. In no event shall any Affiliate of the
Purchaser or any officer, director or employee of any of them, have any
liability to the Partners, the Seller or any shareholder or creditor of any of
them pursuant to this Agreement or any of the transactions contemplated hereby.
10.14 Headings. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
10.15 Severability of Provisions. If any provision or any portion of
any provision of this Agreement or the application of such provision or any
portion thereof to any Person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby.
10.16 Brokers. Each party hereto represents and warrants that no broker
or finder is entitled to any brokerage or finder's fee or other commission from
such party, based on agreements, arrangements or undertakings made by such
party, in connection with the transactions contemplated hereby.
10.17 Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by mutual consent of Purchaser, the Partners and Seller;
(b) by either Purchaser or Partners and Seller if the Closing has not
occurred on or before February 28, 1997, subject to the provisions of Section
2.1 hereof, unless the reason that the Closing has not occurred shall be the
failure of the party seeking to terminate this Agreement to fulfill its
obligations hereunder;
(c) by either Purchaser or Partners and Seller if there has been a
material misrepresentation or material breach on the part of the other party in
the representations, warranties or
33
<PAGE>
covenants set forth in this Agreement which is not cured within ten (10)
Business Days after such other party has been notified of the intent to
terminate this Agreement pursuant to this clause (c); or
(d) by either Purchaser or Partners and Seller if any legal proceeding
is commenced or threatened by any Governmental or Regulatory Body or other
person directed against the consummation of the Closing or any other material
transaction contemplated under this Agreement and Purchaser or Partners and
Seller, as the case may be, reasonably and in good faith deems it impractical or
inadvisable to proceed in view of such legal proceeding or threat thereof.
34
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
ALTERNATIVE DESIGN SYSTEMS R & D GROUP
By: /s/ John Essmyer
-----------------------------
Name: John Essmyer
Title: President
HYDROGEL DESIGN SYSTEMS, INC.
By: /s/ Matthew Harriton
----------------------------
Name: Matthew Harriton
Title: President
/s/ John Essmyer
----------------------------
JOHN ESSMYER
/s/ Janice Essmyer
----------------------------
JANICE ESSMYER
35
<PAGE>
ASSET PURCHASE AGREEMENT
by and among
HYDROGEL DESIGN SYSTEMS, INC.,
NOVATECH, INC.,
JOHN ESSMYER
and
JANICE ESSMYER
Dated as of February 6, 1997
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of February 6, 1997 by and among
Hydrogel Design Systems, Inc., a Delaware corporation (the "Purchaser"),
Novatech, Inc., a New Jersey corporation (the "Seller"), John Essmyer and Janice
Essmyer (collectively, the "Shareholders").
W I T N E S S E T H :
WHEREAS, the Seller is engaged in the business of manufacturing,
marketing, selling and distributing products manufactured with Hydryogel (the
"Business"); and
WHEREAS,simultaneous with the execution of this asset purchase
agreement(the "Agreement"), the Purchaser, Embryo and the Shareholders have
executed an asset purchase agreement with Alternative Design Systems R & D
Group, a New Jersey general partnership, (the "ADS Agreement") whereby pursuant
to the terms of the two (2) aforementioned asset purchase agreements, all of the
assets of the Business (as that term is defined herein and in the ADS Agreement)
of Seller and ADS will be sold to the Purchaser, including, but not limited to,
any and all formulas and methods of mixing and preparing Hydrogel products, as
well as any and all applications, both consumer and medical, for Hydrogel
whether presently in use or in development by the Seller and the Shareholders;
and
WHEREAS, the Shareholders are the owners of all the outstanding capital
stock of the Seller; and
WHEREAS, at the Closing (as hereinafter defined) the Seller will have
good and valid title to all of the assets comprising the Assets free and clear
of any liens or encumrances(as hereinafter defined) which are related to the
conduct of the Business; and
WHEREAS, the Seller wishes to sell, and the Purchaser wishes to
purchase, the Assets, subject to the assumption by the Purchaser of certain
liabilities of the Seller comprising the Assumed Liabilities (as hereinafter
defined).
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual terms, conditions and
other agreements set forth herein, the Seller and the Purchaser hereby agree as
follows:
ARTICLE I
DEFINITIONS, PURCHASE OF THE ASSETS,
ASSUMPTION OF ASSUMED LIABILITIES, PURCHASE PRICE
1.1. Certain Definitions. As used in this Agreement, the following
terms have the following meanings unless the context otherwise requires:
"Adjustment Date" has the meaning specified in Section 1.5(b).
"Affiliate" means, with respect to any Person, any other Person
controlling, controlled by or under common control with such Person; provided,
however, that for purposes of Section 3.16, controlling or controlled shall be
deemed to occur if any person holds or has the right to vote ten (10%) percent
or more of the voting stock of such other Person.
"Alternative Design" means Alternative Design Systems R & D Group, a
New Jersey general partnership.
"Assets" has the meaning specified in Section 1.2.
"Assigned Contracts and Leases" means the unexpired leases and
executory contracts (including without limitation, licenses and purchase orders)
set forth on Schedule 3.14, unless indicated otherwise therein.
"Assignment and Assumption Agreement" means an instrument substantially
in the form of Exhibit A attached hereto.
"Assumed Liabilities" has the meaning specified in Section 1.3.
"Bill of Sale" means an instrument substantially in the form of Exhibit
B attached hereto.
"Business" has the meaning specified in the Recitals.
2
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks are authorized or required by law to close in New York
City.
"Claim Notice" has the meaning specified in Section 8.2(a).
"Closing" has the meaning specified in Section 2.1(a).
"Closing Date Balance Sheet" means a balance sheet dated as of the
Closing Date prepared by an independent auditing firm reasonably acceptable to
the Purchaser.
"Code" has the meaning specified in Section 3.13.
"Cash Payment" has the meaning specified in Section 1.5(a).
"Due Diligence Period" has the meaning specified in Section 7.7.
"Embryo" means Embryo Development Corp., a Delaware corporation.
"Employment Agreement" has the meaning specified in Section 1.7.
"Environmental Law" means any and all present federal, state, local and
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, grants, franchises, licenses or agreements relating to (a) the
protection of the environment, health or workers safety; (b) pollution or
environmental contamination; or (c) the use, processing, distribution,
generation, treatment, storage, recycling, transportation, disposal, handling,
Release or threatened or potential Release of any Material of Environmental
Concern.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excluded Assets" means those assets of the Seller set forth on Schedule
1.1(a).
"Extension Payment" has the meaning specified in Section 2.1(a).
3
<PAGE>
"Fair Market Value" has the meaning specified in Section 1.5(b).
"Governmental or Regulatory Body" means any government or political
subdivision thereof, whether federal, state, county, local or foreign, or any
agency, authority or instrumentality of any such government or political
subdivision.
"Indemnified Party" has the meaning specified in Section 8.2.
"Indemnifying Party" has the meaning specified in Section 8.2
"Intangible Property" has the meaning specified in Section 3.7.
"IRS" means the Internal Revenue Service.
"Leases" has the meaning specified in Section 3.15.
"Liabilities" has the meaning specified in Section 3.11.
"Lien" means any lien, pledge, hypothecation, mortgage, security
interest, claim, lease, charge, option, right of first refusal, easement,
servitude, transfer restriction under any stockholder or similar agreement,
encumbrance or any other restriction or limitation whatsoever.
"Loss" and "Losses" have the meanings specified in Section 8.1(a).
"Material Adverse Effect" means any change or changes or effect or
effects that individually or in the aggregate are or may reasonably be expected
to be materially adverse to (a) the business or the assets, operations, income,
prospects or conditions (financial or otherwise) of the Seller or the
transactions contemplated by this Agreement or (b) the ability of any of the
Seller or the Shareholders to perform their respective obligations under this
Agreement.
"Material Agreements" has the meaning specified in Section 3.14.
4
<PAGE>
"Material of Environmental Concern" shall have the same meaning as
"Hazardous Substances" as defined in the Lease Agreement.
"Non-Assumed Liabilities" has the meaning specified in Section 1.4.
"Novatech" means Novatech, Inc., a New Jersey corporation, also
referred to as the Seller.
"Permitted Liens" means (a) Liens for taxes not yet due and (b) the
Liens set forth on Schedule 1.1(b).
"Person" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock Company, trust, unincorporated organization,
Governmental or Regulatory Body or other entity.
"Plan" means any plan, fund, program, understanding, policy,
arrangement, contract or commitment, whether qualified or not qualified for
federal income tax purposes, whether formal or informal, whether for the benefit
of a single individual or more than one individual, which is in the nature of
(a) an employee pension benefit plan (as defined in ERISA ss. 3(2)), (b) an
employee welfare benefit plan (as defined in ERISA ss. 3(1)), or (c) an
incentive, deferred compensation, or other benefit arrangement for employees,
former employees, their dependents or their beneficiaries.
"Product" has the meaning specified in Section 3.23.
"Purchase Price" has the meaning specified in Section 1.5(a).
"Purchaser" has the meaning specified in the introductory paragraph of
this Agreement.
"Purchaser Group" has the meaning specified in Section 8.1(a).
"Real Estate Documents" has the meaning specified in Section 3.15.
5
<PAGE>
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing into
the environment.
"Seller" has the meaning specified in the introductory paragraph of
this Agreement.
"Senior Management of the Seller" means any vice-president, director or
officer of the Seller.
"Shareholders" has the meaning specified in the introductory paragraph
of this Agreement.
"Shares" has the meaning specified in Section 1.5(a).
"Tax" or "Taxes" mean all taxes, charges, fees, levies or other
assessments imposed by any federal, state, local or foreign Taxing Authority,
including, without limitation, gross income, gross receipts, income, capital,
excise, property (tangible and intangible), sales, transfer, value added,
employment, payroll and franchise taxes and such terms shall include any
interest, penalties or additions attributable to or imposed on or with respect
to such assessments.
"Tax Report" means any return, report, information return, or other
document (including any related or supporting information) filed or required to
be filed with any federal, state, or local governmental entity or other
authority in connection with the determination, assessment or collection of any
Tax (whether or not such Tax is imposed on any of the Seller) or the
administration of any laws, regulations or administrative requirements relating
to any Tax.
"to the knowledge of the Seller" means to the best knowledge
of the Shareholders and the Senior Management of the Seller.
"Unaudited Balance Sheet" means the balance sheet of the Seller
prepared in-house for the period ending December 31, 1997 and attached hereto as
Exhibit E.
"Unaudited Financials" has the meaning specified in Section 3.10(a).
1.2 Purchase of the Assets. Subject to the terms and conditions set
forth in this Agreement, the Seller agrees that,
6
<PAGE>
on the Closing Date, as defined herein, it shall sell, transfer, assign, convey
and deliver to the Purchaser, and Purchaser agrees that, on the Closing Date,
Purchaser shall purchase, acquire and accept from the Seller, all of the assets
owned, used or held by the Seller to conduct the Business and as set forth on
Schedule 1.2, other than the Excluded Assets (said assets, together with all
goodwill in connection with the Business, are hereinafter collectively referred
to as the "Assets"), free and clear of all Liens other than Permitted Liens.
1.3 Assumption by the Purchaser of Certain Liabilities. Subject to the
terms and conditions set forth in this Agreement, Purchaser agrees that, on the
Closing Date, Purchaser shall assume and thereafter pay, perform or discharge,
as the case may be, the obligations and liabilities of the Seller outstanding on
the Closing Date set forth on Schedule 1.3(the "Assumed Liabilities"). The
Purchaser shall assume those insurance policies listed in Schedule 3.14(4) which
are assumable and shall maintain such policies or shall obtain similar policies
in similar amounts for a period of one (1) year from and after the Closing Date.
1.4 Non-Assumed Liabilities. The Purchaser shall not assume nor
be responsible for any liabilities or obligations of the Seller, other than the
Assumed Liabilities (the "Non-Assumed Liabilities").
1.5 Purchase Price for the Assets. (a) The consideration for the Assets
shall be 150,000 shares of common stock, $.0001 par value per share, of Embryo
Development Corporation, a Delaware corporation (the "Shares"), subject to
adjustment as set forth in Section 1.5(b) below (collectively, the "Purchase
Price"), which Shares shall bear a restrictive legend as required by the
Securities Act of 1933, as amended. Such Shares shall vest in the Shareholders
on the second anniversary date of the Closing (the "Vesting Date") only if the
Purchaser has earned $500,000 in cumulative gross revenues derived from the sale
of Products (as that term is defined herein) which are related to the conduct of
the Business, during the two year period from the Closing Date to the Vesting
Date(the "Vesting Period").
(b) If on the Vesting Date the Fair Market Value(as hereinafter
defined) of the Shares is less than $900,000, the Seller may demand that the
Purchaser purchase all of the Shares, which must have vested in the Shareholders
pursuant to Section
7
<PAGE>
1.5(a) above, and the Purchaser shall, except as otherwise prohibited by law, be
obligated to purchase such Shares at an aggregate purchase price of $900,000, in
either cash and/or marketable securities (which may be subject to a "lock-up").
The Shareholders must make their Put in writing and send it to the Purchasers in
accordance with the procedures set forth in Section 10.3 below.
1.6 Intentionally Omitted
1.7 Employment Agreement. As additional consideration, at the Closing,
the Shareholders shall each enter into an employment agreement with the
Purchaser in substantially the form set forth in Exhibit D attached hereto (the
"Employment Agreements").
1.8 Allocation of Purchase Price. The Purchase Price shall be allocated
among the Assets in the manner set forth on Schedule 1.8, which allocation shall
be provided to the Seller and the Shareholders by the Purchaser no later than
March 1, 1997 and shall be agreed as set forth in Section 7.9 hereof. Except as
required by law, the parties hereby covenant and agree with each other that none
of them will take a position on any Tax Return, before any taxing authority
charged with the collection of any Tax, or in any judicial proceeding, that is
in any way inconsistent with the negotiated allocation.
1.9 Limitations on Assignment; Further Assurance. To the extent that
the assignment of any Assigned Contract and Lease to be assigned to the
Purchaser, as provided herein, shall require the consent of another party
thereto, this Agreement shall not constitute an agreement to assign the same if
an attempted assignment would constitute a breach thereof. To the extent
required, each of the Seller and the Shareholders agrees that it will use all
reasonable efforts to obtain the written consent of other parties to all
Assigned Contracts and Leases to the assignment thereof to the Purchaser. If any
such consent is not obtained, each of the Seller and the Shareholders shall use
all reasonable efforts to obtain the same and will cooperate with the Purchaser,
as appropriate, in any reasonable arrangement designed by the Purchaser to
provide the Purchaser, as appropriate, with the benefits hereunder and the
Purchaser shall assume all correlative obligations to effectuate such
arrangement.
ARTICLE II
8
<PAGE>
CLOSING
2.1 The Closing. (a) Upon satisfaction of the conditions contained in
Article VII of this Agreement, the consummation of the transactions contemplated
by this Agreement (the "Closing") shall be held at 10:00 a.m. (New York City
time) on February 6, 1997 (such date and time being referred to herein as the
"Closing Date") at the offices of Bernstein & Wasserman, LLP, 950 Third Avenue,
New York, NY 10022 or, at the agreement of the parties, at such other place as
the parties may agree or by facsimile transmission, with the original signature
pages to be held in escrow by the Seller's counsel, subject to written release
by the Purchaser of the Purchaser's signature pages.
(b) At the Closing, the Seller and/or the Shareholders shall execute
and deliver or cause to be executed and delivered to the Purchaser, all
documents and instruments necessary to transfer to the Purchaser, all of the
right, title and interest of the Seller in and to the Assets, including, without
limitation:
(i) the Assignment and Assumption Agreement, signed by
the Seller;
(ii) a Bill of Sale, signed by the Seller;
(iii) An Assignment of a certain lease for real property
presently leased by the Seller and/or its related Company for
the real property known as 319-321 Hackensack Street,
Carlstadt, NJ; and
(iv) a legal opinion of the Seller's counsel and the
Shareholders' counsel as set forth in Section 2.2(d) hereof.
(c) At the Closing, the Purchaser shall:
(i) execute and deliver to the Seller the Assignment
and Assumption Agreement;and
(ii) assume the Assumed Liabilities and pay the
outstanding principal amount and all accrued and unpaid
interest due in respect of the Seller's bank debt referred to
in Schedule 1.1(b) hereto.
9
<PAGE>
(d) Intentionally Omitted.
2.2 Additional Actions to be Taken on the Closing Date.
(a) Closing Certificate of Seller. The Seller and the Shareholders
shall have delivered to the Purchaser a certificate signed by the Seller and the
Chief Executive Officer and the Chief Financial Officer of the Seller, as
requested by the Purchaser, dated the Closing Date, stating (i) that no material
adverse change has occurred in the condition (financial or otherwise), results
of operations, business, performance or properties of the Seller since December
31, 1996, and (ii) all of the representations, warranties and covenants of each
of the Seller and the Shareholders contained in this Agreement are true,
complete and correct as of the Closing Date.
(b) Liens. Each of the Seller and the Shareholders shall have satisfied
and discharged all Liens on the Assets, except for Permitted Liens and provided
the Purchaser with evidence of such satisfaction and discharge in form and
substance satisfactory to the Purchaser.
(c) Legal Opinions. The Purchaser shall have received the legal
opinions of legal counsel to the Shareholders and the Seller in form and
substance satisfactory to the Purchaser relating to the corporate standing and
governance of the Seller.
(d) Shareholder Consent. The Purchaser shall have received a consent
to the transactions contemplated by this agreement signed by all of the
shareholders of the Seller.
(e) Compliance with Bulk Sales Act. The Seller and Shareholders shall
provide Purchaser with evidence of compliance with applicable bulk
sales/transfer laws and regulations in form and substance satisfactory to
Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER AND THE SHAREHOLDER
SECTION 3. Representations and Warranties of the Seller and the
Shareholder. The Seller and the Shareholders represent
10
<PAGE>
and warrant to the Purchaser as follows:
3.1 Organization and Qualification. The Seller is a corporation validly
existing and in good standing under the laws of the State of New Jersey, and has
all requisite corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated and (b) carry
on its business as now presently conducted and as proposed to be conducted. The
Seller is duly qualified to do business in each jurisdiction in which the nature
of its business or properties makes such qualification necessary, except where
the failure to do so would not have a Material Adverse Effect. The jurisdictions
in which the Seller is so qualified are set forth on Schedule 3.1.
3.2 Subsidiaries and Affiliates. Schedule 3.2 sets forth the name
and jurisdiction of organization of each subsidiary of the Seller.
3.3. Validity and Execution of Agreement. The Seller has the full legal
right, capacity and power and all requisite corporate authority and approval
required to enter into, execute and deliver this Agreement and any other
agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The stockholders and the board of
directors of the Seller have each approved the transactions contemplated
pursuant to this Agreement and each of the other agreements required to be
entered into pursuant hereto by the Seller. This Agreement and such other
agreements and instruments have been duly executed and delivered by the Seller
and each constitutes the valid and binding obligation of the Seller enforceable
against it in accordance with its terms.
3.4. No Conflict. Neither the execution and delivery of this Agreement
nor the performance by the Seller of the transactions contemplated hereby will:
(a) violate or conflict with any of the provisions of the Articles of
Incorporation or By-Laws or other organizational documents of the Seller; or (b)
or result in the acceleration of, or entitle any party to accelerate the
maturity or the cancellation of the performance of any obligation under, or
result in the creation or imposition of any Lien in or upon the Assets or
constitute a default (or an event which might, with the passage of time or the
giving of notice, or both, constitute a default) under any contract, any
11
<PAGE>
order, judgment, regulation or ruling of any Governmental or Regulatory Body to
which the Seller is a party or by which any of its property or assets may be
bound or affected or with any provision of any law, rule, regulation, order,
judgment, or ruling of any Governmental or Regulatory Body applicable to the
Seller.
3.5 Litigation. Except as set forth on Schedule 3.5, there are no
outstanding orders, judgments, injunctions, investigations, awards or decrees of
any court, Governmental or Regulatory Body or arbitration tribunal by which the
Seller, or any of its securities, assets, properties or business is bound.
Except as set forth on Schedule 3.5, there are no actions, suits, claims,
investigations, legal, administrative or arbitral proceedings pending or, to the
knowledge of the Seller, threatened (whether or not the defense thereof or
liabilities in respect thereof are covered by insurance) against or affecting
the Seller, or any of its assets or properties, that, individually or in the
aggregate, could, if determined adversely to the Seller have a Material Adverse
Effect, nor, to the knowledge of the Seller, are there any facts which are
likely to give rise to any such action, suit, claim, investigation or legal,
administrative or arbitral proceeding.
3.6 The Assets. The Seller owns outright and has good and marketable
title (except for leasehold interests specifically set forth on Schedule 3.15)
to all of the Seller's assets and properties (tangible and intangible),
including, without limitation, all of the assets and properties (except
capitalized leases) reflected on the Unaudited Financials, free and clear of any
Lien, other than Permitted Liens. The Assets sold pursuant hereto constitute all
of the assets necessary and appropriate for the conduct of the Business in
substantially the same manner as the Business has heretofore been conducted.
3.7 Intangible Property. Schedule 3.7 sets forth all patents,
trademarks, service marks, trade names, copyrights, logos and the like and
franchises, all applications for any of the foregoing, and all permits, grants
and licenses or other rights held or owned by running to or from the Seller
relating to any of the foregoing that are necessary in connection with the
Business (collectively, the "Intangible Property"), true and complete copies of
which have been delivered or made available to the Purchaser. To the knowledge
of the Seller, no patent, invention, trademark, service mark or trade name of
any other
12
<PAGE>
Person infringes upon, or is infringed upon by, any of the Intangible Property
and the Seller has not received any notice of any claim of infringement of any
other Person with respect to any of the Intangible Property or any process or
confidential information of the Seller, and the Seller does not know, after
diligent investigation, of any basis for any such charge or claim. Except for
the Intangible Property, no other intellectual property or intangible property
rights are required for the Seller to conduct the Business in the ordinary
course consistent with past practice. To the knowledge of the Seller, all of the
permits, applications and licenses relating to the Intangible Property have been
validly issued and any fees, relating to them have been fully paid by the
Seller. The Seller has not received any notice or inquiry indicating, or
claiming, that the manufacture, sale or use of any Product infringes upon the
patent or other intellectual property rights of any other Person. Except as
separately identified on Schedule 3.7, no approval or consent of any person is
needed so that the interest of the Seller in the Intangible Property shall
continue to be in full force and effect and enforceable by the Purchaser
following the consummation of the transactions contemplated hereby.
3.8 Inventory. The inventory of the Seller is or was, prior to the sale
thereof, in good and merchantable condition and suitable and usable or saleable
in the ordinary course of business, without mark-down or other discount (except
such mark-downs and discounts as are consistent with the Seller's prior
practices in the ordinary course of business), for the purposes for which
intended. The Seller is not aware of any material adverse condition affecting
the supply of inventory available to the Seller.
3.9 Intentionally Omitted.
3.10 Financial Statements. To the knowledge of the Seller, the
unaudited balance sheet of the Seller as of December 31, 1996, and the related
statement of income for the three (3) month period then ended, true and complete
copies of which have heretofore been delivered to the Purchaser, fairly present
the financial position of the Seller as at such date and the results of
operations of the Seller for the three (3) month period then ended, in each
case, in accordance with GAAP consistently applied for the periods covered
thereby (subject to normal year end adjustments and the absence of footnotes)
(the "Unaudited Financials").
13
<PAGE>
3.11 Undisclosed Liabilities. To the knowledge of the Seller, except as
disclosed on Schedule 3.11, the Seller does not have any, direct or indirect,
indebtedness, liability, claim, loss, damage, deficiency, obligation or
responsibility, fixed or unfixed, choate or inchoate, liquidated or
unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise
collectively, the "Liabilities"), that is not fully and adequately reflected or
reserved against on the Unaudited Financials or covered in full by insurance. To
the knowledge of the Seller, except as disclosed on Schedule 3.11, the Seller
does not have any Liabilities, whether or not of a kind required by GAAP to be
set forth on a financial statement, other than (a) Liabilities incurred since
December 31, 1996 in the ordinary course of business (none of which is a
liability for a breach of contract, breach of warranty, tort or infringement
claim or lawsuit), none of which individually or in the aggregate, has had or
could reasonably be expected to have a Material Adverse Effect or (b)
Liabilities disclosed and reflected as liabilities on the Unaudited Financials.
3.12 No Material Adverse Change. Since December 31, 1996, there has
been no material adverse change in the Business, operations or condition
(financial or otherwise) of the Seller, or in the assets, liabilities, net worth
or properties of the Seller, and the Seller does not know of any such change
that is threatened, or has there been any damage, destruction or loss which
could have a Material Adverse Effect, whether or not covered by insurance.
3.13 Tax Matters. Except as disclosed in Schedule 3.13, (a) all Tax
Returns required to be filed with respect to the Seller have been duly filed and
were in all material respects true, complete and correct and filed on a timely
basis, (b) the Seller has paid all Taxes that are due, or claimed or asserted by
the IRS or any Taxing Authority to be due from the Seller for the periods
covered by such Tax Returns or Seller has duly and fully provided reserves
adequate to pay all Taxes in the Unaudited Financials, (c) the Seller has
complied in all material respects with all applicable laws relating to
withholding of Taxes (including withholding Taxes pursuant to Sections 1441 and
1442 of the Internal Revenue Service Code of 1986, as amended (the "Code") and
similar provisions under any other applicable laws) and the payment thereof over
to the Taxing Authorities (d) the income Tax Returns of the Seller have not been
audited or examined by any the Taxing Authority (including the IRS) for any
14
<PAGE>
period for which the applicable statute of limitations period has not yet
expired and no statute of limitations for any such period has been extended.
3.14 Contracts and Other Agreements. Schedule 3.14 sets forth all
written agreements (and, to the knowledge of the Seller any oral agreement) and
arrangements to which either the Seller is a party or by or to which the Seller
or any of its assets or properties is bound or subject (collectively, the
"Material Agreements").
3.15 Real Estate. Schedule 3.15 sets forth a list and supplies
descriptions of (a) all real property owned by the Seller; (b) all leases,
subleases or other agreements (the "Leases") under which the Seller is lessor or
lessee of any real property; (c) all options held by the Seller or contractual
obligations on its respective part to purchase or acquire any interest in real
property (as set forth on Schedule 3.15) and (d) all options granted by the
Seller or contractual obligations on any such Persons' part to sell or dispose
of any interest in real property (as set forth on Schedule 3.15) (collectively,
the "Real Estate Documents"). All of the Real Estate Documents, true, correct
and complete copies of which have been delivered or made available to the
Purchaser, are in full force and effect and the Seller has not received any
notice of any default hereunder, nor does the Seller anticipate any such notice
of default. Except as separately identified on Schedule 3.15, no approval or
consent of any person is needed for the Real Estate Documents to continue to be
in full force and effect and such documents will not become unenforceable by the
Purchaser following the consummation of the transactions contemplated by this
Agreement.
3.16 Transactions with Affiliates. Except as set forth on Schedule
3.16, no Affiliate of the Seller has: (a) borrowed money from or loaned money to
the Seller which remains outstanding; (b) any contractual or other claim,
express or implied, of any kind whatsoever against or by any Affiliate; (c) any
interest in any property or assets used by any Affiliate in their respective
businesses; or (d) engaged in any other transaction with any Affiliate (other
than employment relationships).
3.17 ERISA. (a) Except as set forth on Schedule 3.17, the Seller does
not sponsor, or maintain, or have any obligation to contribute to, or have any
liability under, nor is Seller
15
<PAGE>
otherwise a Party to, any Plan. None of the Plans is a "multiemployer" plan with
the meaning of Section 3(37) of ERISA and none of the Plans is subject to Title
IV of ERISA. Neither the Seller nor any ERISA Affiliate has ever participated in
nor had an obligation to contribute to any "multiemployer plan" or any plan
subject to Title IV of ERISA.
(b) With respect to each Plan, Seller has delivered to
Purchaser, or will make available during the Due Diligence Period, to the extent
applicable, a copy of (i) the plan document as currently in effect (or a written
description of any Plan for which there in no plan document) and all relevant
document related thereto, including but not limited to all current trust
agreements, insurance contracts, investment management contracts and
administrative service contracts, (ii) the three most recent annual reports
(Form 5500 Series) filed with the Internal Revenue Service, together with all
schedules, actuarial reports, accountant's statement and trustee reports, (iii)
all IRS determination letters and pending IRS determination letters, (iv) the
most recent summary of material modifications and other employee materials
describing such plan; (v) all records, notices and filings concerning IRS or
Department of Labor audits or investigations, "prohibited transactions" within
the meaning of Section 406 of ERISA or Section 4975 of the Code and "reportable
events" within the meaning of Section 4043 of ERISA; (vi) a schedule of
participants who are no longer active employees (and the beneficiaries of such
participants) listing the following: name, date of birth, date of hire, social
security number and termination date; (vii) a particularized list of any claims
for benefits with respect to which there is an unresolved dispute together with
copies of any written appeal pertaining thereto; and (viii) a copy of all
administrative forms utilized in the operation of the Plan, together with copies
of all participant elections and beneficiary designations filed pursuant to the
Plan.
(c) Each Plan has been maintained, operated and administered
in compliance with its terms and any related documents or agreement and in
compliance with ERISA and the Code.
(d) Each Plan intended to qualify under Section 401(a) of the
Code (as designated on Schedule 3.17) is so qualified and each trust maintained
in connection with such Plan is tax-exempt under Section 501(a) of the Code.
16
<PAGE>
(e) There are no pending or, to the knowledge of the Seller,
threatened claims (other than routine claims for benefits), assessments,
complaints, proceedings or investigations of any kind by any court or
governmental agency with respect to any Plan.
(f) No Plan provides benefits, including without limitation,
death or medical benefits (whether or not insured), beyond retirement or other
termination of service other than (i) coverage mandated by applicable law, (ii)
death benefits or retirement benefits or retirement benefits under any "employee
pension plan" as that term is defined in Section 3 (2) of ERISA, or (ii)
deferred compensation benefits accrued as liabilities on the Unaudited
Financials.
(g) Neither a "prohibited transaction" within the meaning of
ERISA Section 406 or Code Section 4975 nor any breach of a duty imposed by Title
I of ERISA has occurred with respect to any Plan.
(h) With respect to each Plan that is a "group health plan"
within the meaning of ERISA Section 607(l) and that is subject to Code Section
4980B, Seller and each ERISA Affiliate have complied in all material respects
with the continuation coverage requirements of the Code and ERISA.
(i) Except as noted on Schedule 3.17, all contributions to,
and payments from, any Plan that may have been required to be made in accordance
with the Plan, or the Code or ERISA, have been timely made.
(j) Neither Seller nor any ERISA Affiliate has incurred or is
reasonably likely to incur any liability with respect to any plan or arrangement
that would be included in the definition of Plan hereunder but for the fact that
such plan or arrangement was terminated before the date of this Agreement.
3.18 Employees. The Seller is not a party to, and there does not
otherwise exist, any agreements with any labor organization, collective
bargaining or similar agreement with respect to employees of the Seller.
Schedule 3.18 sets forth: (a) the name and current annual salary, including any
bonus, if applicable, of all present officers and employees of the Seller whose
current annual salary, including any promised, expected or customary bonus,
equals or exceeds $50,000 and (b) the names and
17
<PAGE>
titles of all officers of the Seller and of such trustee, fiduciary or plan
administrator of each Plan of the Seller. All health and health related employee
benefits and other costs have been paid or adequately reserved for on the
Unaudited Financials. The Seller is in compliance in all material respects with
its obligations under all Federal, state, and local statutes and ordinances,
executive orders, regulations and common law governing its employment practices
with respect to the Seller. To the knowledge of the Seller, there are no
attempts being made to organize any employees presently employed by the Seller.
3.19 Environmental Matters. The Seller is not in violation of, or
delinquent in respect to, any Environmental Law which violation or delinquency
would have a Material Adverse Effect and the Seller has obtained all permits,
licenses and other authorizations required under the Environmental Laws.
Schedule 3.19, which shall be provided to the Purchaser by the Seller and the
Shareholders no later than four (4) Business Days following the date of
execution of this Agreement, lists all violations of, or delinquencies with
respect to, any Environmental Law (i) within the twenty four (24) month period
prior hereto and (ii) with respect to any such violation which remains
uncorrected, within the period of ownership by the Shareholders of any shares of
capital stock of the Seller. Schedule 3.21, which shall be provided to the
Purchaser by the Seller and the Shareholders no later than four (4) Business
Days following the date of execution of this Agreement, includes a list of all
such permits, licenses and other authorizations.
3.20 Insurance. Schedule 3.20 sets forth a list and brief description
(specifying the insurer, the policy number or covering note number with respect
to binders and the amount of any deductible, describing the pending claims if
such claims exceed applicable policy limits, setting forth the aggregate amount
paid out under each such policy through the date hereof and the aggregate limit,
if any, of the insurer's liability thereunder) of all policies or binders of
fire, liability, product liability, workmen's compensation, vehicular,
unemployment and other insurance held by or on behalf of the Seller. Such
policies and binders are valid and enforceable in accordance with their terms in
all material risks and liabilities to the extent and in respect of amount, types
and risks insured, as are customary in the industries in which the Seller
operates. The Seller is not in default with respect to any material provision
contained in any such policy or binder and has not
18
<PAGE>
failed to give any notice or present any claim under any such policy or binder
in due and timely fashion. Except for claims disclosed on Schedule 3.20, there
are no outstanding unpaid claims under any such policy or binder which have gone
unpaid for more than forty-five (45) days or as to which the carrier has
disclaimed liability.
3.21 Licenses and Permits. Schedule 3.21 , which shall be provided to
the Purchaser by the Seller and the Shareholders no later than four (4) Business
Days following the date of execution of this Agreement, sets forth a list of the
governmental permits, licenses, registrations and other governmental consents
(federal, state and local) which the Seller has obtained and which are necessary
in connection with its operations and properties, and no others are required.
All such permits, licenses, registrations and consents are in full force and
effect and in good standing, and except as separately identified on Schedule
3.21, shall continue to be in full force and effect and in good standing
following the consummation of the transactions contemplated by this Agreement.
The Seller has not received any notice of any claim of revocation and to the
knowledge of the Seller there is no event which might give rise to such a claim.
Additionally, Seller and Shareholders hereby represent and warrant that its
Business and facility have been registered with the Federal Food and Drug
Administration (the "FDA") and that the Seller and the Shareholders agree to
transfer such FDA registration to the Purchaser as soon as possible following
the signing of this Agreement.
3.22 Compliance with Laws. Except as set forth on Schedule 3.19, the
Seller has complied in all respects with all applicable federal, state and local
laws, regulations and ordinances or any requirement of any Governmental or
Regulatory Body, court or arbitrator affecting the Business or the Assets the
failure to comply with which could have a Material Adverse Effect on the
Business or the Assets. Neither the Seller nor any of its representatives,
agents, employees or Affiliates has made or agreed to make any payment to any
Person which would be unlawful.
3.23 Products. Except as disclosed on Schedule 3.23, there are no
statements, citations or decisions by any Governmental or Regulatory Body that
any product manufactured, marketed or distributed at any time by the Seller
("Product") is defective or fails to meet in any material respect any standards
promulgated by any such Governmental or Regulatory Body. There have been no
19
<PAGE>
recalls ordered by any such Governmental or Regulatory Body with respect to any
Product. There is no (a) fact relating to any Product that may impose upon the
Seller (or the Purchaser upon consummation of the transactions contemplated
hereby) a duty to recall any Product or a duty to warn customers of a defect in
any Product, other than defects about which the Seller has issued appropriate
and adequate warnings or (b) latent or overt design, manufacturing or other
defect in any Product.
3.24 Disclosure. Neither this Agreement, nor any Schedule or Exhibit to
this Agreement contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. All statements, documents, certificates or other items prepared or
supplied by the Seller or the Shareholders with respect to the transactions
contemplated hereby are true, correct and complete and contain no untrue
statement of a material fact or omit a material fact necessary to make the
statements contained therein not misleading.
3.25 Survival. All of the representations and warranties of the Seller
and the Shareholders contained herein shall survive the Closing Date until the
date upon which the liability to which any claim relating to any such
representation or warranty is barred by all applicable statutes of limitations.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
4.1 Organization and Qualification. The Purchaser is a corporation
validly existing and in good standing under the laws of the State of Delaware.
4.2 Validity and Execution of Agreement. The Purchaser has the full
legal right, capacity and power and all requisite corporate authority and
approval required to enter into, execute and deliver this Agreement and any
other agreement or instrument contemplated hereby, and to perform fully its
obligations hereunder and thereunder. The Board of Directors of the Purchaser
has approved the transactions contemplated by this Agreement and each of the
other agreements required to be entered into pursuant hereto by the Purchaser.
This Agreement and such other agreements and instruments have been duly executed
and delivered by the Purchaser and each constitutes the valid and
20
<PAGE>
binding obligation of the Purchaser enforceable against it in accordance with
its terms.
4.3 No Conflict. Neither the execution and delivery of this Agreement
nor the performance by the Purchaser of the transactions contemplated herein
will (a) violate or conflict with any of the provisions of its Certificate of
Incorporation or By-Laws or other organizational documents; and (b) violate or
conflict with any provision of any law, rule, regulation, order, judgment,
decree or ruling of any court or federal, state or local Governmental or
Regulatory Body applicable to the Purchaser.
4.4 Survival. All of the representations and warranties of the
Purchaser contained herein shall survive the Closing Date until the date upon
which the liability to which any claim relating to any such representation or
warranty is barred by all applicable statutes of limitations.
4.5 Disclosure. Article IV of this Agreement does not contain an untrue
statement of a material fact or omit a material fact necessary to make the
statements contained herein not misleading. All statements, documents,
certificates or other items prepared or supplied by the Purchaser with respect
to the transaction contemplated hereby are true, correct and complete and
contain no untrue statement of a material fact or omit a material fact necessary
to make the statement contained therein not misleading.
ARTICLE V
RESTRICTIONS ON TRANSFER
5.1 Legended Certificates. Seller and Shareholders understand and
recognize that they must bear the economic risk of an investment in the Shares
being acquired pursuant hereto for an indefinite period of time since such
securities have not been registered under the Securities Act of 1933, as amended
(the "Securities Act") and, therefore, cannot be sold unless they are either
subsequently registered under the Securities Act or an exemption from such
registration is available and favorable opinions of counsel in form and
substance satisfactory to Purchaser to that effect are obtained. Seller and
Shareholders are acquiring the Shares for investment purposes and not with a
view towards distribution and acknowledges that the certificates
21
<PAGE>
representing the Shares shall bear the following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THESE SHARES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT FOR DISTRIBUTION OR RESALE. THEY MAY NOT BE
MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT OF 1933 OR AN OPINION OF COUNSEL FOR EMBRYO DEVELOPMENT CORPORATION
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT.
ARTICLE VI
COVENANTS PENDING THE CLOSING
Section 6. Covenants of Seller and the Shareholder Pending the Closing.
Each of Seller and the Shareholders hereby agree and covenant to Purchaser that
prior to the Closing Date:
6.1 The Seller's Operation of the Business Prior to Closing. Each of
the Seller and the Shareholders agree that between the date of this Agreement
and the Closing Date, the Seller will:
(a) continue to operate the Business in the usual and ordinary course
and in substantial conformity with all applicable laws, ordinances, regulations,
rules, or orders, and will use its best efforts to preserve the Business and
preserve the continued operation of the Business with its customers, suppliers,
and others having business relations with Seller;
(b) not assign, sell, lease, or otherwise transfer or dispose of any of
the Assets, whether now owned or hereafter acquired, except in the normal and
ordinary course of business and in connection with its normal operation;
(c) maintain all of the Assets other than inventories in their present
condition, reasonable wear and tear and ordinary usage excepted, and maintain
the inventories at levels normally maintained; and
(d) not (i) incur any liabilities (contingent or otherwise)
outside of the ordinary course of business, (ii) sell pledge or
22
<PAGE>
hypothecate any capital stock (or securities exercisable or exchangeable for, or
convertible into, shares of capital stock) of the Seller, or (iii) engage in any
transaction which could adversely affect the transactions contemplated by this
Agreement.
6.2 Access to Premises and Information. At reasonable times prior to
the Closing Date, Shareholders and Seller will provide Purchaser and its
representatives, with the consent of the Seller (which consent shall not be
unreasonably withheld or delayed), with reasonable access during business hours
to the assets, titles, contracts, and records of Seller and furnish such
additional information concerning the Business as Purchaser from time to time
may reasonably request; provided that Purchaser and its representatives shall
use all reasonable efforts to keep confidential from Seller's employees, the
purpose of any such access.
6.3 Employee Matters. Prior to the Closing Date, the Seller will not,
without Purchaser's prior written consent, enter into any material agreement
with its employees (or independent contractors), increase the rate of
compensation or bonus paid, payable to or to become payable to any employee, or
effect any changes in the management, personnel policies, or employee benefits,
except in accordance with existing employment practices.
6.4 Change of Name. On or prior to the Closing Date, Seller and the
Shareholders will take all action necessary or appropriate to permit Purchaser
to legally commence use of the Seller's name on the Closing Date.
6.5 Conditions and Best Efforts. The Seller and the Shareholders will
use their respective best efforts to effectuate the transactions contemplated by
this Agreement and to fulfill all the conditions of the obligations of the
Seller and the Shareholders under this Agreement, and will do all acts and
things as may be required to carry out their respective obligations under this
Agreement and to consummate and complete this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO THE CLOSING
Section 7. Conditions Precedent to Purchaser's
23
<PAGE>
Obligations. The obligation of Purchaser to purchase the Assets is subject to
the fulfillment, prior to or at the Closing Date, of each of the following
conditions, any one or portion of which may be waived in writing by Purchaser:
7.1 Representations, Warranties, and Covenants of Seller and
Shareholder. All representations and warranties made in this Agreement by the
Seller and the Shareholders shall be true as of the Closing Date as fully as
though such representations and warranties had been made on and as of the
Closing Date, and, as of the Closing Date, neither the Seller nor the
Shareholders shall have violated or shall have failed to perform in accordance
with any covenant contained in this Agreement.
7.2 Licenses and Permits. Purchaser shall have received from Seller all
licenses and permits from public authorities necessary to authorize the
ownership and operation of the Business.
7.3 Consents. Purchaser shall have obtained all necessary consents to
assignments of all parties to material contracts with the Seller.
7.4 Condition of the Business. There shall have been no material
adverse change in the business, operations condition (financial and otherwise)
or prospects of the Business since December 31 ,1996.
7.5 Opinions of Counsel. The Seller and Shareholders shall have
furnished Purchaser with opinions of counsel for the Seller and the Shareholders
in form and substance reasonably satisfactory to Purchaser's counsel as
described in Section 2.2(d). The Purchaser shall have furnished Seller and
Shareholders with opinions of counsel for the Purchaser in form and substance
reasonably satisfactory to Seller's and Shareholders' counsel.
7.6 No Suits or Actions. At the Closing Date, no suit, action, or other
proceeding shall have been threatened or instituted to restrain, enjoin, or
otherwise prevent the consummation of this Agreement or the transactions
contemplated thereby.
7.7 Due Diligence Investigation. The Purchaser shall carry out such
due diligence investigations, as it and its agents
24
<PAGE>
attorneys and auditors deem appropriate.
7.8 Intentionally Omitted
7.9 Delivery of Schedule 1.8 to the Seller and the Shareholders. The
Purchaser shall have delivered to the Seller and the Shareholders, no later than
March 1, 1997, a copy of Schedule 1.8, and the parties hereto shall have agreed
upon the allocation of the Purchase Price set forth therein and annexed said
Schedule to their respective counterparts of this Agreement.
7.10 Delivery of Schedules 3.19 and 3.21 to the Purchaser. The Seller
and the Shareholders shall have delivered to the Purchaser, no later than four
(4) Business Days following the date of execution of this Agreement, a copy of
Schedule 3.19 and Schedule 3.21 and the parties hereto shall have annexed said
Schedules to their respective counterparts of this Agreement.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification. (a) The Seller and the Shareholders agree to
jointly and severally indemnify, defend and hold harmless the Purchaser and its
respective shareholders, officers, directors, employees, and any Affiliates of
the foregoing, and their successors and assigns (collectively, the "Purchaser
Group") from and against any and all losses, liabilities (including punitive or
exemplary damages and fines or penalties and any interest thereon), expenses
(including reasonable fees and disbursements of counsel and expenses of
investigation and defense), claims, Liens or other obligations of any nature
whatsoever (hereinafter individually, a "Loss" and collectively, "Losses")
which, directly or indirectly, arise out of, result from or relate to, (i) any
inaccuracy in or any breach of any representation or warranty of any of the
Seller or the Shareholders contained in Article III, (ii) any breach of any
covenant or agreement of any of the Shareholders or Seller, in each case
contained in this Agreement or in any other document contemplated by this
Agreement and (iii) the conduct of the Business prior to the Closing.
(b) The Purchaser agrees to indemnify, defend and hold harmless each
of the Seller and its directors, officers, employees, and any Affiliates of the
foregoing, and their
25
<PAGE>
successors and assigns from and against any and all Losses which, directly or
indirectly, arise out of, result from or relate to any breach of any covenant or
agreement of the Purchaser contained in this Agreement or in any other document
contemplated by this Agreement or the conduct of the Business by the Purchaser
from and after the Closing Date.
8.2 Method of Asserting Claims. The party making a claim under this
Article VIII is referred to as the "Indemnified Party" and the party against
whom such claims are asserted under this Article VIII is referred to as the
"Indemnifying Party". All claims by any Indemnified Party under this Article
VIII shall be asserted and resolved as follows:
(a) In the event that any claim or demand for which an Indemnifying
Party would be liable to an Indemnified Party hereunder is asserted against or
sought to be collected from such Indemnified Party by a third party, said
Indemnified Party shall with reasonable promptness notify in writing the
Indemnifying Party of such claim or demand, specifying the nature of the
specific basis for such claim or demand, and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim and demand; any such notice, together with any
notice given pursuant to Section 8.2(b) hereof, collectively being the "Claim
Notice"); provided, however, that any failure to give such Claim Notice will not
be deemed a waiver of any rights of the Indemnified Party except to the extent
the rights of the Indemnifying Party are actually prejudiced. The Indemnifying
Party, upon request of the Indemnified Party, shall retain counsel (who shall be
reasonably acceptable to the Indemnified Party) to represent the Indemnified
Party, and shall pay the fees and disbursements of such counsel with regard
thereto, provided, further, that any Indemnified Party is hereby authorized
prior to the date on which it receives written notice from the Indemnifying
Party designating such counsel, to retain counsel, whose fees and expenses shall
be at the expense of the Indemnifying Party, to file any motion, answer or other
pleading and take such other action which it reasonably shall deem necessary to
protect its interests or those of the Indemnifying Party until the date on which
the Indemnified Party receives such notice from the Indemnifying Party. After
the Indemnifying Party shall retain such counsel, the Indemnified Party shall
have the right to retain its own counsel, but the fees and expenses of such
counsel shall be at the expense of such Indemnified Party
26
<PAGE>
unless (i) the Indemnifying Party and the Indemnified Party shall have mutually
agreed to the retention of such counsel or (ii) the named parties of any such
proceeding (including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them. The Indemnifying Party shall not, in connection with any proceedings or
related proceedings in the same jurisdiction, be liable for the fees and
expenses of more than one such firm for the Indemnified Party (except to the
extent the Indemnified Party retained counsel to protect its (or the
Indemnifying Party's) rights prior to the selection of counsel by the
Indemnifying Party). If requested by the Indemnifying Party, the Indemnified
Party agrees to cooperate with the Indemnifying Party and its counsel in
contesting any claim or demand which the Indemnifying Party or, where permitted
pursuant to this Agreement, by an Indemnified Party without the consent of the
Indemnified Party in the first case or the consent of the Indemnifying Party in
the second case, which consent shall not be unreasonably withheld, unless such
settlement shall be accompanied by a complete release of the Indemnified Party
in the first case or the Indemnifying Party in the second case. Whether or not
such release is obtained, the Person whose consent is required may reasonably
withhold consent if the proposed settlement would have a Material Adverse Effect
on its business or properties.
(b) In the event any Indemnified Party shall have a claim against any
Indemnifying Party hereunder which does not involve a claim or demand being
asserted against or sought to be collected from it by a third party, the
Indemnified Party shall send a Claim Notice with respect to such claim to the
Indemnifying Party. If the Indemnifying Party does not notify the Indemnified
Party within twenty (20) days of receipt of the Claim Notice that it disputes
such claim, the amount of such claim shall be conclusively deemed a liability of
the Indemnifying Party hereunder.
(c) So long as any right to indemnification exists pursuant to this
Article VIII, the affected parties each agree to retain all books, records,
accounts, instruments and documents reasonably related to the Claim Notice. In
each instance, the Indemnified Party shall have the right to be kept informed by
the Indemnifying Party and its legal counsel with respect to all significant
matters relating to any legal proceedings. Any
27
<PAGE>
information or documents made available to any party hereunder, which
information is designated as confidential by the party providing such
information and which is not otherwise generally available to the public, or
which information is not otherwise lawfully obtained from third parties or not
already within the knowledge of the party to whom the information is provided
(unless otherwise covered by the confidentiality provisions of any other
agreement among the parties hereto, or any of them), and except as may be
required by applicable law or requested by third party lenders to such party,
shall not be disclosed to any third Person (except for the representatives of
the party being provided with the information, in which event the party being
provided with the information shall request its representatives not to disclose
any such information which it otherwise required hereunder to be kept
confidential).
ARTICLE IX
POST-CLOSING COVENANTS OF THE PARTIES
9.1 Tax Matters. (a) The Seller and the Shareholders shall make
available to Purchaser on demand such information as shall reasonably be
requested by Purchaser to enable Purchaser to prepare and file timely its
federal, state and local income Tax Returns and all forms, schedules and
attachments related thereto.
(b) The Seller shall treat (and shall not make any election
inconsistent with treating) the transfers of the Assets to the Purchaser as a
taxable sale.
9.2 Non-Competition. The Shareholders and the Seller acknowledge that
the Seller's ownership of the Assets and their respective operation of the
Business has brought them in close contact with certain confidential affairs of
the Business not readily available to the public, and the Purchaser would not
purchase the Assets, but for the agreements and covenants of the Shareholders
and the Seller contained in this Section 9.2. The Shareholders and the Seller
shall not directly or indirectly, for a period of five (5) years following the
Closing Date,(i) engage in any business which is, or becomes competitive with
the Business, or (ii) become interested in any Person engaged in activities
which is, or becomes competitive with the Business as a partner, officer,
director, shareholder, principal, agent, trustee, consultant, lender or in any
other relationship or capacity, except for investments by the Shareholders, the
Seller
28
<PAGE>
or its Affiliates in securities traded on a national stock exchange or the
over-the-counter market which do not exceed five (5) percent of the total
outstanding shares of such securities, or (iii) take any action outside the
ordinary course of business which could have a Material Adverse Effect on the
Business, the Assets or the Purchaser following the Closing Date. If any court
determines that this covenant, or any part thereof, is unenforceable because of
the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
9.3 Confidentiality. From and after the Closing Date, the Shareholder
and the Seller shall not disclose or furnish to any other Person, except to the
extent required by law or by order of any court or governmental agency, (a) any
information relating to the operations or financial status of any of the Seller,
the Business or the Purchaser which is not specifically a matter of public
record, (b) any trade secrets of the Business or the Purchaser or (c) the name,
address or other information relating to any supplier of the Business or the
Purchaser.
9.4 Confidentiality of Information. In the event that the transactions
contemplated by this Agreement are not consummated, or if this Agreement is
terminated, each party shall return to the other all information, including
without limitation customer lists, related to the other party or the other
party's business obtained by such party from the other party or its
representatives. In such event, each party acknowledges that all such
information is the confidential proprietary, information of the other party and
such party shall maintain such information in strict confidence and shall not
use such information in any business dealings or disclose such information to
any third party; provided however, that the restrictions contained herein shall
not apply to information obtained by such party (i) from public sources or (ii)
from individuals who are not thereby breaching the term of any confidentiality
agreement with the other party or (iii) if required to be disclosed by law. The
provisions of this Section 9.4 shall survive any termination of this Agreement.
9.5 Non-Solicitation of Suppliers and Employees. In the event that
the transactions contemplated by this Agreement are not consummated, or if this
Agreement is terminated, the Purchaser shall not enter into any contract for
supplies or
29
<PAGE>
induce any other person to enter into any such contract with any of the
suppliers or vendors of the Seller whose names have been disclosed by the Seller
to the Purchaser as part of the Seller's confidential information. In addition,
the Purchaser hereby agrees not to hire or solicit the hiring of any employee or
salesperson of the Seller for a period of three (3) years from the date hereof.
The provisions of this Section 9.5 shall survive any termination of this
Agreement.
9.6 Closing Date Balance Sheet. Within thirty (30) days from and after
the Closing, the Seller and the Shareholders shall deliver to the Purchaser the
Closing Date Balance Sheet dated as of the Closing Date as set forth in Section
7.8 hereof.
ARTICLE X
MISCELLANEOUS
10.1 Sales and Transfer Taxes. All required filings under any
applicable Federal, state, foreign or local sales tax, stamp tax or similar laws
or regulations shall be made in a timely manner by the party responsible
therefor under such laws and regulations, and, at the Closing, such shall
deliver to the other parties either (a) proof of the payment of any sales tax
assessed pursuant to such filings or (b) statements of no sales tax due, as the
case may be. The parties agree to pay any and all transfer, sales or stamp taxes
and any similar taxes or assessments imposed on the transfer of the Assets and
the Assumed Liabilities in accordance with the terms of this Agreement, such
taxes and assessments to be borne equally by (i) the Seller and the
Shareholders, and (ii) the Purchaser; except that the Purchaser shall pay any
applicable sales tax.
10.2 Post-Closing Further Assurances. At any time and from time to time
after the Closing Date at the request of the Purchaser, and without further
consideration, the Seller and the Shareholders will execute and deliver, or
cause the execution and delivery of, such other instruments of sale, transfer,
conveyance, assignment and confirmation and take or cause to be taken such other
action as the Purchaser may reasonably deem necessary or desirable in order to
transfer, convey and assign more effectively to the Purchaser, to put the
Purchaser in actual possession and operating control of the Assets and the
Business and to assist the Purchaser in exercising all rights with respect
thereto.
30
<PAGE>
10.3 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
given personally, telegraphed, telefaxed, sent by facsimile transmission or sent
by prepaid air courier or certified, registered or express mail, postage
prepaid. Any such notice shall be deemed to have been given (a) the succeeding
business day after receipt, if delivered in person, telegraphed, telexed, sent
by facsimile transmission and confirmed in writing within three (3) Business
Days thereafter or sent by prepaid air courier or (b) ten (10) Business Days
following the mailing thereof, if mailed by certified first class mail, postage
prepaid, return receipt requested, in any such case as follows (or to such other
address or addresses as a party may have advised the other in the manner
provided in this Section 10.3):
If to Seller or Shareholders, to:
421 Hackensack Street
Carlstadt, NJ 07072
Attention: John and Janice Essmyer
Telephone Number ( ) ___________________
Telecopier Number ( )___________________
with a copy to:
Sanford Amdur, Esq.
201 Route 17 North
Suite 404
Rutherford, NJ 07070
Telephone Number (201) 935-8585
Telecopier Number (201) 935-7023
Eugene Gorrin, Esq.
625 Main Street
Hackensack, NJ 07601
Telephone Number ( ) ____________
Telecopier Number ( ) ____________
If to the Purchaser, to:
Hydrogel Design Systems, Inc.
31
<PAGE>
750 Lexington Avenue
Suite 2750
New York, NY 10022
Attention: Matthew Harriton
Telephone Number (212) 355-8484
Telecopier Number (212) 980-6653
with a copy to:
Bernstein & Wasserman
950 Third Avenue
New York, NY 10022
Attn: Steven F. Wasserman, Esq.
Telephone Number (212) 826-0730
Telecopier Number (212) 371-4730
10.4 Accounting Fees. Purchaser herein, pursuant to a mutual
understanding by and among the parties, has agreed to incur and pay such
professional accounting fees incurred by the Seller and/or Purchaser for
purposes of this transaction, payable to the accounting firm of Bruce F.
Minkoff, C.P.A. At the time of the Closing, such professional fees shall be paid
for by Purchaser's remittance upon presentation of an invoice for these services
rendered.
10.5 Entire Agreement. This Agreement (including the Exhibits and
Schedules) and the agreements, certificates and other documents delivered
pursuant to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
10.6 Waivers and Amendments. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only by a
written instrument signed by the parties hereto or, in the case of a waiver, by
the party waiving compliance. No delay on the part of any party in exercising
any right, power or privilege hereunder shall operate as a waiver thereof.
10.7 Governing Law and Venue. This Agreement shall be
32
<PAGE>
governed by and construed in accordance with the laws of the State of New York,
without regard to principles of conflicts of law. All parties hereby consent to
the venue and jurisdiction of the courts, both federal and state, located in the
State of New York, County of New York, for any disputes arising out of this
Agreement.
10.8 Binding Effect; No Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties and their respective successors and
legal representatives. This Agreement is not assignable except by operation of
law and any other purported assignment shall be null and void.
10.9 Variations in Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
10.10 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
10.11 Exhibits and Schedules. The Exhibits and Schedules are a part of
this Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
10.12 Effect of Disclosure on Schedules. Any item disclosed on any
Schedule shall only be deemed to be disclosed in connection with (a) the
specific representation and warranty to which such Schedule is expressly
referenced, (b) any specific representation and warranty which expressly
cross-references such Schedule and (c) any specific representation and warranty
to which any other Schedule to this Agreement is expressly referenced if such
other Schedule expressly cross-references such Schedule.
10.13 Limited Recourse. In no event shall any Affiliate of the
Purchaser or any officer, director or employee of any of them, have any
liability to the Shareholders, the Seller or any shareholder or creditor of any
of them pursuant to this Agreement
33
<PAGE>
or any of the transactions contemplated hereby.
10.14 Headings. The headings in this Agreement are for reference only,
and shall not affect the interpretation of this Agreement.
10.15 Severability of Provisions. If any provision or any portion of
any provision of this Agreement or the application of such provision or any
portion thereof to any Person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the remaining
provisions of this Agreement, or the application of such provision or portion of
such provision as is held invalid or unenforceable to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby.
10.16 Brokers. Each party hereto represents and warrants that no broker
or finder is entitled to any brokerage or finder's fee or other commission from
such party, based on agreements, arrangements or undertakings made by such
party, in connection with the transactions contemplated hereby.
10.17 Termination. This Agreement may be terminated at any time prior
to the Closing Date:
(a) by mutual consent of Purchaser, the Shareholders and Seller;
(b) by either Purchaser or Shareholders and Seller if the Closing has
not occurred on or before February 28, 1997, subject to the provisions of
Section 2.1 hereof, unless the reason that the Closing has not occurred shall be
the failure of the party seeking to terminate this Agreement to fulfill its
obligations hereunder;
(c) by either Purchaser or Shareholders and Seller if there has been a
material misrepresentation or material breach on the part of the other party in
the representations, warranties or covenants set forth in this Agreement which
is not cured within ten (10) Business Days after such other party has been
notified of the intent to terminate this Agreement pursuant to this clause (c);
or
(d) by either Purchaser or Shareholders and Seller if any legal
proceeding is commenced or threatened by any Governmental
34
<PAGE>
or Regulatory Body or other person directed against the consummation of the
Closing or any other material transaction contemplated under this Agreement and
Purchaser or Shareholders and Seller, as the case may be, reasonably and in good
faith deems it impractical or inadvisable to proceed in view of such legal
proceeding or threat thereof.
35
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NOVATECH, INC.
By: /s/ John Essmyer
--------------------
Name: John Essmyer
Title: President
HYDROGEL DESIGN SYSTEMS, INC.
By: /s/ Matthew Harriton
-------------------------
Name: Matthew Harriton
Title: President
/s/ John Essmyer
------------------
JOHN ESSMYER
/s/ John Essmyer
-------------------
JANICE ESSMYER
36
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 6, 1997, by and between
Hydrogel Design Systems, Inc., a Delaware corporation (the "Company"), and JOHN
ESSMYER, an individual residing at 223 Prospect Avenue, Hackensack, New Jersey
07601 (the "Executive").
W I T N E S E T H :
WHEREAS, the Company desires to secure the services of the Executive
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Executive desires to render services to the Company upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
Section 1. Employment. The Company hereby employs the Executive and the
Executive hereby accepts such employment, as the Company's Chief Operating
Officer and Vice President of Research, subject to the terms and conditions set
forth in this Agreement.
Section 2. Duties. The Executive shall serve as the Chief Operating
Officer and Vice President of Research for the Company and shall (i) be
responsible for the installation and supervision of an electron beam
accelerator, as well as coordinating, supervising and managing the day-to-day
operations for the Company; and (ii) properly perform such duties as may be
lawfully assigned to him from time to time by the Board of Directors of the
Company. If requested by the Company, the Executive shall serve on the Board of
Directors or any committee thereof without additional compensation. During the
term of this Agreement, the Executive shall
<PAGE>
devote the majority of his business time to the performance of his duties
hereunder unless otherwise authorized by the Board of Directors; provided,
however, that the Executive may devote reasonable amounts of time, to the
pursuit of Executive's personal business activities which are wholly unrelated
to the Company's industry, provided such activities are not conducted during
normal business hours or at such times as the Company may require Executive's
services.
Section 3. Term of Employment; Vacation.
(a) The term (the "Term") of the Executive's employment shall
be for a period of sixty (60) months commencing on February 6, 1997 (the "Start
Date"), subject to earlier termination by the parties pursuant to Sections 5 and
6 hereof. Unless otherwise specifically provided herein, all compensation
obligations commence as of the Start Date.
(b) The Executive shall be entitled to four (4) weeks
vacation during each year of the Term.
Section 4. Compensation of Executive.
4.1 Salary. The Company shall pay to the Executive a base
salary of One Hundred Thousand ($100,000) Dollars per annum (the "Base Salary"),
less such deductions as shall be required to be withheld by applicable law and
regulations. All salaries payable to Executive shall be paid at such regular
weekly, biweekly or semi-monthly time or times as the Company makes payment of
its regular payroll in the regular course of business.
4.2 Discretionary Bonus. During the term of this Agreement
and in addition to the salary set forth in Section 4.1 above, the Executive
shall be entitled to such bonus compensation as the Board of Directors of the
Company may determine from time to time in its
2
<PAGE>
sole discretion payable in cash, options and/or capital stock of the Company.
4.3 Additional Bonus. Upon the signing of this contract, the
Executive shall be entitled to receive an amount of the Company's capital stock
equal to ten (10%) percent of the then issued and outstanding shares of the
Company's Common Stock.
4.4 Expenses. During the Term, the Company shall promptly
reimburse the Executive for all reasonable and necessary travel expenses and
other disbursements incurred by the Executive on behalf of the Company, in
performance of the Executive's duties hereunder, assuming the Executive has
received prior approval for such travel expenses and disbursements by the
Company to the extent possible. Additionally, the Executive shall also receive
from the Company an allowance for automobile expenses in the amount of $500 per
month during the Term of this Agreement.
4.5 Benefits. The Executive shall be permitted during the
Term to participate in any hospitalization or disability insurance plans, health
programs, pension plans, bonus plans or similar benefits that may be available
to other executives of the Company subject to such eligibility rules as are
applied to senior managers generally. In the event that the Executive elects not
to be covered the benefit plans provided by the Company to its other executives,
the Company shall pay to the Executive an amount equal to the amount the Company
would have paid on the Executive's behalf for such benefits, less any amount
which each participating executive is required to contribute for such plan
coverage.
5. Disability of the Executive. If the Executive is
incapacitated or disabled by accident, sickness or otherwise so as to render the
Executive mentally or physically incapable
3
<PAGE>
of performing the services required to be performed under this Agreement for a
period of 180 days in any period of 360 consecutive days (a "Disability"), the
Company may, at the time or any time thereafter, at its option, terminate the
employment of the Executive under this Agreement immediately upon giving the
Executive written notice to that effect.
6. Termination.
(a) The Company may terminate the employment of the Executive and all
of the Company's obligations under this Agreement at any time for Cause (as
hereinafter defined) by giving the Executive notice of such termination, with
reasonable specificity of the details thereof. "Cause" shall mean (i) the
Executive's misconduct which could reasonably be expected to have a material
adverse effect on the business and affairs of the Company, (ii) the Executive's
disregard of lawful instructions of the Company's Board of Directors or
President consistent with the Executive's position relating to the business of
the Company or neglect of duties or failure to act, which, in each case, could
reasonably be expected to have a material adverse effect on the business and
affairs of the Company, (iii) the Executive engages in conduct which is publicly
abusive to the Company's Chief Executive Officer or members of the Board of
Directors, (iv) the commission by the Executive of an act constituting common
law fraud, or a felony, or criminal act against the Company or any affiliate
thereof or any of the assets of any of them, (v) the Executive's abuse of
alcohol or other drugs or controlled substances, or conviction of a crime
involving moral turpitude, (vi) the Executive's material breach of any of the
agreements contained herein or (vii) the Executive's death or resignation
hereunder; provided however, that if the Executive resigned as a result of a
material breach by the Company of this Agreement, such resignation shall not be
considered "Cause" hereunder. A termination pursuant to Section 6(a)(i),
4
<PAGE>
(ii), (iv), (v) (other than as a result of a conviction of a crime involving
moral turpitude) or (vi) shall take effect 60 days after the giving of the
notice contemplated hereby unless the Executive shall, during such 60-day
period, remedy to the reasonable satisfaction of the Board of Directors of the
Company the misconduct, disregard, abuse or breach specified in such notice;
provided, however, that such termination shall take effect immediately upon the
giving of such notice if the Board of Directors of the Company shall, in its
reasonable discretion, have determined that such misconduct, disregard, abuse or
breach is not remediable (which determination shall be stated in such notice). A
termination pursuant to Section 6(a)(iii), (v) (as a result of a conviction of a
crime involving moral turpitude) or (vii) shall take effect immediately upon the
giving of the notice contemplated hereby.
(b) The Company or the Executive may terminate the employment of the
Executive and all of the Company's obligations under this Agreement (except as
hereinafter provided) at any time during the Employment Period without Cause by
giving the Executive or the Company, as appropriate, written notice of such
termination, to be effective 90 days following the giving of such written
notice. For convenience of reference, the date upon which any termination of the
employment of the Executive pursuant to Sections 5 or 6 shall be effective shall
be hereinafter referred to as the "Termination Date". In the event the Executive
resigns as a result of a material breach of the Agreement by the Company, such
resignation shall be treated as a termination by the Company other than for
Cause, as described in Section 7(c) provided the Executive shall have given the
Company thirty (30) days written notice, and the Company shall not have cured
the breach within such thirty (30) day period.
7. Effect of Termination of Employment.
5
<PAGE>
(a) Upon the termination of the Executive's employment for
Cause, neither the Executive nor the Executive's beneficiaries or estate shall
have any further rights to compensation under this Agreement or any claims
against the Company arising out of this Agreement, except the right to receive
(i) the unpaid portion of the Base Salary provided for in Section 4.1, earned
through the Termination Date (the "Unpaid Salary Amount"), and (ii)
reimbursement for any expenses for which the Executive shall not have
theretofore been reimbursed, as provided in Section 4.4 (the "Expense
Reimbursement Amount").
(b) Upon the termination of the Executive's employment for a
Disability, neither the Executive nor the Executive's beneficiaries or estate
shall have any further rights to compensation under this Agreement or any claims
against the Company arising out of this Agreement, except the right to receive
(i) the Unpaid Salary Amount, (ii) the Expense Reimbursement Amount and (iii)
accrued and unpaid amounts owed to the Executive under Section 4.2 and 4.3
hereof through the Termination Date (collectively, the "Additional Payments").
(c) Upon the termination of the Executive's employment for
other than Cause or a Disability, neither the Executive nor the Executive's
beneficiaries or estate shall have any further rights to compensation under this
Agreement or any claims against the Company arising out of this Agreement,
except the Executive shall have the right to receive (i) the Unpaid Salary
Amount, (ii) the Expense Reimbursement Amount, (iii) severance compensation
equal to the Base Salary for the term of this Agreement (as if this Agreement
was not terminated), 50% of which is payable on the Termination Date and 50% of
which is payable in equal monthly installments during the period commencing
thirty (30) days following the Termination Date and
6
<PAGE>
continuing for a period of twelve months thereafter, and (iv) the Additional
Payments.
Section 8. Disclosure of Confidential Information. The Executive
recognizes that he has had and will continue to have access to secret and
confidential information regarding the Company, including but not limited to its
customer list, products, know-how, proprietary technology, and business plans.
The Executive acknowledges that such information is of great value to the
Company, is the sole property of the Company, and has been and will be acquired
by him in confidence. In consideration of the obligations undertaken by the
Company herein, the Executive will not, at any time, during or after his
employment hereunder, reveal, divulge or make known to any person, any
information acquired by the Executive during the course of his employment, which
is treated as confidential by the Company, including but not limited to its
proprietary technology and customer list, not otherwise in the public domain,
other than in the ordinary of business during his employment hereunder. The
provisions of this Section 8 shall survive the Executive's employment hereunder.
Section 9. Covenant Not To Compete.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of the Company that the Executive agree,
and accordingly, the Executive does hereby agree, that he shall not, directly or
indirectly, at any time during the term of the Agreement and the "Restricted
Period" (as defined in Section 9(e) below):
(i) except as provided in Subsection (c) below, be
engaged in the sale, marketing or distribution of
medical wire and cable, hydrogel or any other product
or device developed, marketed or sold by the Company
during the
7
<PAGE>
Term or provide technical assistance, advice or
counseling regarding the medical wire and cable and
hydrogel industries in any state in the United States
in which the Company or any affiliate thereof is
engaged in business, either on his own behalf or as
an officer, director, stockholder, partner,
consultant, associate, employee, owner, agent,
creditor, independent contractor, or co-venturer of
any third party; or
(ii) employ or engage, or cause or authorize, directly or
indirectly, to be employed or engaged, for or on behalf of
himself or any third party, any employee or agent of the
Company or any affiliate thereof.
(b) The Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any time during
the term of the Agreement and during the Restricted Period solicit any customers
of the Company or any affiliate thereof.
(c) If any of the restrictions contained in this Section 9 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent the Executive from
owning, directly or indirectly, in the aggregate, an amount not exceeding five
percent (5%) of the issued and outstanding voting securities of any class of any
company whose voting capital stock is traded on a national securities exchange
or on the over-the-counter market other than securities of the Company.
8
<PAGE>
(e) The term "Restricted Period," as used in this Section 9, shall mean
the period of the Executive's actual employment hereunder plus (A) in the event
the Executive voluntarily terminates his employment after the Preliminary Period
other than a resignation as a result of a material breach of the Agreement by
the Company, sixty (60) months, and (B) in the event the Executive's employment
is terminated without Cause or a Disability as described in Section 7(c) above,
the period during which the Company is required to make continued payments to
the Executive pursuant to this Agreement; provided, however, that, in the event
the Executive waives, in writing, his right to receive such continued payments,
the Executive shall not be subject to this Section 9.
(f) The provisions of this Section 9 shall survive the end of the
Restricted Period as provided in Section 9(e) hereof.
Section 10. Miscellaneous.
10.1 Injunctive Relief. Executive acknowledges that the
services to be rendered under the provisions of this Agreement are of a special,
unique and extraordinary character and that it would be difficult or impossible
to replace such services. Accordingly, Executive agrees that any breach or
threatened breach by him of Sections 8 or 9 of this Agreement shall entitle the
Company, in addition to all other legal remedies available to it, to apply to
any court of competent jurisdiction to seek to enjoin such breach or threatened
breach. The parties understand and intend that each restriction agreed to by
Executive hereinabove shall be construed as separable and divisible from every
other restriction, that the unenforceability of any restriction shall not limit
the enforceability, in whole or in part, of any other restriction, and
9
<PAGE>
that one or more or all of such restrictions may be enforced in whole or in part
as the circumstances warrant. In the event that any restriction in this
Agreement is more restrictive than permitted by law in the jurisdiction in which
the Company seeks enforcement thereof, such restriction shall be limited to the
extent permitted by law.
10.2 Assignments. Neither the Executive nor the Company may
assign or delegate any of their rights or duties under this Agreement without
the express written consent of the other.
10.3 Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties with respect to
the Executive's employment by the Company, supersedes all prior understandings
and agreements, whether oral or written, between the Executive and the Company,
and shall not be amended, modified or changed except by an instrument in writing
executed by the party to be charged. The invalidity or partial invalidity of one
or more provisions of this Agreement shall not invalidate any other provision of
this Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
10.4 Binding Effect. This Agreement shall inure to the
benefit of, be binding upon and enforceable against, the parties hereto and
their respective successors, heirs, beneficiaries and permitted assigns.
10.5 Headings. The headings contained in this Agreement
are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.6 Notices. All notices, requests, demands and other
communications
10
<PAGE>
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by registered or
certified mail, return receipt requested, postage prepaid, or by private
overnight mail service (e.g. Federal Express) to the party at the address set
forth above or to such other address as either party may hereafter give notice
of in accordance with the provisions hereof. Notices shall be deemed given on
the sooner of the date actually received or the third business day after
sending.
10.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to such State's conflicts of laws provisions and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the federal and
state courts located in the State of New York, County of New York.
10.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one of the same instrument.
10.9 Separability. If any of the restrictions contained in
this Agreement shall be deemed to be unenforceable by reason of the extent,
duration or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Agreement shall
then be enforceable in the manner contemplated hereby.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
HYDROGEL DESIGN SYSTEMS, INC.
By: /s/ Matthew Harriton
-------------------------
Name: Matthew Harriton
Title: President
/s/ John Essmyer
-------------------------
John Essmyer
12
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of February 6, 1997, by and between
Hydrogel Design Systems, Inc., a Delaware corporation (the "Company"), and
MICHAEL PERIERA, an individual residing at 26 Edgemere Avenue, Plainsboro, NJ
08536 (the "Executive").
W I T N E S E T H :
WHEREAS, the Company desires to secure the services of the Executive
upon the terms and conditions hereinafter set forth; and
WHEREAS, the Executive desires to render services to the Company upon
the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
Section 1. Employment. The Company hereby employs the Executive and
the Executive hereby accepts such employment, as the Company's Chief Financial
Officer, subject to the terms and conditions set forth in this Agreement.
Section 2. Duties. The Executive shall serve as the Chief Financial
Officer for the Company and shall (i) be responsible for the installation and
supervision of an electron beam accelerator, as well as supervising the
financial and operational activities of the Company; and (ii) properly perform
such duties as may be lawfully assigned to him from time to time by the
President and the Board of Directors of the Company. The Executive shall serve
on the Board of Directors or any committee thereof with additional compensation.
During the term of this Agreement, the Executive shall devote the majority of
his business time to the performance of
<PAGE>
his duties hereunder unless otherwise authorized by the Board of Directors;
provided, however, that the Executive may devote reasonable amounts of time, to
the pursuit of Executive's personal business activities which are wholly
unrelated to the Company's industry, provided such activities are not conducted
during normal business hours or at such times as the Company may require
Executive's services.
Section 3. Term of Employment and Vacation.
(a) The term (the "Term") of the Executive's employment shall
be for a period of sixty (60) months commencing on February 6, 1997 (the "Start
Date"), subject to earlier termination by the parties pursuant to Sections 5 and
6 hereof. Unless otherwise specifically provided herein, all compensation
obligations commence as of the Start Date.
(b) The Executive shall be entitled to four (4) weeks
vacation during each year of the Term.
Section 4. Compensation of Executive.
4.1 Salary. The Company shall pay to the Executive a base
salary of One Hundred Thousand ($100,000) Dollars per annum (the "Base Salary"),
less such deductions as shall be required to be withheld by applicable law and
regulations. All salaries payable to Executive shall be paid at such regular
weekly, biweekly or semi-monthly time or times as the Company makes payment of
its regular payroll in the regular course of business.
4.2 Discretionary Bonus. During the term of this Agreement and
in addition to the salary set forth in Section 4.1 above, the Executive shall be
entitled to such bonus compensation as the Board of Directors of the Company may
determine from time to time in its sole discretion payable in cash, options
and/or capital stock of the Company.
2
<PAGE>
4.3 Additional Bonus. Upon the signing of this contract, the
Executive shall be entitled to receive an amount of the Company's capital stock
equal to ten (10%) percent of the then issued and outstanding shares of the
Company's Common Stock.
4.4 Expenses. During the Term, the Company shall promptly
reimburse the Executive for all reasonable and necessary travel expenses and
other disbursements incurred by the Executive on behalf of the Company, in
performance of the Executive's duties hereunder, assuming the Executive has
received prior approval for such travel expenses and disbursements by the
Company to the extent possible. Additionally, the Executive shall also receive
from the Company an allowance for automobile expenses in the amount of $500 per
month during the Term of this Agreement.
4.5 Benefits. The Executive shall be permitted during the Term
to participate in any hospitalization or disability insurance plans, health
programs, pension plans, bonus plans or similar benefits that may be available
to other executives of the Company subject to such eligibility rules as are
applied to senior managers generally. In the event that the Executive elects not
to be covered the benefit plans provided by the Company to its other executives,
the Company shall pay to the Executive an amount equal to the amount the Company
would have paid on the Executive's behalf for such benefits, less any amount
which each participating executive is required to contribute for such plan
coverage.
5. Disability of the Executive. If the Executive is
incapacitated or disabled by accident, sickness or otherwise so as to render the
Executive mentally or physically incapable of performing the services required
to be performed under this Agreement for a period of 180
3
<PAGE>
days in any period of 360 consecutive days (a "Disability"), the Company may, at
the time or any time thereafter, at its option, terminate the employment of the
Executive under this Agreement immediately upon giving the Executive written
notice to that effect.
6. Termination.
(a) The Company may terminate the employment of the Executive and all
of the Company's obligations under this Agreement at any time for Cause (as
hereinafter defined) by giving the Executive notice of such termination, with
reasonable specificity of the details thereof. "Cause" shall mean (i) the
Executive's misconduct which could reasonably be expected to have a material
adverse effect on the business and affairs of the Company, (ii) the Executive's
disregard of lawful instructions of the Company's Board of Directors or
President consistent with the Executive's position relating to the business of
the Company or neglect of duties or failure to act, which, in each case, could
reasonably be expected to have a material adverse effect on the business and
affairs of the Company, (iii) the Executive engages in conduct which is publicly
abusive to the Company's Chief Executive Officer or members of the Board of
Directors, (iv) the commission by the Executive of an act constituting common
law fraud, or a felony, or criminal act against the Company or any affiliate
thereof or any of the assets of any of them, (v) the Executive's abuse of
alcohol or other drugs or controlled substances, or conviction of a crime
involving moral turpitude, (vi) the Executive's material breach of any of the
agreements contained herein or (vii) the Executive's death or resignation
hereunder; provided however, that if the Executive resigned as a result of a
material breach by the Company of this Agreement, such resignation shall not be
considered "Cause" hereunder. A termination pursuant to Section 6(a)(i), (ii),
(iv), (v) (other than as a result of a conviction of a crime involving moral
turpitude) or (vi)
4
<PAGE>
shall take effect 60 days after the giving of the notice contemplated hereby
unless the Executive shall, during such 60-day period, remedy to the reasonable
satisfaction of the Board of Directors of the Company the misconduct, disregard,
abuse or breach specified in such notice; provided, however, that such
termination shall take effect immediately upon the giving of such notice if the
Board of Directors of the Company shall, in its reasonable discretion, have
determined that such misconduct, disregard, abuse or breach is not remediable
(which determination shall be stated in such notice). A termination pursuant to
Section 6(a)(iii), (v) (as a result of a conviction of a crime involving moral
turpitude) or (vii) shall take effect immediately upon the giving of the notice
contemplated hereby.
(b) The Company or the Executive may terminate the employment of the
Executive and all of the Company's obligations under this Agreement (except as
hereinafter provided) at any time during the Employment Period without Cause by
giving the Executive or the Company, as appropriate, written notice of such
termination, to be effective 90 days following the giving of such written
notice. For convenience of reference, the date upon which any termination of the
employment of the Executive pursuant to Sections 5 or 6 shall be effective shall
be hereinafter referred to as the "Termination Date". In the event the Executive
resigns as a result of a material breach of the Agreement by the Company, such
resignation shall be treated as a termination by the Company other than for
Cause, as described in Section 7(c) provided the Executive shall have given the
Company thirty (30) days written notice, and the Company shall not have cured
the breach within such thirty (30) day period.
7. Effect of Termination of Employment.
(a) Upon the termination of the Executive's employment for
Cause, neither the
5
<PAGE>
Executive nor the Executive's beneficiaries or estate shall have any further
rights to compensation under this Agreement or any claims against the Company
arising out of this Agreement, except the right to receive (i) the unpaid
portion of the Base Salary provided for in Section 4.1, earned through the
Termination Date (the "Unpaid Salary Amount"), and (ii) reimbursement for any
expenses for which the Executive shall not have theretofore been reimbursed, as
provided in Section 4.4 (the "Expense Reimbursement Amount").
(b) Upon the termination of the Executive's employment for a
Disability, neither the Executive nor the Executive's beneficiaries or estate
shall have any further rights to compensation under this Agreement or any claims
against the Company arising out of this Agreement, except the right to receive
(i) the Unpaid Salary Amount, (ii) the Expense Reimbursement Amount and (iii)
accrued and unpaid amounts owed to the Executive under Section 4.2 and 4.3
hereof through the Termination Date (collectively, the "Additional Payments").
(c) Upon the termination of the Executive's employment for
other than Cause or a Disability, neither the Executive nor the Executive's
beneficiaries or estate shall have any further rights to compensation under this
Agreement or any claims against the Company arising out of this Agreement,
except the Executive shall have the right to receive (i) the Unpaid Salary
Amount, (ii) the Expense Reimbursement Amount, (iii) severance compensation
equal to the Base Salary for the term of this Agreement (as if this Agreement
was not terminated), 50% of which is payable on the Termination Date and 50% of
which is payable in equal monthly installments during the period commencing
thirty (30) days following the Termination Date and continuing for a period of
twelve months thereafter, and (iv) the Additional Payments.
6
<PAGE>
Section 8. Disclosure of Confidential Information. The Executive
recognizes that he has had and will continue to have access to secret and
confidential information regarding the Company, including but not limited to its
customer list, products, know-how, proprietary technology, electron beam
accelerator technology, and business plans. The Executive acknowledges that such
information is of great value to the Company, is the sole property of the
Company, and has been and will be acquired by him in confidence. In
consideration of the obligations undertaken by the Company herein, the Executive
will not, at any time, during or after his employment hereunder, reveal, divulge
or make known to any person, any information acquired by the Executive during
the course of his employment, which is treated as confidential by the Company,
including but not limited to its proprietary and electron beam accelerator
technologies and customer list, not otherwise in the public domain, other than
in the ordinary of business during his employment hereunder. The provisions of
this Section 8 shall survive the Executive's employment hereunder.
Section 9. Covenant Not To Compete.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of the Company that the Executive agree,
and accordingly, the Executive does hereby agree, that he shall not, directly or
indirectly, at any time during the term of the Agreement and the "Restricted
Period" (as defined in Section 9(e) below):
(i) except as provided in Subsection (c) below, be
engaged in the sale, marketing or distribution of
medical wire and cable, hydrogel or any other product
or device developed, marketed or sold by the Company
during the
7
<PAGE>
Term or provide technical assistance, advice or
counseling regarding the medical wire and cable and
hydrogel industries in any state in the United States
in which the Company or any affiliate thereof is
engaged in business, either on his own behalf or as
an officer, director, stockholder, partner,
consultant, associate, employee, owner, agent,
creditor, independent contractor, or co-venturer of
any third party; or
(ii) employ or engage, or cause or authorize, directly or
indirectly, to be employed or engaged, for or on
behalf of himself or any third party, any employee
or agent of the Company or any affiliate thereof.
(b) The Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any time during
the term of the Agreement and during the Restricted Period solicit any customers
of the Company or any affiliate thereof.
(c) If any of the restrictions contained in this Section 9 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent the Executive from
owning, directly or indirectly, in the aggregate, an amount not exceeding five
percent (5%) of the issued and outstanding voting securities of any class of any
company whose voting capital stock is traded on a national securities exchange
or on the over-the-counter market other than securities of the Company.
8
<PAGE>
(e) The term "Restricted Period," as used in this Section 9, shall mean
the period of the Executive's actual employment hereunder plus (A) in the event
the Executive voluntarily terminates his employment after the Preliminary Period
other than a resignation as a result of a material breach of the Agreement by
the Company, sixty (60) months, and (B) in the event the Executive's employment
is terminated without Cause or a Disability as described in Section 7(c) above,
the period during which the Company is required to make continued payments to
the Executive pursuant to this Agreement; provided, however, that, in the event
the Executive waives, in writing, his right to receive such continued payments,
the Executive shall not be subject to this Section 9.
(f) The provisions of this Section 9 shall survive the end of the
Restricted Period as provided in Section 9(e) hereof.
1Section 10. Miscellaneous.
10.1 Injunctive Relief. Executive acknowledges that the
services to be rendered under the provisions of this Agreement are of a special,
unique and extraordinary character and that it would be difficult or impossible
to replace such services. Accordingly, Executive agrees that any breach or
threatened breach by him of Sections 8 or 9 of this Agreement shall entitle the
Company, in addition to all other legal remedies available to it, to apply to
any court of competent jurisdiction to seek to enjoin such breach or threatened
breach. The parties understand and intend that each restriction agreed to by
Executive hereinabove shall be construed as separable and divisible from every
other restriction, that the unenforceability of any restriction shall not limit
the enforceability, in whole or in part, of any other restriction, and
9
<PAGE>
that one or more or all of such restrictions may be enforced in whole or in part
as the circumstances warrant. In the event that any restriction in this
Agreement is more restrictive than permitted by law in the jurisdiction in which
the Company seeks enforcement thereof, such restriction shall be limited to the
extent permitted by law.
10.2 Assignments. Neither the Executive nor the Company may
assign or delegate any of their rights or duties under this Agreement without
the express written consent of the other.
10.3 Entire Agreement. This Agreement constitutes and embodies
the full and complete understanding and agreement of the parties with respect to
the Executive's employment by the Company, supersedes all prior understandings
and agreements, whether oral or written, between the Executive and the Company,
and shall not be amended, modified or changed except by an instrument in writing
executed by the party to be charged. The invalidity or partial invalidity of one
or more provisions of this Agreement shall not invalidate any other provision of
this Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
10.4 Binding Effect. This Agreement shall inure to the
benefit of, be binding upon and enforceable against, the parties hereto and
their respective successors, heirs, beneficiaries and permitted assigns.
10.5 Headings. The headings contained in this Agreement are
for convenience of reference only and shall not affect in any way the meaning
or interpretation of this Agreement.
10.6 Notices. All notices, requests, demands and other
communications
10
<PAGE>
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given when personally delivered, sent by registered or
certified mail, return receipt requested, postage prepaid, or by private
overnight mail service (e.g. Federal Express) to the party at the address set
forth above or to such other address as either party may hereafter give notice
of in accordance with the provisions hereof. Notices shall be deemed given on
the sooner of the date actually received or the third business day after
sending.
10.7 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without giving
effect to such State's conflicts of laws provisions and each of the parties
hereto irrevocably consents to the jurisdiction and venue of the federal and
state courts located in the State of New York, County of New York.
10.8 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one of the same instrument.
10.9 Separability. If any of the restrictions contained in
this Agreement shall be deemed to be unenforceable by reason of the extent,
duration or geographical scope thereof, or otherwise, then the court making such
determination shall have the right to reduce such extent, duration, geographical
scope, or other provisions hereof, and in its reduced form this Agreement shall
then be enforceable in the manner contemplated hereby.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
HYDROGEL DESIGN SYSTEMS, INC.
By: /s/ Matthew Harriton
--------------------------
Name: Matthew Harriton
Title: President
/s/ Michael Periera
--------------------------
Michael Periera
11
<PAGE>
INDUSTRIAL-NET
REFERENCE PAGE
BUILDING: 2150 Cabot Boulevard West,
Langhorne, PA 19047,
a 40,900 +/- square foot building
situate on an approximately acre
parcel
LANDLORD: Circon Corporation, a Delaware
Corporation
LANDLORD'S ADDRESS: 6500 Hollister Avenue
Santa Barbara, CA 93117-3019
TENANT: Embryo Development Corporation, a
Delaware Corporation
TENANT'S ADDRESS: 750 Lexington Avenue, Suite 2750
New York, NY 10022
LEASE EXECUTION DATE: January _ , 1997
PREMISES: Rear portion of the Building comprising
approximately 16,500 square feet
excluding existing mezzanines with such
rear portion also at times described as
2140 Cabot Boulevard West although
2140 is not a separate tax or real
estate parcel
USE: Tenant shall only use the Premises for
manufacturing related to disposable and
capital medical equipment and hydrogel
products and for research, design and
development, warehousing and distribution
activities relating to the same and
offices supporting those activities.
COMMENCEMENT DATE: February 14, 1997
TERMINATION DATE: January 31, 2004
TERM OF LEASE: 7 years and 0 months beginning on the
Commencement Date and ending on the
Termination Date (unless sooner
terminated pursuant to the Lease) with an
option to renew the Lease for an
additional 5 years.
ANNUAL BASE RENT - LEASE YEARS 1
THROUGH 3 (adjustment to commence
in year 4 and stay in effect
through year 7): $115,500 (16,500 sq. ft. (plus or
minus) @$7.00/sq. ft.)
MONTHLY INSTALLMENT OF RENT -
LEASE YEARS 1 THROUGH 3: $9.625
SECURITY DEPOSIT: $9.625
TENANT'S PROPORTIONATE SHARE: 40.34% (16,500 sq. ft.) (40,900 sq. ft.)
REAL ESTATE BROKER DUE COMMISSION: Stephen M. Segal. Inc.
The Reference Page information is incorporated into and made a part of the
Lease. In the event of any conflict between any Reference Page information and
the Lease, the Lease shall control.
LANDLORD: TENANT:
CIRCON CORPORATION EMBRYO DEVELOPMENT CORPORATION
By: /S/ By: /S/
------------------------------- ------------------------------
Title: Vice President, Title: Vice President,
Chief Executive Officer Chief Financial Officer
---------------------------- ---------------------------
Dated: February 17, 1997 Dated: February 14, 1997
---------------------------- ----------------------------
<PAGE>
LEASE
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises set forth and described on the Reference Page. The Reference Page,
including all terms defined thereon, is hereby incorporated as part of this
Lease.
1. USE AND RESTRICTIONS ON USE.
The Premises shall be continuously used and occupied by Tenant, but only for
the purposes listed on the Reference Page and for such other lawful purposes as
may be incidental thereto, all to the extent permitted by applicable zoning
regulations. Subject to the provisions of Article 8 hereof, Tenant shall at its
own cost and expense obtain any and all licenses and permits necessary for any
such use. The parking of automobiles, trucks or other vehicles in the areas not
specifically designated on Exhibit A and the outside storage of any property are
prohibited without Landlord's prior written consent. Tenant shall comply with
all governmental laws, ordinances and regulations applicable to the Tenant's use
of the Premises and its occupancy thereof, and shall promptly comply with all
governmental orders and directives for the correction, prevention and abatement
of any violations or nuisances in or upon, or connected with, the Premises, all
at Tenant's sole expense. If, as a result of any change in the governmental
laws, ordinances and regulations, the Premises must be altered to lawfully
accommodate Tenant's use and occupancy thereof, such alterations shall be made
only with the consent of Landlord, but the entire cost thereof shall be borne by
Tenant; provided, that, the necessity of Landlord's consent shall in no way
create any liability against Landlord for failure of Tenant to comply, or
alter the Premises to comply, with such laws, ordinances and regulations. Tenant
shall not permit any objectionable or unpleasant odors, smoke, dust, gas, noise
or vibrations to emanate from the Premises, nor take any other action which
would constitute a nuisance or would disturb or endanger any other tenants of
the Building, or unreasonably interfere with such tenants' use of their
respective premises. Without Landlord's prior written consent, Tenant shall not
receive, store or otherwise handle any product, material or merchandise which is
explosive or highly flammable. Tenant will not permit the Premises to be used
for any purpose (including, without limitation, the storage of merchandise) in
any manner which would render the insurance thereon void or increase the
insurance rate thereof, and Tenant shall immediately cease and desist from such
use, paying all cost and expense resulting from such improper use.
Tenant shall not use or permit any use of the Premises in a manner which
creates any safety or environmental hazard, or which would be dangerous to the
Premises. Also, other than subject to applicable law, Tenant shall not use the
Premises for the generation, use, manufacture, refining, recycling,
transportation, treatment, storage, discharge or disposal of any hazardous,
toxic or polluting substance or waste or for any purpose which poses a
substantial risk of damage to the environment and not engage in any activity
which would subject Landlord, Tenant or the Premises to any liability,
obligation or affirmative act under the provisions of any federal, state or
local environmental law, regulation, order or ordinance, whether now existing or
hereafter enacted, and Tenant shall indemnify, defend and hold Landlord harmless
from all liabilities, obligations, costs and expenses (including, without
limitation, any cleanup costs under any federal or state superfund-type statute)
arising by reason of a breach of this covenant and the parties hereto
specifically agree that this covenant shall survive the term of this Lease.
Tenant shall provide to the Landlord, at least thirty (30) days prior to
Tenant's occupancy of the Premises, a list of all chemicals that it anticipates
will be stored in the Premises or used in any manufacturing process to be
conducted on the Premises and information on how such chemicals will be handled,
moved, stored, consumed and disposed in a manner that will comply with all
applicable environmental laws. Tenant shall promptly send to Landlord an update
for such list as needed to the extent other additional chemicals are used in the
process or stored in the Premises in the future.
<PAGE>
2. TERM.
The term of this Lease shall be as indicated on the Reference Page (unless
sooner terminated as herein provided). Tenant agrees that in the event of the
inability of Landlord to deliver possession of the Premises on the Commencement
Date, Landlord shall not be liable for any damage thereby, but Tenant shall not
be liable for any rent until the time when Landlord can, after notice to Tenant,
deliver possession of the Premises to Tenant. No such failure to give possession
on the Commencement Date shall affect the other obligations of Tenant hereunder,
nor shall such failure be construed in any way to renew the Term. If Landlord is
unable to deliver possession of the Premises within 30 days of the Commencement
Date (other than as a result of strikes, shortages of materials or similar
matters beyond the reasonable control of Landlord and Tenant is notified by
Landlord in writing as to such delay), Tenant shall have the option to terminate
this Lease unless said delay is as a result of: (a) Tenant's failure to agree to
plans and specifications; (b) Tenant's request for materials, finishes or
installations other than Landlord's standard; (c) Tenant's change in plans; or
(d) performance or completion by a party employed by Tenant. If said delay is
the result of any of the foregoing, the Commencement Date and the payment of
rent hereunder shall be accelerated by the number of days of such delay.
In the event Landlord shall permit Tenant to occupy the Premises prior to
the Commencement Date, such occupancy shall be subject to all the provisions of
this Lease. Said early possession shall not advance the Termination Date.
The Landlord will use its best efforts to obtain the written consent from
Meridian Bank, a Pennsylvania banking corporation, or its successors or assigns,
and BCIDA (hereinafter defined) to lease the Premises under the terms and
conditions herein described. Landlord and Tenant agree that Lease will commence
as scheduled and shall remain valid (but still subject to the teens of Article
17 below) even if such consent is not obtained.
Landlord hereby grants to Tenant one (1) option ("Option") to renew the
Lease Term for a five (5) year period ("Renewal Term"), on the same terms,
conditions and covenants set forth in this Lease, except as provided below. The
Option shall be exercised only by written notice delivered to Landlord at least
one hundred eighty (180) days before the expiration of the then current term of
this Lease. If Tenant fails to deliver to Landlord written notice of the
exercise of such Option within the prescribed time period, such Option shall
lapse, there shall be no further right to renew the Lease Term and this Lease
shall automatically terminate at the end of the then current term. The Option
shall be exercisable by Tenant on the express condition that at the time of the
exercise, and at all times prior to the commencement of the Renewal Term, Tenant
shall not be in default under any of the provisions of this Lease. There shall
be no further right of renewal beyond the Renewal Term and the Option shall
apply to all (and not less than all) of the Premises originally Leased
hereunder.
For a period of fifteen (15) days following the Option notice date, Landlord
and Tenant shall negotiate in good faith an amount which represents the fair
market rental value of the Premises for the Renewal Term ("Fair Market Rental
Value"). If after such fifteen (15) day period Landlord and Tenant are unable to
agree on the Fair Market Rental Value, then if Tenant so elects, Landlord and
2
<PAGE>
Tenant shall each choose a licensed commercial real estate appraiser having
at least ten (10) years experience in appraising commercial real estate in
southeastern Pennsylvania. Each appraiser chosen by Landlord and Tenant,
respectively, shall determine the fair market rental value of the Premise and
the appraisers' determinations of the fair market rental value of the Premises
shall have averaged together and such average fair market rental value shall be
the Fair Market Rental Value that shall be payable by Tenant beginning on the
first day of the Renewal Term as further described herein. For purposes of this
article, Fair Market Rental Value Shall be determined taking into consideration
the condition of the Premises on the date when the Premises was first offered
for lease to the general public. If Tenant does not elect to commence the
appraiser process described above, the Option shall lapse, there shall be no
further right to renew the Lease Term and this Lease shall automatically
terminate at the end of the then current term.
3. RENT AND SECURITY DEPOSIT.
Tenant agrees to pay to Landlord the Annual Rent by paying the Monthly
Installment of Rent on or before the first day of each full calendar month
during the Term, except that the first month's rent shall be paid upon the
execution hereof. Rent for any period during the Term which is less than one
full month shall be a prorated portion of the Monthly Installment of Rent based
upon a 30 day month. Said rent shall be paid to Landlord, without deduction or
offset and without notice or demand at the Landlord's address, as set forth on
the Reference Page, or to such other person or at such other place as Landlord
may from time to time designate in writing.
Tenant recognizes that late payment of any rent or other sum due hereunder
will result in administrative expense to Landlord, the extent of which
additional expense is extremely difficult and economically impractical to
ascertain. Tenant therefore agrees that if rent or any other sum is due and
payable pursuant to this Lease, and when such amount remains due and unpaid five
days after said amount is due, such amount shall be increased by a late charge
in an amount equal to 5% of the unpaid rent or other payment. The amount of the
late charge to be paid by Tenant shall be reassessed and added to Tenant's
obligation for each successive monthly period until paid. The provisions of this
Article in no way relieve Tenant of the obligation to pay rent or other payments
on or before the date on which they are due, nor do the terms of this Article in
any way affect Landlord's remedies pursuant to Article 21 of this Lease in the
event said rent or other payment is unpaid after the date due.
No security or guarantee which may now or hereafter be furnished to Landlord
for the payment of rent or the performance of Tenant's other obligations under
this Lease shall in any way constitute a bar to the recovery of the Premises or
defense to any action in unlawful detainer or to any other action which Landlord
may bring for a breach of any of the terms, covenants or conditions of this
Lease.
This Lease is what is commonly called a "Net, Net, Net Lease". It is the
intention of Landlord and Tenant that Annual Rent shall be absolutely net to
Landlord and that all costs, expenses and obligations of every kind relating
directly or indirectly in any way, foreseen and unforeseen, to the Tenant's use,
occupancy and possession of the Premises, which may arise or become due during
the Lease Term, or any extension thereof, shall be paid by Tenant. Such Annual
Rent and all additional rent, as defined herein, shall be paid without
abatement, diminution, reductions, deduction or setoff.
3
<PAGE>
The Annual Rent for the balance of the initial Term subsequent to the third
year anniversary date of the Commencement Date of this Lease, shall be increased
to the "Adjusted Annual Rent." The Adjusted Annual Rent shall be the greater of
103% of the Annual Rent or an amount to be computed by multiplying the Annual
Rent by a fraction whose numerator shall be the Consumer Price Index For All
Urban Consumers (1982-84 equals 100%) published by the United States Department
of Labor, Bureau of Labor Statistics using the "All Items" category for the
United States (the "Consumer Price Index") for the third month prior to the
third anniversary date of the Commencement Date of that case and whose
denominator shall be the Consumer Price Index for the third month prior to the
Commencement Date of this Lease. The Landlord shall notify the Tenant of the
amount of the Adjusted Annual Rent, in writing, prior to the third anniversary
date. Tenant agrees to pay the Adjusted Annual Rent, together with any
additional rent required hereunder, in equal monthly increments on the first day
of each month for all months (starting with the third anniversary date)
remaining in the initial Term of the Lease.
As security for performance of its obligations hereunder and upon execution
of this Lease, Tenant shall pay to Landlord and agrees to maintain hereafter, a
Security Deposit of Nine Thousand Six Hundred Twenty-five Dollars ($9,625.00).
Subject to this Section 3, Landlord shall place the Security Deposit in an
interest bearing money market account and interest so earned from the deposit
shall remain in the account and become part of the Security Deposit. Landlord
shall notify Tenant in writing of the account number and financial institution
where the Security Deposit is being held. Upon the occurrence of any event of
default (as discussed in Article 20) by Tenant, Landlord may from time to time
and without prejudice to any other remedy, use the Security Deposit and any
interest earned thereon to the extent necessary to satisfy any arrears of Annual
Rent or additional rent, or any other amount, damage, injury, expense or
liability owed or caused to Landlord by such event of default. The remaining
balance of such security, together with all remaining interest earned thereon,
shall be returned by Landlord to Tenant within a thirty (30) days after
termination of this Lease provided that there is no documented outstanding issue
which could require a monetary resolution, in which event the Landlord shall
have a reasonable time to investigate the same and refund the appropriate amount
of the aforementioned security and interest. The Security Deposit shall not be
considered an advance payment of rent or a measure of Landlord's damages in case
of default by Tenant. In the event of the sale or transfer of Landlord's
interest in the Premises, Landlord shall have the right to transfer the Security
Deposit and all interest earned thereon to the purchaser or transferee, and upon
such transfer, Tenant shall look only to the new Landlord for the return of the
Security Deposit and interest and Landlord shall thereupon be released from all
liability to Tenant for the return of or accounting for such Security Deposit
and interest. Notwithstanding the foregoing, Tenant agrees that Landlord's
mortgagee, if any, shall have no liability to Tenant for the return of the
Security Deposit and interest or any other funds deposited with Landlord unless
and until such Security Deposit and interest or other funds is in fact paid or
transferred by Landlord to such mortgagee, whether or not such mortgagee is
operating the Premises at any time as a mortgagee in possession or has acquired
title to the Premises upon exercising its remedies under its mortgage.
4
<PAGE>
4. REAL ESTATE TAXES.
Landlord agrees to pay all general and special taxes, assessments and
governmental charges of any kind and nature whatsoever (hereinafter collectively
referred to as "Taxes") lawfully levied against the Building, the real property
on which it has situated and the grounds, parking areas, driveways and alleys
around the Building. Tenant shall pay to Landlord as additional rent upon demand
at the time the bill for each installment for any tax year applicable to the
Term (or any renewal or extension thereof) issues, Tenant's Proportionate Share,
as set forth on the Reference Page, of the amount of such taxes applicable to
each installment less any monthly payments paid by Tenant as provided below for
such tax year. Prior to the actual determination of the Taxes for a calendar
year, Landlord may, if it so elects and at any time or from time to time during
said calendar year, estimate the amount of such Taxes. If, in the estimation of
Landlord, such Taxes will exceed the previous year's Taxes, Landlord shall give
Tenant written notification of the amount of such estimated excess and Tenant
agrees that it will increase its Monthly Installment of Rent subsequent to
receipt of such written notification to include such excess. If the total Tenant
actually paid for estimated Taxes pursuant to this Article is more than the
actual Tax, Landlord shall remit the excess to Tenant within thirty (30) days of
the making of such determination or, at Landlord's election, credit such amount
against the next Monthly Installments of Rent. In addition, Tenant shall pay
upon demand Tenant's Proportionate Share of any reasonable fees, expenses and
costs incurred by Landlord in protesting any assessments, levies or the tax
rate. Taxes shall include the following by way of illustration, but not
limitation: real estate taxes; any other such taxes, charges and assessments
which are levied with respect to the Building, and any improvements, fixtures
and equipment and all other property of Landlord, real or personal, located in
the Building and used in connection with the operation of the Building and the
land upon which they are situated including any payments to any ground lessor in
reimbursement of tax payments made by such lessor; fees or assessments for any
governmental services to the Building; service payments in lieu of taxes; dues
or assessments payable to any property owners association due to Landlord's
ownership of the Building; water and sewer charges; and any gross receipts tax
and/or any tax which shall be levied in addition to or in lieu of real estate,
possessory interest or personal property taxes. Any payment to be made pursuant
to this Article with respect to the real estate tax year in which the Lease
commences or terminates shall be prorated.
Tenant, after prior notice to Landlord, and at Tenant's sole cost and
expense, shall have the right to appeal any assessment of the aforementioned
taxes. The Landlord may require that the Tenant deposit with Landlord a sum
sufficient to pay the entire amount of the asserted tax, charge, assessment or
levy plus potential interest and penalties. Tenant shall promptly pay and
discharge all amounts determined to be payable pursuant to such legal
proceedings pertaining to the appeal. Landlord agrees to join in any such
proceedings only if such joinder is necessary to the prosecution thereof. The
costs of such joinder shall be paid by Tenant.
5. [INTENTIONALLY OMITTED]
5
<PAGE>
6. ALTERATIONS.
Except for the alterations, additions or improvements to be done by Tenant
as part of Tenant's initial occupancy specified in Exhibit B attached hereto and
made a part hereof (the "Initial Improvements"), Tenant shall not make any
alterations, improvements or additions to the Premises without the prior written
approval of Landlord (which approval shall not be unreasonably withheld or
delayed) except that Tenant may, after giving Landlord thirty days prior
written notice thereof (which notice shall contain a detailed written
description and drawing of any contemplated alterations or improvements), make
alterations, improvements and/or additions to the Premises that (a) total less
than $10,000.00 in the aggregate in any given year, except in the case of
emergency repairs, and (b) involve interior non-structural work to the Premises.
Any alteration, addition, or improvement in, on, or to the Premises including
carpeting, but excepting the "Accelerator" described in Exhibit B and movable
furniture, equipment and other personal property of Tenant removable without
material damage to the property or the Premises, shall be and remain the
property of Tenant during the Term but shall, unless Landlord elects otherwise,
become a part of the realty and belong to Landlord without compensation to
Tenant upon the expiration or sooner termination of the Term and title shall
pass to Landlord under this Lease as by a bill of sale. The Accelerator shall,
at all times, be the property of Tenant. When applying for such consent, Tenant
shall, if requested by Landlord, furnish complete plans and specifications for
such alterations, additions and improvements. In the event Landlord consents to
the making of any such alteration, addition, or improvement by Tenant, the same
shall be made using a contractor reasonably acceptable to Landlord at Tenant's
sole cost and expense. All alterations, additions or improvements proposed by
Tenant shall be constructed in accordance with all government laws, ordinances,
rules and regulations and Tenant shall, prior to construction, provide such
assurances to Landlord, including but not limited to, waivers of lien, surety
company performance bonds and personal guaranties of individuals of substance,
as Landlord shall require to assure payment of the costs thereof and to protect
Landlord against any loss from any mechanics', materialmen's or other liens.
Tenant shall pay in addition to any sums due pursuant to Article 4 above any
increase in real estate taxes attributable to any such alteration, addition, or
improvement for so long, during the Term, as such increase is ascertainable.
Upon the expiration or sooner termination of the Term as herein provided, Tenant
shall, upon demand by Landlord, at Tenant's sole cost and expense, forthwith and
with all due diligence remove any such alterations, additions or improvements
which are designated by the Landlord to be removed, and Tenant shall forthwith
and with all due diligence, at its sole cost and expense, repair and restore the
Premises to their original condition, reasonable wear and tear and loss by
casualty covered by Article 23 excepted.
In the event that Tenant fails to remove any alterations, additions, and/or
improvements as herein described, Tenant shall reimburse Landlord for Landlord's
costs in removing such alterations, additions and/or improvements within thirty
(30) days of Tenant's receipt of notice of such costs incurred by Landlord.
7. TENANT'S REPAIRS.
(A) Tenant shall at its own cost and expense keep and maintain all parts of
the Premises and the surrounding real estate for which Landlord is not expressly
responsible under the terms of the
6
<PAGE>
Lease, including portions shared in common with other tenants of the Building
but not including other tenants' premises, in good condition, promptly making
all necessary repairs and replacements, with materials and workmanship of the
same character, kind and quality as the original, including but not limited to,
windows, glass and plate glass, doors, skylights, any special office entries,
interior walls and finish work, floors and floor coverings, downspouts,
gutters, heating and air conditioning systems, electrical systems and fixtures,
sprinkler systems, dock boards, truck doors, dock bumpers, paving, plumbing work
and fixtures, termite and pest extermination, regular removal of trash and
debris, regular mowing of any grass, trimming, weed removal and general
landscape maintenance. Tenant as part of its obligations hereunder shall (i)
keep the Tenant's Parking Area, driveways, alleys and the portions of the whole
of the property to which it has access, in a clean and sanitary condition and
(ii) without injury to the roof, other horizontal surfaces of the Building,
downspouts, parking areas, driveways and sidewalks, remove all snow and ice from
same. Tenant will, as far as possible, keep all such parts of the Premises,
Building and the real estate on which the Building is located from deterioration
due to ordinary wear and from falling temporarily out of repair, and upon
termination of this Lease in any way Tenant will yield up the Premises to
Landlord in good condition and repair, reasonable wear and tear and loss by fire
or other casualty covered by insurance to be maintained by Landlord pursuant to
Article 23(A) hereof and any condition caused by the failure of Landlord to make
a repair or replacement required to be made by Landlord pursuant to Article 8
excepted (but not excepting any damage to glass or loss not reimbursed by
insurance because of the existence of a deductible under the appropriate
policy).
(B) Tenant shall not damage any demising wall or disturb the integrity and
support provided by any demising wall and shall, at its sole cost and expense,
promptly repair any damage or injury to any demising wall caused by Tenant or
its employees, agents or invitees.
(C) Tenant and its employees, customers and licensees shall have the
nonexclusive right to use, in common with the other parties occupying said
Building, common areas, if any, (exclusive of any parking or work load areas
designated or to be designated by Landlord for the exclusive use of Tenant or
other tenants occupying or to be occupying other portions of the Building),
driveways and alleys adjacent to said Building, subject to such reasonable rules
and regulations as Landlord may from time to time prescribe. Further, Landlord
reserves the right to perform, upon notice to Tenant, the paving and landscape
maintenance for the grounds around the Building, including, but not limited to,
the mowing of the grass, care of shrubs, general landscaping and maintenance of
common parking areas, if any, driveways and alleys, nonstructural roof repairs,
exterior painting, common sewage line plumbing, and repair and maintenance of
any other items, the obligations for which may be shared with other tenants in
the Building and other improvements of which the Premises are a part, all of
which are otherwise Tenant's obligations under Article 7(A), and Tenant shall,
in lieu of the obligations set forth under Article 7(A) with respect to such
items, be liable for Tenant's Proportionate Share (as set forth on the Reference
Page) of the cost and expense thereof including a reasonable management fee
unless Landlord in its sole discretion determines that such cost and expense is
properly allocable in another proportion or solely to either Tenant or the other
tenants occupying said Building. Tenant shall pay to Landlord its share,
determined as aforesaid, of such costs and expenses, upon demand, as additional
rent, in the event Landlord elects to perform or cause to be performed such
work.
7
<PAGE>
(D) Except as provided for herein, each time that repairs to the heating and
air conditioning systems may be necessary, Tenant shall be responsible, at
Tenant's sole cost and expense, for such repairs. Tenant shall, at its own cost
and expense, enter into a regularly scheduled, comprehensive preventive
maintenance/service contract (the "Service Contract") with a maintenance
contractor approved by Landlord, (and a copy thereof shall be furnished to
Landlord), for servicing all heating and air conditioning systems and equipment
within the Premises. The Service Contract must include all services suggested by
the equipment manufacturer in the operation/maintenance manual, must be
comprehensive in nature in that such Service Contract shall include the repair
and/or replacement (including parts and labor) of all major and minor components
of the heating and air conditioning system including, but not limited to, the
heat exchangers, burners, boilers, condensers, compressors, and blower
mechanisms, and must become effective within 10 days of the date of execution of
this Lease.
(E) Tenant shall, at its own cost and expense to the extent not covered by
the insurance to be maintained by Landlord under Article 23, repair any damage
to the Premises or the Building resulting from and/or caused in whole or in part
by the negligence or misconduct of Tenant, its agents, servants, employees,
patrons, customers, or any other person entering upon the property as a result
of Tenant's business activities or caused by Tenant's default hereunder.
(F) Subject to Article 8 below, Tenant accepts the Premises in "as is"
condition on the date of the execution of this Lease, and such "as is" condition
shall include functioning heating, ventilation and air conditioning equipment
and the delivery of the Premises in a broom clean condition. Tenant understands
that the estimated square footage of the Premises is only an estimate and that
the Annual Rent and Tenant's Proportionate Share shall remain unchanged
regardless of whether the actual square footage is more or less.
8. LANDLORD'S IMPROVEMENTS AND REPAIRS.
Landlord shall, at its sole cost and expense, prior to the Commencement
Date, complete the work necessary for the construction of an appropriate
demising wall which will completely segregate the Premises from the other space
of the Building which is or will be leased to another or other tenant(s). Also,
to the extent reasonably practical and possible, the Landlord shall, at its sole
cost and expense, have all utilities for the Premises individually metered.
Landlord shall, at its sole cost and expense, maintain in good repair,
reasonable wear and tear and any casualty covered by the provisions of Article
23 excepted, only the foundation and the structural soundness of the exterior
walls and of the roof of the Building. Tenant shall immediately give Landlord
written notice of any such defect or need for repairs after which Landlord shall
have a reasonable opportunity to repair the same or cure such defect. Landlord's
liability with respect to any defects, repairs or maintenance for which Landlord
is responsible under any of the provisions of the Lease shall be limited to the
cost of such repairs or maintenance or the curing of such defect. The term
"walls" as used herein shall not include windows, glass or plate glass, doors,
special store fronts or office entries.
8
<PAGE>
9. SIGNS.
Any signs installed by Tenant (the "Signs") upon the Premises shall be in
compliance with all state and local governmental ordinances and regulations and
shall not be in violation of any covenants or restrictions which may pertain to
the Premises. Upon termination of the Lease, Tenant shall remove all Signs and
shall restore the Premises and/or the Building in accordance with the provisions
of Article 6 or, at Landlord's option, said Signs shall become part of the
realty and belong to Landlord without compensation to Tenant and title shall
pass to Landlord under this Lease as by a bill of sale.
10. LIENS.
Tenant shall keep the Premises and Tenant's leasehold interest in the
Premises free from any liens arising out of any work performed, materials
furnished, or obligations incurred by Tenant. In the event that Tenant shall
not, within ten days following the imposition of any such lien, cause the same
to be released of record, Landlord shall have the right to cause the same to be
released by such means as it shall deem proper, including payment of the claim
giving rise to such lien. All such sums paid by Landlord and all expenses
incurred by it in connection therewith shall be considered additional rent and
shall be payable to it by Tenant on demand with interest at the rate of 18% per
annum or the highest rate permitted by law, whichever is lower.
11. ASSIGNMENT AND SUBLETTING.
(A) Except as provided in this Article 11, Tenant shall not have the right
to assign or pledge this Lease or to sublet the whole or any part of the
Premises, whether voluntarily or by operation of law, or permit the use or
occupancy of the Premises by anyone other than Tenant, or assign this Lease for
security purposes, without the prior written consent of Landlord (which consent
shall not be unreasonably withheld or delayed), and such restrictions shall be
binding upon any assignee or subtenant to which Landlord has consented. In the
event Tenant desires to sublet the Premises, or any portion thereof, or assign
this Lease, Tenant shall give written notice thereof to Landlord at least 60
days but no more than 180 days prior to the proposed commencement date of such
subletting or assignment, which notice shall set forth the name of the proposed
subtenant or assignee, the relevant terms of any sublease and copies of
financial reports and other relevant financial information of the proposed
subtenant or assignee. Notwithstanding any permitted assignment or subletting,
Tenant shall at all times remain directly and primarily responsible and liable
for the payment of the rent herein specified and for compliance with all of its
other obligations under this Lease. Upon the occurrence of an "event of default"
(as hereinafter defined), if the Premises or any part thereof are then sublet,
Landlord, in addition to any other remedies provided herein or by law, may
collect directly from such subtenant all rents due and becoming due to Tenant
under such sublease and apply such rent against any sums due to Landlord from
Tenant hereunder. No such collection directly from an assignee or subtenant
shall be construed to constitute a novation or a release of Tenant from the
further performance of Tenant's obligations hereunder.
9
<PAGE>
(B) Within 60 days from receipt of a sublease or assignment request in
accordance with Section 11(A), Landlord shall either:
(i) in the event that Tenant desires to sublease less than 30% of the
Premises to a person not a division or subsidiary of Tenant, grant or refuse
consent and Tenant understands it will be reasonable for Landlord to avoid a
potential multiple tenant situation which could be created by smaller sublets;
or
(ii) in the event that Tenant desires to assign this Lease or sublease
30% or more of the Premises to a person not a division or subsidiary of Tenant,
Landlord shall grant or refuse consent, however, such consent shall not be
unreasonably withheld or delayed.
A sublease to a division or subsidiary is permitted without consent as
long as Tenant notifies Landlord in writing and acknowledges in that notice that
Landlord remains fully responsible for the obligations of the Tenant hereunder.
(C) Consent by Landlord to any assignment or subletting shall not include
consent to the assignment or transferring of any lease renewal option rights,
space option rights, purchase options, right of first refusal, special
privileges or extra services granted to Tenant by this Lease, or addendum or
amendment thereto or letter of agreement (and such options, right, privileges or
services shall terminate upon such assignment), unless Landlord specifically
grants in writing such options, right, privileges or services to assignee or
subtenant. Any sale, assignment, mortgage, transfer of this Lease or subletting
which does not comply with the provisions of this Article shall be void.
(D) [INTENTIONALLY OMITTED]
(E) Should Landlord agree to authorize and execute an assignment or sublease
agreement, Tenant will pay to Landlord on demand a sum equal to all of
Landlord's costs, including reasonable attorney's fees, incurred in connection
with such assignment or transfer.
(F) For purposes of this Article 11, any transfer or change in control of
Tenant (or any subtenant, assignee, or occupant) by operation of law or
otherwise shall be deemed an assignment hereunder including, without limitation,
any merger, consolidation, dissolution, or any change in the controlling equity
interests of Tenant or any subtenant, assignee, or occupant (whether in a single
transaction or series of transactions). Any assignment or subletting in
contravention of the provisions of this Article 11 shall be void and shall be an
Event of Default hereunder.
(G) No assignment or subletting pursuant to this Article ll shall in any way
relieve or release Tenant from liability for performance of the all of the
terms, covenants, and conditions of this Lease. Any assignee or subtenant, prior
to any such assignment or subtenancy, shall promptly execute and deliver to
Landlord a written agreement assuming, without modification or limitation,
all of the obligations under this Lease.
10
<PAGE>
12. INDEMNIFICATION.
Landlord shall not be liable and Tenant hereby waives all claims against
Landlord for any damage to any property or any injury to any person in or about
the Premises or the Building by or from any cause whatsoever, (including without
limiting the foregoing, rain or water leakage of any character from the roof,
windows, walls, basement, pipes, plumbing works or appliances, the Building not
being in good condition or repair, gas, fire, oil, electricity or theft); except
that Landlord will indemnify and hold Tenant harmless from such claims,
liabilities or costs (including court costs and attorney's fees) for any damage
to any property or any injury to any person occurring in, on or about the
Premises or the Building when and to the extent such injury or damage is caused
by the willful act of Landlord, or its agents, employees or contractors. Tenant
shall indemnify and hold Landlord harmless from and defend Landlord against any
and all claims, liability or costs (including court costs and attorney's fees)
for any damage to any property or any injury to any person occurring in, on or
about the Premises or the Building unless such injury or damage shall be caused
by another tenant in the Building. The provisions of this Article shall survive
the termination of this Lease with respect to any claims or liability occurring
prior to such termination.
13. INSURANCE
(A) Tenant shall maintain in full force and effect, at its own expense,
comprehensive general liability insurance (including a contractual liability
and fire legal liability insurance endorsement) naming as additional
insureds Landlord and Landlord's mortgagee, if any, against claims for bodily
injury, death or property damage in amounts not less than $3,000,000 (or such
higher limits up to a maximum limit of $5,000,000 as may be determined by
Landlord or Landlord's mortgagee from time to time), public liability insurance
in the minimum amount of $5,000,000 against claims for personal injury, death or
property damage suffered or occurring as a result of the use of products
manufactured, constructed or sold by Tenant, or services rendered by Tenant,
boiler and machinery coverage (direct damage and use and occupancy) on a
replacement cost basis, and workmen's compensation insurance in an appropriate
amount. Tenant shall also maintain, in full force and effect, at its own
expense, in amounts (in no event less than $5,000,000) and subject to terms and
conditions acceptable to Landlord, insurance coverage against any adverse
environmental conditions at or near the Building and Premises created or
caused by Tenant. If Tenant can not obtain such coverage to the satisfaction of
Landlord, Tenant shall post an indemnity bond in amounts (in no event less than
$5,000,000), and issued by a party, acceptable to Landlord, which bond shall be
used to secure the Tenant's obligations related to environmental conditions as
set forth in this Lease, and in particular, Article 40 below.
(B) All policies of insurance shall be issued by insurers which are
authorized to do business in the Commonwealth of Pennsylvania and which have a
Best's financial rating of A or better and a size class rating of XII (12) or
larger or otherwise acceptable to Landlord. At or prior to Tenant taking
possession of the Premises, Tenant shall deposit the policy or policies of
insurance, or certificates thereof, with Landlord and shall deposit with
Landlord renewals thereof at least thirty (30) days prior to each expiration.
Said policy or policies of insurance or certificates thereof shall not be
subject to contribution, and shall have attached thereto an endorsement that
such policy shall not be
11
<PAGE>
amended, canceled or terminated without at least thirty (30) days prior written
notice to Landlord, that such policy or policies shall not be canceled or
invalidated by any use of the Premises more hazardous than permitted in such
policy or policies or by any change in title to or ownership of the Premises,
and that no act or omission of Tenant shall invalidate the interest of Landlord
or Landlord's mortgagee under said insurance and expressly waiving all rights of
subrogation as set forth in this Lease. At Landlord's request, Tenant shall
provide to Landlord at Landlord's reasonable expense, if any, a letter from an
authorized representative of its insurance carrier stating that Tenant's current
and effective insurance coverage complies with the requirements contained
herein.
(C) Landlord shall maintain, at Tenant's expense to the extent of Tenant's
Proportionate Share, an all risk fire and extended coverage insurance policy
with respect to the Building and the Premises. Such insurance policy shall be of
the type, nature and amount that is set forth on Exhibit C.
14. WAIVER OF SUBROGATION.
Tenant and Landlord hereby mutually waive their respective rights of
recovery against each other for any loss insured, covered and actually paid by
fire, extended coverage or all risk insurance now or hereafter existing for the
benefit of the respective party. Each party shall obtain any special
endorsements required by their insurer to evidence compliance with the
aforementioned waiver.
15. SERVICES AND UTILITIES.
Landlord agrees to provide, at its cost, water, electricity and telephone
service connections into the Premises; but Tenant shall pay for all water, gas,
heat, light, power, telephone, sewer, sprinkler system charges and other
utilities and services used on or from the Premises, including without
limitation, Tenant's Proportionate Share of any central station signaling system
installed in the Premises or the Building, together with any taxes, penalties,
and surcharges or the like pertaining thereto and any maintenance charges for
utilities. Tenant shall furnish all electric light bulbs, tubes and ballasts. If
any such services are not separately metered to Tenant, Tenant shall pay such
proportion of all charges jointly shared or metered with other premises as
determined by Landlord, in its sole discretion, to be reasonable. Any such
charges paid by Landlord and assessed against Tenant shall be immediately
payable to Landlord on demand and shall be additional rent hereunder. Landlord
shall in no event be liable for any interruption or failure of utility services
on or to the Premises.
16. HOLDING OVER.
Tenant shall pay Landlord for each day Tenant retains possession of the
Premises or part thereof after termination hereof by lapse of time or otherwise
150% of the amount of the Annual Rent for the last period prior to the date of
such termination prorated on a daily basis, and also pay all damages sustained
by Landlord by reason of such retention, and shall indemnify and hold Landlord
harmless from any loss or liability resulting from such holding over and delay
in surrender. If Landlord gives notice to Tenant of Landlord's election thereof,
such holding over shall constitute renewal of this Lease for a period from month
to month or for one year, whichever shall be specified in such notice, in either
case at 150% of the Annual Rent being paid to Landlord under this Lease
12
<PAGE>
immediately prior thereto, but if the Landlord does not so elect, acceptance by
Landlord of rent after such termination shall not constitute a renewal; this
provision shall not be deemed to waive Landlord's right of re-entry or any other
right hereunder or at law.
17. SUBORDINATION/NON-DISTURBANCE.
(A) Without the necessity of any additional document being executed by
Tenant for the purpose of effecting a subordination, this Lease shall be subject
and subordinate at all times to ground or underlying leases and to the lien of
any mortgages or deeds of trust now or hereafter placed on, against or affecting
the Building, Landlord's interest or estate therein, or any ground or underlying
lease; provided, however, that if the lessor, mortgagee, trustee, or holder of
any such mortgage or deed of trust elects to have Tenant's interest in this
Lease be superior to any such instrument, then by notice to Tenant this Lease
shall be deemed superior, whether this Lease was executed before or after said
instrument. Notwithstanding the foregoing, Tenant covenants and agrees to
execute and deliver upon demand such further instruments evidencing such
subordination or superiority of this Lease as may be required by Landlord.
(B) Notwithstanding any other provision of this Lease, this Lease shall be
subject and subordinate at all times to the Installment Sale Agreement, dated
November 15, 1991 (the "ISA"), between Bucks County Industrial Development
Authority ("BCIDA"), as seller, and Lessor, as buyer, and the rights and
remedies of BCIDA and its successors and assigns (including, without limitation,
Meridian Bank, a Pennsylvania banking corporation, its successors and assigns
and Northern Central Bank, its successors and assigns, as trustee) thereunder,
or otherwise available to BCIDA or such successors and assigns under the ISA or
any document, instrument or agreement executed by Lessor in connection with the
financing transaction evidenced by the ISA.
(C) Upon execution of this Lease by Landlord, Landlord agrees to use
Landlord's best efforts, in Landlord's reasonable discretion, to obtain and
furnish to Tenant agreement(s) ("Non-Disturbance Agreement") executed and
acknowledged in proper form except for execution on behalf of Tenant, from (i)
the holder(s) of any mortgage now encumbering the Premises, and (ii) from the
lessor(s) of any underlying leasehold estate or fee owner under an installment
purchase agreement pursuant to which Landlord directly or indirectly derives its
authority to execute this Lease (in either or any of such cases, an "Existing
Holder") whereby each Existing Holder agrees to not disturb Tenant in its
rights, use and possession of the Premises under this Lease or to terminate this
Lease, except to the extent permitted to Landlord by the terms of this Lease,
notwithstanding the foreclosure or the enforcement of the mortgage or
termination or other enforcement of an underlying lease or installment purchase
agreement.
18. RULES AND REGULATIONS.
Tenant shall faithfully observe and comply with all the rules and
regulations as set forth in Exhibit D, if any, attached hereto and all
reasonable modifications of and additions thereto from time to time put into
effect by Landlord as well as all covenants, conditions and restrictions of
record.
13
<PAGE>
Landlord shall not be responsible to Tenant for the non-performance by any other
tenant or occupant of the Building of any such rules and regulations.
19. REENTRY BY LANDLORD.
During the twelve month period immediately preceding the Termination Date,
Landlord reserves and shall at all times have the right to reenter the Premises
to show said Premises to prospective tenants. Landlord shall make a good faith
effort to provide prior reasonable notice of such showings. At any time during
the Term of this Lease, Landlord reserves and shall at all times have the right
to reenter the Premises to inspect the same, to supply any service to be
provided by Landlord to Tenant hereunder, to show said Premises to prospective
purchasers or mortgagees, and to alter, improve, or repair the Premises and any
portion of the Building, without abatement of rent, and may for that purpose
erect, use, and maintain scaffolding, pipes, conduits, and other necessary
structures in and through the Building and Premises where reasonably required by
the character of the work to be performed, provided entrance to the Premises
shall not be blocked thereby, and further provide that the business of Tenant
shall not be interfered with unreasonably. In the event that Landlord requires
access to any under-floor duct, Landlord's liability for carpet (or other floor
covering) replacement shall be limited to replacement of the piece removed.
Tenant hereby waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby. For each of the aforesaid
purposes, Landlord shall at all times have and retain a key with which to unlock
All of the doors in the Premises, excluding Tenant's vaults and safes, or
special security areas (designated in advance), and Landlord shall have the
right to use any and all means which Landlord may deem proper to open said
doors in an emergency to obtain entry to any portion of the Premises. Landlord
shall also have the right at any time to change the arrangement and/or location
of entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets or other public parts of the Building, and to change the name,
number or designation by which the Building is commonly known.
20. DEFAULT.
The following events shall be deemed to be events of default under this
Lease:
(A) Tenant shall fail to pay when due any sum of money becoming due to be
paid to Landlord hereunder, whether such sum be any installment of the rent
herein reserved, any other amount treated as additional rent hereunder, or any
other payment or reimbursement to Landlord required herein, whether or not
treated as additional rent hereunder, and such failure shall continue for a
period of five days from the date such payment was due; or
(B) Tenant shall fail to comply with any term, provision or covenant of this
Lease other than by failing to pay when or before due any sum of money becoming
due to be paid to Landlord hereunder, and shall not cure such failure within 20
days (forthwith, if the default involves a hazardous condition) after written
notice thereof to Tenant; or
14
<PAGE>
(C) Tenant shall abandon or vacate any substantial portion of the Premises
without continuing to perform each and every one of Tenant's obligations under
this Lease including, but not limited to, the payment of rent or other sums due
hereunder or the obligation to maintain and repair all parts of the Premises in
accordance with Article 7 hereof; or
(D) Tenant shall fail to vacate the Premises immediately upon termination of
the Lease, by lapse of time or otherwise, or upon termination of Tenant's right
to possession only; or
(E) The leasehold interest of Tenant shall be levied upon under execution or
be attached by process of law or Tenant shall fail to contest diligently the
validity of any lien or claimed lien and give sufficient security to Landlord to
insure payment thereof or shall fail to satisfy any judgment rendered thereon
and have the same released, and such default shall continue for ten days after
written notice thereof to Tenant; or
(F) Tenant shall become insolvent, admit in writing its inability to pay its
debts generally as they become due, file a petition in bankruptcy or a petition
to take advantage of any insolvency statute, make an assignment for the benefit
of creditors, make a transfer in fraud of creditors, apply for or consent to the
appointment of a receiver of itself or of the whole or any substantial part of
its property, or file a petition or answer seeking reorganization or arrangement
under the federal bankruptcy laws, as now in effect or hereafter amended, or any
other applicable law or statute of the United States or any state thereof; or
(G) A court of competent jurisdiction shall enter an order, judgment or
decree adjudicating Tenant a bankrupt, or appointing a receiver of Tenant, or of
the whole or any substantial part of its property, without the consent of
Tenant, or approving a petition filed against Tenant seeking reorganization or
arrangement of Tenant under the bankruptcy laws of the United States, as now in
effect or hereafter amended, or any state thereof, and such order, judgment or
decree shall not be vacated or set aside or stayed within 30 days from the date
of entry thereof.
(H) Tenant uses or occupies the Premises other than as permitted hereunder;
(I) Tenant assigns or sublets, or purports to assign or sublet, the Premises
or any portion thereof, other than in the manner and upon the conditions set
forth herein;
(J) Tenant removes, attempts to remove, or manifests an intention to remove
any or all of Tenant's property from the Premises other than in the ordinary and
usual course of business. Any attempt to remove all or substantially all of
Tenant's property from the Premises shall be deemed to be not in the ordinary
course of business.
21. REMEDIES.
Upon the occurrence of any of such events of default described in Article 20
or elsewhere in this Lease, Landlord shall have the option to pursue any one or
more of the following remedies without any notice or demand whatsoever:
15
<PAGE>
(A) Landlord may, at its election, terminate this Lease or terminate
Tenant's right to possession only, without terminating the Lease;
(B) Upon any termination of this Lease, whether by lapse of time or
otherwise, or upon any termination of Tenant's right to possession without
termination of the Lease, Tenant shall surrender possession and vacate the
Premises immediately, and deliver possession thereof to Landlord, and Tenant
hereby grants to Landlord full and free right to enter into and upon the
Premises in such event with or without process of law and to repossess Landlord
of the Premises as of Landlord's former estate and to expel or remove Tenant and
any others who may be occupying or within the Premises and to remove any and all
property therefrom, without being deemed in any manner guilty of trespass,
eviction or forcible entry or detainer, and without incurring any liability for
any damage resulting therefrom, Tenant hereby waiving any right to claim damage
for such reentry and expulsion, and without relinquishing Landlord's right to
rent or any other right given to landlord hereunder or by operation of law;
(C) Upon any termination of this Lease, whether by lapse of time or
otherwise, Landlord shall be entitled to recover as damages, all rent, including
any amounts treated as additional rent hereunder, and other sums due and payable
by Tenant on the date of termination, plus the sum of (i) an amount equal to the
then present value of the rent, including any amounts treated as additional rent
hereunder, and other sums provided herein to be paid by Tenant for the residue
of the Term hereof, less the fair rental value of the Premises for such residue
(taking into account the time and expense necessary to obtain a replacement
tenant or tenants, including expenses hereinafter described in subarticle (D)
relating to recovery of the Premises, preparation for reletting and for
reletting itself), which the parties agree shall in no event exceed 60% of the
than present value of the rent for the period and (ii) the cost of performing
any other covenants which would have otherwise been performed by Tenant;
provided however, notwithstanding anything contained herein to the contrary,
Landlord will credit all rent received from reletting the Premises against the
amounts owed by Tenant;
(D) (i) Upon any termination of Tenant's right to possession only without
termination of the Lease, Landlord may, at Landlord's option, enter into the
Premises, remove Tenant's signs and other evidences of tenancy, and take and
hold possession thereof as provided in sub-article (B) above, without such entry
and possession terminating the Lease or releasing Tenant, in whole or in part,
from any obligation, including Tenant's obligation to pay the rent, including
any amounts treated as additional rent, hereunder for the full Term. In any such
case Tenant shall pay forthwith to Landlord, if Landlord so elects, a sum equal
to the entire amount of the rent, including any amounts treated as additional
rent hereunder, for the residue of the Term plus any other sums provided herein
to be paid by Tenant for the remainder of the Term;
(ii) Landlord may, but need not, relet the Premises or any part thereof
for such rent and upon such terms as Landlord in its sole discretion shall
determine (including the right to relet the Premises for a greater or lesser
term than that remaining under this Lease, the right to relet the Premises as a
part of a larger area, and the right to change the character or use made of the
Premises) and Landlord shall not be required to accept any tenant offered by
Tenant or to observe any
16
<PAGE>
instructions given by Tenant about such reletting. In any such case,
Landlord may make repairs, alterations and additions in or to the Premises, and
redecorate the same to the extent Landlord deems necessary or desirable, and
Tenant shall, upon demand, pay the cost thereof, together with Landlord's
expenses of reletting including, without limitation, any broker's commission
incurred by Landlord. If the consideration collected by Landlord upon any such
reletting plus any sums previously collected from Tenant are not sufficient to
pay the full amount of all rent, including any amounts treated as additional
rent hereunder and other sums reserved in this lease for the remaining term
hereof, together with the costs of repairs, alterations, additions,
redecorating, and Lessor's expenses of reletting and the collection of the rent
accruing therefrom (including attorney's fees and broker's commissions), Tenant
shall pay to Landlord the amount of such deficiency upon demand and Tenant
agrees that Landlord may file suit to recover any sums falling due under this
article from time to time;
(E) Landlord may, at Landlord's option, enter into and upon the Premises,
with or without process of law, if Landlord determines in its sole discretion
that Tenant is not acting within a commercially reasonable time to maintain,
repair or replace anything for which Tenant is responsible hereunder and correct
the same, without being deemed in any manner guilty of trespass, eviction or
forcible entry and detainer and without incurring any liability for any damage
resulting therefrom and Tenant agrees to reimburse Landlord, on demand, as
additional rent, for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease;
(F) Any and all property which may be removed from the Premises by Landlord
pursuant to the authority of the Lease or of law, to which Tenant is or may be
entitled, may be handled, removed and stored, as the case may be, by or at the
direction of Landlord at the risk, cost and expense of Tenant, and Landlord
shall in no event be responsible for the value, preservation or safekeeping
thereof. Tenant shall pay to Landlord, upon demand, any and all expenses
incurred in such removal and all storage charges against such property so long
as the same shall be in Landlord's possession or under Landlord's control. Any
such property of Tenant not retaken by Tenant from storage within 30 days after
removal from the Premises shall, at Landlord's option, be deemed conveyed by
Tenant to Landlord under this Lease as by a bill of sale without further payment
or credit by Landlord to Tenant.
(G) In addition to all other rights and remedies of Landlord, if an Event of
Default shall occur, Landlord shall, to the extent permitted by law, have a
right of distress for rent and lien on all of Tenant's fixtures, merchandise and
equipment in the Premises, as security for rent and all other charges payable
hereunder.
(H) SUBJECT TO THE PROVISIONS OF ARTICLE 20, ARTICLE 21 (H) (i)-(iv) BELOW
SETS FORTH WARRANTS OF AUTHORITY FOR AN ATTORNEY TO CONFESS JUDGMENTS AGAINST
TENANT. IN GRANTING THESE WARRANTS OF ATTORNEY TO CONFESS JUDGMENTS AGAINST
TENANT, TENANT HEREBY KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY AND
UNCONDITIONALLY WAIVES ANY AND ALL RIGHTS TENANT HAS OR MAY HAVE TO PRIOR
NOTICES AND AN OPPORTUNITY FOR HEARING UNDER THE RESPECTIVE CONSTITUTIONS AND
LAWS OF THE UNITED STATES AND THE COMMONWEALTH OF PENNSYLVANIA.
17
<PAGE>
(i) UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, TENANT HEREBY
IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS OR THE
PROTHONOTARY OR CLERK OF ANY COURT OF JURISDICTION IN THE COMMONWEALTH OF
PENNSYLVANIA, OR ELSEWHERE, AS ATTORNEY FOR TENANT, TO APPEAR FOR TENANT IN ANY
SUCH COURT IN ANY APPROPRIATE PROCEEDING BROUGHT OR TO BE BROUGHT AGAINST TENANT
BY LANDLORD ON THIS LEASE AND THEREIN TO CONFESS JUDGMENT AGAINST TENANT FOR ALL
RENT AND SUMS DUE BY TENANT FOR THE UNEXPIRED TERM OF THE LEASE HEREIN TOGETHER
WITH COURT COSTS AND REASONABLE ATTORNEYS' FEES (WHICH FOR PURPOSES OF THIS
SUBARTICLE SHALL BE DEEMED REASONABLE IF SUCH FEES ARE LIMITED TO THE GREATER OF
THE SUM OF $5,000 OR 7% OF THE AMOUNT THEN DUE AND OWING, AND FOR SO DOING THIS
LEASE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT.
(ii) AT ANY TIME AFTER AN EVENT OF DEFAULT HAS OCCURRED, TENANT
IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OR ATTORNEYS OR THE
PROTHONOTARY OR CLERK OF ANY OTHER COURT OF JURISDICTION IN THE COMMONWEALTH OF
PENNSYLVANIA, AS ATTORNEY FOR TENANT AND TENANT'S SUCCESSORS AND ASSIGNS OR ANY
OTHER PERSONS CLAIMING ANY INTEREST UNDER OR THROUGH TENANT, AS WELL AS FOR ALL
PERSONS CLAIMING UNDER, BY OR THROUGH TENANT, TO APPEAR FOR TENANT IN AN ACTION
OR ACTIONS IN EJECTMENT OR OTHER APPROPRIATE ACTION FOR POSSESSION OF THE
DEMISED PREMISES FILED BY LANDLORD OR ANY OWNER OR INTEREST HOLDER OF THE
DEMISED PREMISES (WITHOUT THE NECESSITY OF BEING ANY BOND AND WITHOUT ANY STAY
OF EXECUTION OR APPEAL) AND IN SUCH ACTION OR ACTIONS TO ADMIT LANDLORD'S
SUPERIOR TITLE AND/OR CONFESS JUDGMENT FOR THE RECOVERY BY THE LANDLORD OF
POSSESSION OF THE PREMISES, FOR WHICH THIS INSTRUMENT (OR A COPY HEREOF VERIFIED
BY AFFIDAVIT OF THE LANDLORD OR ANYONE AUTHORIZED TO MAKE SUCH AFFIDAVIT ON
BEHALF OF LANDLORD) SHALL BE A SUFFICIENT WARRANT; WHEREUPON A WRIT OF
POSSESSION OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF THE DEMISED
PREMISES MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING
WHATSOEVER, THE TENANT HEREBY RELEASING AND AGREEING TO RELEASE THE LANDLORD AND
SAID ATTORNEYS FROM ALL ERRORS AND DEFECTS WHATSOEVER OF A PROCEDURAL NATURE IN
ENTERING ANY SUCH ACTION OR JUDGMENT OR IN CAUSING ANY SUCH WRIT OR PROCESS TO
BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, PROVIDED THAT THE
LANDLORD SHALL HAVE FILED IN SUCH ACTION AN AFFIDAVIT MADE BY A PERSON ON THE
LANDLORD'S BEHALF SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF
SUCH JUDGMENT ACCORDING TO THE TERMS OF THIS INSTRUMENT, OF WHICH FACTS SUCH
AFFIDAVIT SHALL BE A PRIMA FACE EVIDENCE.
18
<PAGE>
(iii) IT IS HEREBY EXPRESSLY AGREED THAT IF FOR ANY REASON AFTER ANY
SUCH ACTION UNDER (i) OR (ii) DIRECTLY ABOVE, HAS BEEN COMMENCED THE SAME SHALL
BE DISCONTINUED, MARKED SATISFIED OF RECORD OR TERMINATED, OR POSSESSION OF THE
DEMISED PREMISES SHALL REMAIN IN OR BE RESTORED TO EITHER TENANT OR ANYONE
CLAIMING UNDER, BY OR THROUGH TENANT, THE LANDLORD MAY, WHENEVER AND AS OFTEN AS
THE LANDLORD SHALL HAVE THE RIGHT TO TAKE POSSESSION AGAIN OF THE DEMISED
PREMISES, BRING ONE OR MORE FURTHER SUCH ACTIONS IN THE MANNER HEREINABOVE SET
FORTH TO OBTAIN A MONEY JUDGMENT AND/OR RECOVER POSSESSION OF THE DEMISED
PREMISES AND TO CONFESS JUDGMENT THEREIN AS HEREINABOVE PROVIDED, AND THE
AUTHORITY AND POWER GIVEN ABOVE TO ANY SUCH ATTORNEY SHALL EXTEND TO ALL SUCH
FURTHER ACTIONS. THE LANDLORD SHALL HAVE THE RIGHT TO BRING SUCH AN ACTION OR
ACTIONS AND TO CONFESS JUDGMENT THEREIN AS HEREINABOVE PROVIDED BEFORE OR AFTER
COMMENCING AN ACTION FOR A MONEY JUDGMENT AND/OR POSSESSION AND BEFORE OR AFTER
JUDGMENT THEREON OR THEREIN HAS BEEN RECOVERED OR A JUDICIAL SALE OF ALL OR ANY
PART OF TENANT'S PROPERTY HAS TAKEN PLACE.
(iv) TENANT HEREBY RELEASES LANDLORD AND ANY ATTORNEY OR ATTORNEYS FROM
ALL ERRORS, DEFECTS AND IMPERFECTIONS WHATSOEVER IN ENTERING JUDGMENT BY
CONFESSION HEREON OR IN ISSUING ANY PROCESS OR INSTITUTING ANY PROCEEDINGS
RELATING THERETO AND HEREBY WAIVES ALL WAIVABLE BENEFITS THAT MIGHT ACCRUE TO
TENANT BY VIRTUE OF ANY PRESENT OR FUTURE LAWS INCLUDING WITHOUT LIMITATION THE
PROVISIONS OF THE PENNSYLVANIA LANDLORD AND TENANT ACT AND LAWS EXEMPTING THE
PREMISES OR TENANT OR PROVIDING FOR ANY STAY OF EXECUTION, EXEMPTION FROM CIVIL
PROCESS OR EXTENSION OF TIME.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any
of the other remedies herein provided or any other remedies provided by law or
at equity (all such remedies being cumulative), nor shall pursuit of any remedy
herein provided constitute a forfeiture or waiver of any rent due to Landlord
hereunder or of any damages accruing to Landlord by reason of the violation of
any of the terms, provisions and covenants herein contained. No act or thing
done by Landlord or its agents during the Term shall be deemed a termination of
this Lease or an acceptance of the surrender of the Premises, and no agreement
to terminate this Lease or accept a surrender of said Premises shall be valid
unless in writing signed by Landlord. No waiver by Landlord of any violation or
breach of any of the terms, provisions and covenants herein contained shall be
deemed or construed to constitute a waiver of any other violation or breach of
any of the terms, provisions and covenants herein contained. Landlord's
acceptance of the payment of rental or other payments hereunder after the
occurrence of an event of default shall not be construed as an accord and
satisfaction, compromise or waiver of such default, unless Landlord so
notifies Tenant in writing. Forbearance by Landlord in enforcing one or more
of the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default or of Landlord's right to
enforce any such remedies with respect to such default or any subsequent
default. If, on account of any breach or default by
19
<PAGE>
Tenant under the Lease, it shall become necessary or appropriate for Landlord to
employ or consult with an attorney concerning or to enforce or defend any of
Landlord's rights or remedies, Tenant agrees to pay all attorneys' fees incurred
by Landlord.
22. QUIET ENJOYMENT.
Landlord represents and warrants that it has full right and authority to
enter into this Lease and that Tenant, while paying the rental and performing
its other covenants and agreements herein set forth, shall peaceably and quietly
have, hold and enjoy the Premises for the Term without hindrance or molestation
from Landlord subject to the terms and provisions of this Lease.
23. DAMAGE BY FIRE, ETC.
(A) Landlord agrees to maintain standard fire and extended coverage
insurance covering the Building in an amount not less than 90% of the full
"replacement cost" thereof (as such term is defined in the Replacement Cost
Endorsement to be attached thereto, if any) insuring against the perils of fire
and lightning and including extended coverage, and earthquake and flood
coverage, or at Landlord's option, "All Risk" coverage, with earthquake and
flood coverage, all such coverages and endorsements to be as defined, provided
and limited in the standard bureau forms prescribed by the insurance regulatory
authority for the state in which the property is situated for use by insurance
companies admitted in such state for the writing of such insurance on risks
located within such state. Subject to the provisions of Articles 23(C), 23(D)
and 23(F), such insurance shall be for the sole benefit of Landlord and under
its sole control. Such insurance shall include protection for continuation of
rental payments for a period of 12 months in the event of any damage caused by
the perils referred to above. Tenant agrees to pay to Landlord, as additional
rental, Tenant's Proportionate Share of Landlord's cost of maintaining such
insurance. Said payments shall be made to Landlord within ten days after
presentation to Tenant of Landlord's statement setting forth the amount due, and
the failure to pay such share shall be treated in the same manner as a default
in the payment of rent hereunder when due. Any payment to be made pursuant to
this Article with respect to the year in which the Lease commences or terminates
shall be prorated. Tenant shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained by
Landlord hereunder unless Landlord is included as an additional insured thereon.
Tenant shall immediately notify Landlord whenever any such separate insurance is
taken out and shall promptly deliver to Landlord the policy or policies of such
insurance.
(B) If the Building should be damaged or destroyed by fire, tornado or other
casualty, Tenant shall give immediate written notice thereof to Landlord.
(C) If the Building should be damaged by any peril covered by the insurance
to be provided by Landlord under Article 23(A), but only to such extent that the
Building can in Landlord's estimation be materially restored within 180 days
after the date upon which Landlord is notified by Tenant of such damage
(except that Landlord may elect not to rebuild if such damage occurs during the
last year of the Term), this Lease shall not terminate, and Landlord shall at
its sole cost and expense thereupon proceed with reasonable diligence to rebuild
and repair such Building to substantially the
20
<PAGE>
condition in which it existed prior to such damage, except Landlord shall not be
required to rebuild, repair or replace any part of the partitions, fixtures,
additions and other improvements which may have been placed in, on or about the
Premises by Tenant. If the Premises are untenantable in whole following such
damage and provided that Tenant has completely vacated the Premises as a result
of such damage, the rent payable hereunder during the period in which the
Premises are untenantable shall be abated to such extent as may actually be
covered and paid by the insurance coverage discussed in Article 23(A) above. In
the event that Landlord should fail to materially restore the Building within
180 days after the date upon which Landlord is notified by Tenant of such
damage, Tenant may (if it has given Landlord at least 30 days notice of its need
and intent to do so) at its option terminate this Lease by delivering written
notice of termination to Landlord as Tenant's exclusive remedy, whereupon all
rights and obligations hereunder shall cease and terminate; provided, however,
that if construction is delayed because of changes, deletions, or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of God,
war, material or labor shortages, Governmental regulation or control or other
causes beyond the reasonable control of Landlord, the period for restoration,
repair or rebuilding shall be extended for the amount of time Landlord is so
delayed. For purposes hereof, the Building or Premises shall be deemed
"materially restored" if they are in such condition as would not prevent or
materially interfere with Tenant's use of the Premises for the purpose for which
it was then being used.
(D) If the Building should be damaged or destroyed by fire, tornado or other
casualty and Landlord is not required to rebuild pursuant to the provisions of
Article 23(C), this Lease shall at the option of Landlord, upon notice to
Tenant, given within 30 days after Landlord is notified by Tenant of such
damage, terminate and the rent shall be abated during the unexpired portion of
this Lease, effective upon the date of the occurrence of such damage.
(E) Notwithstanding anything herein to the contrary, in the event the holder
of any indebtedness secured by a mortgage or deed of trust covering the Premises
or the Building requires that the insurance proceeds be applied to such
indebtedness, then Landlord shall have the right to terminate this Lease by
delivering written notice of termination to Tenant within 15 days after such
requirement is made by any such holder, whereupon this Lease shall end on the
date of such notice to Tenant as if the date of such notice were the date
originally fixed in this Lease for the expiration of the Term.
(F) In the event of any damage or destruction to the Premises by any peril
covered by the provisions of this Article, Tenant shall, upon notice from
Landlord, forthwith remove, at its sole cost and expense, such portion or all of
Tenant's shelves, bins, machinery and other trade fixtures and all other
property belonging to Tenant or his licensees from such portion or all of the
Premises as Landlord shall request and Tenant hereby indemnities and holds
Landlord (including without limitation the trustee and beneficiaries if Landlord
is a trust), Landlord's agents and employees harmless from any loss, liability,
claims, suits, costs, expenses, including attorney's fees and damages, both real
and alleged, arising out of any damage or injury as a result of the failure to
properly secure the Premises prior to such removal and/or as a result of such
removal.
21
<PAGE>
24. EMINENT DOMAIN.
If the whole of the Premises hereby leased shall be taken by any public
authority under the power of eminent domain, then the term of this Lease shall
cease as of the day possession is taken by such public authority and all rentals
shall be paid up to the date. If only a part of the Premises shall be taken
under eminent domain, the Lease shall terminate as to the portion taken, and
unless this Lease shall be terminated, as herein provided, it shall continue in
full force and effect as to the remainder of the Premises and the minimum rent
shall be reduced in the proportion the square footage taken bears to the total
square footage demised. If more than fifty per-cent (50%) of the Premises' total
square footage shall be taken under power of eminent domain, either party, by
written notice to the other delivered on or before the date of surrendering
possession to the public authority, may terminate this Lease, effective as of
such surrender of possession. All compensation and damages of any type
whatsoever awarded for any taking, whole or partial, shall belong to and be the
property of the Landlord except as hereinafter provided.
25. SALE BY LANDLORD.
In event of a sale or conveyance by Landlord of the Building, the same shall
operate to release Landlord from any future liability upon any of the covenants
or conditions, expressed or implied, herein contained in favor of Tenant, and in
such event Tenant agree to look solely to the responsibility of the successor in
interest of Landlord in and to this Lease. Except as set forth in this Lease,
this Lease shall not be affected by any such sale, and Tenant agrees to attorn
to the purchaser or assignee. If any security has been given by Tenant to secure
the faithful performance of any of the covenants of this Lease, Landlord may
transfer or deliver said security, as such, to Landlord's successor in interest
and, if Landlord delivers said security to Landlord's successor in interest,
Landlord shall be discharged from any further liability with regard to said
security.
26. ESTOPPEL CERTIFICATES.
Within ten days following any written request which Landlord may make from
time to time, Tenant shall execute and deliver to Landlord or any prospective
Landlord or mortgagee or prospective mortgagee a sworn statement certifying: (a)
the date of commencement of this Lease, (b) the fact that this Lease is
unmodified and in full force and effect (or, if there have been
modifications hereto, that this Lease is in full force and effect, as
modified, and stating the date and nature of such modifications), (c)
the date to which the rent and other sums payable under this Lease have been
paid, (d) the fact that there are no current defaults under this Lease by either
Landlord or Tenant except as specified in Tenant's statement, and (e) such other
matters requested by Landlord. Landlord and Tenant intend that any statement
delivered pursuant to this Article may be relied upon by any mortgagee,
beneficiary or purchaser and Tenant shall be liable for all loss, cost or
expense resulting from the failure of any sale or funding of any loan caused by
any material misstatement contained in such estoppel certificate. Tenant hereby
irrevocably appoints Landlord or if Landlord is a trust, Landlord's beneficiary
or agent, as attorney-in-fact for the Tenant with full power and authority to
execute and deliver in the name of Tenant such estoppel certificate if Tenant
fails to deliver the same within such ten day period and such certificate as
signed by Landlord, Landlord's beneficiary or agent,
22
<PAGE>
as the case may be, shall be fully binding on Tenant, if Tenant fails to deliver
a contrary certificate within five days after receipt by Tenant of a copy of the
certificate executed by Landlord, Landlord's beneficiary or agent, as the case
may be, on behalf of Tenant.
27. SURRENDER OF PREMISES.
Tenant shall, at least 90 days before the last day of the Term arrange to
meet Landlord for a joint inspection of the Premises. In the event of Tenant's
failure to arrange such joint inspection, Landlord's inspection at or after
Tenant's vacating the Premises shall be conclusively deemed correct for purposes
of determining Tenant's responsibility for repairs and restoration.
At the end of the Term or any renewal thereof or other sooner termination of
this Lease, Tenant will peaceably deliver up to Landlord possession of the
Premises, together with all improvements or additions upon or belonging to the
same, by whomsoever made, in the same condition as received or first installed
broom clean and free of all debris, ordinary wear and tear and damage by fire,
earthquake, Act of God, or the elements alone excepted. Tenant may, upon
termination of this Lease, remove, to the extent purchased and installed by
Tenant and removable without material damage to such property or the Premises:
all movable partitions of less than full height from floor to ceiling; counters;
and other personal property of Tenant. All such removal shall be at Tenant's
sole cost and Tenant shall fully repair any damage caused by such removal.
Property not so removed shall be deemed abandoned by the Tenant and title to the
same shall thereupon pass to Landlord under this Lease as by a bill of sale.
Tenant shall complete all work as required by Article 6 above, including without
limitation, all Landlord's conditions or requirements issued in conjunction with
Landlord's consent to any alterations, improvements or repairs. Upon request by
Landlord, Tenant shall remove, at its sole costs, any or all permanent
improvements or additions to the Premises installed by Tenant and all movable
partitions, counters and other personal property of Tenant and Tenant shall
repair any damage resulting from such removal. Tenant shall indemnify Landlord
against any loss or liability resulting from delay by Tenant in so surrendering
the Premises, including without limitation any claims made by any succeeding
tenant founded on such delay.
All obligations of Tenant hereunder not fully performed as of the expiration
or earlier termination of the Term of this Lease shall survive the expiration or
earlier termination of the Term. Upon the expiration or earlier termination of
the Term, Tenant shall pay to Landlord the amount, as estimated by Landlord,
necessary: (i) to repair and restore the Premises as provided herein; and (ii)
to discharge Tenant's obligation for unpaid amounts due Landlord. All such
amounts shall be used and held by Landlord for payment of such obligations of
Tenant, with Tenant being liable for any additional costs upon demand by
Landlord, or with any excess to be returned to Tenant after all such obligations
have been determined and satisfied. Any Security Deposit shall be credited
against the amount payable by Tenant hereunder.
28. NOTICES.
Any notice or document required or permitted to be delivered hereunder shall
be in writing and shall be effective upon delivery, if personally delivered, or
two days after mailing, if mailed. All
23
<PAGE>
notices shall be personally delivered or sent by United States Mail, postage
prepaid, Certified or Registered Mail, addressed to the parties hereto at the
respective addresses set forth opposite their respective signatures on the
Reference Page, or at such other address as they have theretofore specified by
written notice delivered in accordance herewith.
All notices or document required or permitted to be delivered hereunder by
Tenant to Landlord shall have a required copy sent to:
Andrew Simons, Esquire
Circon Corporation
6500 Hollister Avenue
Santa Barbara,CA 93117-3019
and
Todd C. Vanett, Esquire
STRADLEY, RONON, STEVENS, AND YOUNG
2600 One Commerce Square
Philadelphia, PA 19103-7098
All notices or document required or permitted to be delivered hereunder by
Landlord to Tenant shall have a required copy sent to:
Donn Gordon
Embryo Development Corporation
750 Lexington Avenue
Suite 2750
New York, NY 10022
and
Edward M. Wild, Esquire
Benner and Wild
174 West State Street
Doylestown, PA 18901
29. TAXES PAYABLE BY TENANT.
In addition to rent and other charges to be paid by Tenant hereunder, Tenant
shall reimburse to Landlord, upon demand, any and all taxes payable by Landlord
(other than net income taxes) whether or not now customary or within the
contemplation of the parties hereto: (a) upon, allocable to, or measured by or
on the gross or net rent payable hereunder, including without limitation any
gross income tax, sales tax or excise tax levied by the State, any political
subdivision thereof, or the Federal Government with respect to the receipt of
such rent; or (b) upon or with respect to the possession,
24
<PAGE>
leasing, operation, management, maintenance, alteration, repair, use or
occupancy of the Premises or any portion thereof, including any sales, use or
service tax imposed as a result thereof; or (c) upon or measured by the Tenant's
gross receipt or payroll or the value of Tenant's equipment, furniture,
fixtures, and other personal property of Tenant or leasehold improvements,
alterations, additions, located in the Premises; or (d) upon this transaction or
any document to which Tenant is a party creating or transferring an interest or
an estate in the Premises.
In addition to the foregoing, Tenant agrees to pay, before delinquency, any
and all taxes levied or assessed against Tenant and which become payable during
the term hereof upon Tenant's equipment, furniture, fixtures, and other personal
property of Tenant located in the Premises.
30. DEFINED TERMS AND HEADINGS.
The article headings herein are for convenience of reference and shall in no
way define, increase, limit, or describe the scope or intent of any provision of
this Lease. Any indemnification of, insurance of, or option granted to Landlord
shall also include or be exercisable by Landlord's trustee, beneficiary, agents
and employees, as the case may be. In any case, where this Lease is signed by
more than one person, the obligations hereunder shall be joint and several. The
terms "Tenant" and "Landlord" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, marital communities, firms, or corporations, and their and each of
their respective successors, executors, administrators, and permitted assigns,
according to the context hereof. Tenant agrees to furnish promptly upon demand a
corporate resolution, proof of due authorization by partners, or other
appropriate documentation evidencing the due authorization of Tenant to enter
into this Lease. The term "rentable area" shall mean the rentable area of the
Premises or the Building as calculated by the Landlord on the basis of the plans
and specifications (which were available for inspection by Tenant at the time
the Lease was executed) of the Building and including a proportionate share of
any common areas. Tenant hereby consents and agrees that the calculation of
rentable area on the Reference Page shall be controlling.
31. ENFORCEABILITY.
If for any reason whatsoever any of the provisions hereof shall be void,
unenforceable or ineffective, all of the other provisions shall be and remain in
full force and effect. Any commission due to Stephen M. Segal, Inc. shall be
paid by Landlord.
32. COMMISSIONS.
Each of the parties (i) represents and warrants to the other that it has not
dealt with any broker or finder in connection with this Lease, except as
described on the Reference Page; and (ii) indemnities and holds the other
harmless from any and all losses, liability, costs or expenses (including
attorneys' fees) incurred as a result of any breach of the foregoing warranty.
25
<PAGE>
33. TIME AND APPLICABLE LAW.
Time is of the essence of this Lease and all of its provisions. This Lease
shall in all respects be governed by the laws of the state in which the Building
is located.
34. PARKING.
Tenant shall have sole and exclusive use of the "Tenant's Parking Area", as
shown on Exhibit A. Tenant shall not at any time park or permit the parking of
Tenant's vehicles, or the vehicles of others, adjacent to loading areas or so
as to interfere in any way with the use of such areas or in parking areas
assigned to other tenants. Tenant shall not park or permit to be parked any
inoperative vehicles or equipment on any portion of the parking or loading
areas. Tenant shall be solely responsible for all maintenance, repair, snow and
ice removal, lighting and security for the Tenant's Parking Area and for any
areas which Tenant rightfully uses for access to the Tenant's Parking Area.
35. SUCCESSORS AND ASSIGNS.
Subject to the provisions of Article 11, the terms, covenants and conditions
contained herein shall be binding upon and inure to the benefit of the heirs,
successors, executors, administrators, marital communities, if any, and assigns
of the parties hereto.
36. ENTIRE AGREEMENT.
This Lease, together with its exhibits, contains all agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its exhibits. This Lease may not be
modified except by a written instrument duly executed by the parties hereto.
37. EXAMINATION NOT OPTION.
Submission of this Lease shall not be deemed to be a reservation of the
Premises. Landlord shall not be bound hereby until its delivery to Tenant of an
executed copy hereof signed by Landlord, already having been signed by Tenant,
and until such delivery Landlord reserves the right to exhibit and lease the
Premises to other prospective tenants. Notwithstanding anything contained herein
to the contrary, Landlord may withhold delivery of possession of the Premises
from Tenant until such time as Tenant has paid to Landlord the Security Deposit
required by Article 5, the first month's rent as set forth in Article 3, and any
sum owed pursuant hereto.
38. RECORDATION.
Neither Landlord nor Tenant shall record this Lease or a short form
memorandum hereof without the prior written consent of the other party, and the
party offering the same for recording shall pay all charges and taxes incident
thereto.
26
<PAGE>
39. LIMITATION OF LANDLORD'S LIABILITY.
Tenant shall look solely to the Premises and rents derived therefrom for
enforcement of any obligation hereunder or by law assumed or enforceable against
Landlord, and no other property or other assets of Landlord shall be subjected
to levy, execution or other enforcement procedure for the satisfaction of
Tenant's remedies or with respect to this Lease, the relationship of Landlord
and Tenant hereunder, or Tenant's use and occupancy of the Premises.
40. ENVIRONMENTAL INDEMNITY.
(A) Tenant unconditionally agrees to indemnify and hold harmless Landlord
from and against any and all losses, claims, damages, penalties, liabilities,
costs and expenses (including attorneys fees and Court costs) fines, injuries,
penalties, response costs (including the cost of any required or necessary
investigation, testing, monitoring, repair, cleanup, detoxification, preparation
of any closure or other required plants, or other removal, response or remedial
action at or relating to the property) collectively, the "Claims and Costs",
without limit as to amount, with respect to as a direct or indirect result of,
or arising out of any of the following:
(1) Any requirement, lawsuit (brought or threatened), settlement,
agreement or requirement of any insurer of the Property or any portion
thereof, relating to the Tenant's (including Tenant's agents, employees,
invitees or licensees) generation, presence, management, disposal,
release (or threatened release), escape, seepage, leakage or cleanup of
any Hazardous Materials (as hereinafter defined) at, on, from or under
all or portion of the Property; or
(2) The migration of Tenant's (including Tenant's agents, employees,
invitees or licensees) Hazardous Materials defined below from the
Property to any other property;
(3) The transportation of Tenant's (including Tenant's agents,
employees, invitees or licensees) Hazardous Materials from the Premises.
(B) For the purpose of this Agreement, the term "Hazardous Materials" shall
include, but shall not be limited to,
(1) Any substances defined as "Hazardous Substances", "Pollutants",
"Contaminants", "Hazardous Wastes", or "Hazardous or Toxic Substances"
or related materials or any other substance capable of polluting, or
endangering the environment, as now or hereafter defined in any
applicable federal, state or local law, regulation, ordinance or
directive including, but not limited to the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended by the
Superfund Amendments and Reauthorization Act, 41 U.S.C. ss.9601 et seq;
the Hazardous Materials Transportation Act, 49 U.S.C. ss.1801 et seq;
the Toxic Substance Control Act, 15 U.S.C. ss.2601, et seq; the Resource
Conservation and Recovery Act, as amended 42 U.S.C. ss.9601, et seq; the
Clean Water Act, 33 U.S.C. ss. 1251, et seq;
27
<PAGE>
and the Clean Air Act, 42 U.S.C. ss.7412, et seq; the Pennsylvania
Hazardous Sites Cleanup Act, Act of October 18, 1988, No. 108; the
Pennsylvania "Solid Waste Management Act", 35 P.S. ss.6018.1 et seq; the
Pennsylvania Clean Streams Law, 35 P.S. ss.691.1 et seq; the
Pennsylvania "Air Pollution Control Act, 35 P.S. ss.4001.1, et seq, as
any such Acts may be amended, modified or supplemented;
(2) Those substances listed or otherwise identified in the Regulations
adopted and publications issues, as may be amended, modified or
supplemented, pursuant to any of the above referred statutes; and
(3) Any friable asbestos, airborne asbestos, or any substance or
material containing asbestos.
(C) Tenant shall indemnify Landlord from any such "Claims and Costs" defined
above, whether arising under the statutory provisions enumerated above or
whether said Claims and Costs are sought to be recovered under common law
theories and actions.
(D) The indemnification, hold harmless and defend provisions of this Article
40 shall be deemed to be effective as against any Claims or Costs as defined in
this Article 40 asserted or sought by any legal, equitable or administrative
proceedings, or by any other method or means on or after the Commencement Date
and shall be valid for all time thereafter and shall be binding upon the
successors and assigns of Tenant.
(E) Tenant expressly assumes any and all liabilities as described in this
Article 40 (A) - (D) above which may arise from circumstances or conditions on
the Premises pursuant to common law or any federal, state or local law,
ordinance or regulation relating to the environment including, but in no way
limited to the various statutes and acts enumerated herein.
41. LANDLORD REPRESENTATIONS TO TENANT
(A) Landlord represents to Tenant that as of the date hereof:
(1) Landlord has received no written notice from any municipal. state,
federal or other governmental authority and has no knowledge of any zoning,
building, fire, water, use, occupancy, health, environmental, or other statute,
ordinance, code or regulatory violations issued in respect of the Building or
the Premises which have not been heretofore corrected.
(2) Landlord has no actual knowledge that Landlord or any third party
has caused or permitted any (i) hazardous material to be disposed of on, under
or at the Building or the Premises in violation of any environmental statute or
(ii) asbestos to be used in the construction of the Building or any components
thereof.
(3) To Landlord's actual knowledge, there are no underground storage
tanks at or in the building or the Premises.
28
<PAGE>
42. COMPLIANCE WITH LAWS.
(A) Tenant, at Tenant's sole cost and expense, shall comply with all laws
(including, without limitation, environmental laws), rules, orders, ordinances,
directions, regulations, and requirements of federal, state, county, and
municipal authorities, now in force or which may hereafter be in force
(hereinafter, "Laws") respecting the Tenant's (including Tenant's agents,
employees, licensees, and invitees but not including Landlord's or any prior
tenants' or owners') use, occupation, construction, improvement, repair, or
alteration of, additions or improvements to, the Premises. This compliance
requirement includes, but is in no way limited to, all rules, regulations, and
provisions of the ADA, or with any and all federal, state, county or municipal
Laws requiring the provision of facilities or access for handicapped or other
persons, and shall include without limitation the obligation to remove any
barriers to access to the Premises, the removal of which may be required under
any Laws.
(B) Tenant shall indemnify and hold Landlord harmless from and defend it
against all fines, penalties, environmental clean-up costs and claims of every
kind and nature arising out of Tenant's (including Tenant's agents, employees,
licensees, and invitees) failure to comply with any provision or requirement of
subsection (A) above. The provisions of this Article 42 shall survive the
termination of the Lease whether by agreement, upon default, or otherwise.
43. SEVERABILITY.
Each covenant and agreement in this Lease shall for all purposes be
construed to be a separate and independent covenant or agreement. If any
provision in this Lease or the application thereof shall to any extent be
invalid, illegal or otherwise unenforceable, the remainder of this Lease, and
the application of such provision other than as invalid, illegal or
unenforceable, shall not be affected thereby; and such provisions in this Lease
shall be valid and enforceable to the fullest extent permitted by law.
44. AMENDMENT AND MODIFICATION.
This Lease, including all Exhibits hereto, each of which is incorporated in
this Lease, contains the entire agreement between the parties hereto, and shall
not be amended, modified or supplemented unless by agreement in writing
signed by both Landlord and Tenant.
45. PURCHASE OPTION.
For the Term of this Lease, including any Term extension provided for in
Article 2 herein (the "Purchase Option Term"), Landlord hereby grants to Tenant
the right to purchase the entire Building (and not less than the entire
Building) (the "Purchase Option") for the purchase price of $2,800,000.00 if
settlement is completed in the initial Term of the Lease or, if completed during
any Term extension, $2,800,000 or the fair market value whichever is higher (the
"Option Purchase Price"), provided that Landlord and Tenant successfully
negotiate, in the sole discretion of Landlord, whatever other terms
29
<PAGE>
and conditions (the "Terms and Conditions") that may be associated with such
purchase of the Building by Tenant. If settlement is to occur after the initial
Term, for a period of fifteen (15) days following the receipt by Landlord of the
written notice from Tenant exercising the Purchase Option, Landlord and Tenant
shall negotiate in good faith an amount which represents the fair market value
of the Building ("Fair Market Value"). If after such fifteen (15) day period,
Landlord aid Tenant are unable to agree on the Fair Market Value, then Landlord
and Tenant shall each choose a licensed commercial real estate appraiser who is
a MAI having at least 10 years experience in appraising commercial real estate
in Southeastern Pennsylvania. Each appraiser chosen by Landlord and Tenant,
respectively, shall determine the fair market value of the building and the
appraisers determination of the fair market value shall be averaged together and
such average shall be the Fair Market Value that shall be payable by Tenant
unless either Landlord or Tenant objects, within seven (7) days of the day by
which both appraisals are revised by the parties, to such average in which event
each parties' appraiser shall jointly select a third appraiser to appraise the
Building. The Fair Market Value shall then be the average of the three
appraisals. Each party shall bear the sole cost of its appraiser and shall share
the cost of the third appraiser, if necessary.
The Purchase Option shall be exercisable by Tenant giving Landlord written
notice of exercise at any time during the Purchase Option Term, which notice
shall be effective only if accompanied by a check payable to Landlord in an
amount equal to ten percent (10%) of the purchase price ("Deposit"). If the
Tenant fails to exercise the Purchase Option then all further rights of Tenant
under the Purchase Option including without limitation, Tenant's right to
purchase the Building, shall terminate automatically as of the expiration of the
Term of the Lease, and any extensions thereof, without further action of
Landlord or Tenant. The Terms and Conditions may include, but shall not be
limited to, the following:
(i) Option Purchase Price. The Option Purchase Price shall be payable
at Closing (as hereinafter defined), by cash, certified or cashier's check to
Landlord.
(ii) Closing. Closing and transfer of title ("Closing") shall occur at
the offices of Stradley, Ronon, Stevens & Young, LLP, Philadelphia,
Pennsylvania, on the 60th day following the date of Tenant's exercise of the
Purchase Option, or at such other time and place as mutually agreed between
Tenant and Landlord.
(iii) Title. At Closing, Landlord shall convey good and marketable
title to the Building, subject only to such easements, covenants, restrictions
and agreements of record on the date of execution of this Agreement (but
excluding any liens, mortgages, restrictions, agreements, judgments and other
monetary encumbrances) that may be placed or recorded during the Term of this
Lease, or any extensions thereof, in connection with the normal ownership of the
Building. Such conveyance shall be by Landlord's special warranty deed, in
recordable form. Tenant shall have the right at Closing to apply a portion of
the Purchase Price to satisfy any liens, mortgages, judgments and other monetary
encumbrances caused by Landlord, solely as a result of Landlord's actions, to be
placed against the Premises.
30
<PAGE>
(iv) Taxes. Ad valorem property taxes, if any, due and payable in the
tax year of Closing, shall be prorated between Landlord and Tenant. All realty
transfer and similar taxes due by reason of the conveyance shall be shared
equally by Landlord and Tenant unless such custom is no longer in effect in
Pennsylvania, in which event all realty transfer taxes shall be prorated as is
the custom.
(v) No Encumbrance. From and after the date of Tenant's exercise of its
right and option of purchasing the Building in conformity with this Article 45,
Landlord shall not sell, mortgage, or encumber the Building, or do or permit any
act that diminishes or impairs title to the Building, and shall take all action
necessary, including without limitation, removing or bonding any mechanic's
liens that may be filed as a result of Landlord's actions against the
Building, to convey to Tenant at Closing title to the Building of the quality
required by paragraph 3 hereinabove.
(vi) Deposit. Landlord, immediately upon receipt, shall place the
Deposit in an interest bearing money market type account with a FDIC insured
bank in Philadelphia, Pennsylvania. At Closing, the Tenant shall receive a
credit against the Purchase Price in the amount of the Deposit, together with
all interest earned thereon, If Closing does not occur, interest earned on the
Deposit shall be paid to whichever party is entitled to receive the Deposit.
46. TENANT'S REFUSAL RIGHTS.
(A) Subject to the qualifications and limitations set forth in this Article
46 and Article 47, Landlord covenants and agrees that if at any time during the
term of this Lease, including any Renewal Terms, Landlord receives a bona fide
offer from a third party to purchase the Building ("Third Party Offer"),
Landlord will first offer the Building to the Tenant ("Refusal Rights"). The
notice from Landlord to the Tenant shall include a copy of the Third Party
Offer. The Tenant shall have a period of 10 days following the date of Tenant's
receipt of the Third Party Offer to accept it in writing; provided, however,
that such acceptance of the Third Party offer by Tenant is accompanied by
Tenant's check payable to Landlord in an amount equal to the deposit, if any,
specified in the Third Party Offer.
(B) If within such 10 day period the Tenant shall accept the Third Party
Offer, then Landlord and Tenant shall proceed to closing with respect to the
Building for the purchase price and upon the terms and conditions set forth in
the Third Party Offer.
(C) If the Tenant shall reject the Third Party Offer, or shall fail to
accept it in writing within 10 days following receipt thereof, then Landlord
shall be free to sell the Building to that third party. Such sale to the third
party shall be on terms and conditions acceptable to Landlord and the third
party, except that such terms and conditions shall not be materially more
favorable to the third party than the terms set forth in the Third Party Offer.
(D) Tenant's Refusal Rights shall remain in effect following the sale and
conveyance of the Building to an affiliate of Landlord, but automatically shall
terminate without further action of Landlord or Tenant upon a Third Party
Transfer. For purposes of this Lease, the term "Third Party
31
<PAGE>
Transfer" shall mean any sale and conveyance of the Premises by Landlord to a
third party unaffiliated with Landlord upon compliance by Landlord with the
terms of Tenant's Refusal Rights as expressed in this Article 46.
(E) In consideration of Tenant agreeing to accept or reject a Third Party
Offer within ten (10) days after receipt, Landlord agrees to use its best
reasonable efforts to inform Tenant at the earliest practicable date of an
impending Third Party Offer and to keep Tenant reasonably well informed as to
the status of negotiations with respect thereto. Tenant agrees to strictly
maintain confidentiality with regards to any information that Tenant may
receive from time to time regarding such Third Party Offers.
47. TERMINATION OF PURCHASE OPTION AND REFUSAL RlGHTS
Notwithstanding anything contained in this Lease to the contrary, Tenant's
rights under Articles 45 and 46 above, shall immediately terminate and expire
if Landlord completes a bona fide sale of the Building to a third party after
Tenant has failed to exercise its Refusal Rights as set forth in Article 46.
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
have executed this Lease as of the date set forth on the Reference Page.
LANDLORD:
ATTEST: CIRCON CORPORATION
/s/ By: /s/
- --------------------------------- ---------------------------
Secretary Title:
TENANT:
ATTEST:
EMBRYO DEVELOPMENT CORPORATION.
/s/ By: /s/
- --------------------------------- ---------------------------
Secretary Title:
32
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION THAT IS EXTRACTED FROM
FORM 10-KSB FOR THE YEAR ENDED APRIL 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 280,199
<SECURITIES> 299,414
<RECEIVABLES> 117,598
<ALLOWANCES> 0
<INVENTORY> 48,496
<CURRENT-ASSETS> 1,504,536
<PP&E> 1,004,972
<DEPRECIATION> 11,925
<TOTAL-ASSETS> 4,462,200
<CURRENT-LIABILITIES> 344,537
<BONDS> 600,000
0
600
<COMMON> 485
<OTHER-SE> 3,465,801
<TOTAL-LIABILITY-AND-EQUITY> 4,462,200
<SALES> 287,487
<TOTAL-REVENUES> 287,487
<CGS> 237,839
<TOTAL-COSTS> 237,839
<OTHER-EXPENSES> 415,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 947
<INCOME-PRETAX> (1,907,403)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,907,403)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,907,403)
<EPS-PRIMARY> (.40)
<EPS-DILUTED> (.40)
</TABLE>
