SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2010
Commission File Number 0-10683
HYDROMER, INC.
_________________________________________________________________
(Exact name of registrant as specified in its charter)
New Jersey 22-2303576
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(State of incorporation) (I.R.S. Employer
Identification No.)
35 Industrial Parkway, Branchburg, New Jersey 08876-3424
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 722-5000
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock Without Par Value
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(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such report(s) and (2) has been subject to such filing requirements for the past
90 days. Yes (X) No( )
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K (X)
The aggregate market value of the voting stock held by non-affiliates of the
Registrant at September 15, 2010 was approximately $1,251,322.
The number of shares of Registrant's Common Stock outstanding on September
15, 2010 was 4,772,318.
Portions of the Audited Financials Statements for the year ended June 30,
2010 are incorporated by reference in Part II of this report. Portions of the
Proxy Statement of Registrant dated September 24, 2010 are incorporated by
reference in Part III of this report.
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FORWARD-LOOKING STATEMENTS
This Form 10-K report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Forward-looking statements include, among other things,
business strategy and expectations concerning industry conditions, market
position, future operations, margins, profitability, liquidity and capital
resources. Forward-looking statements generally can be identified by the use of
terminology such as "may," "will," "expect," "intend," "estimate," "anticipate"
or "believe" or similar expressions or the negatives thereof. These expectations
are based on management's assumptions and current beliefs based on currently
available information. Although the Company believes that the expectations
reflected in such statements are reasonable, it can give no assurance that such
expectations will be correct. You are cautioned not to place undue reliance on
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these forward-looking statements, which speak only as of the date of this report
on Form 10-K and the Company does not have any obligation to update the forward
looking statements. The Company's operations are subject to a number of
uncertainties, risks and other influences, many of which are outside its
control, and any one of which, or a combination of which, could cause its actual
results of operations to differ materially from the forward-looking statements.
PART I
ITEM 1. BUSINESS GENERAL
Hydromer, Inc (the "Company") is a bio-polymer research and development company
organized as a New Jersey Corporation in 1980 for the purposes of developing
polymeric complexes for commercial use in the medical, commercial, cosmetics and
animal health markets.
Until September 1982, approximately 99% of the outstanding common stock, without
par value (the "Common Stock"), of the Company, was owned by Biosearch Medical
Products Inc. ("BMPI"), which in turn was controlled by Manfred Dyck, who is the
Company's current Chief Executive Officer, Director and the Chairman of the
Board. On September 16, 1982, BMPI distributed its shareholdings in the Company
pro rata to the holders of its common stock. In connection with this
distribution, the Company granted to BMPI an exclusive, worldwide perpetual,
royalty-free license for the use of Hydromer technology in connection with the
development, manufacture and marketing of biomedical devices for enteral feeding
applications. On February 4, 2000, the Company acquired all outstanding stock of
BMPI for $0.20 per share, and now manages BMPI as a subsidiary.
The Company owns several process and applications patents for Hydromer(R)
coatings ("Hydromer"). These polymers become extremely lubricious (slippery)
when wet. Techniques have been developed for grafting or applying this substance
onto a broad variety of materials, including other polymers like polyurethane,
polyvinyl chloride, and silicone elastomers, ceramics and metals. The Company
has also been issued patents for permanent anti-fog materials, hydrophilic
polyurethane foams, hydrophilic polyurethane blends, hydrophilic
polyvinylbutyral alloys, several biocompatible hydrogels and an anti-bacterial
medical material. The Company continues to actively evaluate other new market
opportunities for its polymer technology specifically in neurology and
cardiology.
The Company also owns various trademarks, including AQUAMERE(R), a cosmetic
intermediate with water resistant film forming properties; AQUATRIX(R), a
cosmetic hydrogel; Dermaseal(R), a dermal barrier film product for the
prevention of contact dermatitis; DRAGONHYDE(R), a hoof bath concentrate;
Sea-Slide(R), a coating for watercraft hulls; and T-HEXX(R), a barrier teat dip
product group for the prevention of mastitis in dairy animals.
The Company's patents are typically broad based, having a multitude of different
applications across various industries. Accordingly, the Company currently
operates in the medical, commercial, cosmetics and animal health markets.
MEDICAL
From its inception in 1980 to mid-1984, the Company was primarily engaged in R&D
activities related to Hydromer coatings used on medical devices. Since then and
until the acquisition of BMPI, the Company's business in the medical field
consisted of the sale of lubricious coatings and the licensing of its lubricious
coating technologies. With the acquisition of BMPI in February 2000, the Company
was able to offer a horizontally integrated breadth of services including
medical device manufacturing, contract coating, equipment building and design,
and R&D servicing. However, in 2009, the Company sold most of its OEM medical
device product lines in order to focus on its coatings technologies, effectively
exiting the OEM medical device manufacturing business.
The Company's coatings technologies includes its hydrophilic lubricious
coatings, biostatic/anti-microbial coatings, cell anti-mitosis and
anti-thrombogenic coatings and more recently, cell adhesion promoting coatings.
During the fiscal year ending June 30, 2009, the Company launched two new
coatings: a cell adhesion promoting coating and our third generation
anti-microbial coating.
HYDROMER Coatings: Lubricious / Anti-microbial / Anti-thrombogenic / Cell
mitosis / Cell Adhesion
When treated with a Hydromer lubricious polymer, a medical device becomes very
slippery when wet, allowing for easy insertion into any orifice of the body, in
penetration of the skin or for device-on-device (i.e. guidewire-catheter) use.
Hydromer coatings are permanently bonded to the device unlike silicone
lubricants, which must be applied after each use and are often left behind in
the bloodstream and body cavities. Hydromer coatings can also be coated on
complex surfaces and on the inside walls of devices, unlike the treatments by
major competition. The Company believes that the polymer-water interface of its
Hydromer coatings provides surface lubricity superior to the quality of other
currently marketed silicone-based lubricants to treat medical devices.
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Drugs and other substances can be readily incorporated into Hydromer, both in a
bound and unbounded fashion, allowing for controlled release from the device for
therapeutic purposes or the creation of permanent biocidal or biostatic surfaces
(anti-microbial coatings).
Certain Hydromer coatings have been shown in numerous studies to reduce the risk
of thrombogenesis or clot formation on devices. Such anti-thrombogenic coatings
can be applied to cardiovascular stents, oxygenators, blood warmers,
hemodialysis equipment, intravenous catheters and much more.
In 2006, the Company introduced new technology on its cell anti-mitosis coatings
which decreases cell proliferation and cell adhesion and prevents platelet
adhesion. This coating appears to have the attributes needed for a
cardiovascular stent to combat restenosis and late stage thrombosis. In vitro
(lab) studies have yielded positive results. Leveraging on this new technology,
the Company developed a coating that promotes cell proliferation, but better
epithelization.
The Company recently entered into a Research and License Agreement on its new
Cell Adhesion coating. It is being evaluated for use on cardiovascular
absorbable devices.
Stand-still and License/Supply and Support
Agreements
A portion of the Company's revenues is derived from stand-still and license
agreements. Stand-still agreements provide customers the right for a finite
period of time (i) to use the Hydromer process to determine whether the
customer's products lend themselves to treatment with the process and (ii) to
test market such products. The stand-still agreements can also provide the
customers the right to subsequently enter into a license or supply and support
agreement with the Company and to market the product(s) treated with Hydromer,
which typically provides the Company an initial flat fee, followed by periodic
royalty payments or support fees based on sales.
The Company has previously reported license or support agreements in effect and
expiring relating to applications of the Hydromer as follows: Annual Report on
Form 10-K for the fiscal years ended June 30, 1983 through 1996 and 2009 and
Form 10-KSB for fiscal years ended 1997 through 2008.
Supply and Support Agreements
In order to avail our customers to a continued material source or of technical
support on our products, certain supply or support agreements may be entered
into. Depending on the specific requirements of each agreement, the Company
would provide continued support in terms of product availability or technical
know-how, some including the escrow of formulas or data with independent agents.
As of June 30, 2010, the Company has supply and support agreements with 27
companies covering the application or availability of Hydromer coatings to the
following devices:
o angioplasty balloon catheters,
o biliary and pancreatic stents
o central venous catheters,
o embolization delivery devices,
o enteral feeding products,
o female contraceptive devices,
o guidewires,
o guiding and umbilical catheters
o infusion microcatheters,
o inter/intra-ocular lenses,
o intra-occular lense inserts,
o liposuction devices,
o urinary catheters,
o certain urological devices, and
o certain vascular devices.
The Company is actively seeking new licensing opportunities and/or supply and
support agreements.
Hydrogels, Drug Delivery, Wound Dressing
Applications of the Company's Hydrogels are being developed for wound care,
implants, drug delivery, burn care, ultrasonic couplants and cosmetic uses for
several customers. The Company is also identifying strategic partners to offer
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hydrogel coating services to clients who do not have rolled goods coating
capability and to license Hydrogel technology for cosmetic and medical use,
including drug release.
The Company's hydrogel technology offers biocompatibility, flexibility, and ease
of use and processing. It also allows for the stabilization of biomolecules,
cell cultures, drugs and other active substances without potentially damaging
external energy sources. It is absorbent, inherently self-adhesive but peels
away cleanly and is naturally soothing. Other than our bio-adhesives and medical
coatings, which are one part systems, to form the gel entails simply to mix the
two parts together: no heat, no chemical cross linkers nor expensive high energy
processing is required. Many competitive technologies are much more process
intensive and require external energy to crosslink. The Company believes these
products are synergistic to our existing hydrogel technologies, and offer
further opportunities in internal and topical actives delivery. The Company has
a pilot coating machine to facilitate the commercialization of its hydrogel
technologies. The Company is exploring other medical and dental as well as
cosmetic applications for this technology.
The Company has 510K notices to the FDA on its hydrophilic polyurethane foam
technology for medical use applications in the U.S. as well as a patent on its
chitosan-PVP hydrogel technology.
Following two years of development and human clinical studies, it is expected
that one of the Company's Hydrogel technologies will soon be ready for market.
It currently is in the final stages of FDA review.
OEM Medical Devices
Until the sales of various medical device product lines in fiscal 2009 and 2010,
the Company offered 510K/CE marked medical devices through its ISO 13485:2003
certified and FDA registered Biosearch Medical Products subsidiary. The Company
also previously contract manufactured products for several large multi-national
marketers of medical devices on an OEM basis. Most recently, the Company
produced bipolar coagulation probes; placement catheters, biliary stents;
jejunal and enteral feeding accessories; guidewires; biofeedback devices for
fecal and urinary incontinence; and other endoscopic accessories. The bipolar
coagulation probe and biliary stent product lines were sold to Merit Medical
System, Inc. in 2009, and in 2010, the Company completed the transition period
of its sales of the Jejunostomy Catheter and Nasogastric Feeding Catheter
business to Forefront Medical Technology (PTE) Ltd. Currently remaining is its
biofeedback business.
HYDROMER Coating Services
The acquisition of BMPI in 2000 allowed for the Company to realize another venue
of revenues: Coating Services. Utilizing the acquired medical device
manufacturing know how and by applying its coatings technologies, the Company
began offering coating services, in which the Company coats third party devices
with its Hydromer coatings. The Company's knowledge in coatings technologies
allows it to coat various types of material, such as silicone, stainless steel,
Pebax and polypropylene cost effectively, whereas some of the competition is
unable to. Global customers are using this service in the urology, cardiology
and neurovascular markets.
The Company continues to expand its activity in coating services and is actively
seeking new opportunities to provide contract development, coating and
manufacturing services to the medical, commercial and personal care industry,
utilizing its Hydromer and Anti-Fog coating technology and expertise. The
Company further continues to believe that these services will enable a broader
range of customers to use our materials in market on accelerated timelines in a
more cost effective manner.
R&D and Engineering Services
The medical device market continues to undergo a shift toward consolidation by
very large multi-national players with small, entrepreneurial start-up companies
looking to exploit niche opportunities or unique device designs. The Company's
experience and knowledge can significantly speed development, assessment and
market readiness for our clients, large and small, through its research and
development and engineering services.
The Company believes that offering prototyping, process development and
small-medium scale coating/ manufacturing services is fundamental to the
expansion of the Hydromer coatings business, and a strategic imperative. The
Company will endeavor to become a "one stop" supplier of high performance
coatings and services.
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The Company also has anti-microbial testing capabilities in-house to perform
crucial first developments on the performance of colonization control medical
coatings, cosmetic intermediates and mastitis control products in the T-HEXX
Animal Healthcare division (see Animal Health).
INDUSTRIAL/COMMERCIAL
Hydromer Anti-Fog/Condensation Control is an optical coating which prevents the
accumulation of vision-obscuring condensation under high humidity conditions.
The Company is selling this material to manufacturers of greenhouse panels,
refrigerator freezer doors, industrial and medical safety and swim goggles,
aircraft windows, automotive headlight assemblies and gauge and meter
manufacturers in the U.S. and internationally, including China. Food grade
Anti-Fog coatings, formulated with materials that are generally recognized as
safe for food contact as confirmed by independent laboratory extraction testing,
are under evaluation by various parties.
The Company also offers a Sea-Slide coating that reduces friction between the
hull and water, and can be used over most anti-fouling paints. Independent
testing has confirmed that this technology significantly improves fuel economy
and the hull speed of watercraft. Sea-Slide products were marketed through
HammerHead Products, Inc. until 2010 when the Company re-attained its
distribution rights back.
COSMETICS
The Aquamere series of the Company's cosmetic intermediaries are sold to major
cosmetic companies worldwide for use in hair dyes, hair conditioners, mascaras,
eye shadows, sunscreens and body lotions. They are currently in test for use in
shampoos, hair styling aids, OTC dermal drug delivery and topical disinfectants.
The Aquamere series of cosmetic polymer solutions, introduced in 1988, are both
aqueous and hydro-alcoholic based systems. They are also offered with cationic
and silicone grafted modifications. Formulations have also been developed
internally utilizing this technology and are being offered for sale as turnkey
products to smaller marketers of personal care products.
The Company's Dermaseal line, a patented film-forming hydrogel technology, is
currently being sold to major cosmetic companies as a base for foundations and
other skin care products. It is also being tested for use in broader skin care,
cosmetic and OTC drug delivery. Dermaseal is the registered trademark for
barrier film compositions, patented in fiscal 2000 along with the method for
preventing contact dermatitis. Clinical testing has demonstrated that these
compositions protect the user from the effects of contact with poison ivy, oak
or sumac plant allergens. Technical testing has also demonstrated protection
from latex proteins, nickel and other contact allergens.
Changes in the regulatory environment, including that of the European
requirements of REACH (Registration, Evaluation and Authorisation of Chemicals),
can adversely impact the marketability of existing cosmetics and other products.
It is the Company's intention to meet any changes to regulatory requirements,
including that of reformulating where necessary.
ANIMAL HEALTH
In Fiscal Year 1999, the Company's polymer technology was used to launch the
Company's entry into the Animal Health field to combat clinical and sub-clinical
mastitis, a problem that costs U.S. dairy farmers an estimated $2 billion per
year, and worldwide an estimated $5 billion. Barrier Dips and Sprays utilizing
T-HEXX technology offered dairy farmers exceptional value and unsurpassed
protection as the first no-drip and water resistant barrier products on the
market preventing environmental water containing mastitis-causing organisms,
including mycoplasma, from reaching the inner teat surface. The Company has
received three patents for its unique barrier teat dip compositions with an
application on a fourth patent pending.
The annual U.S. market for barrier teat dips is estimated to be $100-130 million
at the farm level. The T-HEXX Barrier products contain protocol-proven active
ingredients that kill mastitis-causing bacteria on contact while continuing to
remain active up to 12 hours. They are superior performers in its niche market,
while priced comparably or less than barrier dip products manufactured by the
leading sanitary chemical companies in the world. Our products are compatible
with existing mechanical equipment and milking procedures and most importantly,
are easily removed using traditional pre-milking methods. Based on field tests,
our product has been demonstrated to stay on the cow teat better than the
competition, protecting the cow during the complete 8-12 hour milking cycle. In
fiscal 2002, the Company launched a complementary product, T-HEXX DRY External
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Teat Protection Sealant, to protect cows during the non-lactation ("dry cow")
period. T-HEXX DRY is used as a non-irritating low-cost sealant during the
dry-off and the critical pre-calving period where it is estimated that over 50%
of new mastitis cases are believed to start. T-HEXX DRY is the first dry cow dip
product with an anti-microbial that remains on the teat for 3-7 days. Clinical
studies show that T-HEXX DRY is impervious to National Mastitis Council (NMC)
recognized mastitis-causing organisms for seven days, yet is comparably priced
to existing dry cow teat sealants that do not offer such protection. Our product
is suggested to be used on cows just prior to their release to the dry cow pen,
in conjunction with existing antibiotic therapy or internal teat sealants. In
fiscal 2004, two customers launched our Dry product under their private-label
name, reflecting the strength of our product.
In fiscal 2009, the Company launched a T-HEXX DRY external teat sealant for
organic dairies: T-HEXX DRY Green-S with natural actives. The Company also
launched a new product line of T-HEXX Syrup concentrated post-milking barrier
teat dips which requires just a blending with water: reducing logistics and
shipping costs to our customers while maintaining the superior performance that
existing T-HEXX products provide.
During fiscal 2010, the Company launched T-HEXX DRY Naturel(TM) External Teat
Sealant, a triclosan free external teat sealant for dry cows, Sani-Spray(TM)
non-barrier dips and sprays and DRAGONHYDE(R) Hoof Bath Concentrate ("DRAGONHYDE
HBC"). DRAGONHYDE HBC competes against Copper Sulfate and Formalin in hoof baths
yet it does not contain such heavy metals or carcinogenic products. An
independent clinical study conducted by Cornell University and published in the
August 2010 edition of the Journal of Dairy Science concluded that DRAGONHYDE
HBC outlasted typical Copper Sulfate and Formalin usage.
The Company has invested significantly in clinical research, patents, promotion,
vendor partnerships and advertising via print media, trade shows and the
Internet to support this business and continues to do so: both domestically as
well as abroad. New products continues to be developed.
PRODUCTS
Coating solutions for use on medical devices, cosmetic intermediaries, hydrogels
and teat barrier dips/sprays are manufactured and sold by the Company to its
customes. The Company is selling anti-fog solutions to manufacturers of
greenhouse panels, refrigerator freezer doors, swim goggles, industrial safety
equipment, aircraft windows and meter covers, both in the U.S. and foreign
countries. Until 2010, the Company also sold OEM medical devices through its
Biosearch Medical Products subsidiary.
The Company has no long-term contracts with any of its suppliers and believes
that there are adequate alternative sources of supply available for all raw
materials that it currently uses.
DEPENDENCE UPON CUSTOMERS
The Company derives its revenues from two primary business segments: (1) polymer
research and the products derived there from, and (2) the sales of medical
products. During the fiscal year ended June 30, 2009, Johnson & Johnson's Cordis
Division was a significant customer to the Company, accounting for 10% of the
Company's total revenues. There were no significant customers to the Company for
the fiscal year ended June 30, 2010.
POTENTIAL APPLICATIONS
The Company continues to explore other applications of the complexing
capabilities of polymeric substances, such as anti-microbial agents. The Company
currently is working on further applications of its patented technologies to
existing products of other companies, including cosmetics, wound dressings,
personal care and a wide variety of medical devices, including vascular stents.
Some of these products and applications are in the preliminary development stage
and are subject to substantial further development before their feasibility can
be verified.
On the basis of its market analyses, as well as laboratory and in-vitro testing
of certain applications of Hydromer, the Company believes that Hydromer's
potential product applications, classified with reference to salient Hydromer
characteristics, are as follows:
1. Low Coefficient of Friction. Hydromer is a hydrophilic coating which when
contacted by water becomes extremely lubricious. The Company believes that this
unique feature would prove beneficial to any medical device that is inserted
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into the body. Medical products that would so benefit include:
urinary products - urethral catheters, stents and urinary drainage systems;
rectal products - enemas, rectal tubes, examination gloves and proctoscopy
devices (disposable);
nasal/oral products - suction catheters, oxygen catheters and endotracheal
tubes;
cardiovascular and related products - grafts, cardiac assist catheters
heart-lung tubing, stents.
2. Ability to be Complexed with Other Functional Chemicals. The Hydromer
hydrophilic polymer coating can be complexed with other chemicals. For example,
Hydromer coating complexed with iodine forms an effective anti-microbial
barrier. The Company believes that this unique feature would lend itself to
application on a wide variety of currently marketed medical products, including
vascular stents, Foley catheters, wound drains, wart and corn dressings, burn
dressings, intravenous catheters, surgical dressings and adhesive bandages. One
of the Company's patents in the coating area, issued in April 2000, involves the
covalent bonding of infection resistant materials into the coating, providing a
non-leaching, anti-infective surface.
3. Cross-link Density Can be Controlled. The Hydromer hydrophilic polymer
coating, through controlled cross-linking, has been further developed into a
special anti-fog coating. Such a coating is (a) resistant to fogging under a
wide range of temperature/humidity conditions; (b) transparent and has
heat/light stability; (c) long lasting, i.e., will not chip or peel and offers
more scratch resistance than do most commercial plastics; (d) inert to most
commercial glass cleaners; (e) less prone to static dirt pickup; and (f)
applicable by dip, spray or roll coating. This anti-fog product has use on
greenhouse panels, refrigerator freezer doors, sports goggles, windows, mirrors
and other products, either by direct application or by coating of an adhesive
backed film.
RESEARCH AND DEVELOPMENT
The Company's research and development activities presently are, and during the
next year are expected to be devoted primarily to the development and
enhancement of the products described above and to the design and development of
new products, either for its own account, jointly with another company or
strictly as a sub-contractor. The Company sponsors all of such activities from
its own internal funding or through charges to the contracting company. The
major portion of R&D expenses was applied toward salaries and other expenses of
personnel employed on a regular basis in such work.
COMPETITION
The Company considers the most significant competitive factors in its market for
its patented coatings to be product capability and performance (including
reliability and ease of use), in addition to price and terms of purchase.
The Company currently owns various process and applications patents for Hydromer
coatings (see "Patents and Trademarks"). Although the medical products market is
highly competitive, the Company does not believe that there is any other product
available which performs functions significantly better in terms of lubricity,
complexing capabilities, durability and cost.
While management believes the Company has a strong position in the market for
medical device coatings in which it competes, and that its hydrophilic foam,
anti-fog coatings and hydrogel products are technologically superior to other
products in the market, there can be no assurance that alternatives, with
similar properties and applications, could not be developed by other companies.
The Company is aware that there are other similar technologies available and/or
being developed by others. The industry in which the Company competes is
characterized by rapid technological advances and includes competitors that
possess significantly greater financial resources and research and manufacturing
capabilities, larger marketing and sales staffs and longer established
relationships with customers than the Company does, at present or will for the
foreseeable future.
MARKETING
The Company markets its products and services through five principal means:
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1. Commercialization of its existing technologies: The Company intends to expand
its efforts to market its current technology to the medical, industrial,
personal care and animal health markets. The Company has expanded its
capabilities to prototype and manufacture for customers to demonstrate the value
of Hydromer technology. The Company will also seek opportunities to apply its
technology in new applications where the technology will offer a benefit.
Further, the Company will seek customers for technologies that have been
developed but are not currently generating revenue, capitalize on the technology
that has been created through its R&D efforts and to expand the application of
current technologies.
2. Sale of Development Services: The Company intends to continue moving its
effort away from straight technology licensing and toward contract product
development, contract manufacturing, supply and support arrangements and coating
services (see "5. Coating Services"). The Company has significant expertise in
polymer development and applications. By exhibiting at an increased number of
trade shows in the medical device fields, the Company expects to generate
interest in its technology and products, with a view toward acting as an outside
product development arm and development supplier for companies in these fields.
3. Joint Development: The Company will continue to seek joint development
programs, co-marketing programs and other business arrangements with potential
partners.
4. Licensing/Support Services: The Company will continue its endeavors to
license or make available its technology to current market leaders in the
medical device, pharmaceutical and other fields, whereby the Company will grant
exclusive or non-exclusive rights for the Hydromer coating treatment of existing
or new products, and the development of specific products utilizing its foam and
hydrogel technology under its patents. In return, the Company generally would
earn royalties/support fees based on sales of such treated or new products. Such
agreements will usually be very narrow. The activities leading to the
consummation of an agreement normally are lengthy and require establishing a
scientific dialogue with potential customers, treating samples supplied by that
customer with Hydromer coatings, determining if the treatment is feasible and
cost effective, testing the coated products in a laboratory and then negotiating
a mutually acceptable option agreement. A stand-still fee may be paid by the
customer which would give the customer exclusive rights to use the Hydromer
treatment on the specified product for a defined time period. During such
period, the customer can test market the coated product and/or determine its
ability to treat the product in its own manufacturing process. If the customer
determines that the subject product should be treated with Hydromer coating on a
commercial basis, it may either perform the Hydromer coating treatment itself
under a support agreement with the Company, through the Company's Contract
Coating unit or it may have a third party perform the Hydromer coating
treatment.
5. Coating Services: The Company will serve the customer who needs products
coated with lubricious or anti-fog coatings in production runs that are
economically feasible without substantial investments in fixturing and
automation. Typically this would be prototypes or runs of low volume, high value
products. Higher volume products could be accommodated if they were physically
small and did not require extensive fixturing or because for technical reasons
they could not be automated and were of high enough value to warrant the added
cost. The Company will pursue large volume projects if they fall within a
technical area where the Company has particular expertise.
Business segments in Coating Services which are of particular interest include
medical devices (catheters and guidewires) and transparencies (lenses, face
shields). Contacts will be pursued in conjunction with marketing of Hydromer
coatings, at trade shows, in mass mailings and advertisement in appropriate
trade publications. The Company is continually upgrading its advertising copy
and promotional literature as needed to graphically highlight the properties and
advantages of its technologies.
The same marketing tools (traditional means of tradeshow contacts, mass
mailings, advertising, promotional activities, etc.) as well as alternative
methods (such as the Internet) are used by the Company in its focus of expanding
sales globally to the medical, commercial, personal care and animal health
community.
PATENTS AND TRADEMARKS
As of June 30, 2010, the Company has six U.S. patents, two U.S. applications and
various foreign counterparts. The Company's existing patents covers hydrophilic
coatings and foams, hydrophilic polymer blends, anti-bacterial medical and
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cosmetic materials, non-leaching biostatic coatings, barrier film and barrier
teat dip and hoof bath compositions and Chitosan gels and others.
The Company owns the registered trademarks "Aquamere", "Aquatrix", "Dermaseal",
"Dragonhyde" (previously a common law mark until August 17, 2010), "Hydromer",
"Sea-Slide" and "T-HEXX" in the United States and other countries.
Legal action was initiated against a former licensee and other parties in fiscal
2004 on the basis of infringement of the Company's barrier teat dip patented
technology. Settlement was made in early calendar 2006 with all parties,
authenticating both the validity of the technology as well as ownership of such.
EMPLOYEES
As of June 30, 2010, the Company and its subsidiary had forty-eight active
full-time employees. The Chief Executive Officer is Manfred F. Dyck, who is also
Chairman of the Board. The Company does not have a collective bargaining
agreement with any of its employees and considers its relationship with its
employees to be very good.
GOVERNMENT REGULATIONS
The uses of the Company's medical, animal health and cosmetic products come
under the jurisdiction of the FDA, as well as other federal, state and local
agencies, and similar agencies in other countries.
In connection with the Company's support agreements, it is generally the
obligation of the customer to conform to any required FDA pre-market
notification or other regulations. To the Company's knowledge, all such
customers who are marketing medical products are in such compliance. The Company
expects to market additional applications of Hydromer to existing products, or
products introduced by it, which may be subject to such FDA approval and/or
foreign regulatory agencies' procedures as proof of safety and effectiveness of
the applications or products, or adherence to prescribed design standards. There
can be no assurance that such approvals would be forthcoming or of compliance
with such standards. Any such failure to obtain approvals or non-compliance
might have a significant adverse effect on the Company. However, the Company
intends to make every effort to obtain all necessary approvals and to comply
with such standards, and in the case of its support agreements, to require the
customers to obtain such approvals.
The Company contract coats medical products through its Biosearch Medical
Products subsidiary ("Biosearch"), whose activities come under the jurisdiction
of the FDA. It is the policy of the Company to use the FDA regulations as
guidelines during manufacturing of Hydromer coatings.
The Company is also subject to federal and state regulations dealing with
occupational health and safety and environmental protection. It is the policy of
the Company to comply with these regulations and be responsive to its
obligations to its employees and the public.
The Company's electronically filed reports are available at www.hydromer.com/sec
and www.sec.gov.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows: Age as of
Name Position with Company Aug 31, 2010
----- --------------------- ------------
Manfred F. Dyck - Chairman of the Board,
Chief Executive Officer and President 75
Martin C. Dyck - Executive Vice-President,
Operations and President Biosearch
Medical Products subsidiary 48
Rainer Gruening - Vice-President,
Intellectual Property, T-HEXX Int'l Sales 67
John Konar - Vice-President, Quality Assurance
and Director of Human Resources 61
Robert Y. Lee - Vice-President, Finance,
Chief Financial Officer and Treasurer 44
9
Robert J. Moravsik - Senior Vice-President,
General Counsel and Secretary 67
Manfred F. Dyck has been Chairman of the Board of the Company since June 1983
and a Director of the Company since its inception. Mr. Dyck served as Chief
Executive Officer of the Company from its inception until October 1986, and as
of August 1989, reassumed the duties of Chief Executive Officer. Mr. Dyck was
President of Biosearch Medical Products Inc. from 1975 until 1998 and a Director
of Biosearch Medical Products Inc. from 1975 until 2000.
Martin C. Dyck has been Executive Vice-President, Operations since June of
2001. He was previously Vice-President of Operations since February 2000 when
the Company purchased Biosearch Medical Products. Mr. Dyck has been President of
Biosearch since 1998, a position which he still maintains. Mr. Dyck has been
employed by Biosearch since 1986 and has served in various capacities including
Director of New Product Development, where he developed several new medical
devices and authored six FDA 510(k) pre-market submissions. After becoming
President of Biosearch in 1998, Mr. Dyck changed the focus of Biosearch to
become a contract medical coatings service provider using proprietary technology
unique to Biosearch.
Rainer Gruening joined the Company as Vice-President of Research and
Development in June 2001, and in May 2006 became VP of Intellectual Property and
in 2010, added the title of VP, T-HEXX International Sales. With a Ph.D. in
Chemistry from the University of Marburg in Germany, his background includes
service with Bayer AG/Deutsche Solvay Werke, Troy, G+G International and AM
Cosmetics in areas including international regulatory affairs, coatings
technology and anti-microbials. Mr. Gruening authored and/or co-authored 17
patents and 35 publications on synthesis and formulation of anti-microbials for
paint and coatings, cosmetics, personal care products, medical coatings,
adhesives, marine anti-fouling and metal working fluids and developed dossiers,
safety assessments and GMP documentation. Additionally, he implemented FDA/CTFA,
European Biocide and Japanese compliance requirements for raw materials and
formulation restrictions.
John Konar has been the Vice-President of Quality Assurance since February
2004 and Director of Human Resources since February 2000. Mr. Konar joined
Biosearch in 1986 and served as the Director of Human Resources with Biosearch
from 1996 until its acquisition by the Company in 2000, when he then assumed
responsibilities for both companies. He also served, with Biosearch, as the
Director of Sales from 1996 until 2000, Director of QA from 1998 until 2004 when
promoted to VP of QA, and Director of Manufacturing from 2000 to 2001.
Robert Y. Lee joined the Company in the capacities of Vice-President of
Finance, Chief Financial Officer and Treasurer in June 2001. He earned a MBA in
Finance and International Business, and a Bachelors of Science in Accounting and
Information Systems, both from New York University's Stern School of Business.
His professional experience includes tenure in the Emerging Business Group of
the New York office of Coopers & Lybrand (currently Pricewaterhouse Coopers),
the Bristol Myers Squibb Internal Auditing group, ASARCO's Southern Peru Copper
Corporation, now Southern Copper Corporation, part of Grupo Mexico, and
Citigroup.
Robert J. Moravsik has been Senior Vice-President, General Counsel and
Secretary since February 2000. He holds a B.S. in Aerospace Engineering, an M.S.
in Computer Science and a Doctorate in Law. He was Vice-President and General
Counsel since April 1998. He also serves in the same capacity for Biosearch
Medical Products, Inc. an affiliated company since 1987. Prior to that, he was
Vice-President and General Counsel to Fisher Stevens, Inc., a subsidiary of the
Bureau of National Affairs. He is an attorney admitted in the states of New
Jersey and New York.
ITEM 2. PROPERTIES
In June 1998, the Company purchased the building and land at 35 Industrial
Parkway, Branchburg, NJ from Biosearch Medical Products, then an affiliated
party. The facility, currently its sole facility, is secured by a mortgage
through a bank. See the financial statements included herein for the terms of
the agreement.
In 2002, the Company completed its 10,400 square feet expansion at its
primary location of 35 Industrial Parkway. This allowed the Company to
consolidate certain manufacturing and quality assurance functions operations
formerly located on leased space.
10
The expanded facility will be adequate for the Company's operations for the
foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Prior to January 9, 1986, the Company's Common Stock was traded in the
over-the-counter market on the National Association of Securities Dealer's
Automated Quotation System (NASDAQ) under the symbol "HYDI". Subsequent to
January 9, 1986, reporting of trading was transferred to the National Daily
Quotation Service (commonly known as the "Pink Sheets"). For the past
twenty-four years, trading in the Company's stock has been limited.
On February 13, 2002 the Company became a listed security on the Boston Stock
Exchange ("BSE") under the trading symbol "HDO" until the BSE ceased trading
activities in 2007. Hydromer remains listed as "HYDI" on the OTC reporting
services.
The Company's common stock traded at prices ranging between $0.30 and $1.10
in the fiscal year 2010 and between $0.25 and $2.50 in the fiscal year 2009.
These prices may not include retail mark-ups or mark-downs or any commission to
the broker dealer.
The approximate number of holders of record of the Common Stock on September
15, 2010 was 219. There are approximately 500 individual shareholders of the
common stock.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS
The below discussion analyzes major factors and trends regarding the results
of operations and the financial condition of the Company as of June 30, 2010,
and its results of operations for the prior fiscal period. It should be read in
conjunction with the Financial Statements and Notes thereto.
REVENUES FOR THE YEAR ENDED JUNE 30, 2010 WERE $6,200,504 AS COMPARED TO
$7,752,007 FOR THE SAME PERIOD LAST YEAR, A DECREASE OF $1,551,503 (20.0%).
Product sales and services revenues were $5,205,245 for the 2010 fiscal year
as compared to $6,518,424 the prior fiscal year, a 20.1% decrease or $1,313,179.
License royalties and contract payments were $995,259 in fiscal 2010, down
$238,324 or 19.3% from fiscal 2009's results of $1,233,583.
MANAGEMENT COMMENT: The decrease in product sales was primarily due to the sale
of the OEM medical device product lines which accounted for over $1,000,000 of
the lower product sales revenues. Growth in our animal health division
(including from our new Dragonhyde Hoof Bath Concentrates product) and
Industrial product lines (from increased demand for our anti-fog condensation
control and anti-frost coatings), was reduced by lower medical coatings sales
when comparing the results from fiscal 2009 to fiscal 2010.
Contract coating services income decreased by approximately $397,000 between
the years, largely due to a customer's conversion from procuring coating
services to purchasing chemical coatings for their own application servicing.
Non-recurring (periodic but not annual) R&D projects contributed $324,000 in
services revenues for the fiscal 2009 year. There was no paid R&D projects in
fiscal year 2010.
A customer cancelled their $100,000 per month Supply and Support Agreement
effective December 31, 2008. A new agreement, at $35,000 per month, was entered
into effective January 1, 2009. Under the new agreement, the customer no longer
had exclusive rights to the technology. This change in customer agreement
contributed to a decrease of $390,000 in contract revenues in fiscal 2010 as
compared to the previous year.
TOTAL EXPENSES FOR THE YEAR ENDED JUNE 30, 2010 WERE $6,759,856, AN IMPROVEMENT
OF 6.7% OR $488,934 LOWER THAN THE 2009 FISCAL YEAR RESULTS OF $7,248,790.
Cost of Goods Sold was $2,405,023 for fiscal 2010 as compared to $3,193,773
for fiscal 2009. Operating expenses were $4,978,695 and $4,943,366, for the
years ended June 30, 2010 and 2009, respectively. Other Expenses added $173,405
to expenses for fiscal 2010 as compared with $223,886 for fiscal 2009. There was
an Income Tax benefit of $461,638 in fiscal 2010 as compared with Income Tax
expense of $181,113 in fiscal 2009. Reducing expenses in fiscal 2010 was the one
time Gain from Sale of Assets of $335,629 as compared to $1,293,348 during
fiscal 2009.
11
MANAGEMENT COMMENT: The exit from the higher cost OEM medical device business
(sale of product lines in February and November 2009) resulted in lower product
sales and hence, lower material costs. In addition, this eliminated the
intensive labor required and outside sterilization costs, further lowering Cost
of Sales in fiscal 2010. We will see continued improvement in subsequent periods
as the Company continued its involvement in OEM medical device production until
the conclusion of the transition period following the related sales (continued
reduced operations through October 2009 and April 2010, respectively).
The decrease in the Cost of Sales for fiscal 2010 was partially offset by an
increase in Operating Expenses primarily due to the focus on international sales
of the T-HEXX Animal Health business that entailed adding staffing and
additional promotions through client visits, exhibiting at tradeshows and
advertising.
Included in the Company's Operating Expenses are Research & Development
expenditures (primarily salaries and benefits) and funding to its patent and
trademark estate. While most of these costs translate to minimal value in the
current operations, they more provide for future results from new product
development to the protection of such. These "re-investment" costs represented
21.6% and 22.0% of total Operating Expenses (or $1,075,175 and $1,080,720) for
the years ended June 30, 2010 and 2009, respectively.
An Income Tax benefit of $461,638 was recorded in fiscal 2010 as compared
with an Income Tax provision of $181,113 for the year ended June 30, 2009. The
decrease in tax expense was attributed to the to the pre tax loss situation in
fiscal 2010 as compared to the pre tax income in fiscal 2009.
A NET LOSS OF $559,352 ($0.12 PER SHARE) IS REPORTED FOR THE 2010 FISCAL YEAR
COMPARED WITH NET INCOME OF $503,217 ($0.11 PER SHARE) FOR THE 2009 FISCAL YEAR.
MANAGEMENT COMMENT: A net loss for the 2010 fiscal year was not unexpected.
The Company's 2008 strategic plan to divest out of the higher operational cost
medical OEM device products (aged product lines which was labor and material
intensive to produce that would have required a fairly high investment to
refresh/update, along with a disproportionate level of inventories to carry) to
focus on the T-HEXX Animal Health division provided up front cash but reduced
future revenues: the impact to fiscal 2010 revenues was in excess of $1 million.
The Company has been ramping up the T-HEXX Animal Health division, which during
the past two years introduced new products such as highly concentrated barrier
teat dip Syrups, greener products and more recently Dragonhyde Hoof Bath
Concentrates but needed cash for such expansion (additional staffing and new
sales promotions such as increased tradeshow exhibitions and advertising).
However, the net loss is primarily attributable to a Supply and Support
Agreement which previously provided $1,200,000 in cash revenues in previous
years (through December 31, 2008) but currently at $420,000 annually (since
January 1, 2009) or an impact of $780,000. It was highly unfortunate of the
timing of the cancellation and subsequent replacement of the Supply and Support
Agreement as the Company did not have an opportunity to reflect the results of
its re-building strategy independently. Nonetheless, the Company believes that
it is near the turning point back to profitability.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL AS OF JUNE 30, 2010 WAS $1,961,322 LOWER BY $1,031,376 AGAINST
$2,992,698 OF THE PRIOR YEAR.
Compared against June 30, 2009, the June 30, 2010 cash and cash equivalent
balance was lower by $742,155, accounts receivable lower by $138,726, inventory
lower by $367,280 and current liabilities lower by $206,185.
MANAGEMENT COMMENT: Cash flows from Operations used $955,802 in cash.
Included in the cash used for Operations was $1,075,175 as "re-investment" costs
(R&D and patent and trademark costs) that yields more future benefits than
current. The Company is in midst of a strategic initiative of refocusing in the
more profitable T-HEXX animal health line away from the lower margin OEM medical
product lines. (The OEM medical business also required a large inventory
carrying level). Having shed the OEM medical business, the Company forsees
immediate improvement to its operating margins (lower cost of sales rate). The
Company's other business lines (such as medical coatings (including new supply
agreements and equipment sales continuing), contract coating services,
industrial anti-fog and anti-frost coatings) are growing but we expect growth to
our T-HEXX animal health business alone to be sufficient to turn us around in
the very near future.
12
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For information concerning this item, see pages F-1 through F-8 of the
"Audited Financial Statements for the year ended June 30, 2010," which
information is incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 8A. DISCLOSURE CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Under the supervision and with the participation of management, including the
Chief Executive Officer and President and the Chief Financial Officer, we
evaluated the effectiveness of the design and operation of the disclosure
controls and procedures (as such term is defined in Rule 13a-15(e) under the
Securities and Exchange Act of 1934 (the "Exchange Act")). Disclosure controls
and procedures are the controls and other procedures that we designed to ensure
that we record, process, summarize and report in a timely manner the information
we must disclose in reports that we file with or submit to the Securities and
Exchange Commission under the Exchange Act. Based on this evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that, our disclosure
controls and procedures were effective as of the end of the period covered by
this report.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There were no changes to our Company's internal control over financial
reporting that occurred during the period that has materially affected, or is
reasonably likely to materially affect the Company's internal control over
financial reporting.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting. This internal control system was
designed to provide reasonable assurance to the Company's management and Board
of Directors regarding the preparation and fair presentation of published
financial statements.
All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial statement
preparation and presentation.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of June 30, 2010. In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control--Integrated Framework.
Based on our assessment, we believe that, as of June 30, 2010, the Company's
internal control over financial reporting is effective based on those criteria.
There are two deficiencies, which are not required to be disclosed but to
which management has elected to disclose, within the Company's internal control
over financial reporting:
o Segregation of Duties (control deficiency)
Due to the size of the Company, there is a lack of a proper segregation of
duties, including that of the Chief Financial Officer.
o Reporting Controls over Inventory (control deficiency)
The Company lacks a perpetual inventory system to adequately account for
inventory transactions and to report inventory, leading it to be reasonably
possible that financial statements are misstated during interim periods. Full
physical inventory counts are conducted at year-end allowing for any
misstatement to be inconsequential. The sale of product lines in February
2009 and November 2009 reduced inventory levels at year-end 2010 to
approximately 24% of the 2008 year-end levels, further reducing the risk of
13
reported differences. (June 30, 2010 inventories represented 9% of total
currents assets as compare with June 30, 2008 inventories being 43% of the
then current assets).
Management's report on Internal Control over Financial Reporting was not subject
to attestation by the Company's independent registered accounting firm's under
Section 404(b) of the Sarbanes-Oxley Act pursuant to the rules of the Securities
and Exchange Commission.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information concerning this item, see "Item 1. Business - Executive
Officers" and pages 3 through 11 in the Proxy Statement filed with respect to
the 2010 Annual Meeting of Shareholders (the "Proxy Statement"), which
information is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
For information concerning this item, see page 9 of the Proxy Statement,
which information is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
For information concerning this item, see page 11 of the Proxy Statement,
which information is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
During the past fiscal year, there have been no related party transactions.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. FINANCIAL STATEMENTS:
The financial statements of the Company incorporated by reference in this
Report are listed in the attached Index to the Financial Statements and
Supplementary Data.
(A) 2. FINANCIAL STATEMENT SCHEDULES:
The financial statement schedules of the Company filed in this Report are
listed in the attached Index to Financial Statements and Supplementary Data.
(A) 3. EXHIBITS (NOT INCLUDED)
The exhibits required to be filed as part of this Report are listed in the
attached Index to Exhibits.
(B) CURRENT REPORTS ON FORM 8-K:
The Company filed one Form 8-K during the year ended June 30, 2010, reporting
the Sale of Product Lines.
POWER OF ATTORNEY
The Company and each person whose signature appears below hereby appoint
Manfred F. Dyck and Robert Y. Lee as attorneys-in-fact with full power of
substitution, severally, to execute in the name and on behalf of the registrant
and each such person, individually and in each capacity stated below, one or
more amendments to the annual report which amendments may make such changes in
the report as the attorney-in-fact acting deems appropriate and to file any such
amendment to the report with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HYDROMER, INC.
/s/ Manfred F. Dyck /s/ Robert Y. Lee
-------------------------- --------------------------
Manfred F. Dyck Robert Y. Lee
President, Principal Executive Officer, Chief Accounting Officer
Chairman of the Board of Directors August 25, 2010
August 25, 2010
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
/s/ Manfred F. Dyck /s/ Ursula M. Dyck
-------------------------------- --------------------------------
Manfred F. Dyck Ursula M. Dyck
President, Principal Executive Officer, Director
Chairman of the Board of Directors August 26, 2010
August 25, 2010
/s/ Robert H. Bea /s/ Maxwell Borow
-------------------------------- --------------------------------
Robert H. Bea Maxwell Borow, MD
Director Director
August 25, 2010 August 25, 2010
/s/ Dieter Heinemann /s/ Frederick L. Perl
-------------------------------- --------------------------------
Dieter Heinemann Frederick L. Perl, MD
Director Director
August 17, 2010 August 25, 2010
/s/ Michael F. Ryan /s/ George A. Ziets
-------------------------------- --------------------------------
Michael F. Ryan, PhD George A. Ziets
Director Director
August 25, 2010 August 25, 2010
INDEX TO 2010 10-K CERTIFICATIONS
Exhibit No. Description
31.1 Certification of Manfred F. Dyck, Chief Executive Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Robert Y. Lee, Chief Financial Officer,
pursuant to Securities Exchange Act Rule 13a-14(a).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Manfred F. Dyck, Chief Executive Officer of Hydromer,
Inc.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Robert Y. Lee, Chief Financial Officer of Hydromer,
Inc.
EXHIBIT 31.1
HYDROMER, INC.
SARBANES-OXLEY ACT SECTION 302(A) CERTIFICATION
I, Manfred F. Dyck, certify that:
1. I have reviewed this annual report on Form 10-K of Hydromer, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer, Robert Y. Lee, and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal controls over financial reporting, or
caused such internal controls over financial reporting to be
designed under our supervision, to provide reasonable
assurances regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 27, 2010
By: /s/ Manfred F. Dyck
Manfred F. Dyck
Chairman and Chief Executive Officer
EXHIBIT 31.2
HYDROMER, INC.
SARBANES-OXLEY ACT SECTION 302(A) CERTIFICATION
I, Robert Y. Lee, certify that:
1. I have reviewed this annual report on Form 10-K of Hydromer, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officer, Manfred F. Dyck, and I
are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. Designed such internal controls over financial reporting, or
caused such internal controls over financial reporting to be
designed under our supervision, to provide reasonable
assurances regarding the reliability of financial reporting
and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
Date: September 27, 2010
By: /s/ Robert Y. Lee
Robert Y. Lee
Vice President, Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Manfred F. Dyck, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Hydromer, Inc. on Form 10-K for the fiscal year ended June 30,
2010 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such
Annual Report on Form 10-K fairly presents in all material respects the
financial condition and results of operations of Hydromer, Inc.
Date: September 27, 2010 By: /s/ Manfred F. Dyck
Manfred F. Dyck
Chairman and Chief Executive Officer
--------------------------------------------------------------------------------
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Y. Lee, certify, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Annual
Report of Hydromer, Inc. on Form 10-K for the fiscal year ended June 30,
2010 fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that information contained in such
Annual Report on Form 10-K fairly presents in all material respects the
financial condition and results of operations of Hydromer, Inc.
Date: September 27, 2010 By: /s/ Robert Y. Lee
Robert Y. Lee
Vice President, Chief Financial Officer
HYDROMER, INC. & SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 AND 2009
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Hydromer, Inc. & Subsidiary
We have audited the accompanying balance sheets of Hydromer, Inc. & Subsidiary
as of June 30, 2010 and 2009 and the related statements of operations,
stockholders' equity and cash flows for each of the years in the two year period
ended June 30, 2010. Hydromer, Inc. & Subsidiary's management is responsible for
these financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal controls over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hydromer, Inc. & Subsidiary as
of June 30, 2010 and 2009, and the results of its operations and its cash flows
for each of the years in the two-year period ended June 30, 2010 in conformity
with accounting principles generally accepted in the United States of America.
Rosenberg Rich Baker Berman & Company
Somerset, New Jersey
October 4, 2010
HYDROMER, INC. & SUBSIDIARY
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010 AND 2009
Page
Financial Statements
Consolidated Balance Sheets...................................................... F-1
Consolidated Statements of Operations............................................ F-2
Consolidated Statements of Stockholders' Equity.................................. F-2
Consolidated Statements of Cash Flows............................................ F-3
Notes to the Consolidated Financial Statements................................... F-4 to F-8
HYDROMER, INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30,
2010 2009
-------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 843,610 $ 1,585,765
Short-term investments 440,000 450,000
Trade receivables less allowance for doubtful accounts of $33,276 and
$57,741 as of June 30, 2010 and 2009, respectively 920,252 1,058,978
Inventory 248,569 615,849
Prepaid expenses 227,338 204,280
Deferred tax asset - 8,976
Other 15,487 8,968
-------------------------------------------------------------------------------------------------------------------
Total Current Assets 2,695,256 3,932,816
-------------------------------------------------------------------------------------------------------------------
Property and equipment, net 2,988,536 3,135,017
Deferred tax asset, non-current 1,011,945 521,986
Intangible Assets, net 839,722 740,426
-------------------------------------------------------------------------------------------------------------------
Total Assets $ 7,535,459 $ 8,330,245
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 342,030 $ 380,838
Accrued expenses 251,276 341,088
Current portion of Capital Leases 16,000 14,473
Current portion of deferred revenue 75,828 82,132
Current portion of mortgage payable 48,800 45,696
Income tax payable - 75,891
-------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 733,934 940,118
-------------------------------------------------------------------------------------------------------------------
Deferred tax liability 318,375 285,858
Long-term portion of Capital Leases 34,716 50,258
Long-term portion of deferred revenue 165,813 161,019
Long-term portion of mortgage payable 2,769,036 2,820,055
-------------------------------------------------------------------------------------------------------------------
Total Liabilities 4,021,874 4,257,308
-------------------------------------------------------------------------------------------------------------------
Contingencies - -
Stockholders' Equity
Preferred stock - no par value, authorized 1,000,000 shares, no shares
issued and outstanding - -
Common stock - no par value, authorized 15,000,000 shares;
4,783,235 shares issued and 4,772,318 shares outstanding
as of June 30, 2010 and 2009 3,721,815 3,721,815
Contributed capital 633,150 633,150
Accumulated deficit (835,240) (275,888)
Treasury stock, 10,917 common shares at cost (6,140) (6,140)
-------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 3,513,585 4,072,937
-------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 7,535,459 $ 8,330,245
===================================================================================================================
See notes to the consolidated financial statements.
F-1
HYDROMER, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended June 30,
2010 2009
--------------------------------------------------------------------------------------------------------------------
REVENUES
Sale of products $ 3,784,164 $ 4,390,321
Service revenues 1,421,081 2,128,103
Royalties and Contract Revenues 995,259 1,233,583
--------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 6,200,504 7,752,007
--------------------------------------------------------------------------------------------------------------------
EXPENSES
Cost of Sales 2,405,023 3,193,773
Operating Expenses 4,978,695 4,943,366
Other Expenses, net 173,405 223,886
Gain from Sale of Assets (335,629) (1,293,348)
(Benefit from) Provision for Income Taxes (461,638) 181,113
--------------------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 6,759,856 7,248,790
--------------------------------------------------------------------------------------------------------------------
NET (LOSS) INCOME $ (559,352) $ 503,217
====================================================================================================================
(Loss) Earnings Per Common Share $ (0.12) $ 0.11
Weighted Average Number of Common Shares Outstanding 4,772,318 4,772,318
There was no impact to earnings per share from dilutive securities
under the treasury stock method of computing dilutive earnings per share.
See notes to the consolidated financial statements.
HYDROMER, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
================================================================================
Common Stock Contributed Accumulated Treasury Stock
----------------------- ------------------------- ---------------------
Shares Amount Capital Deficit Shares Amount Total
----------- ---------- --------- ----------- --------- --------- -----------
Balance June 30, 2008 4,783,235 $ 3,721,815 $ 633,150 $ (779,105) 10,917 $ (6,140) $ 3,569,720
Net Income 503,217 503,217
----------- ---------- --------- ----------- --------- --------- -----------
Balance June 30, 2009 4,783,235 $ 3,721,815 $ 633,150 $ (275,888) 10,917 $ (6,140) $ 4,072,937
Net Loss (559,352) (559,352)
----------- ---------- --------- ----------- --------- --------- -----------
BALANCE JUNE 30, 2010 4,783,235 $ 3,721,815 $ 633,150 $ (835,240) 10,917 $ (6,140) $ 3,513,585
=========== ========== ========= =========== ========= ========= ===========
See notes to the consolidated financial statements.
F-2
HYDROMER, INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended June 30,
2010 2009
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss) Income $ (559,352) $ 503,217
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Gain from the Sale of Product Lines (335,629) (1,293,348)
Depreciation and amortization 428,451 475,010
Impairment of Intangibles - 167,252
Loss on Disposal of Fixed Assets - 62,368
Deferred income taxes (448,467) 175,631
Changes in Assets and Liabilities
Trade receivables 138,726 41,410
Inventory 70,787 150,159
Prepaid expenses (23,058) (54,554)
Other assets (19,175) (1,821)
Accounts payable and accrued liabilities (128,620) (218,966)
Deferred revenues (1,512) 105,639
Income taxes payable (77,953) 1,239
---------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Operating Activities (955,802) 113,236
---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash purchases of property and equipment (245,742) (163,697)
Cash payments on Patents and Trademarks (302,696) (319,922)
Sale of Product Lines 800,000 1,600,000
Cash purchases of short-term investments (690,000) (450,000)
Maturity of short-term investments 700,000 -
----------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Investing Activities 261,562 666,381
----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments against Line of Credit - (289,973)
Repayment of long-term borrowings (47,915) (1,912,282)
New long-term borrowings - 2,900,000
----------------------------------------------------------------------------------------------------------------------
Net Cash (Used in) Provided by Financing Activities (47,915) 697,745
----------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS: (742,155) 1,477,362
Cash and Cash Equivalents at Beginning of Period 1,585,765 108,403
----------------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 843,610 $ 1,585,765
======================================================================================================================
Cash paid during the year for:
Interest $ 202,411 $ 191,511
Income taxes $ 77,080 $ 3,694
See notes to the consolidated financial statements.
F-3
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Hydromer, Inc. & Subsidiary (the "Company") is a bio-polymer research and
development company based in Branchburg, New Jersey. The Company develops
polymer complexes for commercial markets in both the United States and abroad
for the medical, cosmetics, animal health and industrial fields. The Company
obtains patent rights on certain products from which royalty revenues are
received. Its wholly owned subsidiary, Biosearch Medical Products, Inc., a U.S.
based corporation, is an OEM manufacturer for various medical products companies
as well as the manufacturer of its own line of endoscopic products sold to
hospitals, domestically and internationally, through a network of dealers. The
Company also offers R&D, engineering and contract coating services in its array
of capabilities. During the 2009 calendar year, the Company sold off most of its
OEM medical device product lines leaving Biosearch Medical Products, Inc., as
primarily in contract coating services (also see Footnote 14).
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Hydromer, Inc.
and its wholly owned subsidiary. All significant intercompany balances and
transactions have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of investments with original maturities of
three months or less.
SHORT-TERM INVESTMENTS
Short-term investments consist of investments other than cash and cash
equivalents with original maturities of greater than three months and less than
one year. Short-term investments as of June 30, 2010 were $440,000, comprising
of bank CD's with interest rates ranging from 1.14% to 1.25%. Short term
investments as of June 30, 2009 were $450,000.
ACCOUNTS RECEIVABLES
Accounts receivable are uncollateralized, non-interest-bearing customer
obligations due under normal trade terms requiring payment typically within 30
days from the invoice date, or in the case of royalties or contract payments
(see Revenue Recognition), usually 45 days from the end of a calendar quarter.
Trade accounts receivable are stated at the amount billed to the customer;
royalties and contract revenues are estimated until reported by the licensee /
contractual party. Payments of accounts receivable are allocated to the specific
invoices identified on the customer's remittance advice or, if unspecified, are
applied to the oldest unpaid invoices. The carrying amount of accounts
receivable is reduced by a valuation allowance that reflects the Company's best
estimate of the amounts that may not be collected. This estimate is based on
reviews of all balances in excess of 90 days past due from the invoice date.
Based on this assessment of current credit worthiness, the Company estimates the
portion, if any, of the balance that will not be collected. Management also
considers the need for additional general reserves and reviews its valuation
allowance on a quarterly basis.
FAIR VALUE MEASUREMENTS
Effective July 1, 2008, the Company adopted Accounting Standards Codification
("ASC") 820-10, Fair Value Measurements. ASC 820-10 defines fair value,
establishes a framework for measuring fair value under generally accepted
accounting principles and enhances disclosures about fair value measurements.
Fair value is defined under ASC 820-10 as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the
principal or the most advantageous market for an asset or liability in an
orderly transaction between participants on the measurement date. Valuation
techniques used to measure fair value under ASC 820-10 must maximize the use of
observable inputs and minimize the use of unobservable inputs. The standard
describes a fair value hierarchy based on the levels of inputs, of which the
first two are considered observable and the last unobservable, that may be used
to measure fair value which are the following:
o Level 1 - Quoted prices in active markets for identical assets or
liabilities.
o Level 2 - Inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices for similar assets or liabilities;
quoted prices in markets that are not active; or other inputs that are
observable or corroborated by observable market data or substantially the
full term of the assets or liabilities.
o Level 3 - Unobservable inputs that are supported by little or no market
activity and that are significant to the value of the assets or
liabilities
F-4
INVENTORIES
Inventories are valued at the lower of cost, determined by the first-in,
first-out method, or market and include appropriate amounts of labor and
overhead.
DEPRECIATION
The cost of property and equipment, which includes a reasonable portion of
labor costs for equipment built in-house, is depreciated on a straight-line
method over the estimated useful lives of the assets: 5-10 years for machinery
and equipment, 3-5 years for furniture and office equipment and 40 years for the
building. When assets are retired or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts, and any resulting gain
or loss is reflected in income for the period. Repairs and maintenance which do
not extend the useful lives of the related assets are expensed as incurred.
PATENTS
Registration and maintenance costs associated with the filing and
registration of patents are prepaid and amortized over its remaining life of the
patent, not to exceed 20 years. Costs associated with patents which are not
approved or abandoned are expensed in the period in which such patents are not
approved or abandoned. The annual maintenance fees associated with existing
patents are expensed over 12 months and are included in Prepaid Expenses. The
Research and Development costs associated with the patented technology are
expensed as incurred and are not capitalized.
LONG-LIVED ASSETS
The Company assesses long-lived assets for impairment as required under ASC
360-10, Accounting for the Impairment or Disposal of Long-Lived Assets. The
Company reviews for impairment whenever events or circumstances indicate that
the carrying amount of these assets may not be recoverable. The Company assesses
these assets for impairment based on estimated future cash flows from these
assets.
REVENUE RECOGNITION
Revenues from product and services sales are recognized at the time of
shipment or services rendered provided that collection of the resulting
receivable is probable. Revenues from royalties are recognized upon the sale of
certain products by licensees with whom the Company has licensing agreements.
Contract Revenues, which includes payments from Stand Still, Supply or Support
agreements that are typically based on time frames, are recognized in the
periods to which it pertains. Deferred revenues are recorded when agreements
call for payment ahead of when the amounts are earned.
SHIPPING AND HANDLING CHARGES
The Company includes costs of shipping and handling billed to customers in
Revenues and the related expense of shipping and handling costs in Cost of
Sales.
ADVERTISING
Advertising costs are expensed as incurred except for tangible assets, such
as printed advertising materials, which are expensed as consumed. Advertising
expense was $47,340 and $50,519 for the years ended June 30, 2010 and 2009,
respectively.
RESEARCH AND DEVELOPMENT
Research and development costs, primarily employee salaries and benefits, are
charged to operations when incurred and are included in operating expenses. The
amounts charged to expense for the years ended June 30, 2010 and 2009 were
$837,351 and $883,616, respectively.
STOCK BASED COMPENSATION
The Company accounts for stock and stock options issued for services and
compensation to employees under ASC 718-10. For non-employees, the fair market
value of the Company's stock on the date of stock issuance or option/grant is
used. The Company determines the fair market value of the options issued under
the Black-Scholes Pricing Model. Under the provisions of ASC 718-10, share-based
compensation cost is measured at the grant date, based on the fair value of the
award, and is recognized as an expense over the employee's requisite service
period (generally the vesting period of the equity grant). There were no such
stock option grants issued during the years ended June 30, 2010 and June 30,
2009.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the bases of assets and liabilities for
F-5
financial and income tax reporting. The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled. Deferred taxes are also recognized for operating losses that are
available to offset future federal and state income taxes. Any interest charges
on underpayment or other assessments are recorded as interest expense. Any
penalties are recorded in Operating Expenses.
Effective January 1, 2007, the Company adopted the provisions of ASC 740-10,
Accounting for Uncertainty in Income Taxes. The implementation of ASC 740-10 had
no impact on the Company's financial statements as the Company has not
recognized any uncertain income tax positions.
EARNINGS PER SHARE
Earnings per share, in accordance with the provisions of ASC 260-10, Earnings
Per Share, is computed by dividing net income by the weighted average number of
common stock shares outstanding during the period.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
--------------------------------------------------------------------------------
2. CONCENTRATION OF CREDIT AND BUSINESS RISK
The Company is exposed to additional credit and business risks due to its
concentration of activity with certain parties. For example, at times throughout
the year, the Company may maintain certain bank accounts in excess of FDIC
insured limits.
In addition, the Company provides credit in the normal course of business to
customers. Ongoing credit evaluations of its customers are performed, and
allowances for doubtful accounts are based on factors surrounding the credit
risk of specific customers, historical trends and other information.
For the year ended June 30, 2009, the Company collected Contract Revenues
totaling 10% of its total revenues from one customer, Cordis Neurovascular
Systems. The outstanding accounts receivable from Cordis at June 30, 2009 was
$35,000. There were no significant customers for the year ended June 30, 2010.
--------------------------------------------------------------------------------
3. FAIR VALUE
In accordance with ASC 820-10, the following table represents the Company's fair
value hierarchy for its financial assets and liabilities measured at fair value
on a recurring basis as of June 30, 2010 and June 30, 2009, respectively:
----------------- ----------- ----------- ----------- ------------
as of June 30, 2010 Level 1 Level 2 Level 3 Total
------- ------- ------- -----
ASSETS
Investments $ 440,000 - - $ 440,000
---------- ----------
Total Assets $ 440,000 - - $ 440,000
========== ==========
LIABILITIES - n/a - - - -
----------------- ----------- ----------- ----------- ------------
----------------- ----------- ----------- ----------- ------------
as of June 30, 2009 Level 1 Level 2 Level 3 Total
------- ------- ------- -----
ASSETS
Investments $ 450,000 - - $ 450,000
---------- ----------
Total Assets $ 450,000 - - $ 450,000
========== ==========
LIABILITIES - n/a - - - -
----------------- ----------- ----------- ----------- ------------
F-6
Some of the Company's financial instruments are not measured at fair value on a
recurring basis but are recorded at amounts that approximate fair value due to
their liquid or short-term nature, such as cash and cash equivalents,
receivables and payables. The carrying amount of the mortgage is consistent with
the terms available in the market for instruments with similar risk.
4. INVENTORY
Following the final sale of the Biosearch Medical Products medical device
product lines during the fiscal year, inventory as of
June 30, 2010 consists of:
------------------------------------------------------------
June 30,
2010 2009
---- ----
Finished goods $ 98,690 $ 97,746
Work in process 202 246,002
Raw materials 149,677 272,101
----------- -----------
$ 248,569 $ 615,849
=========== ===========
------------------------------------------------------------
5. PROPERTY AND EQUIPMENT
Reflecting the write-off of 1,743,800 in fully depreciated equipment and
fixtures as they are no longer in service, and other activity, property and
equipment consists of the following:
-------------------------------------------------------------
June 30,
2010 2009
---- ----
Land $ 472,410 $ 472,410
Building 2,307,449 2,223,011
Machinery and equipment 2,164,899 3,968,307
Equipment under capital leases 86,729 87,120
Furniture and fixtures 204,027 552,228
------- -------
5,235,514 7,303,076
Less: Accumulated
depreciation and (2,220,742) (4,152,299)
amortization
Accumulated
depreciation on capital (26,236) (15,760)
leases
------------ ------------
Property and Equipment, net $ 2,988,536 $ 3,135,017
============ ============
-------------------------------------------------------------
Depreciation expense, including that on assets under capitalized leases,
charged to operations, was $225,051 and $241,908 for the years ended June 30,
2010 and 2009, respectively. In addition to the write off of $1,743,800 in fully
depreciated equipment and fixtures during the year ended June 30, 2010,
approximately $567,000 in equipment (approximately $413,000 in accumulated
depreciation) was sold as part of the product lines sold to Forefront Medical
Technology (PTE) Ltd. (see Footnote 14).
6. INTANGIBLE ASSETS
Intangible Assets, including prepaid Patent Costs included in Prepaid Expenses,
are comprised of the following:
F-7
------------------------------------------------------------
June 30,
2010 2009
---- ----
Patents $ 1,403,865 $ 1,255,486
Trademarks 66,218 21,860
Less: Accumulated amortization (546,866) (465,333)
----------- -----------
Intangible Assets, net $ 923,217 $ 812,013
=========== ===========
------------------------------------------------------------
During the year ended June 30, 2009, $167,252 of patent costs were deemed
impaired and charged off to Operating Expenses as the discounted future cash
flows relating to these patents were deemed below that of its carrying value.
For some of the patents, the Company continues to maintain and support the
patents despite their carrying value having been written off. During the year
June 30, 2009, $72,955 of fully amortized trademark costs have been written off
as the periods to which it covers expired. For the year ended June 30, 2010
there were no patent costs nor trademark costs deemed impaired (and thereby
written off).
Future amortization of Intangible Assets, as of June 30, 2010, are as follows:
----------------------------------------------------
Year ending June 30,
--------------------
2011 $ 141,286
2012 96,739
2013 94,507
2014 88,280
2015 82,911
Thereafter 419,494
--------
$ 923,217
========
----------------------------------------------------
Amortization expense for the years ended June 30, 2010 and 2009 were $205,937
and $233,102, respectively.
7. LEASES
The Company acquired equipment under long-term leases. For financial reporting
purposes, the present value of the minimum lease payments has been capitalized.
Future payments under these capital lease arrangements, which includes $7,542
in finance charges, are as follows:
---------------------------------------------------
Year ending June 30,
--------------------
2011 $ 20,506
2012 20,506
2013 17,246
---------
$ 58,258
=========
---------------------------------------------------
8. LONG-TERM DEBT AND CREDIT FACILITY
As of June 30, 2010, the Company's facility was financed by a twenty-five year
mortgage note bearing a five year fixed interest rate of 6.75%, and then reset
every five years at 2.75% over the then New York Federal Home Loan Bank 5/20
Amortizing Advance Rate. The mortgage is secured by the real estate and
improvements, and all rents from leases subsequently entered into, amortized
with monthly payments. As of June 30, 2010, the book value of the real estate
and improvements was $2,266,374.
F-8
The mortgage, for $2,900,000, refinanced two ten-year mortgages in September
2008, provided for an additional $1.1 million in cash for use in repaying its
maturing Line-of-Credit facility and as additional working capital.
Long-term debt is comprised of the following:
-------------------------------------------------------------
June 30,
2010 2009
------------ -------------
Mortgage note $ 2,817,836 $ 2,865,751
Less: Current Maturities (48,800) (45,696)
------------ -------------
Long-term Debt,
Net of Current Maturities $ 2,769,036 $ 2,820,055
============ =============
--------------------------------------------------------------
Maturities of the long-term debt are as follows:
Year ending June 30, As of June 30, 2010
-------------------- --------------------
2011 $ 48,800
2012 51,720
2013 55,899
2014 59,847
2015 64,074
Thereafter 2,537,496
------------
$ 2,817,836
============
--------------------------------------------
At June 30, 2010, the Company did not meet two mortgage covenants. In September
2010, the bank granted loan covenant modifications so that the Company is no
longer in violation.
9. INCOME TAXES
The income tax provision (benefit) is comprised of the following:
---------------------------------------------------------------
Federal State Total
--------- --------- ----------
YEAR ENDED JUNE 30, 2010
CURRENT $ - $ 4,160 $ 4,160
DEFERRED (355,096) (110,702) (465,798)
--------- --------- ----------
$(355,096) $(106,542) $ (461,638)
========= ========= ==========
Year Ended June 30, 2009
Current $ 59,540 $ 16,351 $ 75,891
Deferred 194,000 (88,778) 105,222
--------- --------- ----------
$ 253,540 $ (72,427) $ 181,113
========= ========= ==========
---------------------------------------------------------------
The Company's deferred tax asset and liability as presented in the Company's
financial statements are comprised of the following:
------------------------------------------------------------
F-9
June 30,
2010 2009
Deferred Tax Asset
Net Operating Losses $ 514,684 $ 225,749
Adjustment of Goodwill 196,069 196,069
Research & Development 597,261 405,213
Credits
Valuation allowance (296,069) (296,069)
----------- ----------
Total Deferred Tax Assets 1,011,945 530,962
=========== ==========
Deferred Tax Liability
Depreciation (318,375) (285,858)
----------- ----------
Total Deferred Tax Liability $ (318,375) $ (285,858)
=========== ==========
-------------------------------------------------------------
Deferred taxes are recognized for temporary differences between the bases of
assets and liabilities for financial statement and income tax purposes. The
differences relate primarily to depreciable assets (using accelerated
depreciation methods for income tax purposes). The Company's adjustment to
Goodwill in 2004 and 2006 created a deferred tax asset, which although has an
indefinite life, has been fully reserved for as realization of its benefit is
unlikely.
As of June 30, 2010, the Company has net operating loss carry forwards of
approximately $1,125,105 and $1,468,311 for Federal and State tax purposes
respectively. These net operating loss carry forwards may be used to reduce
federal and state taxable income and tax liabilities in future years and expire
in various years through June 30, 2028 and June 30, 2016 for Federal and State
tax purposes, respectively. In addition, the Company has Research and
Development Tax Credits of approximately $356,317 and $240,944 for Federal and
State tax purposes, respectively, which expire in various years through June 30,
2030 and June 30, 2017, respectively.
The Company's provision for income taxes differs from applying the statutory
U.S. federal income tax rate to the income before income taxes. The primary
differences result from providing for state income taxes, generation of
allowable tax credits and from deducting certain expenses for financial
statement purposes but not for federal income tax purposes.
A reconciliation between taxes computed at the federal statutory rate and the
consolidated effective tax rate follows:
--------------------------------------------------------
June 30,
--------
2010 2009
---- ----
Federal statutory tax rate (34.0) % 34.0 %
State income tax - net of
federal tax benefit (2.6) (0.8)
R & D credits (7.2) (4.5)
Permanent and other differences (1.4) (2.2)
----- -----
(45.2) % 26.5 %
====== ======
-------------------------------------------------------
10. STOCK OPTIONS AND AWARDS
On February 22, 2000 the Board of Directors approved an option plan that
granted each director 2,000 fully vested options for each meeting attended,
awarded at the annual meeting at the 5-day market price average.
F-10
Open options under this plan awarded to the Board of Directors are as follows:
----------------- -------- --------- ------------- ----------
Issuance Options Exercise Expiration Options
Date Issued Price Date Exercised
Nov 16, 2005 62,000 $0.95 Nov 16, 2010 -
Nov 15, 2006 50,000 $1.18 Nov 15, 2011 -
----------------- -------- -------- -------------- ----------
During the 2008 fiscal year, 15,000 fully vested five year options, at a $3.00
exercise price, were granted as part of a Stock Subscription.
There were no other stock option issuances during the 2009 or 2010 fiscal
year.
A summary of activity under the plan for the years ending June 30, 2009 and
2010 are as follows:
-------------------------------------------------------
Common Stock Options Outstanding
--------------------------------
Weighted Average
Shares Exercise Price
------ --------------
Balance, June 30, 2008 235,000 $ 1.44
Cancelled (52,000) 1.10
--------- -------
Balance, June 30, 2009 183,000 $ 1.53
Cancelled (56,000) 2.10
--------- -------
BALANCE, JUNE 30, 2010 127,000 $ 1.28
------------------------------------------------------
Following is a summary of the status of options outstanding as of June 30, 2010:
-----------------------------------------------------------
Outstanding Options Exercisable Options
--------------------------------------- -- --------------------
Weighted
Average Weighted Weighted
Exercise Remaining Average Average
Price Contractual Exercise Exercise
Range Number Life Price Number Price
----- -------- ---- ----- ------ -----
$0.95 - $1.18 112,000 0.8 years $1.05 112,000 $1.05
$3.00 15,000 2.1 years $3.00 15,000 $3.00
------- --------- ----- ------- -----
127,000 1.0 years $1.28 127,000 $1.28
-----------------------------------------------------------
As the stock price of the Company's stock on June 30, 2010 was lower than the
exercise prices of the outstanding and exercisable options, there was no
intrinsic value of the options.
11. RETIREMENT PLAN
The Company sponsors a qualified 401(k) plan covering substantially all full
time employees under which eligible employees can defer a portion of their
annual compensation. The Company determines annually, the amount of matching
contributions. There were no Company matching contribution made to the plan
during the fiscal years ended June 30, 2009 or June 30, 2010.
12. INDUSTRY SEGMENT INFORMATION
The Company operates two primary business segments: (1) Polymer Research and
(2) Medical Products.
Products included in the polymer research segment are Aquamere(R),
Aquatrix(R), Dermaseal(R), Dragonhyde(R), Hydromer(R) Anti-Fog/Condensation
Control Coatings, Hydromer(R) Lubricious Coatings, Sea-Slide(R) and T-HEXX(R)
Barrier Dips and Sprays. Research and Development services and all of the
Company's royalties and contract revenues are reported in this segment.
The medical products segment included an OEM product line of bipolar
coagulation probes, placement catheters, bilary stents, jejunal and enteral
feeding accessories, guidewires, biofeedback devices for fecal and urinary
incontinence and other endoscopic accessories. With the exception of the
F-11
biofeedback devices, all the medical device product lines were sold in fiscal
2009 and 2010. Remaining in this segment are contract coating services and
engineering services.
Due to the multitude of products offered and the product gross margins, the
Company does not track sales contribution by products.
The Company operates globally in its segments with several large customers
that are important to their operating results. No single customer accounted for
more than 10% of the polymer research segment sales for the fiscal year 2010.
One such customer accounted for 14% of the segment sales for the 2009 fiscal
year. For the medical products segment, the top three customers accounted for
87% and 65% of that segment's 2010 and 2009 sales, respectively.
The Company evaluates the segments by revenues, total expenses and earnings
before income taxes. The Company's assets are not reviewed by business segment.
The accounting policies of these segments are described in the summary of
significant accounting policies.
Corporate Overhead, primarily the salaries and benefits of senior management,
support services (Accounting, Legal, Human Resources and Purchasing) and other
shared services (building maintenance and warehousing), is reflected separately
from the results of the business segments in the following:
--------------------------------------------------------------
Polymer Medical Corporate
Research Products Overhead Total
---------- ---------- --------- ----------
YEAR ENDED JUNE 30, 2010
REVENUE $4,136,010 $2,064,494 $ 6,200,504
EXPENSES (3,738,588) (1,912,662) (1,570,244) (7,221,494)
----------- ----------- ----------- -----------
EARNINGS
(LOSS)
BEFORE
INCOME TAXES $ 397,422 $ 151,832 $ (1,570,244) $(1,020,990)
======= ======= =========== ===========
Year Ended June 30,
2009
Revenue $4,405,662 $3,346,345 $ 7,752,007
Expenses (3,596,822) (1,887,180) (1,583,675) (7,067,677)
----------- ----------- ---------- -----------
Earnings
(Loss)
before
Income Taxes $ 808,840 $1,459,165 $ (1,583,675) $ 684,330
======= ========= =========== =======
--------------------------------------------------------------
Included under the Polymer Research segment was the non-cash impairment of
intangible assets of $167,252 for fiscal year 2009. There was no such impairment
for fiscal year 2010.
Included under the Medical Products segment were the pre-tax gain from the
sale of product lines of $335,629 and $1,293,348 in fiscal 2010 and 2009,
respectively.
Geographic revenues were as follows for the years ended June 30,
2010 2009
---- ----
Domestic 72% 83%
Foreign 28% 17%
13. EARNINGS PER SHARE
The following table sets forth the computation of earnings per share:
F-12
--------------------------------------------------------------------------------
2010 2009
-------- ---------
Numerator:
Net (loss) income (559,352) $ 503,217
========= =======
Denominator:
Denominator for basic earnings per share 4,772,318 4,772,318
- weighted average shares outstanding
Effect of dilutive securities - Stock Options - -
Denominator for dilutive earnings per share
under the treasury stock method
- weighted average shares outstanding 4,772,318 4,772,318
Basic (Loss) Earnings per share (0.12) $ 0.11
Dilutive Earnings per share n/a $ n/a
--------------------------------------------------------------------------------
Common stock equivalents (consisting of 127,000 and 183,000 stock options for
the years ended June 30, 2010 and 2009, respectively) were not included in
computing diluted earnings per share as their effect would have been
anti-dilutive.
14. SALE OF PRODUCT LINES
On November 25, 2009, the Company's wholly owned subsidiary, Biosearch Medical
Products, Inc. ("Biosearch") sold its Private Label Jejunostomy Catheter and
Nasogastric Feeding Catheter business to Forefront Medical Technology (PTE) Ltd
("Forefront"), a wholly owned subsidiary of Vicplas International Limited - a
company registered in the Republic of Singapore, for $800,000 in cash, half
received upon closing with the balance received in March 2010.
This sale included inventory and equipment related to that business and also
called for the assignment of certain customer supply agreements to Forefront and
a three year non-compete provision. A separate supply agreement for Hydromer(R)
hydrophilic coating solution used on those products was also entered between the
parties. Biosearch continued manufacturing the products, at an agreed upon
transfer price, until Forefront completed the transition in April 2010.
On February 20, 2009, Biosearch sold the Endoscopic Bipolar Coagulation probe
and Biliary Stent business to Merit Medical Systems, Inc. ("Merit") for
$1,600,000 in cash. The sale included inventory and equipment related to that
business and also called for the assignment of existing Biosearch customer
supply agreements to Merit, a seven year non-compete provision and a supply
agreement for Hydromer(R) hydrophilic coating solution used on those products.
Under a separate transfer price agreement, the Company continued manufacturing
the products solely for Merit, until October 2009 when Merit was ready to
independently manufacture the products.
The product lines sold were part of the "Medical Products" segment (see
Footnote 12) in which operations and cash flows could not be broken down
further. Therefore, along with the continued manufacturing for both Forefront
and Merit, these transactions did not meet the criteria of discontinued
operations under ASC 205-20, Discontinued Operations.
The gains on sale of the product lines are reflected separately on the
Consolidated Statement of Operations.
15. CONTINGENCIES
Royalty revenues and support fees recorded by the Company are based on the
sales of products as reported by the Company's customers, which has the risk of
being under- or over-reported. To minimize such risks, the Company's management
utilizes its knowledge and understanding of the customer's business, the market
and other pertinent factors in assessing the validity of reported royalties or
support fees. In addition, the Company may have a right to audit the amounts
reported.
The Company has not received any claims by its customers for possible
overpayment of royalties or support fees.
F-13
INDEX TO EXHIBITS
3.a Certificate of Incorporation of the Company, as amended to date
3.b By-Laws of the Company, as amended to date
10.a Minutes of Meeting of the Board of Directors of the Company held on
March 5, 1981 with respect to stock options granted to Manfred F. Dyck
(Incorporated by reference to Exhibit 10.i to the Registration Statement).
10.b Agreement dated August 11, 1981 between Horizon Concepts, Inc., and
the Company (Incorporated by reference to Exhibit 10.c to the Registration
Statement).
10.c Agreement dated January 27, 1982 between Reliable Pharmaceutical
Company, Inc. and the Company (Incorporated by reference to Exhibit 10.d to the
Registration Statement).
10.d License Agreement dated July 14, 1982 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
Registration Statement).
10.e Management Services Agreement dated July 14, 1982 between Biosearch
Medical Products Inc. and the Company (Incorporated by reference to Exhibit 10.h
to the Registration Statement).
10.f Amendment dated October 7, 1982 to Agreement dated January 27, 1982
between Reliable Pharmaceutical Company, Inc. and the Company, together with
letter dated October 14, 1982 from Reliable Pharmaceutical Company, Inc. to the
Company (Incorporated by reference to Exhibit 10.f to the 1983 Annual Report).
10.g Hydromer Coating agreement dated February 11, 1983 between Pacesetter
Systems, Inc. and the Company (Incorporated by reference to Exhibit 10.g to the
1983 Annual Report).
10.h Lease Agreement dated April 5, 1983 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.h to the 1983 Annual Report).
10.i License Agreement dated April 25, 1983 between CardioSearch Inc. and
the Company (Incorporated by reference to Exhibit 10.i to the 1983 Annual
Report).
10.j Trademark License Agreement dated April 25, 1983 between CardioSearch
Inc. and the Company (Incorporated by reference to Exhibit 10.j to the 1983
Annual Report).
10.k Agreement dated August 31, 1983 between Becton, Dickinson & Company
and the Company (Incorporated by reference to Exhibit 10.l to the 1983 Annual
Report).
10.l Current Report on Form 8-K filed May 30, 1986
10.m Hydromer Coating License Agreement dated September 30, 1984 between
Axiom Medical, Inc. and the Company (Incorporated by reference to Exhibit 10.m
to the 1984 Annual Report).
10.n 1982 Stock Option Plan of the Company (Incorporated by reference
to Exhibit 10.m to the 1983 Annual Report).
10.o Amendment dated June 26, 1984 to Agreement dated August 3, 1983
between Becton, Dickinson & Company and the Company (Incorporated by reference
to Exhibit 10.o to the 1984 Annual Report).
10.p License Agreement dated July 31, 1984 between Kendall Company and the
Company (Incorporated by reference to Exhibit 10.p to the 1984 Annual Report).
10.q License Agreement dated March 1, 1985 between Van-Tec Inc. and the
Company and Letter of Amendment thereto dated June 13, 1985 (Incorporated by
reference to Exhibit 10.o to the 1985 Annual Report).
10.r Telex dated June 24, 1985 terminating License Agreement with
CardioSearch Inc. (Incorporated by reference to Exhibit 10.p to the 1984 Annual
Report).
10.s Amendment dated as of December 31, 1984 to Management Services
Agreement dated July 14, 1982 between Biosearch Medical Products Inc. and the
Company (Incorporated by reference to Exhibit 10.q to the 1985 Annual Report).
10.t Lease Renewal Agreement dated April 15, 1985 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.r to the 1985 Annual
Report).
10.u Lease Agreement dated December 4, 1984 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.s to the
1985 Annual Report).
10.v License Agreement dated April 11, 1986 between Axiom Medical, Inc.
and the Company (Incorporated by reference to Exhibit 10.i to the 1986 Annual
Report).
10.w License Agreement dated September 13, 1985 between U. S. Viggo and
the Company (Incorporated by reference to Exhibit 10.c to the 1986 Annual
Report).
10.x License Agreement dated March 27, 1986 between Wilkinson Sword
Limited and the Company (Incorporated by reference to Exhibit 10.f of the 1986
Annual Report).
10.y Lease Renewal Agreement dated April 15, 1987 between Salem Realty and
the Company (Incorporated by reference to Exhibit 10.y to the 1987 Annual
Report).
10.z License Agreement dated April 30, 1986 between HPK International and
the Company (Incorporated by reference to Exhibit 10.j to the 1986 Annual
Report).
10.aa License Agreement dated August 1, 1986 between Film Specialties,
Inc. and the Company (Incorporated by reference to Exhibit 10.aa to the 1987
Annual Report).
10.ab Lease Renewal Agreement dated April 15, 1988 between Salem Realty
and the Company (Incorporated by reference to Exhibit 10.ab to the 1988 Annual
Report).
10.ac License Agreement dated June 30, 1987 between Richards Medical
Company and the Company (Incorporated by reference to Exhibit 10.ac to the 1988
Annual Report).
10.ad License Agreement dated December 1, 1987 between Mallinckrodt, Inc.
and the Company (Incorporated by reference to Exhibit 10.ad to the 1988 Annual
Report).
10.ae Option Agreement dated January 28, 1988 between Cordis Corporation
and the Company (Incorporated by reference to Exhibit 10.ae to the 1988 Annual
Report).
10.af Lease Agreement dated April 15, 1988 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.ag of the
1988 Annual Report).
10.ag Letters dated June 11, 1987 and September 22, 1987 to U. S. Viggo,
Inc. modifying License Agreement dated September 13, 1985, to cover only central
venous catheters (Incorporated by reference to Exhibit 10.ag to the 1988 Annual
Report).
10.ah Lease Renewal Agreement dated April 15, 1989 between Salem Realty
and the Company (Incorporated by reference to Exhibit 10.ah to the 1989 Annual
Report).
10.ai Amendment dated October 1, 1988 to License Agreement dated September
13, 1985, between U. S. Viggo and the Company (Incorporated by reference to
Exhibit 10.ai to the 1989 Annual Report).
10.aj License Agreement dated October 20, 1988 between Cordis Corp. and
the Company (Incorporated by reference to Exhibit 10.aj to the 1989 Annual
Report).
10.ak License Agreement dated March 31, 1989 between Cathlab Corp. and the
Company (Incorporated by reference to Exhibit 10.ak to the 1989 Annual Report).
10.al Amendment dated December 1, 1988 to License Agreement dated August
1, 1986 between Film Specialties, Inc. and the Company (Incorporated by
reference to Exhibit 10.al to the 1989 Annual Report).
10.am Finders Agreement dated August 20, 1987 between Phoenix Chemical,
Inc. and the Company (Incorporated by reference to Exhibit 10.am to the 1989
Annual Report).
10.an License Agreement dated September 10, 1989 between the Stent
Division of Schneider and the Company (Incorporated by reference to Exhibit
10.an to the 1990 Annual Report).
10.ao License Agreement dated March 30, 1990 between Cosmo Ikko Company
and the Company (Incorporated by reference to Exhibit 10.ao to the 1990 Annual
Report).
10.ap License Agreement dated April 12, 1990 between Interventional
Therapeutics, Inc. and the Company and amendment dated May 7, 1990 to the
Agreement dated April 12, 1990 between Interventional Therapeutics, Inc. and the
Company (Incorporated by reference to Exhibit 10.ap to the 1990 Annual Report).
10.aq Amended License Agreement dated January 1, 1990 between the
Wilkinson Sword group of companies and the Company (Incorporated by reference to
Exhibit 10.aq the 1990 Annual Report).
10.ar Lease Agreement dated April 15, 1990 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.ar to the 1990 Annual Report).
10.as Amendment to the Agreement dated July 31, 1984 between Kendall
Company and the Company (Incorporated by reference to Exhibit 10.as to the 1990
Annual Report).
10.at License Agreement dated January 11, 1991 between Biosearch Medical
Products Inc. and the Company (Incorporated by reference to Exhibit 10.at to the
1991 Annual Report).
10.au License Agreement dated May 16, 1991 between I E Sensors and the
Company (Incorporated by reference to Exhibit 10.au to the 1991 Annual Report).
10.av Lease Renewal Agreement dated April 15, 1991 between Salem Realty
and The Company (Incorporated by reference to Exhibit 10.av to the 1991 Annual
Report).
10.aw License Agreement dated July 25, 1991 between Johnson & Johnson
Orthopaedics and the Company (Incorporated by reference to Exhibit 10.aw to the
1992 Annual Report).
10.ax License Agreement dated August 19, 1991 between Navarre Laboratories
Ltd. and the Company (Incorporated by reference to Exhibit 10.ax to the 1992
Annual Report).
10.ay Amended License Agreement dated September 15, 1991 between Boston
Scientific Corp. and the Company (Incorporated by reference to Exhibit 10.ay to
the 1992 Annual Report).
10.az Option/License Agreement dated September 23,1991 between Elan Corp.
PLC and the Company (Incorporated by reference to Exhibit 10.az to the 1992
Annual Report).
10.ba Lease Agreement dated November 1, 1991 between Morton Street Realty
and the Company (Incorporated by reference to Exhibit 10.ba to the 1992 Annual
Report).
10.bb License Agreement dated August 17, 1992 between SCIMED Peripheral
Interventions, division of SCIMED Life Systems, Inc. and the Company.
(Incorporated by reference to Exhibit 10.bb to the 1993 Annual Report).
10.bc License Agreement dated March 9, 1993 between Arrow International,
Inc. and the Company. (Incorporated by reference to Exhibit 10.bc to the 1993
Annual Report).
10.bd License Agreement dated April 28, 1993 between St. Jude Medical,
Inc. and the Company. (Incorporated by reference to Exhibit 10.bd to the 1993
Annual Report).
10.be License Agreement dated November 11, 1993 between Katoh Hatsujyo
Kaisha, Ltd. and the Company. (Incorporated by reference to Exhibit 10.be to the
1994 Annual Report).
10.bf Lease Agreement dated June 9, 1995 between Salem Realty and the
Company (Incorporated by reference to Exhibit 10.bf to the 1995 Annual Report).
10.bg Amendment dated September 20, 1995 to License Agreement dated April
28, 1993 between St. Jude Medical, Inc. and the Company. (Incorporated by
reference to Exhibit 10.bg to the 1996 Annual Report).
10.bh License Agreement dated April 12, 1990 between Interventional
Therapeutics and the Company was terminated effective December 22, 1995.
(Incorporated by reference to Exhibit 10.bh to the 1996 Annual Report).
10.bi License Agreement dated May 16, 1991 between I E Sensors and the
Company was terminated effective December 31, 1995. (Incorporated by reference
to Exhibit 10.bi to the 1996 Annual Report).
10.bj Consented to the assignment of license agreement dated April 28,1993
between St. Jude Medical, Inc. and the Company to CR Bard dated January 18,
1996. (Incorporated by reference to Exhibit 10.bj to the 1996 Annual Report).
10.bk License Agreement dated April 30, 1986 between HPK International and
the Company was terminated effective February 19, 1996. (Incorporated by
reference to Exhibit 10.bk to the 1996 Annual Report).
10.bl License Agreement dated June 6, 1996 between Biosearch Medical
Products Inc. and the Company. (Incorporated by reference to Exhibit 10.bl to
the 1996 Annual Report).
10.bm License Agreement dated August 1, 1996 between Biosearch Medical
Products Inc. and the Company.
10.bn Amended License Agreement dated September 4, 1996 between SCIMED
(Boston Scientific Corporation) and the Company.
10.bo License Agreement dated January 6, 1997 between Sherwood Davis &
Geck and the Company.
10.bp Use permit for certain designated area dated May 4, 1997 between
Biosearch Medical Products Inc. and the Company
10.bq Contract of sale between Biosearch Medical Products and the Company
for the sale of 35 Industrial Parkway dated 3/31/98
10.br Note and mortgage with PNC Bank dated 6/12/98
10.bs 3 year lease agreement with Biosearch Medical Products dated 6/12/98
for 35 Industrial Parkway
10.bt License of technology, supply and stock purchase agreement with
C.R.Bard dated 2/25/99
10.bu Trademark and technology license agreement with AST dated 3/9/99
10.bv License of two gel patents from Ridge Scientific dated 11/1/98
10.bw License and Supply agreement with Gallini SRL dated 6/28/00
10.bx Standstill agreement with license option with IMED Pharma Inc. dated
3/30/00
10.by License of technology with Symbiotech Medical Inc. dated 3/28/00
10.bz License and supply agreement with TP Orthodontics Inc. dated 3/30/00
10.ca License Agreement dated July 1, 2000 between Becton Dickinson and
Company, Inc. and the Company.
10.cb License Agreement dated January 1, 2001 between LHS Limited and LHS
Holding Limited, English dba KLEENCARE and the Company.
10.cc License Agreement dated April 17, 2001 between Tyco Healthcare Group
LP and the Company.
10.cd Construction Contract dated April 19, 2001 between REDCO
Engineering & Construction Corp and the Company.
10.ce Service Agreement dated April 23, 2001 between Tyco Healthcare Group
LP and the Company.
10.cf Loan Agreement dated June 7, 2001 between New Millenium Bank and the
Company.
10.cg By-Laws Articles of Incorporation.
10.ch Loan Agreement dated June 30, 2005 between Wachovia Bank, N.A. and
the Company.
10.ci Asset Purchase and Supply Agreement dated February 2009 between
Merit Medical Systems, Inc. and the Company
10.cj Asset Transfer Agreement dated November 2009 between Forefront
Medical Technology (PTE) Ltd and the Company
24. Power of Attorney (see "Power of Attorney" in the Annual Report on
Form 10-K).
31.1 Certification of Manfred F. Dyck, Chief Executive Officer, pursuant
to Securities Exchange Act Rule 13a-14(a).
31.2 Certification of Robert Y. Lee, Chief Financial Officer, pursuant to
Securities Exchange Act Rule 13a-14(a).
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Manfred F. Dyck,
Chief Executive Officer of Hydromer, Inc.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, signed by Robert Y. Lee, Chief
Financial Officer of Hydromer, Inc.
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applications" Cell Transplant, March 2001, Vol. 10, pp 195-202
Seitz, U. and Soehendra, N. "Which stents do we need? The case for plastic
stents" Endoscopy, 1998 Vol. 30, No. 9, A242-6
Top Agrar "Neues Mittel Gegen Mortellaro" Publisher's Summary of Cornell
Dragonhyde [Journal of Dairy Sciences] Study, October 2010, pp R18
Vicario, P.P., Grigorian, I.A. and Pascoe, J., "Efficacy of Hydromer's Teat Dip
Formulations as Bactericidal Agents for the Control of Bovine Mastitis"
Journal of Veterinary Medicine and Animal Health, 2009, 1, pp 1-4
Vicario, P.P., Lu, Z., Grigorian, I. and Schottman, T., "A lubricious
formulation exhibiting reduced thrombogenicity, cell adhesion and
protein adsorption" Journal Biomedical Materials Research: Part B -
Applied Biomaterials, 2009, 90B, pp 452-460
Vicario, P.P., Lu, Z., Grigorian, I.A. and Schottman, T., "Cell adhesion and
proliferation is reduced on stainless steel coated with Hydromer's
polymeric formulations" Journal Biomedical Materials Research: Part B -
Applied Biomaterials, 2009, 89B, pp 114-121
Vicario, P.P., Lu, Z., Wang, Z., Merritt, K., Buongiovanni, D. and Chen, P.,
"Anti-thrombogenicity of Hydromer's Polymeric Formula F202TM
Immobilized on Polyurethane and Electropolished Stainless Steel"
Journal Biomedical Materials Research: Part B - Applied Biomaterials,
2008, 86B, pp 136-144
Vicario, P.P., Wang, B., Pascoe J., Grigorian I., Lu, Z., DeRose, M. and von
Dyck, S., "Methods for Evaluating the Properties and Efficacy of Teat
Dip Formulations Designed as Barriers to Microorganisms during the Dry
Period" NMC 49th Annual Meeting Proceedings, January 31-February 3,
2010, Albuquerque, NM, Poster Session, February 2010
Wu, Gang; Wan, Changxiu; Duan, Yourong and Yue, Yilun "Researches on Surface
Modification for Prevention of Bacterial Adhesion to Implementing
Biomaterials" Implanting Journal of Biomedical Engineering, 2000, Vol. 1, No.
17
ASSET PURCHASE AND SUPPLY AGREEMENT
BY AND AMONG
MERIT MEDICAL SYSTEMS, INC.
BIOSEARCH MEDICAL PRODUCTS, INC.
AND
HYDROMER, INC.
FEBRUARY 19, 2009
TABLE OF CONTENTS
-----------------
1. DEFINITIONS...........................................................1
-----------
2. BASIC TRANSACTIONS....................................................1
------------------
(a) Transactions..................................................1
------------
(b) Assumption/Exclusion of Liabilities...........................1
-----------------------------------
(c) Consideration Provided by Buyer for Acquired Assets...........1
---------------------------------------------------
(d) ConMed Distribution Agreement Conditions......................1
----------------------------------------
(e) Allocation of Purchase Price..................................1
----------------------------
(f) The Closing...................................................1
-----------
(g) Deliveries at the Closing.....................................1
-------------------------
3. REPRESENTATIONS AND WARRANTIES OF SELLERS.............................1
-----------------------------------------
(a) Organization of Seller........................................1
----------------------
(b) Authorization of Transaction..................................1
----------------------------
(c) Noncontravention..............................................1
----------------
(d) Title to Assets; Sufficiency of Assets........................1
--------------------------------------
(e) No Adverse Change.............................................1
-----------------
(f) Legal Compliance..............................................1
----------------
(g) Intellectual Property.........................................1
---------------------
(h) Environmental, Health, and Safety Matters.....................1
-----------------------------------------
(i) Contracts.....................................................1
---------
(j) Litigation....................................................1
----------
(k) Product Warranty..............................................1
----------------
(l) Product Liability.............................................1
-----------------
(m) Customers and Suppliers.......................................1
-----------------------
(n) Pre-Closing Representations...................................1
---------------------------
(o) Broker Fees...................................................1
-----------
4. REPRESENTATIONS AND WARRANTIES OF BUYER...............................1
---------------------------------------
(a) Organization of Buyer.........................................1
---------------------
(b) Authorization of Transaction..................................1
----------------------------
(c) Noncontravention..............................................1
----------------
(d) Brokers' Fees.................................................1
-------------
(e) Financial Status..............................................1
----------------
5. CONDITIONS TO CLOSING.................................................1
---------------------
(a) Conditions to Obligation of Buyer.............................1
---------------------------------
(b) Conditions to Obligation of Sellers...........................1
-----------------------------------
6. PRE-CLOSING COVENANTS.................................................1
---------------------
(a) General.......................................................1
-------
(b) Notices and Consents..........................................1
--------------------
(c) Operation of Business.........................................1
---------------------
(d) Full Access...................................................1
-----------
(e) Notice of Developments........................................1
----------------------
(f) No Participation or Solicitation of Competing Transaction.....1
---------------------------------------------------------
(g) Completion of Non-assignable Agreements.......................1
---------------------------------------
7. POST-CLOSING COVENANTS................................................1
----------------------
(a) General.......................................................1
-------
(b) Litigation Support............................................1
------------------
(c) Customers and Vendors.........................................1
---------------------
(d) Confidentiality...............................................1
---------------
(e) Transfer of Assets............................................1
------------------
8. REMEDIES FOR BREACHES OF THIS AGREEMENT...............................1
---------------------------------------
(a) Survival of Representations and Warranties....................1
------------------------------------------
(b) Indemnification Provisions for Benefit of Buyer and Sellers...1
-----------------------------------------------------------
(c) Matters Involving Third Parties...............................1
-------------------------------
(d) Characterization of Payments..................................1
----------------------------
9. SUPPLY AGREEMENT......................................................1
----------------
(a) Supply of Acquired Products...................................1
---------------------------
(b) Manufacture...................................................1
-----------
(c) Inspection....................................................1
----------
(d) Records.......................................................1
-------
(e) Labeling......................................................1
--------
(f) Purchases and Pricing.........................................1
---------------------
(g) Regulatory Status.............................................1
-----------------
(h) Regulatory; Complaints; Failure Analysis......................1
----------------------------------------
(i) Recalls.......................................................1
-------
(j) Quality Assurance Inspections.................................1
-----------------------------
(k) No Change to Acquired Products................................1
------------------------------
(l) Quality System Regulation.....................................1
-------------------------
(m) Remedies......................................................1
--------
(n) Product Liability Insurance...................................1
---------------------------
(o) Limitation of Liability.......................................1
-----------------------
10. TERMINATION...........................................................1
-----------
(a) Termination of Agreement......................................1
------------------------
(b) Effect of Termination.........................................1
---------------------
11. MISCELLANEOUS.........................................................1
-------------
(a) Press Releases and Public Announcements......................25
---------------------------------------
(b) No Third-Party Beneficiaries..................................1
----------------------------
(c) Entire Agreement..............................................1
----------------
(d) Succession and Assignment.....................................1
-------------------------
(e) Counterparts..................................................1
------------
(f) Headings......................................................1
--------
(g) Notices.......................................................1
-------
(h) Governing Law; Jurisdiction...................................1
---------------------------
(i) Amendments and Waivers........................................1
----------------------
(j) Severability..................................................1
------------
(k) Expenses......................................................1
--------
(l) Construction..................................................1
------------
(m) Incorporation of Exhibits and Schedules.......................1
---------------------------------------
(n) Specific Performance..........................................1
--------------------
(o) Waiver of Trial By Jury.......................................1
-----------------------
(p) Transfer Taxes.........................................28
Exhibit A Acquired Assets
Exhibit B Acquired Intellectual Property
Exhibit C Allocation of the Purchase Price
Exhibit D Bill of Sale
Exhibit E Assignment and Assumption of Acquired
Contracts
Exhibit F License Agreement
Exhibit G Non-Compete Agreement
Exhibit H Supply Agreement Pricing and Terms
Disclosure Schedule Exceptions to Representations and
Warranties of Sellers
ASSET PURCHASE AND SUPPLY AGREEMENT
This Asset Purchase and Supply Agreement (this "Agreement") is entered
into as of February [___], 2009, by and between Merit Medical Systems, Inc., a
Utah corporation ("Buyer" or "Merit"), Hydromer, Inc., a New Jersey corporation
having its principal place of business at 35 Industrial Parkway, Branchburg, NJ
08876 ("Hydromer") and Biosearch Medical Products, Inc., a New Jersey
corporation having its principal place of business at 35 Industrial Parkway,
Branchburg, NJ 08876, ("BioSearch," and collectively with Hydromer, the
"Sellers"). BioSearch is a wholly-owned subsidiary of Hydromer. Buyer and
Sellers are referred to collectively herein as the "Parties" and individually as
a "Party."
RECITALS
A. Sellers are in the business of, among other things, developing,
manufacturing and distributing medical devices, including the endoscopic bipolar
coagulation probe and the Hydromer grafted indwelling plastic biliary stent.
B. Sellers desire to sell the Acquired Products (defined below) and other
assets related thereto to Buyer, and Buyer desires to purchase such assets from
Sellers, in exchange for the consideration set forth herein, all upon the terms
and subject to the conditions of this Agreement.
C. Sellers desire to manufacture the Acquired Products and supply the
Acquired Products to Buyer during the period beginning on the Closing Date and
ending on the date Buyer can successfully and independently manufacture the
Acquired Products in accordance with the standards set forth herein.
D. Sellers and Buyer are willing to make certain representations,
warranties, covenants and agreements in connection with such sale, purchase and
supply.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows:
1. Definitions. For purposes of this Agreement, the following terms have
the meanings set forth below:
"Acquired Assets" means each of the following, as of the Closing Date (a)
all right, title, and interest in and to all of the assets owned by Sellers
described on Exhibit A, whether in the possession of Seller or in the possession
of a third party; (b) all Inventory and similar items related to the Acquired
Products; (c) all Manufacturing Assets; (d) all Acquired Intellectual Property;
(e) all worldwide regulatory documentation and submissions with associated
approval documentation, including without limitation FDA 510(k) registrations,
pre-market notifications, approvals, clearances, applications, extensions,
renewals, and CE dossiers and registrations exclusively related to the Acquired
Products (together "Regulatory Documentation"); (f) all approvals, permits,
licenses, orders, registrations, certificates, variances, and similar rights
obtained from governments and governmental agencies within the United States and
foreign jurisdictions related exclusively to the Acquired Products; (g) books,
records, ledgers, files, documents, correspondence, lists, plans, drawings, and
specifications related to the Acquired Intellectual Property, including without
limitation all regulatory filings and filing histories; (h) all creative
materials, advertising and promotional materials, designs, studies, reports, and
other printed, video, electronic or written materials and all packaging related
exclusively to the Acquired Products; (i) all customer, vendor and supplier
lists for all orders of the Acquired Products, order histories and contact
information of such customers, complaint files, sterilization validations and
all other information related to the Acquired Products; (j) all goodwill related
exclusively to the Acquired Assets; and (k) the Acquired Contracts.
"Acquired Contracts" means all contracts, leases, licenses and other
agreements or arrangements of Sellers related exclusively to the Acquired
Products, all of which are listed on Section 3(i) of the Disclosure Schedule.
"Acquired Products" shall mean the endoscopic bipolar coagulation probe
specifically defined by FDA 510K numbers k912129/A & k921029 and Hydromer
grafted plastic indwelling biliary stent specifically defined by FDA 510K number
k901582.
"Acquisition Proposal" shall mean any proposal or offer made by any Person
other than the Buyer or any Affiliate thereof to acquire any of the Acquired
Assets.
"Adverse Consequences" means all damages, dues, penalties, fines, costs,
amounts paid in settlement, obligations, taxes, Encumbrances, losses or fees,
together with all reasonable expenses and fees, including without limitation
court costs and attorneys' fees and expenses, arising out of any actions, suits,
proceedings, hearings, official inquiries, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees or rulings.
"Acquired Intellectual Property" means all Intellectual Property embodied
in, used by, or otherwise related to the Acquired Assets, or otherwise owned or
used by Sellers in connection with the business of the Acquired Products,
including, but not limited to, the items described on Exhibit B (if any), but
excluding the Licensed Intellectual Property.
"Affiliate" has the meaning set forth in Rule 12b-2 of Regulation 12B
promulgated under the Securities Exchange Act.
"Assumed Liabilities" shall have the meaning set forth in Section 2(b)(i)
below.
"Closing" has the meaning set forth in Section 2(f) below.
"Closing Date" has the meaning set forth in Section 2(f) below.
"Confidential Information" means any information regarding the business
and affairs of Sellers or Buyer that is not generally available to the public on
the date hereto. Information that may be included in Confidential Information
includes, but is not limited to, matters of a technical nature (including
Intellectual Property, know-how, computer programs, software, patented and
unpatented technology, source-code, accounting methods, and documentation),
matters of a business nature (such as information about contract forms, costs,
profits, employees, promotional methods, markets, market or marketing plans,
sales, and client accounts), plans for further development, and any other
information meeting the definition of Confidential Information set forth above.
"ConMed" means ConMed Corporation, a New York corporation having a
principal place of business at 523 French road, Utica, New York 13502.
"ConMed Agreement" means that certain Distribution Agreement, dated July
15, 2003, entered into by and between Biosearch and C.R. Bard, Inc., a New
Jersey corporation, and subsequently assigned to ConMed pursuant to that certain
Assignment and Assumption Agreement in the form of a letter dated September 10,
2004, between C.R. Bard, Inc. and ConMed.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Encumbrance" shall mean any mortgage, pledge, assessment, security
interest, deed of trust, lease, lien, adverse claim, levy, charge or other
encumbrance of any kind, or any conditional sale or title retention agreement or
other agreement to give any of the foregoing in the future.
"Excluded Liabilities" shall have the meaning set forth in Section
2(b)(ii) below.
"Governmental Authority" means any government, state, commonwealth or any
subdivision thereof, whether domestic, foreign or multinational, or any agency,
authority, bureau, commission, department or similar body or instrumentality
thereof, or any governmental court or tribunal, and any self-regulatory agency,
industry group or other governing body or authority.
"Indemnified Party" has the meaning set forth in Section 8(c) below.
"Indemnifying Party" has the meaning set forth in Section 8(c) below.
"Intellectual Property" means (a) inventions (whether patentable or
unpatentable, whether or not reduced to practice, and whether or not the subject
of any patent applications) and any additions and improvements thereto; (b)
patents, patent rights, patent disclosures, utility models, certificates of
invention, statutory invention registrations, and applications for any of the
foregoing, together with any reissuances, continuations, continuations in part,
revisions, extensions, divisions, renewals, or reexaminations of any of the
foregoing (each a "Patent"), (c) trademarks, service marks, trade dress, logos,
trade names, Internet domain names and URLs, and corporate names, together with
any translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and any applications,
registrations, and renewals in connection therewith (each, a "Trademark"); (d)
works of authorship in whatever form or medium, any copyrights therein (whether
registered or unregistered), and any applications, registrations, and renewals
relating thereto (each, a "Copyright"); (e) trade secrets and Confidential
Information, including but not limited to ideas, research and development,
know-how, formulas, processes, protocol, compositions, manufacturing and
production processes and techniques, sterilization processes and validation
information, procedures, devices, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals; (f) mask works;
(g) any other proprietary rights in information and technology, including
without limitation any pre-clinical and clinical data and information; (h)
copies and tangible embodiments of any of the foregoing in whatever form or
medium; (i) legal and equitable remedies for past, present, and future
infringements, misappropriations, misuses, dilutions, and other violations of
any of the foregoing; and (j) rights, title, and interests in and to any of the
foregoing provided by any treaty, statute, convention, common law, regulation,
or any other Law.
"Inventory" means the finished goods inventory, work-in-process inventory
and raw materials (including without limitation, packaging, boxes and labels)
related to the Acquired Products set forth on Exhibit A, which Exhibit will be
updated as of Closing and as of the Manufacturing Date (or such later date that
the Transition Condition is satisfied).
"Laws" means all federal, state, municipal, foreign, and international
laws, rules, regulations, codes, statutes, constitutions, ordinances,
directives, treaties, proclamations, conventions, and orders, and all judicial,
quasi-judicial and administrative and other official interpretations of any of
the foregoing.
"License Agreement" shall mean the license agreement attached hereto as
Exhibit F.
"Licensed Intellectual Property" shall have the meaning set forth in the
License Agreement.
"Liability" means any liability, obligation, debt, demand, claim, expense
or commitment (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due).
"Manufacturing Assets" means that certain equipment, machinery, fixtures,
molds, tools, dies and other tangible assets used by Sellers to manufacture
Acquired Products set forth on Exhibit A.
"Manufacturing Date" has the meaning set forth in Section 2(c)(ii) below.
"Manufacturing Equipment" has the meaning set forth in Section 7(e)(iv)
below.
"Material Adverse Effect" means, with respect to Sellers, an effect or
effects which, individually or in the aggregate, (i) is materially adverse to
the business, financial condition, assets, or operations of the Sellers'
business related to the sale of Acquired Products, (ii) materially affects the
Sellers' ability to consummate the Transactions, or (iii) could reasonably have
an adverse economic effect on the Acquired Assets of $50,000 or more, and, with
respect to Buyer, an effect or effects which, individually or in the aggregate,
materially affects Buyer's ability to consummate the Transactions.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity,
frequency and price).
"Parties" collectively refers to Sellers and Buyer, and "Party" refers to
Buyer or either of the Sellers individually, as applicable.
"Person" means an individual, a partnership, a limited liability company,
limited partnership, a limited liability partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Purchase Price" has the meaning set forth in Section 2(c) below.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Sellers' knowledge" is applicable to certain of those warranties and
representations set forth in Section 3 of this Agreement or elsewhere in this
Agreement, which are subject to the qualification "to Sellers' knowledge" or "to
the knowledge of Sellers," or otherwise limited to matters "known" to Sellers.
Sellers will be deemed to have "knowledge" of a matter if the executive officers
of the Sellers had knowledge of such matter or would have acquired such
knowledge had he or she inquired at or prior to that time as to such subject
matter to those of Sellers' employees that would be expected to have knowledge
of such subject matter in the course of performing their duties for the Sellers.
"Specifications" shall mean Sellers' design, packaging and labeling
specifications and quality assurance procedures for the Acquired Products,
current as of the Closing, as the same may from time to time thereafter be
modified as required by law or as reasonably requested by Buyer or Sellers.
"Stent Products" means the grafted biliary stent products listed on Exhibit A
hereto.
"Third Party Claim" has the meaning set forth in Section 8(c)(i) below.
"Transaction Documents" means this Agreement, the Bill of Sale, the
Assignment of Contracts, the License Agreement, the Sellers' Non-Compete
Agreement and any other document, schedule, letter, certificate or agreement
attached hereto as an Exhibit or delivered pursuant to this Agreement or in
connection with the transactions described herein.
"Transactions" means the transactions provided for or contemplated by this
Agreement and the other Transaction Documents.
"Transition Condition" means the date upon which Buyer reasonably
determines that (i) Buyer can successfully and independently manufacture and
produce the Acquired Products in accordance with the standards set forth in
Section 7(e)(iv) below, and (ii) Sellers have satisfied its obligations set
forth in Section 7 and Section 9 herein.
"Transition Period" means the period beginning on the Closing Date and
ending on the date the Transition Condition is satisfied.
2. Basic Transactions.
(a) Transactions. On and subject to the terms and conditions of this
Agreement:
(i) Purchase and Sale of Acquired Assets. Buyer agrees to
purchase from Sellers, and Sellers agree to sell, transfer, convey, assign and
deliver to Buyer, title to and ownership of, all of the Acquired Assets at the
Closing other than the Regulatory Documentation, for the consideration specified
below in this Section 2. Title to the Acquired Assets, except for the Regulatory
Documentation, shall pass to Buyer at the Closing. Title to the Regulatory
Documentation shall pass to Buyer at such time as the Transition Condition is
satisfied. All risk of loss related to the Acquired Assets shall pass to Buyer
upon delivery to a mutually agreed upon transportation agent for delivery to
Buyer, or if such assets are in the hands of a third party where they are
intended to remain, risk of loss shall pass upon transfer of title. The Parties
intend for all of the Acquired Assets to be transferred to Buyer, whether owned
by Sellers, Sellers' Affiliates or otherwise, and Sellers agree to cause all of
the Acquired Assets to be sold, transferred, conveyed, assigned and delivered to
Buyer in accordance with the terms of this Agreement.
(ii) Supply Agreement. Sellers agree to manufacture the
Acquired Products for, and supply the Acquired Products to, Buyer according to
the terms in Section 9 and Exhibit H of this Agreement.
(iii) License Agreement. Sellers agree to license to Buyer the
Licensed Intellectual Property pursuant to, and on the terms and conditions set
forth in, the License Agreement.
(b) Assumption/Exclusion of Liabilities.
(i) Assumed Liabilities. Subject to the conditions specified
in this Agreement, on the Closing Date, Buyer will assume and agree to pay,
defend, discharge and perform as and when due only the liabilities and
obligations under the Acquired Contracts ("Assumed Liabilities"), if any,
arising or accruing only after the Closing Date, but only to the extent that
Sellers' rights and benefits under such Acquired Contracts are validly assigned
to Buyer pursuant to this Agreement. Additionally, "Assumed Liabilities" shall
include the Liabilities that relate to the Regulatory Documentation.
(ii) Excluded Liabilities. Notwithstanding anything to the
contrary contained in this Agreement, Buyer will not assume or be liable for,
and will have no responsibility related to, any Liabilities of Sellers of any
kind or nature, other than the Assumed Liabilities.
(iii) Responsibility for Assumed Liabilities. Buyer agrees
to assume and become responsible for all of the Assumed Liabilities at the
Closing, except for those Assumed Liabilities that relate to the Regulatory
Documentation. Buyer agrees to assume and become responsible for the Assumed
Liabilities related to the Regulatory Documentation upon the date that Buyer can
successfully and independently manufacture and produce the Acquired Products in
accordance with the standards set forth in Section 7(e)(iv) below.
(c) Consideration Provided by Buyer for Acquired Assets. Subject to
the terms and conditions of this Agreement, including, without limitation, the
provisions of Section 2(d) below, as total consideration for the Acquired
Assets, Buyer shall pay Sellers an aggregate of One Million Six Hundred Thousand
Dollars ($1,600,000) (the "Purchase Price"), as follows:
(i) Buyer shall deliver to Sellers, at the Closing, One
Million Sixty-Six Thousand Six Hundred Sixty-Seven Dollars ($1,066,667.00) by
wire transfer in accordance with Sellers' wiring instructions; and
(ii) Buyer shall pay to Sellers Five Hundred Thirty-Three
Thousand Three Hundred Thirty-Three Dollars ($533,333.00) on the earlier of (A)
five (5) days following the date that the Transition Condition has occurred, or
(B) June 30, 2009 (the "Manufacturing Date").
(d) ConMed Distribution Agreement Conditions. In the event that
Sellers are unable to obtain the consent of ConMed to the assignment of the
ConMed Agreement to Buyer prior to Closing, then:
(i) Sellers shall provide ConMed written notice of its intent
not to renew the ConMed Agreement pursuant to the terms thereof;
(ii) Buyer shall be relieved of its obligation to comply with
the covenant to provide the Acquired Products set forth in the last sentence in
Section 7(c) below solely with respect to Stent Products; and
(iii) Buyer's obligations with respect to the payment and
delivery of the Purchase Price under Section 2(c) above shall be modified such
that the portion of the Purchase Price to be delivered at the Closing shall be
reduced by Seventy Four Thousand Five Hundred Ninety Four Dollars ($74,594) and
the portion of the Purchase Price to be delivered upon the Manufacturing Date
(or such later date as provided in Section 2(c)(ii) above) shall be increased by
Seventy Four Thousand Five Hundred Ninety Four Dollars ($74,594).
(e) Allocation of Purchase Price. The Purchase Price shall be
allocated among the Acquired Assets as set forth on Exhibit C attached hereto
and made a part hereof. Buyer will allocate the Purchase Price among the
Acquired Assets in a reasonable manner in accordance with Section 1060 of the
Internal Revenue Code and the regulations thereunder, based on the relative fair
market values of the Acquired Assets, which Buyer shall complete and deliver to
Sellers within 90 days following the Closing. In the event that Sellers
reasonably disagree with the proposed allocation, the Parties will work and
negotiate in good faith to resolve any disputes and finalize such allocation as
soon as possible thereafter. Buyer and Sellers will file all of their tax
returns consistent with the foregoing allocation and will not take any position
inconsistent with such allocation on any tax return or in any tax audit or
tax-related proceeding.
(f) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of the Buyer,
commencing at 10:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the Transactions (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date, time and
place as Buyer and Sellers may mutually determine (the "Closing Date"). The
Parties shall use commercially reasonable efforts to cause the Closing to occur
by February 27, 2009.
(g) Deliveries at the Closing. At the Closing, (i) Sellers will
deliver to Buyer (or cause its Affiliates to deliver to Buyer) the various
certificates, instruments, and documents referred to in Section 5(a) below; (ii)
Buyer will deliver to Sellers the various certificates, instruments, and
documents referred to in Section 5(b) below; and (iii) Buyer will deliver to
Sellers the consideration specified in Section 2(c)(i) above.
3. Representations and Warranties of Sellers. Except as otherwise set
forth in the disclosure schedule delivered by Sellers to Buyer on the date
hereof (the "Disclosure Schedule"), each Seller jointly and severally represents
and warrants to Buyer on the date hereof and on the Closing Date (as though made
on the Closing Date and as though the Closing Date were substituted for the date
of this Agreement throughout this Section 3) as follows:
(a) Organization of Seller. Sellers are corporations duly organized,
validly existing and in good standing under the laws of the respective
jurisdiction of their incorporation. Each Seller has full corporate power and
authority to (i) carry on the business in which it is engaged, and (ii) to own
and use the properties owned and used by it.
(b) Authorization of Transaction. Each Seller has full corporate
power and authority to execute and deliver this Agreement and Transaction
Documents to which it is a party and to perform their obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and the
Transaction Documents by each Seller and the consummation of the Transactions
have been duly and validly authorized by all necessary corporate action on the
part of each Seller and no other corporate proceedings on the part of either
Seller are necessary to authorize this Agreement or any of the Transaction
Documents or to consummate any of the Transactions. This Agreement and the other
Transaction Documents to which a Seller is a party, assuming the due
authorization, execution and delivery hereof and thereof by Buyer hereto and
thereto, constitute the valid and legally binding obligations of such Seller, as
applicable, enforceable against such Seller in accordance with their terms and
conditions, except as enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting or relating to the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability.
(c) Noncontravention. Neither the execution and delivery of this
Agreement nor any of the other Transaction Documents to which a Seller is a
party, nor the consummation of the Transactions, will (i) violate any Law or
other restriction of any Governmental Authority to which a Seller is subject or
any provision of the charter or bylaws (or any other governance document) of a
Seller or (ii) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract, lease, license, instrument, or other arrangement to which a Seller is
a party or by which it is bound or to which any of the Acquired Assets is
subject (or result in the imposition of any Encumbrance upon any of the Acquired
Assets), or (iv) require a Seller to obtain or make any waiver, consent, action,
approval or authorization of, or registration, declaration, notice or filing
with, any Governmental Authority or private non-governmental third-party.
Section 3(c) of the Disclosure Schedule sets forth each consent required from a
third party in order for a Seller to consummate the Transactions (including to
sell and assign the Acquired Assets to Buyer free and clear of any Encumbrance)
or where such consent is required by the terms of an Assumed Contract or other
Acquired Assets.
(d) Title to Assets; Sufficiency of Assets. A Seller owns, and has
good and marketable title to, all of the Acquired Assets, free and clear of any
Encumbrance or other restriction on transfer. The Acquired Assets are adequate
for the uses to which they are being put, have been maintained in accordance
with normal industry practice and are in good operating condition and repair
(ordinary wear and tear excepted). All of the Inventory being transferred to
Buyer as part of the Acquired Assets meets all specifications required of such
products and has been properly sterilized and packaged. At the Closing, Sellers
will convey to Buyer good and marketable title to all of the Acquired Assets,
free and clear of any Encumbrance or other restriction on transfer.
(e) No Adverse Change. Except as set forth on Section 3(e) of the
Disclosure Schedule, since January 1, 2008, there has not been any Material
Adverse Effect on the business, financial condition, operations, results of
operations, or future prospects of Sellers with respect to the business of the
Acquired Products. Without limiting the generality of the foregoing, since that
date, with respect to the Acquired Products:
(i) No Seller has sold, leased, transferred, or assigned any
of the Acquired Assets, other than in the Ordinary Course of Business;
(ii) No Seller has granted any license or sublicense or any
rights under or with respect to any Acquired Intellectual Property;
(iii) No Seller has committed to any of the foregoing; and
(iv) No Seller has experienced any damage, destruction, or
loss (whether or not covered by insurance) to its tangible Acquired Assets.
(f) Legal Compliance. Each Seller and each of its respective
predecessors and Affiliates has complied with all applicable Laws of any
Governmental Authority related to the Acquired Assets, except for violations
which, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect. No Seller has received any written notice or other communication
from any Governmental Authority regarding any actual or potential violation of,
or failure to comply with, any applicable Laws, as the same related to the
Acquired Assets, and no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, or notice has been filed or commenced against
a Seller or any of its predecessors or Affiliates alleging any failure to so
comply.
(g) Intellectual Property.
(i) A Seller owns or has the right to use pursuant to
license, sublicense, agreement, or permission (and the details of any such
license, sublicense or permission are set forth on the Disclosure Schedule) all
Acquired Intellectual Property. A Seller has taken all necessary action to
maintain and protect its rights in each item of Acquired Intellectual Property,
and the confidentiality of each such item to the extent Seller owns such item,
or to the extent Seller does not own such item, to the extent a Seller is
obligated to protect such item's confidentiality or other rights a Seller may
have in such Acquired Intellectual Property, except where a failure to do so
would not have a Material Adverse Effect. No Seller is aware of any information,
materials, facts or circumstances, including any information or fact that would
constitute prior art, that would render any Registered Intellectual Property
invalid or unenforceable.
(ii) No Seller has infringed upon, misappropriated, misused,
diluted or otherwise violated any Intellectual Property rights of any Person
with respect to the Acquired Products, none of the officers or directors (or
employees with responsibility for Intellectual Property matters) of the Sellers
has ever received any charge, complaint, claim, demand, or notice alleging any
such infringement, misappropriation, misuse, dilution or other violation of any
Person's Intellectual Property (including, without limitation, any claim that a
Seller must license or refrain from using any Intellectual Property of any
Person). The Acquired Intellectual Property does not infringe upon,
misappropriate, misuse, dilute, or otherwise violate any Intellectual Property
rights of any Person. To the best knowledge of the Sellers, no Person is
infringing upon, misappropriating, misusing, diluting, or otherwise violating
any Acquired Intellectual Property.
(iii) Section 3(g)(iii) of the Disclosure Schedule
identifies each Patent, Copyright registration, Trademark registration and other
certificate and registration that has been issued to a Seller or any Affiliate
of a Seller or any third party with respect to any of the Acquired Intellectual
Property, identifies each pending application for a Patent, Copyright
registration, Trademark registration, and other certificate and registration
that a Seller or any other Person has made with respect to any of the Acquired
Intellectual Property, and identifies each license, sublicense, agreement, and
other permission which a Seller has granted to any Person with respect to any of
the Acquired Intellectual Property (together with any exceptions). Sellers have
delivered to Buyer correct and complete copies of all such Patents, Copyright
registrations, Trademark registrations, other certificates, registrations,
applications, licenses, sublicenses, agreements, and permissions (as amended to
date) and has made available to Buyer correct and complete copies of all other
written documentation evidencing ownership and prosecution (if applicable) of
each such item. With respect to each item of Intellectual Property required to
be identified in Section 3(g)(iii) of the Disclosure Schedule:
(A) A Seller possesses all right, title, and interest in
and to the item, free and clear of any Encumbrance, license, other restriction,
or viable claims of ownership by any Person, except for such licenses,
agreements, and other permissions that a Seller has granted to any Person with
respect to such item and that also are identified in Section 3(g)(iii) of the
Disclosure Schedule;
(B) the item is not subject to any binding outstanding
injunction, judgment, order, decree, or other ruling of any Governmental
Authority of competent jurisdiction;
(C) the item was validly acquired under applicable Laws
and remains valid, enforceable, and subsisting;
(D) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand has been initiated is pending or is
threatened that challenges the legality, validity, enforceability, use, or
ownership of the item;
(E) No Seller has any agreement to indemnify any Person
for or against any infringement, misappropriation, misuse, dilution or other
violation with respect to the item, except for agreements entered into with
suppliers or customers in the Ordinary Course of Business; and
(F) No Seller has committed any act or omission that
would result in the abandonment, cancellation, forfeiture, relinquishment,
invalidation or unenforceability of the item and Sellers are not aware of any
information, facts or circumstances that would otherwise render the item invalid
or unenforceable.
(iv) Section 3(g)(iv) of the Disclosure Schedule identifies
each item of Acquired Intellectual Property that any Person owns and that a
Seller uses pursuant to license, sublicense, agreement, or permission (other
than off-the-shelf software with a purchase or license price of less than
$5,000). Sellers have delivered to Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date). With
respect to each item of Acquired Intellectual Property required to be identified
in Section 3(g)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the consummation of the Transactions and the
Parties' performance as required under the Transaction Documents will not affect
the respective license's, sublicense's, agreement's, or permission's legality,
validity, binding nature, enforceability, or existence, and the same shall
remain in full force and effect on identical terms once assigned to Buyer;
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred that with notice
or lapse of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has informed any other party thereto that it repudiates any
provision thereof;
(E) with respect to each sublicense, the representations
and warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree, or other ruling
of any Governmental Authority of competent jurisdiction;
(G) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand has been initiated, is pending, or is
threatened that challenges the legality, validity, enforceability, use or
ownership of the underlying item of Acquired Intellectual Property;
(H) No Seller has not granted any sublicense or similar
right with respect to such license, sublicense, agreement, or permission; and
(I) No Seller is aware of any information, facts, or
circumstances that would enable the underlying item of Intellectual Property
invalid or unenforceable.
(v) Except as set forth on Section 3(g)(v) of the Disclosure
Schedule, all of the employees of the Sellers have entered into invention
assignment and confidentiality agreements under which such employees have
assigned to a Seller all of their right, title and interest in and to
Intellectual Property related to the Acquired Intellectual Property and agreed
not to use or disclose, other than for the benefit of Sellers or their
successors or assigns, any Confidential Information of Sellers that is included
in the Acquired Intellectual Property. Except as set forth on Section 3(g)(v) of
the Disclosure Schedule, all independent contractors and consultants of Sellers
who participated in the conception, creation, reduction to practice, or other
development of any Acquired Intellectual Property has entered into invention
assignment and confidentiality agreements under which such contractors and
consultants have assigned to Sellers all of their right, title and interest in
and to Intellectual Property related to the Acquired Intellectual Property and
have agreed not to use or disclose, other than for the benefit of Sellers or
their successors or assigns, any Confidential Information of Sellers that is
included in the Acquired Intellectual Property. No such employee, independent
contractor or consultant has breached any of the provisions of any such
agreement.
(vi) Sellers have undertaken their best efforts to enforce
their rights in all Acquired Intellectual Property or any Intellectual Property
related thereto.
(vii) Except as set forth on Section 3(g)(vii) of the
Disclosure Schedule, no filing, response, or payment must be made, within ninety
(90) days after the Closing Date, for Sellers to perfect, prosecute, protect,
maintain, or renew its rights in or to any item of Acquired Intellectual
Property.
(h) Environmental, Health, and Safety Matters. Each Seller and its
respective predecessors and Affiliates has complied with all applicable
environmental, health, and safety Laws the failure of which to comply with would
have an adverse effect on the Acquired Assets or which could create any
Encumbrance on the Acquired Assets. Without limiting the generality of the
foregoing, each Seller and its respective predecessors and Affiliates has
obtained and complied with all permits, certificates, licenses, filings,
approvals and other authorizations of any Governmental Authority that are
required pursuant to any applicable environmental, health, and safety Laws for
the operation of the Acquired Products business of Sellers.
(i) Contracts.
(i) Section 3(i) of the Disclosure Schedule lists the
following contracts and other agreements related to the Acquired Assets to which
a Seller is a party and which are being assigned to Buyer as part of the
Transactions or which would restrict, affect or impair, in any way, Buyer's
ability to manufacture, produce, distribute or sell the Acquired Products
following the Closing:
(A) any agreement (or group of related agreements) for
the lease of personal property to or from any Person that involves consideration
in excess of $5,000;
(B) any agreement (or group of related agreements) for
the purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the performance
of which will extend over a period of more than one year or involve
consideration in excess of $5,000;
(C) any agreement concerning a partnership or joint
venture;
(D) any agreement concerning confidentiality or imposing
any material restriction on the right of a Seller to compete with any other
Person which affects the Acquired Products;
(E) any agreement between a Seller and its Affiliates
related to the Acquired Products;
(F) any supply or vendor agreement under which a Seller
receives any services, goods, or other items the performance of which involves
consideration in excess of $5,000 related to the Acquired Products;
(G) any agreement under which the consequences of a
default or termination could have a Material Adverse Effect related to the
Acquired Products; and
(H) any agreement affecting the Acquired Intellectual
Property.
(ii) Sellers have delivered to Buyer a correct and complete
copy of each written agreement listed in Section 3(i) of the Disclosure Schedule
(as amended to date). With respect to each such agreement: (A) the agreement is
legal, valid, binding, enforceable, and in full force and effect; (B) the
agreement will continue to be legal, valid, binding, enforceable, and in full
force and effect on identical terms (other than the assignment of such Seller's
rights and obligations to the Buyer) following the consummation of the
Transactions; and (C) neither of the Sellers nor the other party or parties to
the agreement are in breach or default, no event has occurred which with notice
or lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement and no Seller has the present
expectation or intention of not fully performing all its respective obligations
under each such agreement prior to Closing. Where consent is required to the
assignment of such contract to Buyer, the applicable Seller has obtained such
consent in writing and will deliver a copy of such consent to Buyer prior to
Closing as further provided in Section 5(a)(iv) herein. No agreement or contract
that is material to the Acquired Assets is not included in the Acquired
Contracts.
(j) Litigation. Except as otherwise set forth on Section 3(j) of the
Disclosure Schedule, there is no litigation or governmental proceeding or
investigation pending or, to Sellers' knowledge, threatened against either
Seller affecting any of the Acquired Assets, nor to the Sellers' knowledge has
there occurred any event or does there exist any condition on the basis of which
any such litigation, proceeding or investigation might properly be instituted
against a Seller related to the Acquired Assets. No Seller is in default with
respect to any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other Governmental Authority related to the Acquired
Assets. There are no actions, suits, claims, investigations or proceedings
pending or, to Sellers' knowledge, threatened, against a Seller related to the
Acquired Assets that would reasonably be expected to result, either in any case
or in the aggregate, in a Material Adverse Effect or affect the rights of Buyer
in the Acquired Assets or the ability of Buyer to manufacture, distribute, sell
or otherwise dispose of the Acquired Products. The foregoing sentences include,
without limiting their generality, actions pending or, to Sellers' knowledge,
threatened against either Seller involving the employment (prior or present) of
any of Sellers' officers' or employees' use of any information or techniques
related to the Acquired Assets allegedly proprietary to such officer or
employee.
(k) Product Warranty. Except as set forth on Section 3(k) of the
Disclosure Schedule, the Acquired Products have been manufactured, sold and
delivered by Sellers in conformity with all applicable Laws of all Governmental
Authorities, contractual commitments and all warranties to which such products
are subject. No Acquired Product manufactured, sold or delivered by Sellers are
subject to any guaranty, warranty, or other indemnity beyond the standard terms
and conditions of sale of Sellers applicable to such product. Section 3(k) of
the Disclosure Schedule includes copies of the Sellers' standard terms and
conditions of sale for all Acquired Products.
(l) Product Liability. Sellers do not have any Liability (and, to
Sellers' knowledge, there is no basis for any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any Seller or its
respective Affiliates giving rise to any Liability) arising out of any injury to
individuals as a result of such individuals' use of any Acquired Product
manufactured, sold or delivered by either Seller.
(m) Customers and Suppliers.
(i) During the twelve (12) month period ending on the date
hereof, there has not been any material interruption in the provision by Sellers
of Acquired Products to customers.
(ii) Section 3(m)(ii) of the Disclosure Schedule contains a
list of all suppliers and vendors of the Acquired Products to which Sellers paid
or were obligated to pay in excess of $5,000 during the 12-month period prior to
the date hereof, together with complete contact information, list of items
supplied and the amount of expense incurred to such vendor or supplier during
that period.
(iii) Section 3(m)(iii) of the Disclosure Schedule contains a
listing of all joint marketers, distributors, resellers and any other third
parties who sell Acquired Products for Sellers, together with complete contact
information for each such Person, a description of the relationship and
compensation paid to each such Person for such services.
(iv) Section 3(m)(iv) of the Disclosure Schedule contains a
list of all customers who have purchased any of the Acquired Products in the
last 24 months and their complete order history and contact information.
(n) Pre-Closing Representations.
(i) Operation of Acquired Products Business. Since January 1,
2008, no Seller has engaged in any practice, taken any action, or entered into
any transaction outside the Ordinary Course of Business with respect to the
manufacture, distribution or sale of the Acquired Products. Since January 1,
2008, the Inventory has been sold only at normal prices and only to fill
existing orders or orders solicited in the Ordinary Course of Business.
(ii) Preservation of Acquired Products Business. Since January
1, 2008, Sellers have used commercially reasonable efforts to keep the business
and properties substantially intact with respect to the manufacture,
distribution and sale of Acquired Products, including its present relationships
with licensors, licensees, vendors, manufacturers, suppliers and customers.
(o) Broker Fees. No Seller has any Liability or obligation to pay
any fees or commissions to any broker, finder, agent or investment banker with
respect to the Transactions.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants
to Sellers as follows:
(a) Organization of Buyer. Buyer is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Utah.
(b) Authorization of Transaction. Buyer has full corporate power and
authority to execute and deliver this Agreement and the other Transaction
Documents to which it is a party and to perform its obligations hereunder and
thereunder. This Agreement and the other Transaction Documents to which Buyer is
a party, assuming the due authorization, execution and delivery hereof and
thereof by Sellers and any other parties hereto and thereto, constitute the
valid and legally binding obligation of Buyer, enforceable against Buyer in
accordance with their terms and conditions, except as enforceability may be
limited by applicable bankruptcy, insolvency or similar laws affecting or
relating to the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
(c) Noncontravention. Neither the execution and the delivery of this
Agreement or the other Transaction Documents to which Buyer is a party, nor the
consummation of the transactions contemplated hereby and thereby, will (i)
violate any Law or other restriction of any Governmental Authority to which
Buyer is subject or any provision of its charter or bylaws (or any other
governance document) or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
Buyer is a party or by which it is bound or to which any of its assets is
subject.
(d) Brokers' Fees. Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, agent or investment banker with
respect to the Transactions.
(e) Financial Status. Buyer has the financial resources and ability
to satisfy its financial obligations under this Agreement and to discharge all
Assumed Liabilities in accordance with Buyer's obligations in connection
therewith.
5. CONDITIONS TO CLOSING.
(a) Conditions to Obligation of Buyer. Buyer's obligation to
consummate the Transactions in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
3 above shall be true and correct in all material respects at and as of the
Closing Date, except to the extent that such representations and warranties are
qualified by the term "material" or contain terms such as "Material Adverse
Effect, " in which case such representations and warranties (as so written,
including the term "material" or "Material Adverse Effect," as applicable) shall
be true and correct in all respects at and as of the Closing Date;
(ii) Sellers shall have performed and complied in all
material respects with all of their covenants hereunder that are to be performed
prior to Closing, except to the extent that such covenants are qualified by the
term "material," or contain terms such as "Material Adverse Effect," in which
case Sellers shall have performed and complied with all of such covenants (as so
written, including the term "material" or "Material Adverse Effect," as
applicable) in all respects through the Closing;
(iii) Since the date of this Agreement, there shall not have
occurred any Material Adverse Effect with respect to the Acquired Assets that
shall not have been cured prior to the Closing Date;
(iv) Sellers shall have received any required
authorizations, consents, and approvals referred to in Section 3(c) and Section
3(i)(ii) above, and Sellers, at the Closing, will use best faith efforts to
deliver a copy of all such required consents to Buyer;
(v) Sellers may deliver to Buyer a certificate executed by
their respective Presidents or Chief Executive Officers to the effect that each
of the conditions specified above in Section 5(a)(i)-(iv) is satisfied in all
respects;
(vi) no action, suit, or proceeding shall be pending or
threatened before any court or Governmental Authority or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the Transactions, (B) cause any of the
Transactions to be rescinded following their consummation, or (C) affect
adversely the right of Buyer to own the Acquired Assets (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect), and no
Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any injunction, order, decree, ruling or other legal restraint or
prohibition (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making consummation of the Transactions illegal or
prohibiting consummation of the Transactions;
(vii) all regulatory approvals and licenses required to
consummate the Transactions shall have been obtained and shall remain in full
force and effect and any statutory waiting periods in respect thereof shall have
expired or been terminated;
(viii) there shall have been no amendments, supplements or
updates to the Disclosure Schedule, the aggregate effects of which could
reasonably be expected to result in a Material Adverse Effect;
(ix) Sellers, and the other parties thereto, other than
Buyer, shall have executed and delivered at Closing, the
(A) the Bill of Sale attached hereto as Exhibit D (the
"Bill of Sale"),
(B) the Assignment and Assumption of Acquired Contracts
attached hereto as Exhibit E (the "Assignment of Contracts"),
(C) the License Agreement attached hereto as Exhibit F
(the "License Agreement"),
(D) the Non-Compete Agreement with Seller attached
hereto as Exhibit G (the "Seller Non-Compete Agreement"); and
(E) all other documents and instruments of assignment
necessary to transfer all Acquired Assets to Buyer; and
(x) All actions to be taken by Sellers in connection with
consummation of the Transactions and all certificates, opinions, instruments,
and other documents required to effect the Transactions will be reasonably
satisfactory in form and substance to Buyer.
Buyer may waive any condition specified in this Section 5(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of Sellers. The obligation of Sellers
to consummate the Transactions in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the representations and warranties set forth in Section
4 above shall be true and correct in all material respects at and as of the
Closing Date, except to the extent that such representations and warranties are
qualified by the term "material" or contain terms such as "Material Adverse
Effect," in which case such representations and warranties (as so written,
including the term "material" or "Material Adverse Effect," as applicable) shall
be true and correct in all respects at and as of the Closing Date;
(ii) Buyer shall have performed and complied in all material
respects with all of its covenants hereunder that are to be performed prior to
Closing, except to the extent that such covenants are qualified by the term
"material," or contain terms such as "Material Adverse Effect," in which case
Sellers shall have performed and complied with all of such covenants (as so
written, including the term "material" or "Material Adverse Effect") in all
respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or Governmental Authority or before any arbitrator
wherein an unfavorable injunction, judgment, order, decree, ruling, or charge
would (A) prevent consummation of any of the Transactions, (B) cause any of the
Transactions to be rescinded following their consummation, or (C) affect
adversely the right of Buyer to own the Acquired Assets (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect), and no
Governmental Authority shall have enacted, issued, promulgated, enforced or
entered any injunction, order, decree, ruling or other legal restraint or
prohibition (whether temporary, preliminary or permanent) which is then in
effect and has the effect of making consummation of the Transactions illegal or
prohibiting consummation of the Transactions;
(iv) Buyer may have executed and delivered the Assignment of
Contracts; and
(v) all actions to be taken by Buyer in connection with the
consummation of the Transactions and all certificates, instruments of
assumption, opinions, instruments and other documents required to effect the
Transactions will be reasonably satisfactory in form and substance to Sellers.
6. PRE-CLOSING COVENANTS. Prior to the Closing Date or termination of this
Agreement pursuant to Section 10:
(a) General. Each of the Parties will use all commercially
reasonable efforts to take all actions and to do all things necessary, proper or
advisable in order to consummate and make effective the Transactions (including
the satisfaction, but not waiver, of the conditions to Closing set forth in
Section 5 above). These efforts shall include the Parties cooperating with one
another to obtain any necessary consents or authorizations from any private
party or Governmental Authority necessary in connection with the transfer of the
Acquired Assets from Sellers to Buyer
(b) Notices and Consents. Sellers may give any notices to third
parties, and shall obtain any third party consents referred to in Section 3(c)
above
(c) Operation of Business. Sellers will not engage in any practice,
take any action or enter into any transaction outside the Ordinary Course of
Business with respect to the Acquired Assets without the consent of Buyer, which
shall not be unreasonably withheld. Sellers shall use reasonable commercial
efforts to (A) preserve intact the business organization with respect to the
Acquired Products in all material respects, (B) preserve the current business
relationships of Sellers with customers, vendors, distributors, suppliers,
licensors, licensees, contractors and other Persons to the extent Sellers have
material business relations with any of such enumerated parties related to the
Acquired Products, (C) maintain the Acquired Assets in good repair and condition
in all respects (ordinary wear and tear excepted) other than those disposed of
in the Ordinary Course of Business, (D) maintain all insurance policies in force
as of the date of this Agreement and necessary to the conduct of the Acquired
Products business as currently conducted, (E) maintain the books of account and
records related to the Acquired Assets in the usual, regular and ordinary
manner, and (F) maintain, enforce and protect all of Sellers' rights in the
Acquired Intellectual Property in a manner consistent in all respects with past
custom and practice. By way of amplification and not limitation, except as
expressly contemplated by this Agreement or any of the Transaction Documents,
and except as otherwise required in order to effect the Transactions, Sellers
shall not, between the date of this Agreement and the Closing, directly or
indirectly do, or propose to do, any of the following without the prior written
consent of Buyer: (H) sell, dispose of or cause an Encumbrance upon, or
authorize the sale, disposition or Encumbrance upon, of any portion of the
Acquired Assets except in the Ordinary Course of Business, (I) enter into any
agreement that is reasonably likely to be materially adverse to the business of
Sellers as related to the Acquired Products business, (J) license, assign or
otherwise transfer to any Person any rights to any Acquired Intellectual
Property or fail to maintain, enforce, defend or protect any Acquired
Intellectual Property, (K) settle any action, claim, dispute or suit with any
third party or Governmental Authority relating to the Acquired Assets, the
Transaction Documents or the Transactions, (L) take, commit to take, or fail to
take any action that would (1) make any representation or warranty of Sellers in
this Agreement inaccurate in any material respect at, or as of any time prior
to, the Closing (except for those representations or warranties that address
matters only as of a particular date or only with respect to a specified period
of time, which need only be true and correct in all material respects as of such
date or with respect to such period of time), or (2) impair the ability of
Sellers or Buyer to consummate the Transactions in accordance with the terms
hereof or delay such consummation, or (M) authorize or agree to take and of the
foregoing actions prohibited under this Section 6(c).
(d) Full Access. Sellers shall permit representatives of Buyer
(including legal counsel and accountants) to have full access at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of Sellers, to all premises, assets, properties, personnel, books,
records, agreements and documents of or pertaining to the Acquired Assets.
(e) Notice of Developments. Each Party shall give prompt written
notice to the other Party of any development that would reasonably be expected
to result in a Material Adverse Effect on such Party.
(f) No Participation or Solicitation of Competing Transaction. From
the date of this Agreement until the Closing or, if earlier, the termination of
this Agreement in accordance with its terms, Sellers (whether directly or
indirectly through advisors, agents or other intermediaries) will cause their
respective Affiliates, officers, directors, advisors, shareholders,
representatives and other personnel and agents not to, directly or indirectly,
(i) solicit, initiate or knowingly encourage, or take any other action to
facilitate, any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Acquisition Proposal, (ii) participate or
engage in discussions or negotiations with, or disclose or provide any
non-public information relating to the Acquired Assets or afford access to the
properties, books or records of Sellers related to the Acquired Assets to, any
Person that has made an Acquisition Proposal or with or to any Person
contemplating making an Acquisition Proposal, or (iii) enter into any agreement
or arrangement providing for or relating to an Acquisition Proposal. Sellers
shall immediately cease and cause to be terminated and shall cause their
respective Affiliates and their respective officers, directors, employees,
shareholders, managers, representatives and other personnel and agents, to
terminate all existing discussions and negotiations that any such persons
conducted heretofore with respect to, or that could reasonably be expected to
lead to, an Acquisition Proposal.
(g) Completion of Non-assignable Agreements. Sellers shall use all
commercially reasonable efforts to obtain any consent, approval or amendment
required to negotiate and/or assign any contract or agreement included in the
Acquired Assets, including without limitation the ConMed Agreement, or any other
Acquired Asset to be Assigned to Buyer hereunder, and Buyer shall use its
commercially reasonable efforts to fulfill Sellers' obligations under such
contracts. Sellers shall keep Buyer reasonably informed from time to time of the
status of the foregoing and Buyer shall cooperate with Sellers in this regard.
To the extent that the rights of Sellers under any contract or agreement
included in the Acquired Assets, or under any other Acquired Asset to be
assigned to Buyer hereunder, may not be assigned without the consent of another
Person which has not been obtained prior to Closing, this Agreement shall not
constitute an agreement to assign the same if an attempted assignment would be
unlawful or would result in a breach of contract. If any such consent has not
been obtained or if any attempted assignment would be ineffective or would
impair Buyer's rights under the instrument in question so that Buyer would not
acquire the benefit of all such rights, then Sellers, to the maximum extent
permitted by Law and the instrument, and subject to the provisions of Section
2(d) above with respect to the ConMed Agreement, shall act as Buyer's agent in
order to obtain for Buyer the benefits thereunder and the Parties shall
cooperate, to the maximum extent permitted by Law and the instrument, with each
other in any other reasonable arrangement designed to provide such benefits to
Buyer.
7. POST-CLOSING COVENANTS. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case within seven (7) years after the Closing any
further action is necessary or desirable to carry out the purposes of the
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as the other
Party reasonably may request, all at the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Section 8 below).
(b) Litigation Support. Subject to the indemnification obligations
under this Agreement, in the event and for so long as any Party actively is
contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any of
the Transactions or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act,
or transaction on or prior to the Closing involving any of Buyer or Sellers, the
other Party will reasonably cooperate with the contesting or defending Party and
its counsel in the contest or defense, make available its personnel during
normal business hours, and provide such testimony and access to its books and
records during normal business hours as shall be reasonably necessary in
connection with the contest or defense, all at the sole cost and expense of the
contesting or defending Party.
(c) Customers and Vendors. Sellers will not, and will cause their
respective Affiliates to not, take any action, or instruct any third party to
take any action, that is designed or intended to have the effect of discouraging
any licensor, customer, distributor, vendor, supplier, or other business
associate of Sellers from maintaining the same business relationships with Buyer
after the Closing as such licensor, customer, vendor, supplier, or other
business associate of Sellers maintained with Sellers prior to the Closing.
Buyer hereby agrees that, for a period beginning on the Closing Date and
continuing for twelve (12) months thereafter (and providing that the applicable
distributors of the Acquired Products shall have agreed), it shall not decline
to fulfill any order for Acquired Products from any customer set forth on
Section 3(m)(iv) of the Disclosure Schedule, provided that all such orders are
materially similar in size and/or scope to such customer's orders placed with
Sellers prior to the Closing Date.
(d) Confidentiality.
(i) Sellers shall cause their respective Affiliates,
directors,
officers, agents and employees to treat and hold as such all of the Confidential
Information in its possession and which relates to the Acquired Assets
(hereinafter defined as "Acquired Products Confidential Information"), refrain
from using any of the Acquired Products Confidential Information except in
connection with this Agreement, and deliver promptly to Buyer, at the request
and option of Buyer, all embodiments and copies (in whatever form or medium) of
the Acquired Products Confidential Information which are in his, her or its
possession, subject to Sellers having the right to retain a copy of such
information for record purposes only and so as to satisfy any obligations it has
in relation to any regulatory or tax authorities having jurisdiction over
Sellers. In the event that Sellers are requested or required (by oral question
or request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Acquired Products Confidential Information, Sellers will notify Buyer promptly
of the request or requirement so that Buyer may seek an appropriate protective
order or waive compliance with the provisions of this Section 7(d)(i). If, in
the absence of a protective order or the receipt of a waiver hereunder, Sellers
are, on the advice of counsel, compelled to disclose any Acquired Products
Confidential Information to any tribunal, Sellers may disclose the Acquired
Products Confidential Information to the tribunal; provided, however, that
Sellers shall use their reasonable commercial efforts to obtain, at the
reasonable request of Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Acquired Products Confidential
Information required to be disclosed as Buyer shall designate.
(ii) Other than in relation to Acquired Products Confidential
Information, Buyer shall cause its Affiliates, officers, directors and employees
to treat and hold as such all of the Confidential Information of Sellers,
refrain from using any of the Confidential Information of Sellers except in the
manner and for the purpose that is expressly stated in this Agreement and in
connection with the operation of the business of the Acquired Assets, and
deliver promptly to Sellers or destroy, at the request and option of Sellers,
all embodiments and copies (in whatever form or medium) of the Confidential
Information of Sellers which are in his, her or its possession. If Closing does
not occur, Buyer shall cause its Affiliates, officers, directors and employees
to treat and hold as such all of the Acquired Products Confidential Information
of Sellers, refrain from using any of the Acquired Products Confidential
Information of Sellers except in connection with this Agreement, and deliver
promptly to Sellers or destroy, at the request and option of Sellers, all
embodiments and copies (in whatever form or medium) of the Acquired Products
Confidential Information of Sellers which are in his, her or its possession. In
the event that any such Person is requested or required (by oral question or
request for information or documents in any legal proceeding, interrogatory,
subpoena, civil investigative demand, or similar process) to disclose any
Confidential Information (including Acquired Products Confidential Information
in the event that Closing does not occur) of Sellers, that Person will notify
Sellers promptly of the request or requirement so that the Sellers may seek an
appropriate protective order or waive compliance with the provisions of this
Section 7(d)(ii). If, in the absence of a protective order or the receipt of a
waiver hereunder, any such Person is, on the advice of counsel, compelled to
disclose any Confidential Information of Sellers to any tribunal, that Person
may disclose the Confidential Information of Sellers to the tribunal; provided,
however, that the disclosing Person shall use his or its reasonable best efforts
to obtain, at the reasonable request of Sellers, an order or other assurance
that confidential treatment will be accorded to such portion of the Confidential
Information required to be disclosed as Sellers shall designate.
(e) Transfer of Assets. The Parties agree to the following with
respect to the delivery to Buyer of the Acquired Assets:
(i) Inventory. At such time as Buyer and Sellers mutually
agree (but in any event on or prior to the date the Transition Condition is
satisfied), Sellers will transfer to Buyer all Inventory. All new Inventory
created during the Transition Period shall be manufactured, packaged and
supplied by Sellers under the terms and conditions of the supply provisions set
forth in Section 9. From and after the Closing, Sellers shall not, directly or
indirectly, transfer any Inventory in any manner outside of sales to Buyer
pursuant to the supply provision terms and conditions further set forth in
Section 9 hereof. Sellers shall promptly notify Buyer of all orders for Acquired
Products received from and after the Closing, and forward to Buyer all
information related thereto, and all such orders received by Sellers shall be
for the account of Buyer.
(ii) Training. During the period beginning on the Closing and
ending on the date the Transition Condition is satisfied (the "Transition
Period"), at the request of Buyer, Sellers agree to use their commercially
reasonable efforts to train Buyer's personnel on manufacturing, producing,
packaging, validating and sterilizing the Acquired Products. Sellers shall make
their personnel that are experienced and knowledgeable about the Acquired
Products available to Buyer for the duration of the Transition Period during
normal business hours upon five (5) days advanced written request. Buyer shall
be responsible for its own costs and expenses incurred for such training, and
the reasonable travel costs and expenses incurred by any of Sellers' personnel
pursuant to this paragraph, provided such travel costs and expenses are approved
in advance by Buyer. Sellers shall bear their own costs and expenses incurred
for training (other than such travel expenses as are approved in accordance with
this paragraph).
(iii) Transfer of Acquired Assets. Except as otherwise
provided in this Section 7(e), immediately following Closing, Buyer and Sellers
shall begin arrangements for the transfer of the Acquired Assets from Sellers to
Buyer, on reasonable timing considerations for both Parties, and subject to
Buyer's reasonable discretion as to when such transfer shall occur. The Parties
shall assure that the timing and logistics related to the transfer of the
Acquired Assets shall not materially affect the manufacture of the Acquired
Products in a negative manner.
(iv) Design and Building Manufacturing Equipment. Immediately
following Closing, Buyer and Sellers shall mutually determine the design and
development of the equipment, machinery, tools and dies that is reasonably
necessary for Buyer to successfully and independently manufacture, package,
validate, and commercially produce the Acquired Products (the "Manufacturing
Equipment"). Sellers shall provide Buyer with all necessary information and
assistance requested by Buyer in order to assist Buyer in constructing the
Manufacturing Equipment, including without limitation, providing Buyer with all
existing drawings, specifications, samples, training manuals, vendor information
and pricing information related to the Manufacturing Equipment which does not
include future generations or new inventions of the Manufacturing Equipment. To
the extent Sellers agree to design and/or develop any of the Manufacturing
Equipment, the Parties shall enter into a separate statement of work which shall
set forth the specific design requirements, payments, and other specifications
related to such project. The Parties shall use all commercially reasonable
efforts to ensure that the Manufacturing Equipment is fully operational to
enable Buyer to successfully and independently manufacture, package, validate,
and commercially produce the Acquired Products on or before the Manufacturing
Date.
8. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) Survival of Representations and Warranties. All of the
representations and warranties of Sellers contained in Section 3 of this
Agreement shall survive the Closing (even if Buyer knew or had reason to know of
any misrepresentation or breach of warranty at the time of Closing) and continue
in full force and effect for a period of one (1) year thereafter; except that
the representations and warranties of Sellers contained in Sections 3(a), 3(b)
and 3(d) of this Agreement shall survive the Closing and continue in full force
and effect until the applicable statute of limitations has run. All of the
representations and warranties of Buyer contained in Section 4 of this Agreement
shall survive the Closing (even if the Sellers knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect for a period of one (1) year thereafter, at which point
such representations and warranties shall terminate.
(b) Indemnification Provisions for Benefit of Buyer and Sellers.
(i) In the event either Seller has breached (or in the event
any third party alleges facts that, if true, would mean a Seller has breached)
any of its representations and warranties contained in Section 3 of this
Agreement or any of its covenants or agreements contained in this Agreement
(including, without limitation, the supply agreement provisions set forth in
Section 9), and, if there is an applicable survival period pursuant to Section
8(a) above, provided that Buyer makes a written claim for indemnification
against a Seller pursuant to Section 8(c) below within such survival period,
then Sellers agree, jointly and severally, to indemnify Buyer from and against
the entirety of any Adverse Consequences Buyer or its Affiliates may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, or caused by the breach (or
the alleged breach). Notwithstanding the foregoing (other than in relation to
fraud) the maximum amount that Buyer and its Affiliates may claim under this
Section 8(b)(i) shall not exceed $1,600,000 in the aggregate.
(ii) In the event Buyer breaches any of its representations
or warranties contained in Section 4 of this Agreement or any of its covenants
or agreements contained in this Agreement (including, without limitation, the
supply agreement provisions set forth in Section 9), and, if there is an
applicable survival period pursuant to Section 8(a) above, provided that Sellers
makes a written claim for indemnification pursuant to Section 8(c) below within
such survival period, then Buyer agrees to indemnify Sellers from and against
the entirety of any Adverse Consequences Sellers may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
Sellers may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, or caused by the breach. Notwithstanding the
foregoing, the maximum amount of liability Buyer shall have to Sellers under
this Section 7(b)(ii) shall not exceed $1,600,000 in the aggregate.
(c) Matters Involving Third
Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim") which
may give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 8, then the Indemnified Party shall
promptly notify the Indemnifying Party thereof in writing; provided, however,
that no delay on the part of the Indemnified Party in notifying the Indemnifying
Party shall relieve the Indemnifying Party from any obligation hereunder unless
(and then solely to the extent) the Indemnifying Party thereby is actually
prejudiced.
(ii) Any Indemnifying Party will have the right to defend
the Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the Indemnifying
Party notifies the Indemnified Party in writing within 15 business days after
the Indemnified Party has given notice of the Third Party Claim of its intention
to contest the Third Party Claim (it being understood that the Indemnifying
Party may reserve its rights as to whether or not it in fact is liable to
indemnify the Indemnified Party), (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified Party
that the Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations hereunder
(including the payment in cash of all fees and costs associated with such
defense), (C) the Third Party Claim involves only money damages and does not
seek an injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential custom or
practice materially adverse to the continuing business interests of the
Indemnified Party, and (E) the Indemnifying Party conducts the defense of the
Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the
defense of the Third Party Claim in accordance with Section 8(c)(ii) above, (A)
the Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the prior written
consent of the Indemnified Party (not to be withheld unreasonably), unless the
following shall apply (in which case the Indemnifying Party may settle and
compromise such Third Party Claim without the prior written consent of the
Indemnified Party): (x) there is no finding or admission of any violation of Law
or any violation of the rights of any person and no affect on any other claims
that may be made against the Indemnified Party; and (y) the sole relief provided
is monetary damages that are paid in full in cash by the Indemnifying Party. If
the Indemnified Party fails to consent to any settlement or compromise offer,
the Indemnifying Party may continue to contest such Third Party Claim and, in
such event, (subject always to Section 8(b)(i)) the maximum liability of the
Indemnifying Party for such Third Party Claim shall not exceed such settlement
or compromise offer.
(iv) In the event any of the conditions in Section 8(c)(ii)
above is or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any settlement
with respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Party will reimburse the Indemnified Party (with cash) promptly and
periodically for the its reasonable costs of defending against the Third Party
Claim (including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Party will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, or
caused by the Third Party Claim to the fullest extent provided in this Section
8.
(d) Characterization of Payments. All indemnification payments under
this Section 8 shall be deemed adjustments to the Purchase Price.
9. SUPPLY AGREEMENT.
(a) Supply of Acquired Products. For the duration of the Transition
Period, Sellers shall manufacture the Acquired Products for, and supply the
Acquired Products to, Buyer, according to the terms set forth in this Section 9
and at the prices equal to Sellers' standard cost of the materials, labor and
overhead related to such Acquired Products as more particularly set forth on
Exhibit H hereto. Sellers shall use commercially reasonable efforts to maintain
consistent and timely shipment of the Acquired Products during the Transition
Period, within the minimum and maximum monthly forecasts for Acquired Products
set forth on Exhibit H. Buyer shall use commercially reasonable efforts to
provide timely order changes and other supply notices, and Sellers shall use
commercially reasonable efforts to accommodate and fulfill all such orders,
changes and other supply notices provided by Buyer. Notwithstanding any of the
foregoing, Buyer shall have the right, exercisable at any time in its sole
discretion to terminate the provisions of this Section 9 and to take control of
all manufacturing and similar processes related to the Acquired Products.
(b) Manufacture. Sellers shall manufacture, sterilize, package,
label and ship the Acquired Products in accordance with the Specifications. For
purposes of U.S., European and International regulatory Laws and requirements,
Sellers shall be deemed the "Manufacturer" of the Acquired Products distributed
in the U.S. during the Transition Period, and Buyer shall be the "Distributor"
of the Acquired Products distributed internationally during the Transition
Period. The Parties agree that after the Transition Period, Buyer will be
responsible to obtain such international regulatory approvals and/or
registrations as are necessary to market and sell the Acquired Products under
Buyer's label in such jurisdictions outside of the U.S.
(c) Inspection. Sellers shall perform the testing and inspection
procedures described in the Specifications as to all Acquired Products prior to
shipment to ensure that they conform to the Specifications and will send Buyer a
certificate with respect to each shipment. Buyer will inspect all Acquired
Products within 30 days after receipt and, except as provided in Section 9(i),
Buyer must notify Sellers within 30 days after receipt thereof if it discovers
that any of the Acquired Products fail to meet the Specifications. Buyer will
return and Sellers will use commercially reasonable efforts to replace the
Acquired Products which fail to meet the Specifications within 30 days of
Sellers' notification thereof. Sellers will reimburse Buyer for all costs of
shipment for the return of defective Acquired Products to Sellers.
(d) Records. Sellers will maintain, and will allow Buyer to examine,
upon two (2) days prior written notice to Sellers, its manufacturing and quality
assurance records, including lot numbers and other manufacturing documentation
necessary to ensure traceability of the Acquired Products and compliance with
applicable U.S., European, and international regulatory Laws and requirements.
Upon expiration of the Transition Period, Sellers shall deliver copies of all
such records to Buyer.
(e) Labeling. Sellers shall print language on the labels of all
Acquired Products to be distributed by Buyer in the U.S. that complies in all
respects with 21 CFR 801 or any other Governmental Authority requirement which
may be applicable from time to time. Sellers shall print language approved by
Buyer on the labels of all Acquired Products to be distributed internationally
indicating that Sellers are the legal manufacturer outside the U.S. Sellers
shall not change the Acquired Products labels without the prior written consent
of Buyer. Nothing herein grants Sellers the right to amend or alter any of the
Trademarks of the Acquired Intellectual Property or any other Intellectual
Property of Buyer without Buyer's prior written consent. As of the Closing, all
Acquired Intellectual Property, Trademarks, and other Intellectual Property of
Buyer related to the Acquired Assets shall remain the sole and exclusive
property of Buyer and shall not be used by Sellers for any purpose without
Buyer's prior written consent.
(f) Purchases and Pricing. Buyer shall purchase the Acquired
Products from Sellers at the prices, and according to the payment, shipping and
other terms set forth on Exhibit H attached hereto and incorporated by this
reference.
(g) Regulatory Status. Sellers have obtained, and shall maintain
during the Transition Period, "Pre-Market Notification" and clearance for use
from the United States Food and Drug Administration (the "FDA") for the Acquired
Products. Specific registration numbers and supporting documentation shall be
made available from Sellers' regulatory department upon request. Sellers and
Buyer represent, warrant and agree that they will each comply with all
applicable U.S., European and international regulatory Laws and other
requirements applicable to their particular roles and responsibilities under
this Section 9, including without limitation those Laws and/or other
requirements concerning labeling, traceability, reporting and record keeping
(e.g. complaints, adverse reactions, recall information). Following the Closing
Date, Buyer shall ensure that the Acquired Products are qualified for sale in
the U.S. and internationally and shall obtain and own all registrations and
approvals.
(h) Regulatory; Complaints; Failure Analysis. The Parties represent
and warrant that all complaints and "Medical Device Reporting" ("MDR") shall be
performed in compliance with Medical Device Reporting for manufacturing written
by the department of Health and Human Services FDA, March 1997, as amended from
time to time and other applicable requirements pursuant to the roles and
responsibilities hereunder. Sellers will file all reports required by FDA
regulations, with duplicate copies to Buyer. Sellers will also maintain and
manage a file of all customer complaints received by Buyer and Sellers with
respect to the Acquired Products. Upon either Party's receipt of any customer
complaint alleging that any Acquired Product is defective or other known
information regarding the Acquired Products that may be caused by manufacturing
or distribution or that may lead to recall or other regulatory action, each
Party will promptly send to the other Party's complaint analysis department a
copy of such complaint. If the allegedly defective Acquired Product is returned
to Buyer by its customer, Buyer will perform an initial internal failure
analysis and may thereafter notify and forward the allegedly defective Acquired
Product to Sellers' complaint analysis department and require Sellers to perform
an independent failure analysis of the returned Acquired Product(s). Buyer will
cooperate with and assist Sellers in submitting any report required by the FDA
and will provide Sellers with duplicate copies of all such failure analysis
reports, if any. Sellers shall, within 30 days of a written corrective action
plan request from Buyer, which shall include all known failure information and
samples (if available), provide Buyer with a corrective action plan.
(i) Recalls. If either Buyer or Sellers is required by any
regulatory agency or Governmental Authority, or Buyer determines based on its
good faith and independent reasonable business judgment, to recall any of the
Acquired Products, the non-recalling Party will cooperate and assist in locating
and retrieving the Acquired Products to be recalled and providing applicable
documentation to the recalling Party in compliance with all applicable U.S.,
European and International regulatory Laws and requirements. If a recall is
directly and solely the result of a Seller's failure to meet the Specifications,
and not due to misuse, reuse or reprocessing of the Acquired Products by Buyer
or any third party, the Seller shall, at Buyer's option, (A) either (1) replace
all recalled and returned Acquired Products at no cost to Buyer, or (2)
reimburse Buyer for the full purchase price actually paid for the recalled and
returned items, and (B) shall pay all of the reasonable costs incurred by Buyer
in performing the recall. If the recall is caused by misuse, reuse or
reprocessing of the Acquired Products by Buyer or any third party or by a defect
in labeling as requested by Buyer, Buyer shall pay all of the reasonable costs
incurred by Sellers in performing the recall or in assisting Buyer to do so.
(j) Quality Assurance Inspections. Buyer may, up to three (3) times
during the Transition Period, perform random quality assurance inspections and
audits of each Seller's manufacturing facility during regular business hours,
upon twenty-four (24) hours advance written notice to such Seller. Sellers will
reasonably cooperate with Buyer's inspector and will provide Buyer with copies
of all of Sellers' documents which are reasonably required by Buyer to properly
perform any such inspection or audit. Sellers shall use commercially reasonable
efforts to implement any reasonable recommendations submitted by Buyer as a
result of such inspections and audits which are required for Sellers to meet its
obligations under this Section 9.
(k) No Change to Acquired Products. Sellers warrant that no changes
will be made in the Specifications unless the proposed changes are either
approved by Buyer in writing prior to implementation or required by applicable
Law.
(l) Quality System Regulation. Sellers will manufacture the Acquired
Products in accordance with current quality system regulations for medical
devices as mandated by the FDA and in compliance with any and all other
applicable Governmental Authority's Laws, including without limitation the
requirements of ISO 13485.
(m) Remedies. Each Seller represents and warrants that the Acquired
Products will be free from defects in materials and workmanship and will conform
in all material respects to the Specifications when delivered. NO SELLER
PROVIDES ANY OTHER OR FURTHER WARRANTY, WHETHER EXPRESS, IMPLIED, STATUTORY, OR
OTHERWISE, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE PRODUCTS OR THEIR
PERFORMANCE, EFFECTS, OR RESULTS. Notwithstanding the provisions of Section 8
related to minimum or maximum damage amounts and procedural matters, Sellers
will replace any Acquired Product found to be defective, provided that Buyer
notifies Sellers of such defect within the notice period stated in Section 9(c),
upon return of such defective Acquired Product to Sellers and if such defective
condition is not the result of misuse, reuse or reprocessing by Buyer or any
third party.
(n) Product Liability Insurance. Each Party will, during the
Transition Period, maintain adequate amounts product liability insurance
coverage to cover the risks and responsibilities hereunder, and in no event
shall such product liability coverage be in an amount less than One Million
Dollars ($1,000,000) per occurrence and Three Million Dollars ($3,000,000) in
the aggregate. The Parties shall promptly provide one another with a copy of
certificates evidencing such coverage upon written request.
(o) Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE FOR SPECIFIC PERFORMANCE UNDER THIS SECTION 9 OR FOR COSTS OF PROCUREMENT
OF SUBSTITUTE PRODUCTS OR SERVICES, LOST PROFITS, OR ANY CONSEQUENTIAL,
PUNITIVE, SPECIAL, INCIDENTAL, OR INDIRECT DAMAGES UNDER OR IN CONNECTION WITH
THIS SECTION 9, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING WITHOUT
LIMITATION NEGLIGENCE OR STRICT LIABILITY). THIS LIMITATION SHALL APPLY
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
10. TERMINATION.
(a) Termination of Agreement. The Parties may terminate this
Agreement as follows:
(i) Buyer and Sellers may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) Buyer may terminate this Agreement by giving written
notice to Sellers if the Closing shall not have occurred on or prior to March
31, 2009, by reason of the failure of any condition precedent under Section 5(a)
hereof (unless the failure results primarily from Buyer itself breaching any
representation, warranty or covenant contained in this Agreement);
(iii) Sellers may terminate this Agreement by giving written
notice to Buyer if the Closing shall not have occurred on or prior to March 31,
2009, by reason of the failure of any condition precedent under Section 5(b)
hereof (unless the failure results primarily from any Seller itself breaching
any representation, warranty or covenant contained in this Agreement;
(b) Effect of Termination. If any Party terminates this Agreement
pursuant to Section 10(a) above, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach); provided, however, the
confidentiality obligations of the Parties under Section 7(d) above shall
survive termination.
11. MISCELLANEOUS.
(a) Press Releases and Public Announcements. Buyer shall not issue
any press release or make any public announcement or comment relating to the
fact of or the subject matter of this Agreement without the prior notification
to Hydromer. Hydromer shall not issue any press release or make any public
announcement or comment relating to the fact of or the subject matter of this
Agreement without the prior notification to Buyer.
(b) No Third-Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns with respect to all rights and
obligations of such Parties hereunder.
(c) Entire Agreement. This Agreement (including the Disclosure
Schedules and the other Exhibits and schedules hereto and the documents and
certificates required to be delivered hereby) constitutes the entire agreement
between the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral, to the extent they
related in any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Party.
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. A facsimile copy of this
Agreement or any counterpart hereto shall be valid as an original.
(f) Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient or when sent by facsimile followed by delivery by reputable
overnight courier service (charges prepaid), one day after being sent to the
recipient by reputable overnight courier service (charges prepaid) or five (5)
days after being mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Any notice, demand or other communication
hereunder may be given by any other means (including telecopy or electronic
mail), but shall not be deemed to have been duly given unless and until it is
actually received by the intended recipient. Such notices, demands and other
communications shall be sent to the addresses indicated below:
If to Sellers:
Hydromer, Inc.
35 Industrial Parkway
Branchburg, New Jersey 08876
Attention: President
and
Biosearch Medical Products, Inc.
35 Industrial Parkway
Branchburg, New Jersey 08876
Attention: President
and Hydromer, Inc.
35 Industrial Parkway
Branchburg, New Jersey 08876
Attention: General Counsel
If to Buyer:
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Attn: XXXX, Chairman and CEO
Facsimile: (801) 253-1600
and
Merit Medical Systems, Inc.
1600 West Merit Parkway
South Jordan, Utah 84095
Facsimile: (801) 208-4302
Attn: XXXX, General Counsel
or to such other address, to the attention of such other Person and/or with such
other copy or copies as the recipient Party has specified by prior written
notice to the sending Party. If any time period for giving notice or taking
action expires on a day which is a Saturday, Sunday or legal holiday in the
State of Utah (any other day being a "business day"), such time period shall
automatically be extended to, the next business day immediately following such
Saturday, Sunday or legal holiday.
(h) Governing Law; Jurisdiction. This Agreement shall be governed by
and construed in accordance with the domestic laws of the State of Utah without
giving effect to any choice or conflict of law provision or rule (whether of the
State of Utah or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Utah.
(i) Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by the mutual written consent of Buyer and Sellers. No waiver by any Party
of any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be valid unless the same shall be in writing
and signed by the non-breaching Party, nor shall any such waiver be deemed to
extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Buyer and Sellers will each bear its own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean "including without limitation." The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant. The use
of the neuter, male or female gender in the Transaction Documents shall include
all other each of the neuter, male and female gender.
(m) Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and
agrees that the other Party would be damaged irreparably in the event any of the
provisions of Section 7(d) this Agreement are not performed in accordance with
their specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of such provisions and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 11(o)
below), in addition to any other remedy to which it may be entitled, at law or
in equity.
(o) Waiver of Trial By Jury. EACH PARTY HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY OF THE OTHER TRANSACTION DOCUMENTS OR THE VALIDITY, PROTECTION,
INTERPRETATION, COLLECTION OR ENFORCEMENT HEREOF OR THEREOF. EACH PARTY AGREES
THAT THIS SECTION 11(o) IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND
EACH OF THE OTHER TRANSACTION DOCUMENTS AND ACKNOWLEDGES THAT THE OTHER PARTY
WOULD NOT HAVE ENTERED INTO THIS AGREEMENT AND CONSUMMATED THE TRANSACTIONS
CONTEMPLATED HEREBY IF THIS SECTION 11(o) WERE NOT PART OF THIS AGREEMENT AND
THE OTHER TRANSACTION DOCUMENTS.
(p) Transfer Taxes. All transfer, documentary, sales, use,
value-added, stamp, registration and other such Taxes and fees (including
penalties and interest) incurred in connection with this Agreement or the
Transactions must be paid by Sellers when due, and Sellers shall, at their
expense, file all necessary tax returns and other documentation with respect to
all such transfer, documentary, sales, use, stamp, registration and other taxes
and fees.
[remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the Parties hereto have executed this Asset Purchase
and Supply Agreement on as of the date first above written.
BUYER:
MERIT MEDICAL SYSTEMS, INC.
By: ______________________________________
Name: ___________________________________
Title: ____________________________________
SELLERS:
HYDROMER, INC.
By: ______________________________________
Name: ___________________________________
Title: ____________________________________
BIOSEARCH MEDICAL PRODUCTS, INC.
By: ______________________________________
Name: ___________________________________
Title: ____________________________________
EXHIBIT A
---------
ACQUIRED ASSETS
ASSET LIST FOR COAGULATION PROBES PRODUCT LINE
ASSET TYPE DESCRIPTION USED LOC. AGE EST.
-------------------------------------------------------------------------------
Data Removed
ASSET LIST FOR BILIARY STENTS PRODUCT LINE
ASSET TYPE DESCRIPTION USED LOC. AGE EST.
--------------------------------------------------------------------------------
Data Removed
STENT INVENTORY AS OF 01/23/2009
--------------------------------
$XX,XXX
FINISHED GOODS FULL
STANDARD
$ XX,XXX
COAGULATION PROBE INVENTORY AS OF 01/23/2009
--------------------------------------------
$ XX,XXX
FULL
STANDARD
ITEM QUANTITY COST
$ XX,XXX
FINISHED GOODS
EXHIBIT B
ACQUIRED INTELLECTUAL PROPERTY
FDA 510K (3)
EXHIBIT C
ALLOCATION OF THE PURCHASE PRICE
[see attached; to be completed following Closing]
EXHIBIT D
BILL OF SALE
[see attached]
EXHIBIT E
ASSIGNMENT AND ASSUMPTION OF ACQUIRED CONTRACTS
Biliary Stents Product Line
ConMed Agreement Distribution Agreement, dated July 15, 2003, entered into by
and between Biosearch and C.R. Bard,
Inc., and subsequently assigned to ConMed pursuant to that certain Assignment
and Assumption Agreement in the form of a letter dated September 10, 2004,
between C.R. Bard, Inc. and ConMed.
Coagulation Probes Product Line
Biosearch Medical Products, Inc. International Distributor Agreement with PriMed
Canada Inc. of Calgary Canada, signed March 1, 2003 and renewed for one
additional year on July 1, 2008.
Biosearch Medical Products, Inc Distributor Agreement with Endochoice, Inc. of
Lawrenceville, GA signed May 2, 2008 and expires December 31, 2012.
EXHIBIT F
LICENSE AGREEMENT
[see attached]
EXHIBIT G
NON-COMPETITION AGREEMENT
[see attached]
EXHIBIT H
SUPPLY AGREEMENT PRICING AND TERMS
HYDROMER TRANSFER PRICING TO MERIT
BILIARY STENT & COAGULATION PROBE
PACKAGED/STERILE UNITS
BETWEEN
FOREFRONT MEDICAL TECHNOLOGY (PTE) LTD
("Purchaser")
AND
BIOSEARCH MEDICAL PRODUCTS, INC.
("Vendor")
--------------------------------------------------------------------------------
ASSET TRANSFER AGREEMENT
--------------------------------------------------------------------------------
RAJAH & TANN LLP
Transnational Legal Solutions
4 Battery Road
#26-01 Bank of China Building
Singapore 049908
Tel: 65 6535 3600
Fax: 65 6538 8598
E-mail: info@rajahtann.com
Website: www.rajahtann.com
CONTENTS
1 DEFINITIONS AND INTERPRETATION ....................................... 1
2 CONDITIONS ........................................................... 3
3 TRANSFER OF SALE ASSETS............................................... 4
4 CONSIDERATION ........................................................ 5
5 ARRANGEMENTS PENDING COMPLETION ..................................... 5
6 COMPLETION............................................................ 6
7 CONFIDENTIALITY........................................................8
8 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS ......................... 9
8A INDEMNITY ........................................................... 10
9 RESTRICTIVE COVENANTS ............................................... 11
10 MISCELLANEOUS ....................................................... 12
SCHEDULE 1................................................................... 16
SCHEDULE 2................................................................... 18
SCHEDULE 3................................................................... 19
SCHEDULE 4................................................................... 20
i
ASSET TRANSFER AGREEMENT
THIS AGREEMENT is made this of 2009.
------------
BETWEEN:
(1) FOREFRONT MEDICAL TECHNOLOGY (PTE) LTD (Company Registration Number:
200002787K), a company incorporated in Singapore and having its registered
office at 35 Joo Koon Circle Singapore 629110 (the "Purchaser");
AND
(2) BIOSEARCH MEDICAL PRODUCTS, INC. (Company Registration Number: NJ
#0100004118), a company incorporated in New Jersey, the United States of
America, and having its registered office at 35 Industrial Parkway, Somerville,
NJ 08876 (the "Vendor").
WHEREAS:
Subject to the terms and conditions of this Agreement, the Vendor shall sell /
transfer / novate / assign (as the case may be) the Sale Assets to the Purchaser
and the Purchaser shall acquire the title, rights, interests, benefits, claims,
demands and liabilities whatsoever accruing or subsisting in connection with the
Sale Assets at the Effective Date free from all liens, charges, mortgages,
trusts and encumbrances whatsoever (the "Transfer").
IT IS AGREED as follows:
1 DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement, the Schedules and the Appendices, unless the
context otherwise requires, the following expression shall have the
meaning set out against them:
'Business' means the business of the Vendor relating to or in
connection with the Sale Assets which will be carried on by the
Purchaser following Completion of this Agreement, limited to the
manufacture and sale of Naso-gastric and Jejunostomy Enteral Feeding
Catheters. For the avoidance of doubt, it is agreed between the
Parties that the use of Hydromer coatings on devices manufactured by
others is understood to be not part of the Business.
'Business Day' means any day other than a Saturday, Sunday or a
gazetted public holiday in Singapore;
'Coating Services' means the Vendor's other business of applying
and/or licensing Hydromer coatings and/or services to other medical
device entities for use on their medical devices;
'Completion' means completion of the Transfer as specified in Clause
6;
'Completion Date' means the completion date as specified in Clause
6.1;
1
"Confidential Information" means any information which is
proprietary and confidential to a party including but not limited to
the terms and conditions of this Agreement, information concerning
or relating in any way whatsoever to its distributorship
arrangements, principals, any of the trade secrets or confidential
operations, processes or inventions carried on or used by a party,
any information concerning the organisation, business, finances,
transactions or affairs of a party, dealings of a party, secret or
confidential information which relates to the business or party or
any of its principals', clients' or customers' transactions or
affairs, any party's technology, designs, documentation, manuals,
budgets, financial statements or information, accounts, dealers'
lists, customer lists, marketing studies, drawings, notes, memoranda
and the information contained therein, any information therein in
respect of trade secrets, technology and technical or other
information relating to the development, manufacture, clinical
testing, analysis, marketing, sale or supply or proposed
development, manufacture, clinical testing, analysis, marketing,
sale or supply of any products or services by a party, and
information and material which is either marked confidential or is
by its nature intended to be exclusively for its knowledge of the
recipient alone;
'Contracts' means the contracts identified in Schedule 3;
'Effective Date' means the date of this Agreement;
'Encumbrance' means any form of legal, equitable, or security
interests, including but not limited to any mortgage, assignment of
receivables, debenture, lien, charge, pledge, title retention, right
to acquire, security interest, hypothecation, option, right of first
refusal, any preference arrangement (including title transfers and
retention arrangements or otherwise) any other encumbrance or
condition whatsoever or any other arrangements having similar
effect;
'Escrow Account' has the meaning ascribed to it at Clause 4.2b
below;
'Escrow Agreement' means the agreement substantially in the form at
Schedule 5 hereto to be entered into between the Parties and the
Escrow Agent setting out the escrow arrangement as described at
Clause 4.2b below;
'Escrow Amount' has the meaning ascribed to it at Clause 4.2b below;
'Fixed Assets' means the Vendor's fixed assets, plant, machinery and
tools to be acquired by the Purchaser as identified in Schedule 1,
including the Raw Material Assets;
'Hydromer non-exclusive License Agreement' means the agreement
between Hydromer, Inc. and the Purchaser to authorize the
non-royalty bearing use of the specified Hydromer formula for use on
the Products manufactured by Purchaser;
'Intellectual Property' means the patents, knowhow, trade secrets
and other confidential information, registered designs, copyrights,
design rights, trade marks, service marks, business names,
registrations of and applications to register any of the aforesaid
items, rights in the nature of any of the aforesaid items in any
country, rights in the nature of unfair competition rights and
rights to sue for passing off as identified in Schedule 4;
'Manufacturing Supply Agreement' is the agreement that specifies the
transfer pricing to Purchaser by Vendor for the Product and/or
assemblies during the Manufacturing Transition Period.
2
'Manufacturing Transition Period' means the 90 day period after this
Agreement is signed, during which certain mutually agreed Product
and/or assemblies will continue to be manufactured by Vendor pending
Purchaser's absorption of such operations and approval by Bard
Access Systems, Inc. and Conmed Endoscopic Technologies, Inc.
'Parties' means collectively, the Vendor and the Purchaser, and
'Party' means any one of them;
'Products' means Naso-gastric and Jejunostomy Enteral Feeding
Catheters;
'Raw Material Assets' are used to make up the product assembly and
on-sold to the customer and are listed on Schedule 2.
'S$' means the lawful currency of the Republic of Singapore;
'Sale Assets' mean all of the Fixed Assets, Intellectual Property
and Contracts as identified in the respective Schedules to this
Agreement; and
'Transfer' has the meaning ascribed to it at the Recital above.
1.2 Interpretation
1.2.1 The headings are inserted for convenience only and shall not affect the
construction of this Agreement.
1.2.2 Expressions in the singular form shall include the plural and vice versa,
and all references to the masculine gender shall include the female and
neuter genders and vice versa. Persons shall include corporations.
1.2.3 References to the 'Agreement' means this agreement as it may be amended,
modified or supplemented from time to time.
1.2.4 Any reference in this Agreement to 'Clauses' and 'Schedules' and
'Recitals' are to the clauses and schedules and recitals in this
Agreement.
1.2.5 Any reference to a statutory provision shall include such provision as
from time to time modified, amended or re-enacted so far as such
modification, amendment or re- enactment applies or is capable of applying
to any transaction entered into hereunder.
1.2.6 References in this Agreement to any agreement or document including this
Agreement shall include such agreement or document as from time to time
amended, modified, varied, novated, supplemented or replaced, unless the
context shall otherwise require.
2 CONDITIONS
2.1 Conditions Precedent
This Agreement is conditional upon the following:
(a) the completion of a legal due diligence exercise by the Purchaser on
the Sale Assets and the results of such exercise being reasonably
satisfactory to the Purchaser;
3
(b) the novation or assignment (as the case may be) of the Contracts
from the Vendor to the Purchaser and all approvals and consents as
may be necessary in connection with the novation or assignment (as
the case may be) being obtained and effective on Completion Date and
further that the terms of such novation or assignment (as the case
may be) are satisfactory to the Purchaser in its reasonable
discretion;
(c) the transfer to the Purchaser of the rights / title / benefit /
interests in the Intellectual Property (the "IP Rights") and, in the
Purchaser's sole discretion, the satisfactory registration or
perfection of such IP Rights in favor of the Purchaser;
(d) the execution by the relevant parties on or before the Effective
Date of the Manufacturing Supply Agreement and the Hydromer
non-exclusive License Agreement;
(e) the delivery of the Fixed Assets to the Purchaser in such manner as
it may reasonably direct and the written confirmation of the
Purchaser confirming its acceptance of such delivery (the
"Acceptance Confirmation"), provided always that such written
confirmation by the Purchaser shall not be unreasonably withheld;
and
(f) the execution by the Parties on or before the Effective Date of the
Escrow Agreement and the payment of the Escrow Amount into the
Escrow Account.
2.2 Undertaking by the Parties
The Vendor undertakes to use reasonable endeavours to ensure the
satisfaction and fulfilment of the conditions specified in Clause 2.1 as
soon as practicable and in any event by the Completion Date.
2.3 Effect of Non-Fulfilment of Conditions
If any of the conditions in Clause 2.1 is not materially satisfied or
fulfilled or waived by the Purchaser by the Completion Date or such later
date as may be agreed between the Parties, the Purchaser shall be entitled
by notice in writing to the Vendor to terminate this Agreement in which
event this Agreement shall ipso facto cease and determine and save unless
otherwise expressly provided or in respect of any antecedent breach, none
of the Parties shall have any claim against the other for costs, damages,
compensation or otherwise. Without limiting the generality of the
foregoing and solely for the avoidance of doubt the Parties' obligations
under Clause 7 shall survive the termination of this Agreement.
3 TRANSFER OF SALE ASSETS
3.1 Transfer
Subject to the terms and conditions of this Agreement, it is hereby agreed
between the Parties that the Vendor shall sell / transfer / novate /
assign (as the case may be) the Sale Assets to the Purchaser and the
Purchaser shall acquire the title, rights, interests, benefits, claims,
demands and liabilities whatsoever accruing or subsisting in respect of or
in connection with the Sale Assets at the Effective Date free from all
Encumbrances.
3.2 Passing of Title and Risk
4
The title, rights, interests, benefits, claims, demands and liabilities in
the Sale Assets shall be deemed to have passed to the Purchaser on
Effective Date. Save as provided at Clause 5.1(c) below, the Fixed Assets
shall remain at the risk of the Vendor until Completion.
4 CONSIDERATION
4.1 Consideration
The Parties hereby agree that the consideration for the Transfer shall be
the sum of US$800,000.00 (the "Purchase Consideration") payable by the
Purchaser to the Vendor in accordance with Clause 4.2 below.
4.2 Payment Method
Subject to the terms of this Agreement, the Purchase Consideration shall
be paid as follows:
(a) on the Effective Date, the Purchaser shall make payment to the
Vendor of the sum of US$400,000.00, being a sum equivalent to 50% of
the Purchase Consideration by way of cheque, a cashier's order or
bank draft drawn on a licensed bank in Singapore made out in favor
of the Vendor or as it may direct; and
(b) on the Effective Date, the sum of US$400,000.00, being remainder 50%
of the Purchase Consideration (the "Escrow Amount"), shall be
deposited into a bank account in Singapore (the "Escrow Account") to
be opened by the "Escrow Agent" and such Escrow Amount shall be
released to the Vendor on the Completion Date (or otherwise as
provided in the Escrow Agreement).
5 ARRANGEMENTS PENDING COMPLETION
5.1 Fixed Assets
(a) Delivery of Fixed Assets
The Vendor shall be responsible for:
(i) the preparation of any necessary documentation and the
procurement of any necessary consents / approvals (from
contractual counterparties or regulatory authorities or
otherwise) for the export of the Fixed Assets; and
(ii) the disassembly and preparation for transportation of the
Fixed Assets and such disassembly and preparation being
satisfactory to the Purchaser's representative (who shall be
present at the disassembly and preparation stages), including
if necessary, the delivery of the Fixed Assets to such freight
forwarders located in the New Jersey Port U.S.A. as may be
nominated by the Purchasers; and
(iii) providing technical support to the Purchaser as and when
required during reassembly of the Fixed Assets, provided
always that if it is necessary for an employee of the Vendor
to travel to the Purchaser's facility, a fee of S$800 per day
per employee will be billed to Purchaser in addition to all
reasonably incurred travel and lodging costs. In addition, the
Vendor reserves the right to refuse to send employees to
locations outside of the United States which it
5
deems as dangerous, provided always that such right of refusal
shall not be unreasonably exercised.
The Purchaser shall be responsible for:
(i) making the arrangements and payment for the transportation of
the Fixed Assets; and
(ii) the preparation of any necessary documentation and the
procurement of any necessary consents / approvals (from
contractual counterparties or regulatory authorities or
otherwise) for the import of the Fixed Assets.
(b) Acceptance of Delivery
Subject to:
(i) the reasonable determination by the Purchaser, that the
function and/or performance of the Fixed Assets after correct
and specified reassembly meets the acceptable performance
criteria pursuant to the specifications in the Device Master
File/Technical Files, such determination to be made no more
than 30 days after delivery of all the Fixed Assets by Vendor
to the Purchaser's designated delivery location;
(ii) all the Fixed Assets (including parts thereof) having been
successfully transported and delivered to the Purchaser's
designated USA freight forwarder excluding molds located in
China as per Schedule 1, the Purchaser shall deliver the
Acceptance Confirmation to the Vendor.
(c) Insurance and Risk
The Purchaser shall be responsible for insuring the Fixed Assets
against all necessary risks during the period of delivery of the Fixed
Assets, commencing on the transportation of the Fixed Assets until the
beginning of reassembly.
5.2 Intellectual Property
The Vendors shall, before the Completion Date, execute and/or deliver to
the Purchaser: (a) originals of any certificate of registration of
Intellectual Property, if applicable; (b) if applicable, all documents
necessary to register or record the transfer of the IP Rights from the
Vendor to the Purchaser and all documents evidencing such record and
registrations (whether issued by any government authority, agency or
otherwise);
(c) if applicable, all other documents that the Purchaser reasonably
requires for the transfer of the IP Rights to the Purchaser and the
satisfactory registration or perfection of such IP Rights in favor
of the Purchaser.
6 COMPLETION
6
6.1 Venue
Completion shall take place at such place and time as mutually agreed
between the Parties but in any event not later than February 28, 2010, or
such other date as the Parties may mutually agree in writing (the
'Completion Date').
6.2 Deliverables by the Vendor
In the period from the Effective Date up to the Completion Date, the
Vendor shall use its reasonable endeavours to deliver or procure to be
delivered or make reasonably available to the Purchaser the following:
(a) such documents as may reasonably be required by the Purchaser to
evidence the Transfer;
(b) such documents as may reasonably be required by the Purchaser to
evidence the proper authority and capacity of the Vendor to enter
into, exercise its rights and perform and comply with its
obligations under this Agreement, including but not limited to a
resolution of the board of directors of the Vendor approving the
Transfer and authorising the execution of this Agreement for and on
behalf of the Vendor by the party who executes it.
6.3 Deliverables by the Purchaser
Against the compliance by the Vendor with Clause 6.2 above, the Purchaser
shall deliver on Completion to the Vendor:-
(a) a certified copy of a resolution of the board of directors of the
Purchaser approving the Transfer and authorising the execution of
this Agreement for and on behalf of the Purchaser by the party who
executes it; and
(b) unequivocal instructions in writing to the Escrow Agent (in such
form as may be required by the terms of the Escrow Agreement) to
release the Escrow Amount to the Vendor .
6.4 Obligations on Completion
Without limitation to the above, on the Completion Date, the Parties shall
deliver to each other evidence reasonably satisfactory to the other Party
that all relevant conditions stated at Clause 2.1 above to be fulfilled by
the Purchaser and / or the Vendor, as the case may be, have been complied
with or satisfied and not breached.
6.5 Right to Terminate
If the documents required to be delivered to any Party on Completion are
not forthcoming for any reason or if, in any other respect, the respective
provisions of this Clause 6 are not fully complied with by any Party in a
reasonable manner, the other Party shall be entitled (in addition to and
without prejudice to all other rights or remedies available to it):
(a) to elect to terminate this Agreement and upon such termination, save
in respect of the Sale Assets and the 50% of the Purchase
Consideration paid to the Vendor in accordance with Clause 4.2(a)
above, each Party shall, at their own cost, return to the other all
documents and assets previously delivered by / to each other in
connection
7
with this Agreement and the Escrow Amount shall be released to the
Purchaser (and both Parties shall instruct the Escrow Agent accordingly);
(b) to effect Completion so far as practicable having regard to the
defaults which have occurred and without prejudice to its rights in
respect thereof; or
(c) defer Completion to a date not more than 30 days after the
Completion Date (in which case the provisions of this Clause 6.5
shall apply to Completion as so deferred).
7 CONFIDENTIALITY
7.1 Confidential Information to be Kept Confidential
Each Party shall keep confidential and shall procure that its respective
employees, agents and nominees keep confidential all Confidential
Information, and shall not, and shall procure that its respective
employees, agents and nominees shall not, use or disclose such
Confidential Information except as permitted by law, or with the written
consent of the other Parties, or in accordance with the order of a court
of competent jurisdiction, or until the recipient of such Confidential
Information can reasonably demonstrate:
(a) that it is or part of it is, in the public domain (other than as a
result of disclosure in violation of its obligation pursuant to this
Clause 7.1), whereupon, to the extent that it is public, this
obligation shall cease;
(b) that it is required to be furnished to the bankers or investors or
potential investors of any of the Parties or to any regulatory
agencies as part of a public flotation exercise involving such
Party;
(c) that disclosure of Confidential Information is or becomes required
by operation of applicable law including without limitation,
pursuant to court proceedings, court order, applicable stock
exchange or governmental regulation or otherwise by legal process
(but only to the extent so required); or
(d) that Confidential Information is disclosed pursuant to the rules of
any applicable stock exchange, and in all such cases, this
obligation shall cease but only to the extent required under the
respective circumstances.
7.2 Parties to Minimise Risk of Disclosure
The Parties shall take all reasonable steps to minimise the risk of
disclosure of Confidential Information, by ensuring that only those of
their directors, employees, servants and agents whose duties will require
them to possess any of such information shall have access thereto, and
that they shall be instructed to treat the same as confidential.
7.3 Parties not to use Confidential Information
Each of the Parties will not use, either while it is a Party to this
Agreement or 10 years thereafter, in a manner prejudicial or detrimental
to the interests of either Party, any Confidential Information.
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7.4 Obligations in this Clause to Enure
The obligations contained in this Clause shall enure, even after the
termination of this Agreement, without limit in point of time except and
until any Confidential Information falls within the provisions of Clauses
7.1.1(a), (b), (c) and (d).
8 REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS
8.1 Purchaser's Representations, Warranties and Undertakings
The Purchaser hereby warrants represents and undertakes to and for the
benefit of the Vendor as follows:
(a) the Purchaser has full power and authority to enter into, exercise
its rights and perform and comply with its obligations under this
Agreement;
(b) all actions, conditions and things required to be taken, fulfilled
and done (including the obtaining of any necessary consents) in
order to:
(i) enable the Purchaser to lawfully enter into, exercise its
rights and perform and comply with its obligations under this
Agreement; and
(ii) ensure that those obligations are valid, legally binding and
enforceable, have been taken, fulfilled and done;
(c) upon execution of this Agreement, the respective obligations of the
Purchaser hereunder shall be legally valid, binding and enforceable
on the Purchaser in accordance with the terms hereof.
8.2 Vendor's Representations, Warranties and Undertakings
The Vendor hereby warrants and represents to and undertakes to and for the
benefit of the Purchaser as follows:
(a) during the Manufacturing Transition Period to provide the Purchaser
with such support and assistance as the Purchaser may require in
relation to the operation of the Fixed Assets, including but not
limited to the secondment of employees to the Purchaser on such
terms to be agreed between the Parties, which terms shall include
the particulars indicated at Clause 5.1 above;
(b) it shall do all that is necessary to procure the novation or
assignment (as the case may be) of the Contracts from the Vendor to
the Purchaser on terms satisfactory to the Purchaser in its
reasonable discretion, including providing reasonable assistance to
the Purchaser with fulfilling the audit requirements imposed by Bard
Access Systems, Inc. and Conmed Endoscopic Technologies, Inc.;
(c) the Vendor has full power and authority to enter into, exercise its
rights and perform and comply with its obligations under this
Agreement; and
(d) all actions, conditions and things required to be taken, fulfilled
and done (including the obtaining of any necessary consents) in
order to:
9
(i) enable the Vendor to lawfully enter into, exercise its rights
and perform and comply with its obligations under this
Agreement; and
(ii) ensure that those obligations are valid, legally binding and
enforceable, have been taken, fulfilled and done;
(e) upon execution of this Agreement, the respective obligations of the
Vendor hereunder shall be legally valid, binding and enforceable on
the Vendor in accordance with the terms hereof;
(f) the Vendor has full beneficial title to the Sale Assets free from
any Encumbrance;
(g) the Vendor is not aware of any circumstances whereby following a
change in the ownership or control of the Business the principal
counterparties or customers of the Business would cease to remain
counterparties or customers in respect of the Business to the same
extent and of the same nature as prior to the date hereof; and
(h) save as disclosed to the Purchaser, the Transfer of the Sale Assets
in accordance with this Agreement will not:
(i) contravene, conflict with, or result in a violation of, or
give any authority or other person the right to challenge the
transfer or to exercise any remedy or obtain any relief under,
any legal requirement or any order to which the Vendor, the
Business or any of the Sale Assets may be subject; or
(ii) result in the imposition or creation of any Encumbrance or
liability upon or with respect to the Business or the Sale
Assets.
8.3 Representations, Warranties and Undertakings to be Separate
The representations, warranties and undertakings given under or pursuant
to this Clause 8:
(a) shall be separate and independent and shall not be limited by
anything in this Agreement;
(b) shall be fulfilled down to, and will be true and correct in all
respects and not misleading at the date of Completion as if they had
been entered into afresh; and
(c) shall not in any respect be extinguished or affected by any other
event or matter whatsoever, except by a specific and duly authorised
written waiver or release by the relevant party for whose benefit
the representation, warranty and undertaking was given.
8A INDEMNITY
8A.1 Mutual Indemnity
Notwithstanding anything in this Agreement, each Party shall indemnify and
keep the other Party indemnified (even after termination of this
Agreement) against any and/or all liabilities, expenses, damages and costs
of all demands, actions and other proceedings against the other Party
(including legal costs on a full indemnity basis) arising directly or
indirectly as a result of or in connection with any breach, delay or
non-performance by the first Party of its obligations, whether express or
implied, under this Agreement and the parties also agree that,
10
notwithstanding the generality of the foregoing, the indemnity contained
in this Clause 8A shall extend to cover any and/or all liabilities,
expenses, damages and costs of all demands, actions and other proceedings
against the Purchaser (including legal costs on a full indemnity basis)
arising in connection with the Contract.
8A.2 Validity and Enforceability of Indemnity
For the avoidance of any doubt, the Parties hereby agree that the validity
and enforceability of this Clause 8A shall not be impaired or diminished
or discharged or affected by:-
(a) any delay, time, indulgence, forbearance, waiver, release,
discharge, compromise or consent at any time given or granted by
either Party;
(b) any amendment or variation from time to time made to this Agreement;
and
(c) the illegality or invalidity or unenforceability of any provision in
this Agreement.
8A.3 Release
Any obligation or liability of either Party under this Clause 8A may in
whole or in part be released, compounded or compromised by a Party in its
absolute discretion without in any way prejudicing or affecting its rights
against the other Party under the same or a like obligation or liability.
9 RESTRICTIVE COVENANTS
9.1 Definitions
In this Clause, the following terms shall have the following meanings
respectively, namely:
(a) 'Prohibited Period' means the period commencing on the day
immediately following the Effective Date and ending on the third
anniversary of the Completion Date;
(b) 'Prohibited Territorie' means worldwide including all territories
in which the Purchaser carries on business from time to time;
(c) 'Relevant Capacity' means, in relation to the Vendor and or any
company related to or associated with it (each a "Vendor Group
Company"), for its own account or for that of any person, firm or
company and whether through the medium of any company, corporation
or any other entity controlled by it (for which purpose there shall
be aggregated with its shareholding or ability to exercise control
the shares held or controlled by any person connected with or any
company related to the Vendor) or as principal, partner, director,
employee, consultant or agent.
9.2 Non-Competition
The Vendor hereby further jointly and severally undertake with the
Purchaser and its successors in title that they will not, and will procure
that no Vendor Group Company will, in any Relevant Capacity during the
Prohibited Period:
11
(a) be directly or indirectly employed or engaged in each of the
Prohibited Territories in any business which is of the same as to
the Business save unless such likelihood of competition is
objectively unforeseeable during the Prohibited Period;
(b) directly or indirectly carry on in each of the Prohibited
Territories for its own account either alone or in partnership (or
be concerned in any Relevant Capacity in any corporation engaged in)
any business which is of the same or similar type to the Business or
is likely to be in competition with the Business or be concerned or
interested in the Prohibited Territories in any such business save
for the holding of or trading in (i) less than 20 per cent. of the
outstanding share capital of a corporation the shares of which are
listed on any stock exchange or (ii) any investment funds, including
without limitation, investments in venture capital, mutual funds or
bonds provided always that this restriction shall not apply in
respect of any business arrangement concerning the Coating Services
by the Vendor;
(c) directly or indirectly assist with technical advice or in any other
way any person, firm or company engaged in each of the Prohibited
Territories in any business which is of the same or similar type to
the Business or is likely to be in competition with the Business,
save unless such likelihood of competition is objectively
unforeseeable during the Prohibited Period provided always that this
restriction shall not apply in respect of any business arrangement
concerning the Coating Services by the Vendor;
(d) directly or indirectly canvass or solicit in competition with the
Business the custom of any person, firm or company who has within
three (3) years prior to the Effective Date been a customer of the
Vendor (in connection with the Business) or the Purchaser provided
always that this restriction shall not apply in respect of any
business arrangement concerning the Coating Services by the Vendor;
or
(e) directly or indirectly induce or seek to induce any person which is
an employee of the Purchaser during the Prohibited Period to become
employed, whether as employee, consultant or otherwise, by the
Vendors or by any person, firm or company engaged in any business
which is of the same or similar type to the Business or is likely to
be in competition with the Business.
9.3 Reasonableness
While the restrictions set out in Clause 9.2 are considered by the Parties
to be reasonable in all the circumstances and no greater than is
reasonable and necessary for the protection of the Purchaser, it is agreed
that if any one or more of such restrictions shall either taken by itself
or themselves together be adjudged to go beyond what is reasonable in all
the circumstances for the protection of the Purchaser's legitimate
interest but would be adjudged reasonable if any particular restriction or
restrictions were deleted or if any part or parts of the wording thereof
were deleted, restricted or limited in any particular manner then the said
restrictions shall apply with such deletions, restrictions or limitations,
as the case may be.
10 MISCELLANEOUS
10.1 Entire Agreement
This Agreement (together with any documents referred to herein or executed
contemporaneously by the Parties in connection herewith) embodies all the
terms and conditions agreed upon between the Parties as to the subject
matter of this Agreement and
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supersedes and cancels in all respects all previous agreements and
undertakings, if any, between the Parties with respect to the subject
matter hereof, whether such be written or oral.
10.2 Schedules to this Agreement
The Schedules to this Agreement and the provisions contained therein shall
have the same force and effect as if set out in the body of this
Agreement.
10.3 Release
Any liability to any Party under this Agreement may in whole or in part be
released, compounded or compromised, or time or indulgence given, by it in
its absolute discretion as regards the other Party under such liability
without in any way prejudicing or affecting its rights against such other
Party.
10.4 Indulgence, Waiver, Etc.
No failure on the part of either Party to exercise and no delay on the
part of such Party in exercising any right hereunder will operate as a
release or waiver thereof, nor will any single or partial exercise of any
right under this Agreement preclude any other or further exercise of it or
any other right or remedy.
10.5 Continuing Effect of Agreement
All provisions of this Agreement shall not, so far as they have not been
performed at Completion, be in any respect extinguished or affected by
Completion or by any other event or matter whatsoever and shall continue
in full force and effect so far as they are capable of being performed or
observed.
10.6 Successors and Assigns
This Agreement shall be binding on and shall enure for the benefit of each
of the Parties' successors and assigns. Any reference in this Agreement to
any of the Parties shall be construed accordingly.
10.7 Time of Essence
Any time, date or period mentioned in any provision of this Agreement may
be extended by mutual agreement between the Parties in accordance with
this Agreement or by agreement in writing but as regards any time, date or
period originally fixed or any time, date or period so extended as
aforesaid time shall be of the essence.
10.8 Further Assurance
At any time after the Effective Date, each Party shall, and shall use its
best endeavours to procure that any necessary third party shall, execute
such documents and do such acts and things as the other Party may
reasonably require for the purpose of giving to such other Parties the
full benefit of all the provisions of this Agreement.
10.9 Remedies
No remedy conferred by any of the provisions of this Agreement is intended
to be exclusive of any other remedy which is otherwise available at law,
in equity, by statute or otherwise, and each and every other remedy shall
be cumulative and shall be in addition to every other
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remedy given hereunder or now or hereafter existing at law, in equity, by
statute or otherwise. The election of any one or more of such remedies by
any Party shall not constitute a waiver by such Party of the right to
pursue any other available remedies.
10.10 Costs and Expenses
Each Party shall bear its own legal, professional and other costs and
expenses incurred by it in connection with the negotiation, preparation or
completion of this Agreement and the Transfer.
10.11 Severability of Provisions
If any provision of this Agreement is held to be illegal, invalid or
unenforceable in whole or in part in any jurisdiction, this Agreement
shall, as to such jurisdiction, continue to be valid as to its other
provisions and the remainder of the affected provision; and the legality,
validity and enforceability of such provision in any other jurisdiction
shall be unaffected.
10.12 Communications
10.12.1 Notices To Be In Writing
All notices, demands or other communications required or permitted to be
given or made hereunder shall be in writing and delivered personally or
sent by prepaid registered post with recorded delivery, or by facsimile
transmission addressed to the intended recipient thereof at its address or
at its facsimile number, and marked for the attention of such person (if
any), designated by it to the other Parties for the purposes of this
Agreement or to such other address or facsimile number, and marked for the
attention of such person, as a Party may from time to time duly notify the
other in writing.
10.12.2 Contact Addresses And Numbers
The addresses and facsimile numbers of the Parties for the purpose of this
Agreement are specified below:
The Vendor
----------
Address : Biosearch Medical Products, Inc ..,
35 Industrial Parkway,
Branchburg, NJ, 08876, USA
Attention : President
Martin von Dyck
Facsimile No. : USA 908-722-5024
The Purchaser
-------------
Address : Forefront Medical Technology (Pte) Ltd
35 Joo Koon Circle Singapore 629110
Attention : Chief Executive Officer
Facsimile No. : +65 63493878
10.12.3 Deemed Delivery Date
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Any such notice, demand or communication shall be deemed to have been duly
served (if delivered personally or given or made by facsimile) immediately
or (if given or made by letter) two (2) Business Days after posting and in
proving the same it shall be sufficient to show that personal delivery was
made or that the envelope containing such notice was properly addressed,
and duly stamped and posted or that the facsimile transmission was
properly addressed and despatched.
10.13 Counterparts
This Agreement may be signed in any number of counterparts, all of which
taken together shall constitute one and the same instrument. Any Party may
enter into this Agreement by signing any such counterpart.
10.14 Contracts (Rights of Third Parties) Act (Cap. 53B)
A person who is not a Party to this Agreement shall have no right under
the Contracts (Right of Third Parties) Act (Cap. 53B) to enforce any of
the terms of this Agreement.
10.15 Governing Law and Jurisdiction
This Agreement shall be governed by, and construed in accordance with, the
laws of Singapore and the Parties hereby irrevocably submit to the
non-exclusive jurisdiction of the courts of Singapore and waive any
objection to proceedings in any such court on the grounds of venue or on
the grounds that the proceedings have been brought in an inconvenient
forum. The submission by the Parties herein shall not affect the right of
any Party to take proceedings in any other jurisdiction nor shall the
taking of proceedings in any jurisdiction preclude any Party from taking
proceedings in any other jurisdiction.
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SCHEDULE 1
Asset list for NG-Tube Product Line
Date Removed
Asset list for J-Tube Product Line
Date Removed
16
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SCHEDULE 4
Intellectual Property
MOD/SOP's required to manufacture Products to GMP and ISO standards: Contained
in Master Device/Technical File.
Drawings of compentens and assemblies: Contained in Master Device/Technical
File.
One (1) Master Device/Technical File for Naso-Gastric Feeding Catheters.
One (1) Master Device/Technical File for Jejunostomy Feeding Catheters.
There are no patents as part of this Agreement.
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SCHEDULE 5
ESCROW AGREEMENT
21
IN WITNESS WHEREOF the parties hereto have signed this Agreement on the day and
year above written.
SIGNED by [NAME] Mark Samlal )
for and on behalf of )
FOREFRONT MEDICAL TECHNOLOGY )
(PTE.) LTD. ) /s/ Mark Samlal
---------------------------
in the presence of: [NAME]
/s/ Gan Ying Hui
---------------------------
Witness Gan Ying Hui
Group Financial Controller
SIGNED by [NAME] Martin von Dyck )
for and on behalf of )
BIOSEARCH MEDICAL PRODUCTS, )
Inc. ) /s/ Martin von Dyck
---------------------------
in the presence of: [NAME]
/s/ Robert Moravsik
---------------------------
Witness Vice President
11/19/07
22
