UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended January 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-27028
EMBRYO DEVELOPMENT CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 13-3832099
(State or other jurisdiction of (State or I.R.S. Employer
incorporation of organization) Identification Number)
750 Lexington Avenue, Suite 2750
New York, New York 10022
(Address of principal executive offices)
10022
(Zip Code)
(212) 355-8484
(Registrant's telephone number including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Class Outstanding at March 10, 1997
Common Stock 4,845,000
EMBRYO DEVELOPMENT CORPORATION
(A Development Stage Company)
FORM 10-QSB
QUARTERLY REPORT
For the Nine Months Ended January 31, 1997
TABLE OF CONTENTS
Page to Page
Consolidated Financial Statements:
Balance sheet..........................................1
Statements of operations...............................2
Statements of cash flows...............................3
Notes to financial statements........................4-7
Management's discussion and analysis
of financial condition and result
of operations.......................................8-10
Part II. - Other information..........................11
Signatures............................................12
<TABLE>
<PAGE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Unaudited)
January 31, 1997
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 436,802
Investments in available-for-sale securities 1,010,131
Accounts receivable 22,008
Interest receivable 38,975
Subscription receivable - minority holder in subsidiary 150,000
Inventories 58,797
Prepaid expenses and other current assets 153,842
Total current assets 1,870,555
INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES 1,049,196
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $5,407 619,792
LICENSED TECHNOLOGY, net of accumulated
amortization of $389,525 1,220,475
OTHER ASSETS 85,539
____________
$ 4,845,557
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 83,173
Total current liabilities 83,173
NOTE PAYABLE 600,000
INTEREST OF MINORITY HOLDERS IN SUBSIDIARY 187,350
COMMITMENTS
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value; authorized 30,000,000
shares; 4,695,000 issued and outstanding 470
Preferred stock, $.0001 par value; authorized 15,000,000
shares; 6,000,000 issued and outstanding 600
Additional paid-in-capital 8,366,288
Unearned compensation (1,571,250)
Deficit accumulated during the development stage (2,821,074)
Total equity 3,975,034
____________
$ 4,845,557
============
</TABLE>
-1-
<TABLE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED Cumulative
JANUARY 31, JANUARY 31, During
1997 1996 1997 1996 Development
Stage
(Unaudited) (Unaudited) (Unaudited) (Unaudited (Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $ 70,804 $ 106,498 $ 38,973 $ 52,017 $ 218,577
COSTS AND EXPENSES:
Cost of sales 50,646 38,773 28,163 33,727 142,696
General, selling
and administrative 975,783 118,041 334,231 77,391 1,413,209
esearch and development 146,683 71,500 52,901 34,000 679,449
Amortization 172,500 145,715 57,500 57,500 389,525
Interest and other
(income)expense (76,805) 525,786 (33,121) ( 28,714) 414,772
1,268,807 899,815 439,674 173,904 3,039,651
NET LOSS $(1,198,003)$(793,317)$ (400,701)$(121,887)$(2,821,074)
=========== ========= ========== ========== ==========
NET LOSS PER SHARE $ (.26) (.24) $ (.09) (.03)$ (.71)
WEIGHTED AVERAGE NUMBER OF
SHARES OF COMMON STOCK
OUTSTANDING 4,693,895 3,293,072 4,695,000 3,905,000 3,982,389
</TABLE>
-2-
<TABLE>
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED Cumulative
JANUARY 31, During
1997 1996 Development
Stage
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,198,003) $ (793,317) $(2,821,074)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 176,973 676,305 934,933
Non-cash consideration - consulting 388,750 - 486,250
Non-cash consideration - research
and development - - 440,000
Changes in operating assets
and liabilities:
(Increase) decrease in assets:
Accounts receivable 3,752 (5,734) (22,008)
Interest receivable (6,350) - (38,975)
Royalties receivable - (25,000) -
Inventories (36,521) (29,304) (58,797)
Prepaid expenses and other
current assets (68,398) (30,359) (153,842)
Other assets (13,873) (77,967) (85,539)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 44,515 (13,425) 83,173
Total adjustments 488,848 494,516 1,585,195
Net cash used in operating activities (709,155) (298,801) (1,235,879)
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (purchase) sale of investments 744,977 (1,735,723) (2,059,327)
Purchase of licensed technology - (450,000) (450,000)
Purchase of property and equipment (7,887) (6,321) (25,200)
Net cash provided by (used in)
investing activities 737,090 (2,192,044) (2,534,527)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt - 175,000 300,000
Proceeds from issuance of stock - - 120,000
Repayment of debt - (550,000) (550,000)
Proceeds of stock offering, net of
deferred costs - 4,347,623 4,337,208
Net cash provided by financing
activities - 3,972,623 4,207,208
NET INCREASE IN CASH
AND CASH EQUIVALENTS 27,935 1,481,778 436,802
CASH AND CASH EQUIVALENTS at
beginning of period 408,867 245,000 -
CASH AND CASH EQUIVALENTS at end of period $ 436,802 $1,726,778 $ 436,802
========= ========== ==========
</TABLE>
-3-
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JANUARY 31, 1997
1. Organization and Basis of Consolidation:
Embryo Development Corporation (the Company) is a Delaware Corporation
which was formed to develop, acquire, manufacture and market various bio-medical
devices. The accompanying financial statements include the accounts
of the Company and its majority-owned subsidiary, Hydrogel Design Systems,
Inc.(HDS). Upon consolidation, all significant intercompany accounts and
transactions have been eliminated.
In January 1997, the Company entered into a subscription agreement to
acquire a 50.04% interest in HDS. HDS was formed to effect the asset
acquisition described in Note 9. As consideration for its interest, 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.
2. Basis of Presentation:
The interim financial statements furnished reflect all adjustments which
are, in the opinion of management, necessary to present a fair statement of
the financial position and results of operations for the nine and three month
periods ended January 31, 1997 and January 31, 1996. The financial
statements should be read in conjunction with the summary of significant
accounting policies and notes to financial statements included in the
Company's Form 10-KSB for the fiscal year ended April 30, 1996. The results
of operations for the nine month periods ended January 31, 1997 and 1996 are
not necessarily indicative of the results to be expected for the full year.
3. Note Payable:
On January 24, 1997, HDS entered into a financing agreement with Becton
Dickinson 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
product Becton Dickinson 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.
4. Inventories:
Inventories at January 31, 1997 consist principally of finished goods.
-4-
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JANUARY 31, 1997
(Continued)
5. Investments in Available-for-Sale Securities:
Investments in available-for-sale securities consist of the following at
January 31, 1997:
Current:
Guaranteed by the U.S. Government:
Federal Farm Credit Notes $ 259,968
Federal Home Loan Notes 250,000
U.S. Treasury Notes 500,163
$1,010,131
Non-current:
Guaranteed by the U.S. Government:
Federal National Mortgage Notes $ 299,238
Federal Farm Credit Notes 250,000
U.S. Treasury Notes 499,958
$1,049,196
6. Stockholders' Equity:
Net loss per share was computed by dividing net loss by the weighted
average number of shares outstanding. Common stock equivalents have been
excluded as their effect would be anti-dilutive.
7. Commitments:
a. Employment Agreements
(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
discretionary bonus of 10% per annum of the prior year's salary.
In addition, the officer has been granted options to purchase
100,000 shares of the Company's common stock at an excercise price of $.65,
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.
-5-
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JANUARY 31, 1997
(Continued)
8. Litigation:
In November 1996 a class action complaint was filed in the Supreme Court
of the State of New York naming as defendants five companies and three
individuals, including the Company and its Chairman of the Board. The Class
Action asserts inter alia that Sterling Foster & Co., Inc., underwriter of
the Company's initial public offering, the Company and its Chairman, engaged
in various violations of the federal securities laws. The Company and its
Chairman deny that they engaged in any improper conduct or any violations of
any federal securities laws and intend to vigorously defend the action.
9. Subsequent Events:
a. Asset purchase agreements
On February 6, 1997, HDS acquired certain assets from two entities
for an aggregate purchase price of $150,000 in cash, 150,000 shares of Embryo
Common Stock, and the assumption of certain liabilities. 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. This
transaction has been accounted for as a purchase.
b. Lease commitment
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 mimimum 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.
-6-
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED JANUARY 31, 1997
(Continued)
10. Supplementary Information - Statements of Cash Flows:
The Company paid interest of $138 and -0- for the nine months ended
January 31, 1997 and 1996, respectively, and $25,836 cumulative during the
development stage.
The Company paid income taxes of $12,274 and -0- for the nine months
ended January 31, 1997 and 1996, respectively, and $12,566 cumulative during
the development stage.
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 July 1996.
-7-
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company had net working capital of $1,787,382 at January 31, 1997
which is primarily due to the receipt of the proceeds from the public
offering which was completed in November 1995. Additionally, the Company has
invested approximately $1,050,000 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 a 50.04% interest in 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, 150,000 shares of Embryo Common
Stock, and the assumption of certain liabilities. 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 nine months ended January
31, 1997 reflects cash used in operating activities of approximately
$709,000. 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 $737,090
representing the sale of investments of approximately $745,000 which was used
to fund current operations. 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, the repayment of which
is dependent upon revenue generated by HDS as a 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.
-8-
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
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 and of developing a marketing strategy for the C.F. Medical
Devices.
The Company has not derived significant revenues since its inception in
March 1995. The total revenue earned from inception of $218,577 is primarily
a result of the sale of the C.F. Medical Devices. 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 $2,821,074 as of January 31, 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
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 three (3) -
nine (9) months.
During the next three (3) - six (6) months, the Company will also
continue to conduct market 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.
-9-
EMBRYO DEVELOPMENT CORPORATION AND SUBSIDIARY
(A Development Stage Company)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Plan of Operation (Continued)
The Company is also seeking to increase revenues from the sale of the
C.F. Medical Devices primarily through increased advertising and
demonstrations to the appropriate interest groups.
The Company is also investigating the possibility of acquiring
additional products which pertain to the emergency and other niche medical
sectors. To this end, on February 6, 1997, the Company, through its majority
owned subsidiary, HDS, entered into asset purchase agreements pursuant to
which it has 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 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.
The Company believes it has sufficient capital to fund the Company's
operations for the next 12 months.
-10-
PART II- OTHER INFORMATION
Item 1. - Legal Proceedings
In November 1996 a class action complaint was filed in the Supreme Court
of the State of New York naming as defendants five companies and three
individuals, including the Company and its Chairman of the Board. The Class
Action asserts inter alia that Sterling Foster & Co., Inc., underwriter of
the Company's initial public offering, the Company and its Chairman, engaged
in various violations of the federal securities laws. The Company and its
Chairman deny that they engaged in any improper conduct or any violations of
any federal securities laws and intend to vigorously defend the action.
Item 2. - Changes in Securities.
Not applicable.
Item 3. - Defaults Upon Senior Securities.
Not applicable.
Item 4. - Submission Of Matters To A Vote Of Security Holders.
Not applicable.
Item 5. - Other Information.
Not applicable.
Item 6. - Exhibits And Reports on Form 8-K.
(A) Exhibits:
10. Material Contracts
(a) Employment Contract dated January 1, 1997 with Chief Financial
Officer.
(b) Promissory Note between Hydrogel Design Systems, Inc. and
Becton Dickinson for financing of purchase of $600,000
of manufacturing equipment.
(c) Security Agreement between Hydrogel Design Systems, Inc. and
Becton Dickinson for financing of purchase of $600,000
of manufacturing equipment.
27. Financial data schedule
(B) Reports on Form 8-K:
None
-11-<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMBRYO DEVELOPMENT CORPORATION
By: /s/ Donn M. Gordon
Donn M. Gordon
Chief Executive Officer
By: /s/ Matthew L. Harriton
Matthew L. Harriton
Chief Financial Officer
Dated: March 10, 1997
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION THAT IS EXTRACTED FROM
FORM 10-QSB FOR THE NINE MONTHS ENDED JANUARY 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 436,802
<SECURITIES> 1,010,131
<RECEIVABLES> 22,008
<ALLOWANCES> 0
<INVENTORY> 58,797
<CURRENT-ASSETS> 1,870,555
<PP&E> 625,199
<DEPRECIATION> 5,407
<TOTAL-ASSETS> 4,845,557
<CURRENT-LIABILITIES> 83,173
<BONDS> 600,000
0
600
<COMMON> 470
<OTHER-SE> 4,011,314
<TOTAL-LIABILITY-AND-EQUITY> 4,845,557
<SALES> 70,804
<TOTAL-REVENUES> 70,804
<CGS> 50,646
<TOTAL-COSTS> 50,646
<OTHER-EXPENSES> 319,183
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,198,003)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,198,003)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,198,003)
<EPS-PRIMARY> (.26)
<EPS-DILUTED> (.26)
</TABLE>
PROMISSORY NOTE
$600,000 JANUARY , 1997
FOR VALUE RECEIVED, HYDROGEL DESIGN SYSTEMS, INC., a Delaware
corporation (the "the Borrower"), with an address at 750
Lexington Avenue, Suite 2750, New York, New York 10022-1282
promises to pay to the order of BECTON DICKINSON TRANSDERMAL
SYSTEMS, A DIVISION OF BECTON DICKINSON AND COMPANY (the
"Lender"), in lawful money of the United States of America in
immediately available funds at its offices located at 1 Becton
Drive, Franklin Lakes, New Jersey 07417-1886 or at such other
location as the Lender may designate from time to time, the
principal sum of SIX HUNDRED THOUSAND DOLLARS ($600,000),
together with interest accruing on the outstanding balance from
the date hereof, as provided below.
1. Rate of Interest. Amounts outstanding under this Note will
bear interest at eight percent (8%) per annum; provided, that
upon maturity, whether by acceleration or otherwise, and at the
option of the Lender upon the occurrence of any Event of Default
(as hereinafter defined) and during the continuance thereof, this
Note shall bear interest at a rate per annum equal to the lesser
of eleven percent (11.0%) and the maximum interest rate allowed
under applicable law (the "Default Rate"). Interest will be
calculated on the basis of a year of 360 days for the actual
number of days in each interest period. The Default Rate shall
continue to apply whether or not judgment shall be entered on
this Note.
2. Payment Terms. All principal and interest under this Note
shall be due and payable (A) on the third anniversary of the date
hereof if the Lender has ordered more than $252,000 of the
product(s) of the Borrower in calendar year 1999, (B) on the
fourth anniversary of the date hereof if the maturity date of
this Note is not the third anniversary of the date hereof for any
reason and the Lender has ordered less than $504,000 of the
product(s) in calendar year 2000, (C) on the fifth anniversary of
the date hereof if the maturity date of this Note is not the
third or fourth anniversary of the date hereof for any reason and
the Lender has ordered less than $903,000 of the product(s) of
the Borrower in calendar year 2001, or (D) in all events (except
as provided in clauses (A), (B) and (C) of this section 2) on the
sixth anniversary of the date hereof. If any payment under this
Note shall become due on a Saturday, Sunday or public holiday
under the laws of the State where the Lender's office indicated
above is located, such payment shall be made on the next
succeeding business day and such extension of time shall be
included in computing interest in connection with such payment.
Payments received will be applied to charges, fees and expenses
(including attorneys' fees), accrued interest and principal in
any order the Lender may choose, in its sole discretion.
3. Use of Proceeds. The Borrower hereby consents to and
authorizes the Lender immediately to deliver 100 percent of
proceeds of the loan made by the Lender to the Borrower hereunder
to Alcon Laboratories, Inc. (The "Alcon") to satisfy certain
payment obligations of the Borrower to the Alcon in connection
with the purchase of the Equipment (as such capitalized term and
other capitalized term used herein and not otherwise defined
herein are defined in the Security Agreement, dated as of the
date hereof (the "Security Agreement" and together with this Note
and the other documents executed and delivered in connection with
the loan made by the Lender to the Borrower hereunder, the "Loan
Documents"), by and between the Borrower and the Lender) pursuant
to the purchase Documents.
4. Events of Default. The occurrence of any of the following
events will be deemed to be an "Event of Default" under this
Note: (a) the nonpayment of any principal, interest or other
indebtedness under this Note when due; (b) the elapse of five
business days after the Lender notifies the Borrower in writing
of the occurrence of any event of default or default under any
agreement evidencing any debt, liability or obligation to the
Lender of the Borrower or any of its affiliateds(including,
without limitation, any of the Loan Documents) and the Borrower
fails to cure during such five business day period; (c) (I) the
sale of all or substantially all the assets of the Borrower, (ii)
change of control of more than 25 percent of the voting
securities of the Borrower or any beneficial owner of the
Borrower, provided, that the issuance of 25 percent or more of
the voting securities of the Borrower as a result of a public
offering of such securities shall not constitute a change of
control for purposes of this clause (ii), or (iii) the entering
into of any other merger, acquisition, recapitalization or
similar transaction by the Borrower in which the Borrower is not
the surviving entity, (d) the filing by or against the Borrower
or any of its affiliates of any proceeding in bankruptcy,
receivership, insolvency, reorganization, liquidation,
conservatorship or similar proceeding (and, in the case of any
such proceeding instituted against any Obligor, such proceeding
is not dismissed or stayed within thirty (30) days of
commencement thereof); (e) any assignment by the Borrower or any
of its affiliates for the benefit of creditors, or any levy,
garnishment, attachment or similar proceeding is instituted
against any property of the Borrower or any of its affiliates
held by or deposited with the Lender; (f) a event of default or
default with respect to any other indebtedness of the Borrower or
any of its affiliates for borrowed money, if the effect of such
default is to cause or permit the acceleration of such debt; (g)
the commencement of any foreclosure or forfeiture proceeding,
execution or attachment against any collateral (including, the
Collateral) securing the obligations (including, without
limitation, the Obligations) of the Borrower or any of its
affiliates to the Lender; (h) in the event that this Note or any
guarantee executed by any Guarantor is secured, the failure of
the Borrower or any of its affiliates to provide the Lender with
additional collateral if in the opinion of the Lender at any time
or times, the market value of any of the collateral (including,
without limitation, the Collateral) securing this Note or any
guarantee has depreciated; (i) any material adverse change in the
business, assets, operations, financial condition or results of
operations of the Borrower or any of its affiliates; (j) the
Borrower ceases doing business as a going concern; (k) the
revocation or attempted revocation, in whole or in part, of any
guarantee by any Guarantor; (l) any representation or warranty
made by the Borrower to the Lender in any document (including,
without limitation, the Loan Documents) now or in the future
securing the obligations (including, without limitation, the
Obligations) of the Borrower or any of its affiliates to the
Lender, is false, erroneous or misleading in any material
respect; or (m) the elapse of five business days after the Lender
notifies the Borrower of the failure of the Borrower or any of
its affiliates to observe or perform any covenant or other
agreement with the Lender contained in any document (including,
without limitation, the Loan Documents) now or in the future
securing the obligations of the Borrower or any of its affiliates
to the Lender and Borrower fails to cure during such five
business day period. As used herein, the term "Guarantor" means
any guarantor of the obligations (including, without limitation,
the Obligations) of the Borrower to the Lender existing on the
date of this Note or arising in the future.
Upon the occurrence of an Event of Default: (i) if an Event
of Default specified in clause (c), (d) or (e) above shall occur,
the outstanding principal balance and accrued interest hereunder
together with any additional amounts payable hereunder shall be
immediately due and payable without demand or notice of any kind;
(ii) if any other Event of Default shall occur, the outstanding
principal balance and accrued interest hereunder together with
any additional amounts payable hereunder, at the option of the
Lender and without demand or notice of any kind, may be
accelerated and become immediately due and payable; (iii) at the
option of the Lender, this Note will bear interest at the Default
Rate from the date of the occurrence of the Event of Default; and
(iv) the Lender may exercise from time to time any of the rights
and remedies to the Lender under the Security Agreement, this
Note or any other applicable agreement between the Borrower and
the Lender or under applicable law (including, a right of set-off).
5. Miscellaneous. No delay or omission of the Lender to
exercise any right or power arising hereunder shall impair any
such right or power or be considered to be a waiver of any such
right or power, nor shall the Lender's action or inaction impair
any such right or power. The Borrower agrees to pay on demand,
to the extent permitted by law, all costs and expenses incurred
by the Lender in the enforcement of its rights in this Note and
in any security therefor, including without limitation reasonable
fees and expenses of the Lender's counsel. If any provision of
this Note is found to be invalid by a court, all the other
provisions of this Note will remain in full force and effect.
The Borrower and all other makers and indorsers of this Note
hereby forever waive presentment, protest, notice of dishonor and
notice of non-payment. The Borrower also waives all defenses
based on suretyship or impairment of collateral. This Note shall
bind the Borrower and its heirs, executors, administrators,
successors and assigns of the Borrower, and the benefits hereof
shall inure to the benefit of the Lender and its successors and
assigns.
This Note has been delivered to an accepted by the Lender
and will be deemed to be made in the State where the Lender's
office indicated above is located. If this Note is executed by
more than one Borrower, the obligations of such persons or
entities hereunder will be joint and several. THIS NOTE WILL BE
INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE LENDER AND THE
BORROWER DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE
WHERE THE LENDER'S OFFICE INDICATED ABOVE IS LOCATED, EXCLUDING
ITS CONFLICT OF LAWS RULES. The Borrower hereby irrevocably
consents to the exclusive jurisdiction of any state or federal
court for the county or judicial district where the Lender's
office indicated above is located, and consents that all service
of process be sent by nationally recognized overnight courier
service directed to the Borrower at the Borrower's address set
forth herein and service so made will be deemed to be completed
on the business day after deposit with such courier; provided
that nothing contained in this Note will prevent the Lender from
bringing any action, enforcing any award or judgment or
exercising any rights against the Borrower individually, against
any security or against any property of the Borrower within any
other county, state or other foreign or domestic jurisdiction.
The Borrower acknowledges and agrees that the venue provided
above is the most convenient forum for both the Lender and the
Borrower. The Borrower waives any objection to venue and any
objection based on a more convenient forum in any action
instituted under this Note.
6. WAIVER OF JURY TRIAL. THE BORROWER IRREVOCABLY WAIVES ANY
AND ALL RIGHTS THE BORROWER MAY HAVE TO A TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR CLAIM OF ANY NATURE RELATING TO THIS NOTE,
ANY DOCUMENTS EXECUTED IN CONNECTION WITH THIS NOTE OR ANY
TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE BORROWER
ACKNOWLEDGES THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
THE BORROWER ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD
ALL THE PROVISIONS OF THIS NOTE, INCLUDING THE WAIVER OF JURY
TRIAL, AND HAS BEEN ADVISED BY COUNSEL AS NECESSARY OR
APPROPRIATE.
<PAGE>
IN WITNESS WHEREOF this Note has been executed and delivered
on the date first above written by a duly authorized officer of
the Borrower.
HYDROGEL DESIGN SYSTEMS, INC.
Attest: By:
Print Name: Print Name:
Title: Title:
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made this 24th
day of January, 1997, by and between HYDROGEL DESIGN SYSTEMS,
INC., a Delaware corporation (the "Debtor"), with an address at
750 Lexington Avenue, Suite 2750, New York, New York 10022-1282
and Becton Dickinson Transdermal Systems, a division of Becton
Dickinson and Company (the "Secured Party"), with an address at 1
Becton Drive, Franklin Lakes, New Jersey 07417-1886.
Under the terms hereof, the Secured Party desires to obtain
and the Debtor desires to grant the Secured Party security for
all of the Obligations (as hereinafter defined).
NOW, THEREFORE, the Debtor and the Secured Party, intending
to be legally bound, hereby agree as follows:
1. Definitions.
(a) "Collateral" shall include (i) the Debtor's
equipment and fixtures, as more fully described on Exhibit A
attached hereto and made a part hereof and all fittings,
accessories, equipment, special tools, and other parts of or
relating to such equipment as more fully described on Exhibit A
and all fixtures, additions and accessions thereto, substitutions
therefor and replacements thereof (collectively, the
"Equipment"); (ii) all products of the Equipment; (iii) all cash
and non-cash proceeds of the Collateral described in clauses (i)
and (ii) of this section 1(a), including without limitation,
insurance proceeds, and (iv) all contract rights, accounts,
chattel paper, instruments and general intangibles related to the
Collateral described in clauses (i), (ii) and (iii) of this
section 1(a), including, without limitation, any warranties
relating to the Equipment and any other contract rights of the
Debtor set forth in that certain Transfer Agreement, dated
January 10, 1997, by and between Alcon Laboratories, Inc., a
Delaware corporation (together with its successor, assigns and
affiliates "Alcon") and the Debtor (together with each other
documents entered into by Debtor and Alcon in connection with the
purchase by the Debtor from Alcon of the Equipment, the "Purchase
Documents") or otherwise.
(b) "Obligations" shall include all loans, advances,
debts, liabilities, obligations, covenants and duties owing to
the Secured Party from the Debtor of any kind or nature, present
or future, whether or not evidenced by any note, guaranty or
other instrument, whether arising under any agreement, instrument
or document, whether or not for the payment of money, whether
arising by reason of an extension of credit, opening of a letter
of credit, loan or guarantee or in any other manner, whether
arising out of overdrafts on deposit or other accounts or
electronic funds transfer (whether through automatic clearing
houses or otherwise) or out of the Secured Party's non-receipt of
or inability to collect funds or otherwise not being made whole
in connection with depository transfer check or other similar
arrangements, whether direct or indirect (including those
acquired by assignment or participation), absolute or contingent,
joint or several, due or to become due, now existing or hereafter
arising, and any amendments, extensions, renewals or increases
and all costs and expenses of the Secured Party incurred in the
documentation, negotiation, modification, enforcement, collection
or otherwise in connection with any of the foregoing, including
but not limited to reasonable attorneys' fees and expenses.
2. Grant of Security Interest. To secure the Obligations,
the Debtor, as debtor, hereby assigns and grants to the Secured
Party, as secured party, a continuing lien on and security
interest in the Collateral. It is the intention of the parties
that to the extent the foregoing security interest secures
Obligations that constitute purchase money obligations, such
security interest shall be a purchase money security interest to
such extent.
3. Change in Name or Location. The Debtor hereby agrees
that if the location of the Collateral changes from the location
listed on Exhibit A hereto and made part hereof, or if the Debtor
changes its name or form of organization, or establishes a name
in which it may do business that is not listed as a tradename on
Exhibit A hereto, the Debtor will immediately notify the Secured
Party in writing of the additions or changes. The Debtor's chief
executive office is also shown on Exhibit A hereto. In addition,
the Debtor agrees that is shall not move or arrange to have moved
the Collateral (or any part thereof) to any location (other than
a location wholly-owned by the Debtor, free and clear of all
claims, liens or other encumbrances of any kind) without first
obtaining from the owner and/or mortgagee of such location a
landlord waiver and/or a mortgagee waiver in form and substance
satisfactory to the Secured Party.
4. Representations, Warranties and Certain Covenants. The
Debtor represents, warrants and covenants to the Secured Party
that: (a) the Debtor has delivered to the Secured Party a true
and complete copy of each Purchase Document, (b) upon payment of
$600,000 to Alcon, the Debtor will own and have good title to the
Collateral free and clear any claims, liens or other encumbrances
or rights (as an owner, secured party or otherwise) of any person
or entity (other than the Secured Party), (c) the Debtor has not
made any prior sale, pledge, encumbrance, assignment or other
disposition of any of the Collateral and the same are free from
all encumbrances and rights of setoff of any kind; (d) except as
herein provided, the Debtor will not hereafter without the prior
written consent of the Secured Party sell, pledge, encumber,
assign or otherwise dispose of any of the Collateral or permit
any right of setoff, lien or security interest to exist thereon
except to the Secured Party; and (e) the Debtor will defend the
Collateral against all claims and demands of all persons at any
time claiming the same or any interest therein.
5. Debtor's Covenants. The Debtor covenants that it
shall:
(a) from time to time and at all reasonable times
allow the Secured Party, by or through any of its officers,
agents, attorneys, or accountants, to examine or inspect the
Collateral, and obtain valuations and audits of the Collateral,
at the Debtor's expense (up to $2,500 per year), wherever
located. The Debtor shall do, obtain, make, execute and deliver
all such additional and further acts, things, deeds, assurances
and instruments as the Secured Party may require to vest in and
assure to the Secured Party its rights hereunder and in or to the
Collateral, and the proceeds thereof, including, but not limited
to, waivers from landlords, warehousemen and mortgagees;
(b) keep the Collateral in good order and repair at
all times and immediately notify the Secured Party of any event
causing a material loss or decline in value of the Collateral
whether or not covered by insurance and the amount of such loss
or depreciation;
(c) only use or permit the Collateral to be used in
accordance with all applicable federal, state, country and
municipal laws and regulations;
(d) deliver to the Secured Party (I) quarterly
unaudited financial statements, prepared in accordance with
generally accepted accounting principals, within 45 calendars
after each March 31, June 30, September 30 and December 31 during
the period the Obligations remain outstanding and (ii) audited
financial statements, prepared in accordance with generally
accepted accounting principals, within 90 calendar days after the
end of each fiscal year during the period the Obligations remain
outstanding.
(e) have and maintain insurance at all times with
respect to all Collateral against risks of fire (including so-called extended
coverage), theft, sprinkler leakage, and other
risks (including risk of flood if any Collateral is maintained at
a location in a flood hazard zone) as the Secured Party may
require, in such form, in such amount, for such period and
written by such companies as may be satisfactory to the Secured
Party in its sole discretion. The policies of all such casualty
insurance shall contain a standard Secured Party's Loss Payable
Clauses issued in favor of the Secured Party under which all
losses thereunder shall be paid to the Secured Party as the
Secured Party's interest may appear. Such policies shall
expressly provide that the requisite insurance cannot be altered,
canceled or not renewed without at least thirty (30) days prior
written notice to the Secured Party and shall insure the Secured
Party notwithstanding the act or neglect of the Debtor. Upon
demand of the Secured Party, the Debtor shall furnish the Secured
Party with duplicate original policies of insurance or such other
evidence of insurance as the Secured Party may require. In the
event of failure to provide insurance as herein provided, the
Secured Party may, at its option, obtain such insurance and the
Debtor shall pay to the Secured Party, on demand, the costs
thereof. Proceeds of insurance may be applied by the Secured
Party to reduce the Obligations or to repair or replace
Collateral, all in the Secured Party's sole discretion.
(f) not, without the prior written consent of the
Secured Party, (I) in addition to the covenants set forth in
section 4, sell, assign, transfer or otherwise dispose or grant
or suffer a lien against any portion of its assets or properties
other than in the ordinary course of business, (ii) make any
loans, advances or investments to or with any Person other than
in the ordinary course of business, (iii) incur any additional
indebtedness, enter into a sale and leaseback transaction or
enter into any other financing arrangement other than in the
ordinary course of business, (iv) distribute any money or any
other assets or property to any shareholder of the Debtor other
than payment for reasonable salaries or similar compensation or
(v) change in any material respect the business activities in
which it is currently engaged; and
(g) within five business days of the Secured Party's
advancement of funds to Alcon, on behalf of the Debtor, in the
amount of $600,000 and evidenced by the certain Promissory Note
dated the date hereof from the Debtor for the benefit of the
Grantor, pay to Grantor an amount not in excess of $2,500 for all
out-of-pocket cost and expenses incurred by the Secured Party in
connection with such advance, including, without limitation, all
filing and search fees, and fees and expenses of the Secured
Party's legal counsel.
6. Negative Pledge; No Transfer. The Debtor will not sell
or offer to sell or otherwise transfer or dispose or grant or
suffer the imposition of a lien or security interest upon the
Collateral or use any portion thereof in any manner inconsistent
with this Agreement or with the terms and conditions of any
policy of insurance thereon.
7. Further Assurances. At the request of the Secured
Party, the Debtor will join with the Secured Party in executing
one or more financing, continuation or amendment statements
pursuant to the Uniform Commercial Code in form satisfactory to
the Secured Party and will pay the cost of preparing and filing
the same in all jurisdictions in which such filing reasonably is
deemed by the Secured Party to be necessary or desirable. A
carbon, photographic or other copy of this Agreement or of a UCC-1 financing
statement may be filed as and in lieu of a UCC-1 financing statement.
8. Events of Default. The Debtor shall, at the option of
the Secured Party, be in default under this Agreement upon the
happening of any of the following events or conditions (each, an
"Event of Default"); (a) any Event of Default (as defined in any
of the Obligations); (b) any default under any of the Obligations
that does not have a defined set of "Events of Default" and the
lapse of any notice or cure period provided in such Obligations
with respect to such default; (c) demand by the Secured Party
under any of the Obligations that have a demand feature; (d) the
failure by the Debtor to perform any of its obligations under
this Agreement; (e) falsity, inaccuracy or material breach by the
Debtor of any written warranty, representation or statement made
or furnished to the Secured Party by or on behalf of the Debtor;
(f) an uninsured material loss, theft, damage, or destruction to
any of the Collateral, or the entry of any judgment against the
Debtor or any lien against or the making of any levy, seizure or
attachment of or on the Collateral; (g) the failure of the
Secured Party to have a perfected first priority purchase money
security interest in the Collateral; or (h) any indication or
evidence received by the Secured Party's discretion, might result
in the forfeiture of any property of the Debtor to any
governmental entity, federal, state or local.
9. Remedies. Upon the occurrence of any such Event of
Default and at any time thereafter, the Secured Party may declare
all Obligations secured hereby immediately due and payable and
shall have, in addition to any remedies provided herein or by any
applicable law or in equity, all the remedies of a secured party
under the Uniform Commercial Code. As permitted by such Code,
the Secured Party may (a) peaceably by its own means or with
judicial assistance enter the Debtor's premises and take
possession of the Collateral, (b) render the Collateral unusable,
(c) dispose of the Collateral on the Debtor's premises, and (d)
require the Debtor to assemble the Collateral and make it
available to the Secured Party at a place designated by the
Secured Party. Unless the Collateral is perishable or threatens
to decline speedily in value or is of a type customarily sold on
a recognized market, the Secured Party will give the Debtor
reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other
intended disposition thereof is to be made. The requirements of
commercially reasonable notice shall be met if such notice is
sent to the Debtor at least five (5) days before the time of the
intended sale or disposition. Expenses of retaking, holding,
preparing for sale, selling or the like shall include the Secured
Party's reasonable attorney's fees and legal expenses, incurred
or expended by the Secured Party to enforce any payment due it
under this Agreement either as against the Debtor, or in the
prosecution or defense of any action, or concerning any matter
growing out of or connection with the subject matter of this
Agreement and the Collateral pledged hereunder.
10. Power of Attorney. The Debtor does hereby make,
constitute and appoint any officer or agent of the Secured Party
as the Debtor's true and lawful attorney-in-fact, with power to
endorse the name of the Debtor or any of the Debtor's officers or
agents upon any notes, checks, drafts, money orders, or other
instruments of payment or Collateral that may come into the
possession of the Secured Party in full or part payment of any
amounts owing to the Secured Party; granting to the Debtor's said
attorney full power to do any and all things necessary to be done
in and about the premises as fully and effectually as the Debtor
might or could do, including the right to sign, for the Debtor,
UCC-1 financing statements and UCC-3 Statements of Change and to
sue for, compromise, settle and release all claims and disputes
with respect to, the Collateral. The Debtor hereby ratifies all
that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an
interest, and is irrevocable.
11. Payment of Expenses. At its option, the Secured Party
may discharge taxes, liens, security interests or such other
encumbrances as may attach to the Collateral, may pay for
required insurance on the Collateral and may pay for the
maintenance, appraisal or reappraisal, and preservation of the
Collateral, as determined by the Secured Party to be necessary.
The Debtor will reimburse the Secured Party on demand for any
payment so made or any expense incurred by the Secured Party
pursuant to the foregoing authorization, and the Collateral also
will secure any advances or payments so made or expenses so
incurred by the Secured Party.
12. Notices. All notices, demands, requests, consents,
approvals and other communications required or permitted
hereunder must be in writing and will be effective upon receipt
if delivered personally to such party, of if sent by facsimile
transmission with confirmations of delivery, or by nationally
recognized overnight courier service, to the address set forth
above or to such other address as any party may give to the other
in writing for such purpose.
13. Preservation of Rights. No delay or omission on the
part of the Secured Party to exercise any right or power arising
hereunder will impair any such right or power or be considered a
waiver of any such right or power or any acquiescence therein,
nor will the action or inaction of the Secured Party impair any
right or power arising hereunder. The Secured Party's rights and
remedies hereunder are cumulative and not exclusive of any other
rights or remedies which the Secured Party may have under other
agreements, at law or in equity.
14. Illegality. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
15. Changes in Writing. No modification, amendment or
waiver of any provision of this Agreement nor consent to any
departure by the Debtor therefrom, will in any event be effective
unless the same is in writing and signed by the Secured Party,
and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice
to or demand on the Debtor in any case will entitle the Debtor to
any other or further notice or demand in the same, similar or
other circumstance.
16. Entire Agreement. This Agreement (including the
documents and instruments referred to herein) constitutes the
entire agreement and supersedes all other prior agreements and
understandings, both written and oral, between the parties with
respect to the subject matter hereof.
17. Counterparts. This Agreement may be signed in any
number of counterparts copies and by the parties hereto on
separate counterparts, but all such copies shall constitute one
and the same instrument.
18. Successors and Assigns. This Agreement will be bind
upon and inure to the benefit of the Debtor and the Secured Party
and their respective heirs, executors, administrators, successors
and assigns; provided, however, that the Debtor may not assign
this Agreement in whole or in part without the prior written
consent of the Secured Party and the Secured Party at any time
may assign this Agreement in whole or in part.
19. Interpretation. In this Agreement, unless the Secured
Party and the Debtor otherwise agree in writing, the singular
includes the plural and the plural the singular; words importing
any gender include the other genders; references to statutes are
to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; the
word "or" shall be deemed to include "and/or", the words,
"including", "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to
articles, sections (or subdivisions of sections) or exhibits are
to those of this Agreement unless otherwise indicated. Section
headings in this Agreement are included for convenience of
reference only and shall not constitute a part of this Agreement
for any other purpose. If this Agreement is executed by more
than one Debtor, the obligations of such persons or entities will
be joint and several.
20. Indemnity. The Debtor agrees to indemnify each of the
Secured Party, its directors, officers and employees and each
legal entity, if any, who controls the Secured Party (the
"Indemnified Parties") and to hold each Indemnified Party
harmless from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, all fees
of counsel with whom any Indemnified Party may consult and all
expenses of litigation or preparation therefor) which any
Indemnified Party may incur or which may be asserted against any
Indemnified Party as a result of the execution of or performance
under this Agreement; provided, however, that the foregoing
indemnity agreement shall not apply to claims, damages, losses,
liabilities and expenses solely attributable to an Indemnified
Party's gross negligence or willful misconduct. The indemnity
agreement contained in this Section shall survive the termination
of this Agreement. The Debtor may participate at its expense in
the defense of any such claim.
21. Governing Law and Jurisdiction. This Agreement has
been delivered to and accepted by the Secured Party and will be
deemed to be made in the State where the Secured Party's office
indicated above is located. THIS AGREEMENT WILL BE INTERPRETED
AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE SECURED
PARTY'S OFFICE INDICATED ABOVE IS LOCATED, EXCEPT THAT THE LAWS
OF THE STATE WHERE ANY COLLATERAL IS LOCATED (IF DIFFERENT FROM
THE STATE WHERE SUCH OFFICE OF THE SECURED PARTY IS LOCATED)
SHALL GOVERN THE CREATION, PERFECTION AND FORECLOSURE OF THE
LIENS CREATED HEREUNDER ON SUCH PROPERTY OR ANY INTEREST THEREIN.
The Debtor hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court for the county or
judicial district where the Secured Party's office indicated
above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed
to the Debtor at the Debtor's address set forth herein and
service so made will be deemed to be completed on the business
day after deposit with such courier; provided that nothing
contained in this Agreement will prevent the Secured Party from
bringing any action, enforcing any award or judgment or
exercising any rights against the Debtor individually, against
any security or against any property of the Debtor within any
other county, state or other foreign or domestic jurisdiction.
The Secured Party and the Debtor agree that the venue provided
above is the most convenient forum for both the Secured Party and
the Debtor. The Debtor waives any objection to venue and any
objection based on a more convenient forum in any action
instituted under this Agreement.
22. Self Help Remedies. THE DEBTOR BEING FULLY AWARE OF
THE RIGHT TO NOTICE AND A HEARING ON THE QUESTION OF THE VALIDITY
OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST THE DEBTOR BY THE
SECURED PARTY UNDER THIS AGREEMENT, AND RELATED AGREEMENTS AND
DOCUMENTS, BEFORE THE DEBTOR CAN BE DEPRIVED OF ANY PROPERTY IN
THE DEBTOR'S POSSESSION, HEREBY WAIVES THESE RIGHTS AND AGREES
THAT THE SECURED PARTY MAY EMPLOY SELF-HELP OR ANY LEGAL OR
EQUITABLE PROCESS PROVIDED BY LAW TO TAKE POSSESSION OF ANY SUCH
PROPERTY WITHOUT FIRST OBTAINING A FINAL JUDGMENT OR WITHOUT
FIRST GIVING THE DEBTOR NOTICE AND THE OPPORTUNITY TO BE HEARD ON
THE VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE. THE
DEBTOR WAIVES ALL RELIEF FROM ALL APPRAISEMENT OR EXEMPTION LAWS
NOW IN FORCE OR HEREAFTER ENACTED.
23. Waiver of Jury Trial. EACH OF THE DEBTOR AND THE
SECURED PARTY IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE
RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION
WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF
SUCH DOCUMENTS. THE DEBTOR AND THE SECURED PARTY ACKNOWLEDGE
THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
IN WITNESS WHEREOF this Agreement has been executed and
delivered on the date first above written by a duly authorized
officer of parties hereto.
HYDROGEL DESIGN SYSTEMS, INC.
Attest: By:
Print Name: Print Name:
Title: Title:
BECTON DICKINSON TRANSDERMAL
SYSTEMS, A DIVISION OF BECTON
DICKINSON AND COMPANY
Attest: By:
Print Name: Print Name:
Title: Title:
<PAGE>
EXHIBIT A
TO SECURITY AGREEMENT
Description of Equipment
See Attachment 1 to this Exhibit A
Address of Debtor's chief executive office, including the County:
Address of other Equipment locations, including Counties and name
and address of landlord of owner if location is not owned by the
Debtor:
Other names or tradenames now or formerly used by the Debtor:
None
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1997, by and
between EMBRYO DEVELOPMENT CORPORATION, INC., a Delaware
corporation, with its offices at 750 Lexington Avenue, New York,
NY 10022 (the "Company"), and Matthew Harriton, an individual
residing at 55 West 14th Street, Apt. 8J, New York, New York
10011 (Executive").
W I T N E S 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
Executive and the Executive hereby accepts such employment, as
Chief Financial Officer of the Company, subject to the terms and
conditions set forth in this Agreement.
Section 2. Duties. The Executive shall serve as Chief
Financial Officer and shall properly perform such duties as may
be 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 is not required to devote all of his business time to
the performance of his duties and may pursue other activities
which do not conflict with his obligations to the Company under
this Agreement.
Section 3. Term of Employment.
The term of the Executive's employment shall be for a
period of two (2) years commencing on the date hereof (the
"Term"), subject to earlier termination by the parties pursuant
to Section 6 hereof.
Section 4. Compensation of Executive.
4.1 Salary. The Company shall pay to the Executive an
annual salary equal to ninety thousand dollars ($90,000) per
annum for the period from January 1, 1997 through December 31,
1997 and one hundred thousand dollars ($100,000) for the period
from January 1, 1998 through December 31, 1998 (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. In addition, the
Company shall pay to the Executive an annual bonus on December
31, 1997 and December 31, 1998 if the Executive is employed by
the Company on those dates, at the discretion of Directors which
shall be at least ten (10%) of the previous years Base Salary.
4.2 Expenses. During the employment period, the
Company shall 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. The Executive shall also be
provided with the full use of an automobile (and cost of
insurance of such automobile) of the Executive's choosing at the
Company's expense, not to exceed $1,000.00 per month inclusive of
the cost of insurance.
4.3 Options. As additional consideration, the Company
shall deliver to Executive an option to purchase 100,000 shares
of the Company's Common Stock exercisable at $.65 per share on
January 1, 1997.
Section 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 sixty (60) consecutive days
or longer or for any ninety (90) days in any period of one
hundred eighty (180) 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 notice to that effect.
Section 6. Termination. The Company may terminate
the employment of the Employee and all of the Company's
obligations under this Agreement at any time for Cause (as
hereinafter defined) by giving the Employee notice of such
termination, with reasonable specificity of the details thereof.
"Cause" shall mean (i) the Employee's misconduct could reasonably
be expected to have a material adverse effect on the business and
affairs of the Company, (ii) the Employee's disregard of lawful
instructions of the Company's Board of Directors consistent with
the Employee'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 commission by
the Employee 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, (iv) the Employee's
abuse of alcohol or other drugs or controlled substances, or
conviction of a crime involving moral turpitude, (v) the
Employee's material breach of any of the agreements contained
herein or (vi) the Employee's resignation hereunder. A
termination pursuant to Section 6(i), (ii), (iv) (other than as a
result of a conviction of a crime involving moral turpitude) or
(v) shall take effect 30 days after the giving of the notice
contemplated hereby unless the Employee shall, during such 30-day
period, remedy to the 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 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(iii), (iv) (as a result of a conviction of
a crime involving moral turpitude) or (vi) shall take effect
immediately upon the giving of the notice contemplated hereby.
Section 7. Effect of Termination of Employment.
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 under this
Agreement or any claims against the Company arising out of this
Agreement.
Section 8. Disclosure of Confidential Information.
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, and business plans. 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, Executive will not, at any
time, during or after his employment hereunder, reveal, divulge
or make known to any person, any information acquired by
Executive during the course of his employment, which is treated
as confidential by the Company, including but not limited to its
customer list, and not otherwise in the public domain. The
provisions of this Section 8 shall survive Executive's employment
hereunder.
Section 9. Covenant Not To Compete.
(a) 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 Company that Executive agree, and accordingly,
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 hereinafter defined):
(i) except as provided in Subsection (c) below, engage
in the sale, distribution or manufacture of any
products or provide technical assistance, advice
or counseling any products competitive to the
Company's products 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, Executive, 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
Executive or agent of Company or any affiliate
thereof.
(b) 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) The term "Restricted Period," as used in this Section
9, shall mean the period of Executive's actual employment
hereunder plus half of the time period the Executive is actually
employed by the Company not to exceed twelve (12) months.
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 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 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 Company seeks enforcement thereof, such
restriction shall be limited to the extent permitted by law.
10.2 Assignments. Neither 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 Executive's employment by Company,
supersedes all prior understandings and agreements, whether oral
or written, between Executive and 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 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 Arbitration. Any dispute which the parties hereto
are unable amicably to resolve shall be submitted to binding
arbitration in New York in accordance with the Rules and
Constitution of the American Arbitration Association. Either
party hereto may request that any decision of the arbitrators set
forth the findings of fact and conclusions of law upon which
their award is based. Judgment upon any such arbitration award
may be entered in any court of competent jurisdiction, and
Executive submits to the jurisdiction of any such court.
In the event any suit or other action is commenced with
respect to the interpretation or enforcement of any provision of
this agreement, the prevailing party shall be entitled, in
addition to any other sums to which such party may be entitled,
to recover from the other party the reasonable fees and
disbursements of counsel retained to investigate and pursue such
matter.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date set forth above.
EMBRYO DEVELOPMENT
CORPORATION, INC.
By:
Name:
Title:
Matthew Harriton
