-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NvSDiyEV7/OuLmfjSsYHPTeLBUzLGQtSe4MfiUJRWdbMVhuOUPAZrRX6i0Y+KV8z u6cExQlpG4zXq8huwVxD/w== 0001047469-99-038354.txt : 19991018 0001047469-99-038354.hdr.sgml : 19991018 ACCESSION NUMBER: 0001047469-99-038354 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19991012 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HYDROMER INC CENTRAL INDEX KEY: 0000704432 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 222303576 STATE OF INCORPORATION: NJ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-10683 FILM NUMBER: 99726029 BUSINESS ADDRESS: STREET 1: 35 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876 BUSINESS PHONE: 9085262828 MAIL ADDRESS: STREET 1: 35 INDUSTRIAL PKWY CITY: SOMERVILLE STATE: NJ ZIP: 08876-3518 10KSB 1 10KSB SECURITIES AND EXCHANGE COMMISSION WASHINGTON D. C. 20549 FORM 10-KSB ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 1999 Commission File Number 0-10683 HYDROMER, INC. -------------- (Exact name of registrant as specified in its charter) New Jersey 22-2303576 ------------------------ ---------------- (State of incorporation) (I.R.S. Employer Identification No.) 35 Industrial Parkway, Branchburg, New Jersey 08876-3518 - --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 526-2828 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 ------------------------------ (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 10KSB or any amendment to this Form 10KSB (X) The aggregate market value of the voting stock held by non-affiliates of the Registrant at August 25, 1998 was approximately $2,232,982. The number of shares of Registrant's Common Stock outstanding on August 25, 1999 was 4,598,904. Portions of the Audited Financials Statements for the year ended June 30, 1999 are incorporated by reference in Part II of this report. Portions of the Proxy Statement of Registrant dated October 8, 1999 are incorporated by reference in Part III of this report. PART I ITEM 1. BUSINESS GENERAL Hydromer, Inc (the "Company") is a 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 and industrial markets. The company owns several process and applications patents for Hydromer(R) coatings ("Hydromer"), which is a polymeric substance that becomes extremely lubricious (slippery) when wet, and a technique of grafting or applying this substance onto surfaces which may consist of 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 a permanent anti-fog material, a hydrophilic polyurethane foam, hydrophilic polyurethane blends, hydrophilic polyvinylbutyral alloys, several biocompatible hydrogels and an anti-bacterial medical material. Hydromer was also granted two new patents this year for a dermal barrier film for the prevention of dermatitis and for the delivery of bioactive substances like anti-microbials from this barrier film sold under the Dermaseal(R) brand. Several other patents have been filed. The company is actively examining other new market opportunities for its polymer technology. Hydromer also owns the trademarks Sea-Slide(R), a coating for watercraft hulls, Dermaseal(R), a dermal barrier film product for the prevention of contact dermatitis, and T-HEXX(R), a barrier teat dip product for the prevention of mastitis in dairy animals. T-HEXX products were launched this year by our licensee, AST Inc., into the U.S. Barrier Teat Dip market, and are in test in several other countries. 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 Chief Executive Officer, a Director and the Chairman of the Board of the Company. 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. HYDROMER(R) LUBRICIOUS COATINGS From its inception in 1980-mid 1984, the company was primarily engaged in R&D activities related to Hydromer coatings. The Company believes that the polymer-water interface of Hydromer provides surface lubricity superior to the quality of other currently marketed silicone-based lubricants to treat medical devices. When treated with Hydromer, 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. Hydromer coatings also can be coated on complex surfaces and on the inside walls of devices, unlike the treatments by major competition. Hydromer has also been shown in numerous studies to reduce the risk of thrombogenesis or clot formation on devices. 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. As of June 30, 1999, Hydromer has current license agreements with eight different companies covering the application of Hydromer coatings to the following devices: enteral feeding products, guidewires, certain urological devices, infusion microcatheters, guiding and umbilical catheters, razor cartridges, angioplasty balloon catheters, embolization delivery devices, and biliary and pancreatic stents. The company is actively seeking 2 new license opportunities. Several license agreements expired last fiscal year with the expiration of one of the Hydromer patents. To offset this loss of license revenue, the Company is focusing on expanding it global sales in markets where it has an established presence, and is significantly increasing advertising and promotion activities via traditional means and the internet to establish awareness of Hydromer technology and capabilities in the medical device community. To facilitate this expansion, the Company has expanded its capabilities to offer contract research and coating services to the medical and industrial markets. The Company believes offering prototyping, process development and small-medium scale coating/ manufacturing services is fundamental to the expansion of Hydromer coatings business, and a strategic imperative as the medical device market undergoes a bimodal shift to consolidation by very large multi-national players and 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, big or small. The Company also believes that Hydromer technology has further application with other medical products outside our current scope and with products outside the medical field. An example is the Slick Willie(TM) water sports binding entry system sold by RW Ski Products, coated by our contract services group. Hydromer has also offered to purchase Biosearch Medical Products Inc. (OTCBB: BMPI), currently a user of Hydromer coatings, to rapidly expand Hydromer capability to offer coating services to our clients in an ISO 9001/GMP certified facility. The acquisition is pending a SEC review of the transaction. T-HEXX(R) BARRIER DIPS AND SPRAYS The Company's new product, T-HEXX Barrier Dips and Sprays were introduced to the market this year via AST, Inc., the US licensee, at the World Dairy Expo. T-HEXX Dips were created in the laboratory using the Company's patented film-forming hydrogel technology. T-HEXX products offer dairy farmers exceptional value and unsurpassed protection from mastistis, a problem that costs U.S. Dairy farmers an estimated $1.4 billion per year. The US market for teat dips is an estimated $350-400 million. T-HEXX Barriers are the first and only no-drip, water resistant, breathable barrier products on the market. The product has been demonstrated to stay on the cow teat better than the competition, protecting the cow between the 8-12 hour milking cycle by preventing bacterial infiltration of the teat end, and killing mastitis causing bacteria for over 12 hours, yet are easy to remove using traditional milking preparation methods. The products are being rolled out nationally via AST's expanding distributor and dealer network. The company has invested significantly in clinical research, promotion and advertising via print media and the Internet to support this new business. The Company is actively working with potential international licensees to expand this product globally. New patents have also been filed. HYDROMER(R)ANTI-FOG/ CONDENSATION CONTROL Hydromer Anti-Fog/Condensation Control is an optical coating for plastic (e.g. goggles, lenses, and architectural sheet materials), which prevents the accumulation of vision-obscuring condensation under high humidity conditions. A patent for these products was issued to the company in 1984. The company is selling this material in bulk to manufacturers of industrial and medical safety, and swim goggles, aircraft windows, automotive headlight assemblies, and gauge and meter manufacturers in the US and internationally. Improved scratch resistant anti-fog coatings were introduced last year, and are being applied by our contract services group for clients developing and marketing specialty lens products. Low VOC condensation control coatings also have been developed for use on structured plastic products like greenhouse panels, which it is currently qualifying with a major corporation that manufactures these coated products in the US and Europe. Food Grade Anti-Fog coatings have also been developed for ready to eat produce, meats and 3 bakery products. Hydromer Food Grade Anti-Fog is formulated with materials that are generally recognized as safe for food contact. Independent laboratory extraction testing has demonstrated that these coatings have demonstrated that the extractables are well within levels specified by the FDA. Hydromer has also licensed its anti-fog coating for use on adhesive backed film. AQUATRIX(TM) II HYDROGELS Hydromer has a patent for it's chitosan-PVP hydrogel technology. Applications for this material are being developed for wound care, implants, drug delivery, burn care, conductive hydrogel electrodes, ultrasonic couplants and cosmetic uses with several customers. The company is also identifying strategic partners to offer hydrogel coating services to clients who do not have roll good coating capability. 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. Simply mixing the two parts together, requiring no heat, no chemical cross linkers nor expensive, high energy processing to form the gel. Many competitive technologies are much more process intensive and require external energy to crosslink. The company has also licensed two other hydrogel patents this year that offer the same type of crosslinking as Aquatrix, but offer other properties like high adhesion to wet and dry skin. The company believes these products are synergistic to our existing hydrogel technologies, and offer further opportunities in electrodes and topical actives delivery. New patent applications in this field are also pending for new gels invented in the company labs. AQUAMERE(TM) POLYMERS The Aquamere series of cosmetic polymer solutions were introduced in 1988 are protected by the polymer blends patent issued in 1987. These materials are both aqueous and hydro-alcoholic based systems. They are also offered with cationic and silicone grafted modifications. These formulations are sold to major cosmetic companies worldwide for use in hair dyes, hair conditioners, mascaras, eye shadows and body lotions. They are currently in test for use in shampoos, sunscreens, hair styling aids, OTC dermal drug delivery and topical disinfectants. 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. DERMASEAL(R) The Company received two patents in FY 1999 for barrier film composition and method for preventing contact dermatitis. The company has registered the trademark Dermaseal for these compositions. Clinical testing demonstrates that these compositions protect the user from the effects of contact with poison ivy, oak or sumac plant allergens. Technical testing also demonstrates protection from latex proteins, nickel, and other contact allergens. Dermaseal is currently being sold to major cosmetic companies as a base for foundations, and as a Hydromer(R) Poison Oak and Ivy Barrier. It is also in testing for use in broader skin care, cosmetic, and OTC drug delivery and bovine health products. MEDICELL(TM) Medicell is the Company's patented hydrophilic polyurethane foam technology, patented in 1986. This year, the Company licensed this technology for Medical use in the US. The licensee has received 510K approvals from the FDA to market their products and has introduced them into the market this year. The Company is also exploring other medical, dental and cosmetic applications for this technology. SEA-SLIDE(R) Sea-Slide is a Hydromer-based drag reducing coating that reduces friction between hull and water, and can be used over most anti-fouling paints. A US patent covering this coating and other potential uses was issued in 1987. This technology 4 has been demonstrated in independent testing to significantly improve fuel economy and hull speed of watercraft. It is currently being marketed through HammerHead Products, Inc., who is focusing on increasing distribution and expanding product availability via dealers and Internet marketing of the product. HYDROMER(R) COATING SERVICES The Company expanded its activity in Coating services in 1998, actively seeking opportunities to provide contract development, coating and manufacturing services to the medical, industrial and personal care industry, utilizing its Hydromer and Anti-Fog coating technology and expertise. The Company has constructed a Class 10,000 clean room and has hired applications oriented scientists to support this effort. The Company has expanded its exhibition at major medical shows to promote these services, and is currently working on several projects ranging from medical devices to new water sports accessories to specialty eye protection. The Company believes these services will enable a broader range of customers to use our materials in market on accelerated timelines and more cost effectively. The Company also believes that the pending acquisition of Biosearch Medical Products, Inc. will dramatically expand the potential to grow this segment and also grow the Hydromer Coatings business. OPTION AND LICENSE AGREEMENTS A substantial portion of the Company's revenues in prior years have been derived from option and license agreements. The option agreements have in general provided that the customers pay to the Company a flat fee in exchange for the right during a limited 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 option agreements have also given the customers the right subsequently to enter into a license agreement with the Company. At the customer's option, a license agreement with respect to the marketing of a product treated with Hydromer may then be entered into, providing for payment to the Company of an initial flat fee, followed by periodic royalty payments based on sales. The Company has previously reported license agreements in effect and expiring relating to applications of the Hydromer as follows: (See Annual Report on Form 10-K for the fiscal years ended June 30, 1983 through 1996 and Form 10KSB for fiscal year ended 1997.) LICENSEE/APPLICATION Arrow International, Inc. polyurethane-jacketed guidewires. Axiom Medical, Inc. wound drains. - expired 3/98 Licensed Medicell for medical uses in US to Bioderm Biosearch Medical Products Inc. enteral feeding systems Boston Scientific - jacketed guidewires - expired 3/98 Cordis Endovascular Systems infusion microcatheters. CR Bard (formally St. Jude Medical, Inc.) intra-aortic balloon catheters, introducer systems and introducer needles. Film Specialties, Inc. use anti-fog on adhesive backed film and certain non-adhesive backed sheets. Medispo (formally Cosmo Ikko) certain urological devices. - expired 3/98 Johnson & Johnson Orthopaedics Inc. casting gloves. - expired 3/98 Kendall HealthCare Products certain urological devices. Ohmeda (formally U. S. Viggo, Inc.) central venous catheters. - expired 3/98 Smith & Nephew (formally Richards Medical) ear prostheses. - expired 3/98 Schneider Stent USA delivery devices for expandable stents. - expired 3/98 5 Circon Surgitek (Division of Circon Corporation and formally Surgitek which was a Division of Cabot Medical) guidewires, urinary stents. Boston Scientific (Van-Tec) guide wires and certain urological devices. Wilkinson Sword Ltd. razor cartridges. Piolax (formally Katoh Hatsujyo Kaisha, LTD) polyurethane jacketed guidewires - cancelled PRODUCTS Coating solutions for use on medical devices, cosmetic raw materials, and hydrogels are manufactured and sold by the Company to its licensees and others. The Company is selling bulk quantities of anti-fog solution to manufacturers of swim goggles, industrial safety equipment, aircraft windows and meter covers, both in the U. S. and foreign countries. The Company's processes utilize various chemicals purchased from a number of companies. The Company's primary suppliers are Elco Solvents, Inc. Avenel, NJ and TR Metro Chemical, Inc. of Ridgefield, NJ. 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 substantially all of its revenues from one business segment, i.e. polymer research and products derived therefrom. During the fiscal year ended June 30, 1999, the Company recognized revenues from two major customers. The Company sold products and collected royalty income representing more than 10% of its total revenues for the year ended June 30, 1998 and June 30, 1999, from Johnson & Johnson, Cordis Division and Warner Lambert. POTENTIAL APPLICATIONS The Company continues to explore other applications of the complexing capabilities of polymeric substances, such as antimicrobial 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. 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 into the body. Medical products that would so benefit include: urinary products - urethral catheters 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 - grafts, cardiac assist catheters related products heart-lung tubing. 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 antimicrobial barrier. The Company believes that this unique feature would lend itself to application on a wide variety of currently marketed medical products, including Foley catheters, wound drains, wart and corn dressings, burn dressings, intravenous catheters, surgical dressings and adhesive bandages. 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) 6 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. A U. S. Patent for this material was issued to the Company in August 1984. This anti-fog product has use on sports goggles, windows, mirrors and other products, either by direct application or by coating of an adhesive backed film. Food grade versions are available for packaging of fresh ready-to-eat produce, meats and deli-foods. 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. All of such activities were sponsored by the Company. The major portion of such expenses was applied toward salaries and other expenses of personnel employed on a regular basis in such work. See "Employees" below. 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 owns both process patent and applications patents for Hydromer coatings (see "Patents and Trademarks" below) two of which expired in Fiscal 1998, one U.S. patent remaining in effect until 2005. Although the medical products market is highly competitive, the Company does not believe that there is any other product available which performs functions significantly comparable to those which are performed by Hydromer, in terms of lubricity, complexing capabilities, durability and cost. While management believes the Company has a dominant 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: 1. COMMERCIALIZATION OF ITS EXISTING TECHNOLOGIES: The Company will expand its efforts to market its currently marketed technology to the medical, industrial and personal care 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 move its effort away from straight technology licensing and toward contract product development and contract manufacturing. The Company has significant expertise in polymer development and applications. By exhibiting at selected trade shows in the medical device and cosmetic 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 7 programs and other business arrangements with potential partners. 4. LICENSING: The Company will continue its endeavors to license 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 based on sales of such treated or new products. Such licenses will usually be very narrow. The activities leading to the consummation of a license 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. An option 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 specified period. During such period, the optionee 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 license agreement with the Company or it may have the 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 Hydromer has particular expertise. Business segments which are of particular interest are medical devices, (catheters and guide wires), 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 will endeavor to become a "one stop" supplier of high performance coatings and services. PATENTS AND TRADEMARKS The Company owns both a United States process patent and an applications patent for Hydromer, which have expired in August 1997 and March 1998. The Company has granted to BMP an exclusive, royalty-free license of the Hydromer process with respect to enteral feeding products. In addition, there are currently 9 US patents, 3 US applications and various foreign counter parts. Management believes that the protection afforded by the Hydromer patents goes well into the year 2000 and will be a significant factor in the Company's ability to market its products. Anticipating patent expiration, the Company has focused on licensing and developing products based upon its newer technologies. The Company has also been issued United States and foreign patents for a permanent anti-fog. A U. S. patent was issued in October 1985 for a hydrophilic polyurethane foam that is expected to have numerous medical applications. Foreign patents covering this material issued in July 1990. A U. S. patent for hydrophilic polymer blends, which covers the Company's coating for boats and the cosmetic formulations, was issued in February 1987. A U. S. Patent has been received for Hydrophilic Polyvinylbutyral Alloys was issued in July 1989 and foreign applications are pending. This patent protects the condensation control coatings that have been developed for greenhouses and food packaging. U. S. and foreign patents have also been issued for an anti-bacterial medical material that can be incorporated in foam or as a coating. The Company has received two United States patents for its new composition, barrier film, and method for preventing contact dermatitis developed by the company's research and development staff. The Company has recently received a patent for Chitosan gels, which expires in 2014. This patent is 8 part of the new gel technology with applications in medical, industrial, cosmetic and personal care markets. The company has also licensed two additional hydrogel technologies for exclusive worldwide use. Three new patent applications from composition to prevent mastitis, for new hydrogels and for non-leachable biostatic coatings have been filed. The Company owns the registered trademark "Hydromer", "Dermaseal" and "T-HEXX" in the United States and other countries. EMPLOYEES As of June 30, 1999, the Company had eighteen full-time employees, consisting of thirten engaged in research and development, quality control and assurance, coating of products for others and manufacturing the Company's products, one in marketing and four in general administrative and executive functions. The chief executive officer is Manfred F. Dyck, Chairman of the Board, who serves the Company for a minimum of 80% of his time. The Company does not have a collective bargaining agreement with any of its employees and considers its relationship with its employees to be excellent. GOVERNMENT REGULATIONS The uses of the Company's medical 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 license agreements, it is generally the obligation of the licensee to conform to any required FDA pre-market notification or other regulations. To the Company's knowledge, all such licensees who are marketing FDA regulated licensed products are in such compliance. The Company may in the future desire to market additional applications of Hydromer to existing products, or products introduced by it, which may be subject to such FDA approval 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 licensed applications, to require the licensees to obtain such approvals. The Company does not manufacture medical products and therefore its activity does not come under the jurisdiction of the FDA nevertheless, 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. EXECUTIVE OFFICERS The executive officers of the Company are as follows: Name Position with Company - ---- --------------------- Manfred F. Dyck Chairman of the Board Chief Executive Officer Age at August 31, 1999 - 64 and President Joseph A. Ehrhard, Jr. Vice President, New Business Development and R&D. Age at August 31, 1999 - 33 Robert D. Frawley Secretary Age at August 31, 1999 - 51 Robert J. Moravsik Vice-President and General Counsel Age at August 31, 1999 - 57 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 has been President and a Director of Biosearch Medical Products Inc. since 1975. 9 Joseph A. Ehrhard, Jr., has been Vice-President of New Business and R&D since February 1998. Prior to joining Hydromer, Mr. Ehrhard was Director of R&D for the Golden Cat Division of Ralston-Purina in St. Louis, Mo. Mr. Ehrhard was previously Director of R&D in Worldwide Absorbent Products and Materials Research for Johnson & Johnson in New Jersey. From June 1987 through January 1995, he was in R&D at Procter & Gamble Company, most recently as Section Head of Global New Technology Development in Personal Cleansing in Cincinnati, OH. Robert D. Frawley has been Secretary of the Company since January 1984. Mr. Frawley has been an attorney in private practice since December 1985. He is employed by the law firm of Smith, Stratton, Wise, Heher and Brennan, Princeton, New Jersey since February 1994. From December 1983 to December 1985, Mr. Frawley was Vice President - Corporate Counsel and Secretary of Biosearch Medical Products Inc. Robert J. Moravsik has been Vice-President and General Counsel since April 1998. He also serves in the same capacity for Biosearch Medical Products, Inc. and 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. ITEM 2. PROPERTIES The Company currently has two facilities located in New Jersey. The manufacturing and quality assurance functions of the Company are located at 35 Columbia Road, Branchburg, New Jersey. The Company signed a five year lease with a party not affiliated with the Company for the Branchburg facility. In June 1998, the company purchased the building and land at 35 Industrial Parkway for expansion. The new facility is secured by a mortgage with a bank and is partially occupied by Biosearch Medical Products, Inc., the prior owner of the facility. The Company will move its Research and Development as well as its administrative staff to the new facility. See the financial statements included herein for the terms of the agreements. The facilities 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 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 twelve years, trading in the Company's stock has been limited. The Company has been informed by individual investors of trades at prices ranging between $1.625 and $.6875 in the fiscal year 1999 and between $1.875 and $.1875 in fiscal year 1997. Prices for the 1996 fiscal year ranged between $.1875 and $.0625 according to the National Quotation Bureau. 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 August 25, 1999 was 296. There are approximately 720 individual shareholders of the common stock. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The below discussion analyzes major factors and trends regarding the results of operations and the financial condition of the Company as of June 30, 10 1999, 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, 1999 WERE $2,842,922 AS COMPARED TO $2,360,570 FOR THE SAME PERIOD LAST YEAR OR A GROWTH OF 20.4% Product sales were $1,268,713 for the 1999 fiscal year compared to $989,527 in the prior fiscal year, a growth of 28.2% or $279,186. Coating Solutions, 37.6% of product sales were significantly ahead of last year, up 66.3% at $476,464 vs. $286,553 for fiscal 1998. Cosmetics sales were up 28.4% over last year finishing the year at $197,215 from $153,557 last year. Technology transfers to two major licensees, representing 33.5% of product sales were up 32% to $425,550 in fiscal 1998 as compared to $322,470 in fiscal 1998. T-HEXX Concentrate sales were $71,832 in 1999, the first year of commercial sale. Anti-fog coating solutions, which represented 6.4% of product sales in 1999, were significantly behind of last year, finishing the year at $ 71,832 vs. $188,472 for the same period last year. License royalties were $1,574,209 in fiscal 1999, up 14.8% over fiscal 1998's results of $1,371,043. MANAGEMENT COMMENT: In fiscal 1999, the Company's emphasis was on creating strategic business units focusing on our core technologies and their applications in medical, industrial, cosmetic and personal care, and the new animal health business unit with the T-HEXX(R) brand. Following the initiation of this strategy late last year, the Company has redefined the Company's focus on opening larger markets where we are now starting to see growth. Our licensee's sales with our products are increasing, indicating their continued acceptance and the approval of Hydromer technologies. Two new licensees were signed this year, in medical coating, and on the T-HEXX business in the U.S. Despite 12 license agreements expiring (or cancelled) since the expiration of a patent in March 1998, the Company has replaced the loss license revenue with increased product sales and pricing adjustments of the Hydromer Coatings technology. The Company continued to expand our cosmetic distributor network globally, increasing advertising and promotion efforts to grow this business segment. The Anti-fog business was hurt due to adverse economic conditions in the Far East that caused significant softness among optical product converters using our technology. With improving economic conditions in Korea and China, we expect this to change. The Company is also completing the qualification of a new, low VOC Condensation Control Product with a major customer. GROSS PROFIT FOR THE YEAR ENDED JUNE 30, 1999 WAS $ 2,528,120, UP 17.2% OVER FISCAL YEAR 1998'S RESULTS OF $2,156,934. Direct costs, as a percentage of product sales, were 24.8% for fiscal 1999 as compared to 20.6% for the fiscal year ended June 30, 1998,. Overall gross profit, including royalty income, was 88.7% for fiscal 1999 as compared to 91.3% for fiscal 1998, or a decrease of 2.3%. MANAGEMENT COMMENT: The decrease in gross margin and increase in direct costs as a percentage of product sales reflect an increase in revenue mix toward chemicals sales with the expiration of the patent in March, 1998. The majority of the increase in overall gross profit was the increase in product and technology sales, which were up $279,186. Profits from product sales (revenues minus direct costs) were up $168,020 reflecting the effect of increased product sales. OPERATING INCOME FOR THE YEAR ENDED JUNE 30, 1999, WAS $402,162 VS. $502,466 FOR THE SAME PERIOD LAST YEAR, OR A DECREASE OF 20.0%. Selling, general and administrative and research and development costs were $ 2,125,958 for the year ended June 30, 1999 as compared to $1,654,468 for the same period last year or an increase of 28.5%. 11 MANAGEMENT COMMENT: The increase in SG&A is primarily due to instituting the company's strategic business unit staffing and upgrading staff capabilities in the R&D group. Additionally, the company has invested in a new facility to support future expansion, adding equipment to it's clean room environment for prototyping coating and hydrogel samples, upgrading its computer systems to be Y2K compatible and Windows based, and continuing to expand its analytical capabilities by purchasing state-of-the art equipment for the labs. Finally, the company has invested significantly in increased traditional print media advertising, trade show promotion, and internet advertising to establish the Company's products and capabilities in the medical device, consumer, industrial and animal health markets. Income before taxes is $487,523 for the current year, down 8.7%% over prior year's results of $534,022. Operating expenses increased 28.5% in fiscal 1999 versus the previous period reflecting an increase in investments in capabilities, equipment, staffing and advertising and promotional activities. Other Income is $85,361 for fiscal 1999 as compared to $31,556 for the same period last year. MANAGEMENT COMMENT: The Company's strong cash position has generated interest income of $36,739 for the fiscal year ended June 30, 1999 as compared to $33,394 for the same period last year. The additional income reflecting rental income from space leased at the new facility to Biosearch Medical Products, Inc, the previous owner. NET INCOME FOR THE FISCAL YEAR 1999 WAS $317,322 COMPARED TO $375,535 FOR FISCAL YEAR 1998, OR A DECREASE OF 15.5%. Income taxes were $170,201 for the current fiscal year compared to a tax of $158,487 for the prior fiscal year. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL AS OF JUNE 30, 1999 WAS $1,869,605 UP $509,956 FROM PRIOR YEAR. During the year ended June 30, 1999, the Company generated $880,000 through the sale of 220,000 shares of stock to CR Bard for $4.00 per share. The Company paid $131,368 in dividends. Cash balances, at the end of the fiscal year, are $1,270,295, up $486,820 from the prior year. MANAGEMENT COMMENT: Management believes that its current cash position plus its projections will generate sufficient funds to maintain its current level of operations. Fiscal year 1999 was a year of structure building to exploit the capabilities of the Company - in products, technology and management. Hydromer is poised to take advantage of its patented technologies by focusing on commercialization and licensing its technologies to companies that offer significant revenue opportunities for the Company, now and in the future. ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA For information concerning this item, see pages 2 through 12 of the "Audited Financial Statements for the year ended June 30, 1999," which information is incorporated herein by reference. 12 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. PART III ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For information concerning this item, see "Item 1. Business - Executive Officers" and pages 1 through 3 of the Proxy Statement filed with respect to the 1997 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 3 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 pages 2 through 5 of the Proxy Statement, which information is incorporated herein by reference. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS For information concerning this item, see pages 5 through 6 of the Proxy Statement, which information is incorporated herein by reference. PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. FINANCIAL STATEMENTS: The financial statement 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 has not filed any Current Reports on Form 8-K during the quarter ended June 30, 1999. 13 POWER OF ATTORNEY The Company and each person whose signature appears below hereby appoint Manfred F. Dyck and Robert D. Frawley 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 President, Principal Executive Officer, October 6 ,1999 - --------------------- Chairman of the Board of Directors Manfred F. Dyck /s/ ROBERT C. KELLER Principal Accounting Officer October 6, 1999 - --------------------- Robert C. Keller 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 President, Principal Executive Officer, October 6, 1999 - --------------------- Chairman of the Board of Directors Manfred F. Dyck /s/ URSULA M. DYCK Director October 6, 1999 - --------------------- Ursula M. Dyck /s/ DIETER HEINEMANN Director October 6, 1999 - --------------------- Dieter Heinemann /s/ MAXWELL BOROW Director October 6, 1999 - --------------------- Maxwell Borow /s/ ROBERT H. BEA Director October 6, 1999 - --------------------- Robert H. Bea 14 HYDROMER, INC. INDEX TO THE FINANCIAL STATEMENTS JUNE 30, 1999 AND 1998
PAGE ---- Independent Auditors' Report ...................................... 1 Financial Statements Balance Sheets ............................................... 2 Statements of Income ......................................... 3 Statement of Stockholders' Equity ............................ 4 Statements of Cash Flows ..................................... 5 Notes to the Financial Statements ............................ 6-13
15 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Hydromer, Inc. We have audited the accompanying balance sheets of Hydromer, Inc. as of June 30, 1999 and 1998 and the related statements of income, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hydromer, Inc. as of June 30, 1999 and 1998, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. ROSENBERG RICH BAKER BERMAN & COMPANY Bridgewater, New Jersey August 31, 1999 16 HYDROMER, INC. BALANCE SHEETS
JUNE 30, ----------------------------- 1999 1998 ------------ ------------ ASSETS Current Assets Cash and cash equivalents $ 1,270,295 $ 783,475 Trade receivables less allowance for doubtful accounts of $8,831 in 1999 and 1998 770,647 497,579 Inventory 210,065 176,131 Prepaid expenses 80,018 100,816 Other 11,375 12,975 Deferred tax asset -- 236,235 ------------ ------------ Total Current Assets 2,342,400 1,807,211 Property and Equipment, net 1,681,458 1,585,209 Patents, net 168,807 82,102 Other 52,520 18,015 ------------ ------------ Total Assets 4,245,185 3,492,537 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable 145,062 42,563 Accrued expenses 120,566 232,432 Current portion of mortgage payable 56,667 56,667 Current portion of deferred rental income 115,500 115,500 Income tax payable 35,000 -- ------------ ------------ Total Current Liabilities 472,795 447,162 Deferred tax liability 24,768 -- Long term portion of mortgage payable 736,669 793,333 Long term portion of deferred rental income 112,453 224,906 ------------ ------------ Total Liabilities 1,346,685 1,465,401 Stockholders' Equity Common stock--no par value, authorized 6,000,000 shares, 4,598,904 shares issued and 4,587,987 shares outstanding (1999); 4,378,904 shares issued and 4,367,987 shares outstanding (1998) 3,608,118 2,922,708 Contributed capital 577,750 577,750 Accumulated deficit (1,281,228) (1,467,182) Treasury stock, 10,917 common shares at cost (6,140) (6,140) ------------ ------------ Total Stockholders' Equity 2,898,500 2,027,136 ------------ ------------ Total Liabilities and Stockholders' Equity $ 4,245,185 $ 3,492,537 ------------ ------------ ------------ ------------
See notes to the financial statements. 17 HYDROMER, INC. STATEMENTS OF INCOME
YEAR ENDED JUNE 30, -------------------------- 1999 1998 ----------- ----------- Revenues Sales of products and services $ 1,268,713 $ 989,527 Royalties, options and licenses 1,574,209 1,371,043 2,842,922 2,360,570 Cost of Sales 314,802 203,636 Gross Profit 2,528,120 2,156,934 Operating Expenses 2,125,958 1,654,468 Operating Income 402,162 502,466 Other Income (Expense) Rental income 112,453 -- Interest income 36,739 33,394 Interest expense (65,197) (1,969) Other income 1,366 131 Total Other Income 85,361 31,556 Income Before Provision for Taxes 487,523 534,022 Provision for Income Taxes 170,201 158,487 Net Income $ 317,322 $ 375,535 Earnings Per Common Share $ .07 $ .09 Earnings Per Common Share--Assuming Dilution $ .07 $ .09 Weighted Average Number of Common Shares Outstanding 4,443,932 4,367,987 ----------- ----------- ----------- -----------
See notes to the financial statements. 18 HYDROMER, INC. STATEMENT OF STOCKHOLDERS' EQUITY
COMMON STOCK TREASURY STOCK ------------------------ CONTRIBUTED ACCUMULATED ------------------ SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT TOTAL --------- ----------- --------- ------------ ------- -------- ----------- Balance June 30, 1997 4,378,904 $ 2,922,708 $ 577,750 $ (1,711,350) 10,917 $ (6,140) $ 1,782,968 Dividends Paid -- -- -- (131,367) -- -- (131,367) Net Income -- -- -- 375,535 -- -- 375,535 --------- ----------- --------- ------------ ------ -------- Balance June 30, 1998 4,378,904 2,922,708 577,750 (1,467,182) 10,917 (6,140) 2,027,136 Dividends Paid -- -- -- (131,368) -- -- (131,368) Sale of Common Stock 220,000 685,410 -- -- -- -- 685,410 Net Income -- -- -- 317,322 -- -- 317,322 --------- ----------- --------- ------------ ------ -------- Balance June 30, 1999 4,598,904 $ 3,608,118 $ 577,750 $ (1,281,228) 10,917 $ (6,140) $ 2,898,500 --------- ----------- --------- ------------ ------ -------- ----------- --------- ----------- --------- ------------ ------ -------- -----------
See notes to the financial statements. 19 HYDROMER, INC. STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30, --------------------------- 1999 1998 ----------- ----------- Cash Flows From Operating Activities Net Income $ 317,322 $ 375,535 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities Depreciation and amortization 106,220 77,941 Deferred rental income (112,453) -- Deferred income taxes 261,003 126,621 Changes in Assets and Liabilities Trade receivables (273,068) (66,429) Inventory (33,934) (27,378) Prepaid expenses 20,798 (23,249) Patents (86,705) (82,102) Other assets (32,905) (19,022) Accounts payable and accrued liabilities (9,368) 78,104 Income taxes payable 35,000 (40,223) Net Cash Provided by Operating Activities 191,910 399,798 Cash Flows From Investing Activities Cash purchases of property and equipment (202,468) (1,051,000) Net Cash Used in Investing Activities (202,468) (1,051,000) Cash Flows From Financing Activities Proceeds from sale of common stock 685,410 -- Proceeds from borrowings -- 850,000 Repayment of borrowings (56,664) -- Dividends paid (131,368) (131,368) Net Cash Provided by Financing Activities 497,378 718,632 Net Increase in Cash and Cash Equivalents 486,820 67,430 Cash and Cash Equivalents at Beginning of Year 783,475 716,045 Cash and Cash Equivalents at End of Year $ 1,270,295 $ 783,475 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 65,197 $ 1,969 Income taxes $ 16,000 $ 44,878 NON-CASH DISCLOSURES OF CASH FLOW IN FORMATION
In 1998 the Company financed a portion of their acquisition of property with a prepaid lease to Biosearch Medical Products, Inc. for $346,500. See notes to the financial statements. 20 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Hydromer, Inc. (The Company) is a polymer research and development company based in Branchburg, New Jersey. The Company develops polymer complexes for commercial markets in the medical and industrial fields primarily in the United States. The Company obtains patent rights on certain products from which royalty revenues are received. Cash and Cash Equivalents Cash and cash equivalents consist of short term investments with original maturities of three months or less. 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 is depreciated on a straight-line method over the estimated useful lives of the assets: 10 years for machinery and equipment, 3-5 years for furniture and office equipment and the term of the lease for leasehold improvements. 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 Expenses associated with new patent applications are prepaid until the patents are approved at which time they are amortized over the life of the patent, typically 20 years. Prepaid expenses associated with patents which are not approved or abandoned are expensed in the period in which such patents are not approved or abandoned. Maintenance fees associated with existing patents are written off over 12 months. At June 30, 1999 one new patent had been approved. Amortization expense for the year ended June 30, 1999 was $2,407. At June 30, 1998, no new patents were approved and accordingly no amortization had been recognized. 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 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 also are recognized for operating losses that are available to offset future federal income taxes. Earnings Per Share Earnings per share, in accordance with the provisions of Financial Accounting Standards Board Statement No. 128, "Earnings Per Share", is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. For the year ended June 30, 1999 common stock equivalents were included in computing diluted earnings per share. For the year ended June 30, 1998 common stock equivalents were not included in computing diluted earning per share since their effects would be antidilutive. 21 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued Concentration of Credit and Business Risk The Company maintains cash balances in a financial institution. Accounts at the institution are insured by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. At times, throughout the year, the Company may maintain certain account balances which exceed the FDIC insured limits. 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. Advertising Advertising costs are expensed as incurred except for tangible assets, such as printed advertising materials, which are expensed as consumed. Advertising expense was $56,869 and $8,743 for the years ended June 30, 1999 and 1998, respectively. Advertising included in prepaid expense on the balance sheet at June 30, 1999 and 1998 were $0 and $7,725, respectively. Research and Development Research and development costs are charged to operations when incurred and are included in operating expenses. The amounts charged in 1999 and 1998 were approximately $431,000 and $512,000, respectively. Major Customers The Company sold products and collected royalty income representing more than 10% of its total revenues for the year ended June 30, 1999 and 1998, to three customers. Revenue Recognition Revenue from product sales are recognized at the time of shipment provided that collection of the resulting receivable is probable. Revenue from royalties are recognized upon the sale of certain products by licensees with whom the Company has licensing agreements. 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. INVENTORY Inventory consists of:
JUNE 30, ---------------------- 1999 1998 --------- --------- Finished goods $ 116,029 $ 102,689 Raw materials 94,036 73,442 --------- --------- $ 210,065 $ 176,131 --------- --------- --------- ---------
22 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS PROPERTY AND EQUIPMENT Property and equipment consists of the following:
JUNE 30, -------------------------- 1999 1998 ----------- ------------ Land $ 472,410 $ 472,410 Building 813,026 752,453 Machinery and equipment 727,323 598,300 Furniture and fixtures 137,792 128,443 Leasehold improvements 103,641 215,077 ----------- ----------- 2,254,192 2,166,683 Less accumulated depreciation and amortization (572,734) (581,474) ----------- ----------- $ 1,681,458 $ 1,585,209 ----------- ----------- ----------- -----------
Depreciation expense charged to operations was $75,888 and $57,764 in 1999 and 1998, respectively. Amortization expense charged to operations was $30,332 and $20,177 in 1999 and 1998, respectively. LONG-TERM DEBT Long-term debt is comprised of the following: Mortgage note Due in equal monthly installments of $4,722 plus interest through June 1, 2013 secured by the land, building, machinery and $ 793,336 equipment and all rents from leases currently and subsequently entered into Less: Current Maturities 56,667 --------- Long-term Debt, Net of Current Maturities $ 736,669 --------- ---------
The mortgage note bears interest at a rate of 200 basis points over the banks fully absorbed five year cost of funds, adjusted every five years. The interest rate for the first five year period is 8%. Total maturities of long term debt are as follows:
YEAR ENDED JUNE 30, ------------------- 2000 $ 56,664 2001 56,664 2002 56,664 2003 56,664 2004 56,664 Thereafter 510,016 --------- $ 793,336 --------- ---------
23 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of cash and equivalents, accounts receivable, accounts payable and accrued expenses approximates fair value because of the short maturity of these instruments. The fair value of the Company's long term debt approximates its carrying value and is based on the current rates offered to the Company for debt of the same remaining maturities with similar collateral requirements. Limitations Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates. INCOME TAXES The income tax provision (benefit) is comprised of the following:
FEDERAL STATE TOTAL --------- -------- --------- Year Ended June 30, 1999 Current $ (8,608) $ 18,108 $ 9,500 Deferred 160,701 -- 160,701 --------- -------- --------- $ 152,093 $ 18,108 $ 170,201 --------- -------- --------- --------- -------- --------- Year Ended June 30, 1998 Current $ -- $ 17,872 $ 17,872 Deferred 140,615 -- 140,615 --------- -------- --------- $ 140,615 $ 17,872 $ 158,487 --------- -------- --------- --------- -------- ---------
The Company's deferred tax (liability) asset is comprised of the following temporary differences:
JUNE 30, ---------------------- 1999 1998 --------- --------- Depreciation $ (24,768) $ (13,600) Net operating losses -- 249,835 --------- --------- Net $ (24,768) $ 236,235 --------- --------- --------- ---------
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 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 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, ---------------- 1999 1998 ----- ----- Federal statutory tax rate 34.0% 34.0% State income tax--net of federal tax benefit 5.9 5.9 Permanent and other differences (5.0) (10.2) 34.9% 29.7% ----- ----- ----- -----
24 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS INCOME TAXES, Continued Those amounts have been presented in the Company's financial statements as follows:
JUNE 30, ----------------------- 1999 1998 --------- --------- Current deferred tax asset $ -- $ 249,835 Current deferred tax liability -- (13,600) Non current deferred tax liability (24,768) -- --------- --------- Net Deferred Tax (Liability) Asset $ (24,768) $ 236,235 --------- --------- --------- ---------
STOCK OPTIONS AND AWARDS On January 22, 1998 the Board of Directors authorized a stock option plan for senior management. Under the plan, senior management would be issued stock options in an amount equal to 3% of the incremental market cap of the Company divided by the stock price at June 30th in each of the next three years. The incremental market cap of the Company is defined as the number of outstanding shares at the end of each year multiplied by the increase in the market value per share for each year. These options would be equally divided by the number of participants in the plan. As of June 30, 1999, there were three participants. The plan was effective July 1, 1998. The market cap of the company on June 30, 1999 and 1998 was $4,587,987 and $3,010,496, respectively. The first options will be issued under this plan as of June 30, 1999. On June 30, 1999, the Board of Directors granted options to purchase 48,540 shares of common stock of the Company. The exercise price of $1 per share was equal to the market price at the date of grant. These options vest 20% immediately and 10% per quarter over two years. At June 30, 1999 16,180 of these options were canceled, due to the termination of one of the officers. These options expire in June 2004. On January 22, 1998 the Board of Directors also authorized a stock option plan for the Chief Executive Officer (CEO). Under the plan, the CEO would be issued stock options in an amount equal to 3% of the incremental market cap of the Company divided by the stock price at June 30th in each of the next three years. The incremental market cap of the Company is defined as the number of outstanding shares at the end of each year multiplied by the increase in the market value per share for each year. The plan was effective July 1, 1998. The market cap of the company on June 30, 1999 and 1998 was $4,587,987 and $3,010,496, respectively. The first options will be issued under this plan as of June 30, 1999. On June 30, 1999, the Board of Directors granted options to purchase 48,540 shares of common stock of the Company. The exercise price of $1 per share was equal to the market price at the date of grant. These options vest 20% immediately and 10% per quarter over two years. These options expire in June 2004. On January 22, 1998 the Company issued 25,000 stock options to a senior executive as part of his employment agreement. These options vest 100% in 6 months and are priced at $0.875 per share. The Company also authorized the issuance of 60,000 stock options to the same executive once the Company is listed on a regional or national exchange. The options will be granted at the rate of 20,000 shares immediately upon listing and 5,000 shares at the end of each of the next 8 quarters from listing date. The price of the options will be the listing price or $2.00, whichever is higher. On January 22, 1998 the Board of Directors approved an option plan for active directors that would give each active director of the Company 5,000 options to purchase common stock of the Company. On October 21, 1998 the Board of Directors granted options to purchase 20,000 shares of common stock under this plan. The exercise price of $.75 was equal to the market value at the date of grant. These options expire on October 21, 2003. 25 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS STOCK OPTIONS AND AWARDS, Continued A summary of activity under the plan for the years ending June 30, 1999 and 1998 is as follows: COMMON STOCK OPTIONS OUTSTANDING --------------------------------
SHARES ----------- Balance, June 30, 1997 -- Granted 25,000 Exercised -- Canceled -- ----------- Balance, June 30, 1998 25,000 Granted 117,080 Exercised -- Canceled 16,180 ----------- Balance, June 30, 1999 125,900 Shares exercisable at June 30, 1999 61,180 Weighted average fair value of options granted during 1999 $ .96 Weighted average fair value of options granted during 1998 $ .875
Following is a summary of the status of options outstanding at June 30, 1999:
Outstanding Options - ---------------------------------------------------------------------------- Weighted Average Weighted Remaining Average Exercise Contractual Exercise Price Range Number Life Price - ---------------- ---------------- ---------------- ---------------- $.75-$1.00 125,900 4.8 years $0.94
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. Effective August 1, 1998, the Company will match 25% of the employees contribution up to 6% of salary. The Company's matching contribution to the plan during the years ended June 30, 1999 and 1998 were $7,000 and $0, respectively. 26 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS LEASES The Company leases a facility under an operating lease. Total rental expense for the years ended June 30, 1999 and 1998 were $90,000 and $79,375, respectively. The lease calls for payment by the Company of all operating costs such as utilities, maintenance, taxes and liability insurance. Future minimum rental commitments for the next five years as of June 30, 1999 on the aforementioned lease is as follows: 2000 $ 101,875 2001 43,750 --------- $ 145,625 --------- ---------
RELATED PARTY TRANSACTIONS The Company and Biosearch Medical Products, Inc. (BMP) are related parties since certain shareholders hold a substantial ownership interest and are members of management in both companies. During 1999 and 1998, the Company sold materials and services to BMP for $19,129 and $45,019, respectively. The Company also earned royalty income from BMP of $0 and $25,894 for the years ended June 30, 1999 and 1998, respectively. In addition, the Company allocates occupancy costs to BMP for their share of the expenses. Expenses charged to BMP during the year ended June 30, 1999 totaled approximately $34,000. Total amounts owed to the Company by BMP were $62,131 and $25,093 at June 30, 1999 and 1998, respectively. In addition, BMP provides engineering and secretarial services to Hydromer. These expenses amounted to $59,491 and $17,393 and for the years ended June 30, 1999 and 1998, respectively. Amounts owed to BMP at June 30, 1999 and 1998 were $6,784 and $3,811, respectively. In 1999 and 1998, the Company purchased furniture and equipment from BMP for $5,000 and $500, respectively. During 1998, the Company leased equipment and space from BMP, on a week-to-week basis. Total rental expense paid to BMP was $10,000 for the years ended June 30, 1998. On June 12, 1998, the Company purchased a facility and land from BMP for $850,000 in cash and a pre-paid lease to BMP of $346,500. The land and building has an appraised value of $1,370,000. BMP occupies approximately 75% of the building and Hydromer the remaining 25%. 27 HYDROMER, INC. NOTES TO THE FINANCIAL STATEMENTS EARNINGS PER SHARE The Company adopted Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128) during fiscal year ended June 30, 1998, which replaced the calculation of primary and fully diluted earnings per share with earnings per share and earnings per share--assuming dilution. Because common stock equivalents were antidilutive in prior years, no difference exists between the application of SFAS No. 128 and previous methods. Accordingly, no restatement of prior years was necessary. The following table sets forth the computation of earnings per share and earnings per share--assuming dilution:
1999 1998 ----------- ----------- Numerator: Net income, earnings per share and earnings per share--assuming dilution $ 317,322 $ 375,535 ----------- ----------- ----------- ----------- Denominator (thousands): Denominator for earnings per share--weighted average shares outstanding 4,443,932 4,367,987 Effect of dilutive securities--stock options 125,810 -- ----------- ---------- Denominator for earnings per share--assuming dilution-- adjusted weighed average shares outstanding 4,569,742 4,367,987 ----------- ---------- ----------- ---------- Earnings per share $ .07 $ .09 ----------- ---------- ----------- ---------- Earnings per share--assuming dilution $ .07 $ .09 ----------- ---------- ----------- ----------
COMMITMENTS On May 13, 1999, the Company announced that it reached an agreement with the Board of Directors of Biosearch Medical Products, Inc. to exchange $.20 for each outstanding share of Bioseach common stock and options. The transaction is expected to cost the Company approximately $550,000. As of August 31, 1999 the transaction has not been complete. RECLASSIFICATIONS Certain items in the June 30, 1998 financial statements have been reclassified to conform to current year's classifications. Such reclassifications had no effect on previously stated net income. SUBSEQUENT EVENT Subsequent to the year ended June 30, 1998, the Board of Directors declared a cash dividend of $.03 per share. The amount of the cash dividend totals approximately $137,600. 28 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 24 Power of Attorney (see "Power of Attorney" in the Annual Report on Form 10-KSB). EX-10.BT 2 EXHIBIT 10.BT Exhibit 10 BT LICENSE AGREEMENT THIS AGREEMENT, made the 25th day of February, 1999, by and between C.R. BARD, INC., a New Jersey corporation, having its principal place of business at 730 Central Avenue, Murray Hill, New Jersey 07974 (hereinafter referred to as "BARD") and HYDROMER, INC. having its principal place of business at 35 Columbia Road, Branchburg, New Jersey 08876-1276 (hereinafter referred to as "LICENSOR"). WITNESSETH WHEREAS, LICENSOR is the sole owner of all "PROPRIETARY RIGHTS" (hereinafter defined) existing on the "EFFECTIVE DATE" (hereinafter defined); and WHEREAS, BARD desires to obtain from LICENSOR, and LICENSOR desires to grant to BARD, a license under all PROPRIETARY RIGHTS, with right to sublicense, to manufacture or have manufactured "SUPERSLIP COATING" (hereinafter defined) "BIOSTATIC COATING" (hereinafter defined) and "STAY WET COATING" (hereinafter defined); and WHEREAS, BARD desires to obtain from LICENSOR, and LICENSOR desires to grant BARD, an exclusive license throughout the "TERRITORY" (hereinafter defined), under all PROPRIETARY RIGHTS, with right to sublicense, to apply SUPERSLIP COATING, BIOSTATIC COATING and STAY WET COATING to all products within the "LICENSEE APPLICATION" (hereinafter defined); and WHEREAS, BARD desires to obtain from LICENSOR and LICENSOR desires to grant to BARD, an exclusive license through the TERRITORY, with right to sublicense, under all PROPRIETARY RIGHTS to use, sell, offer for sale, import and export "PRODUCT" (hereinafter defined). NOW, THEREFORE, in consideration of the above premises, all of which are incorporated into the body of this Agreement as if set forth fully therein, and of the mutual agreements and undertakings hereinafter set forth, LICENSOR and BARD agree as follows: I. DEFINITIONS 1.1 AFFILIATE--means any person or entity which controls, is controlled by, or is under common control with BARD. For purposes of this definition, the term "control," including the correlative meanings of the terms "controlled by" and "under common control with" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person or entity. 1.2 BIOSTATIC COATING--means: (i) the coating described on SCHEDULE A, which is attached hereto and incorporated herein, and (ii) all improvements to and enhancements or the coating described on SCHEDULE A which, prior to the EFFECTIVE DATE or during the term of this Agreement, was or is: (a) invented by LICENSOR, alone or jointly with 2 any third party, or (b) acquired by LICENSOR by purchase, license or otherwise. 1.3 EFFECTIVE DATE--means the date and year first above written. 1.4 LICENSED APPLICATION--means intermittent and indwelling urological catheters. 1.5 NEW COATING--means any coating which may have utility for any product within the LICENSED APPLICATION: (i) which, prior to the EFFECTIVE DATE or during the term of this Agreement, was or is invented by LICENSOR, alone or jointly with any third party, or (ii) any rights to which were acquired by LICENSOR prior to the EFFECTIVE DATE or are acquired by LICENSOR during the term of this Agreement, in each case whether by purchase, license, the grant of distribution rights or otherwise, exclusive, in all instances, of: (a) SUPERSLIP COATING, BIOSTATIC COATING and STAY WET COATING, and (b) any coating (other than SUPERSLIP COATING, BIOSTATIC COATING or STAY WET COATING) which is covered, in the country of manufacture or sale, by an unexpired claim of United States Letters Patent No. 4,769,013 or any foreign counterpart but only for so long as Kendall Healthcare Corporation is a licensee under said patent for the LICENSED APPLICATION, and (c) any coating (other than SUPERSLIP COATING, BIOSTATIC COATING or STAY WET COATING which, within the six (6) month period prior to the EFFECTIVE DATE, was 3 manufactured or sold by LICENSOR and which, on the EFFECTIVE DATE, is not covered by any issued Letters Patent. 1.6 NET SALES--means NET SELLING PRICE, as in effect from time to time during the time of this Agreement, times units sold while that particular NET SELLING PRICE is in effect. 1.7 NET SELLING PRICE--means, with respect to any PRODUCT, the gross invoiced selling price of such PRODUCT by BARD or any AFFILIATE to any non-AFFILIATE, less the following offsets and deductions: (i) import duty, sales, use and value added tax, if included in the gross invoiced selling price, and (ii) freight and handling charges, if included in the gross invoiced selling price, and (iii) relevant customary cash, trade and quantity discounts and rebates actually granted and given by BARD or an AFFILIATE to customers, and (iv) fees paid by BARD or an AFFILIATE to group purchasing organizations on the sale of PRODUCT; provided however: (a) if any PRODUCT is sold in a kit or in a combination with any article which is not coated with SUPERSLIP COATING, BIOSTATIC COATING or STAY WET COATING, and such PRODUCT is also sold separately, the NET SELLING PRICE of such PRODUCT shall be determined as if it was sold alone, (b) if any PRODUCT is sold in a kit or in a combination with any article which is not coated with SUPERSLIP COATING, BIOSTATIC COATING or STAY WET COATING, 4 and such PRODUCT is not sold separately, the NET SELLING PRICE of such PRODUCT included in such kit or combination shall be determined by multiplying the gross invoiced selling price of such kit or combination, less applicable deductions and off-sets referred to above, by a fraction, the numerator of which shall be BARD'S or its AFFILIATE'S published list price for such PRODUCT included in such kit or combination and the denominator of which shall be BARD's or its AFFILIATE'S published list price for all items contained in such kit or combination. 1.8 PRODUCT--means any product within the LICENSED APPLICATION which is coated with SUPERSLIP COATING, BIOSTATIC COATING or STAY WET COATING. 1.9 PROPRIETARY RIGHTS--means all applications for Letters Patent, issued Letters Patent (including but not limited to United States Letters Patent No. 4,642,267), trade secrets, know-how, technology, manufacturing processes and procedures, formulae, quality control procedures, test procedures, specifications, protocols, drawings and other intellectual property rights applicable to SUPERSLIP COATING, BIOSTATIC COATING and/or STAY WET COATING. 1.10 RESTRICTED INFORMATION--means any information of a confidential and/or proprietary nature as to which BARD or LICENSOR, as the disclosing party, prior to or during the term of this Agreement, develops or acquires any interest, including but not limited to, all discoveries, inventions, 5 improvements, and ideas relating to any process, formula, manufacture, composition of matter, plan or design, whether patentable or not, or relating to the conduct of business by the disclosing party, which, prior to or during the term of this Agreement, was or is disclosed to the other party, as the receiving party, exclusive of data or information: (1) which, at the time of disclosure, was in the public domain or which, subsequent to disclosure, becomes part of the public domain by any means other than the breach by the receiving party of its obligations hereunder, or (ii) which was known to the receiving party, at the time of disclosure, as evidenced by the receiving party's business records maintained in the ordinary course of business, or (iii) which is, at any time, legally disclosed to the receiving party by any person or entity not a party hereto, or (iv) which is developed by an employee of the receiving party who is shown, by competent proof and by clear and convincing evidence, not to have been privy to information disclosed by the disclosing party, or (v) which is disclosed verbally, except where the disclosing party reduces the verbal disclosure to writing, marks the same as confidential or proprietary and furnishes the receiving party with the reduction to writing within sixty (60) days of the verbal disclosure. 1.11 ROYALTY PERIOD - means each twelve (12) month period commencing with the EFFECTIVE DATE. 6 1.12 STAY WET COATING - means: (i) the coating described on SCHEDULE B, which is attached hereto and incorporated herein, and (ii) all improvements to and enhancements of the coating described on SCHEDULE B which, prior to the EFFECTIVE DATE or during the term of this Agreement, was or is: (a) invented by LICENSOR, alone or jointly with any third party, or (b) acquired by LICENSOR by purchase, license or otherwise. 1.13 SUPERSLIP COATING - means: (i) the coating described on SCHEDULE C, which is attached hereto and incorporated herein, and (ii) all improvements to and enhancements of the coating described on SCHEDULE C which, prior to the EFFECTIVE DATE or during the term of this Agreement was or is: (a) invented by LICENSOR, alone or jointly with any third party, or (b) acquired by LICENSOR by purchase, license or otherwise. 1.14 SUPPLY AGREEMENT - means the License and Supply Agreement executed by HYDROMER and BARD on the EFFECTIVE DATE, a copy of which is attached hereto and incorporated herein as EXHIBIT A. 1.15 TERRITORY - means all countries of the world. 11. GRANT OF LICENSE 2.1 LICENSOR hereby grants to BARD: (ii) an exclusive license, under all PROPRIETARY RIGHTS existing on the EFFECTIVE DATE, with right to sublicense, to manufacture or have manufactured, throughout the TERRITORY, SUPERSLIP COATING, 7 BIOSTATIC COATING and STAY WET COATING solely for the LICENSED APPLICATION, (ii) an exclusive license, throughout the TERRITORY, under all PROPRIETARY RIGHTS existing on the EFFECTIVE DATE, with right to sublicense, to apply (or have applied) SUPERSLIP COATING, BIOSTATIC COATING and STAY WET COATING to all products within the LICENSED APPLICATION, (iii) an exclusive license, throughout the TERRITORY, under all PROPRIETARY RIGHTS existing on the EFFECTIVE DATE, with right to sublicense, to use, sell, offer for sale, import and export all PRODUCT. In the event any PROPRIETARY RIGHTS not in existence on the EFFECTIVE DATE come into existence after the EFFECTIVE DATE, the licenses granted by LICENSOR to BARD pursuant to this Section 2.1 shall be deemed amended to include the same without any further action of the parties. Nothing contained in this Section 2.1 is intended to restrict or prohibit the manufacture by LICENSOR under PROPRIETARY RIGHTS for use outside the LICENSED APPLICATION. 2.2 LICENSOR and BARD hereby acknowledge and agree that the licenses granted to BARD under Section 2.1 specifically include the right to have any PRODUCT distributed by BARD, by any AFFILIATE and/or by their respective distributors. 2.3 In consideration of the payment by BARD no LICENSOR on the EFFECTIVE DATE of the sum of $100.00, the receipt and legal sufficiency of which is hereby acknowledged by 8 LICENSOR, LICENSOR hereby grants BARD a right of first refusal to obtain: (i) an exclusive license, under all applicable proprietary rights, with right to sublicense, to manufacture or have manufactured, throughout the TERRITORY, solely for use for the LICENSED APPLICATION each NEW COATING, subject to rights, if any, retained by any co-inventor, (ii) an exclusive license, throughout the TERRITORY, under all applicable proprietary rights, with right to sublicense, to apply (or have applied) each NEW COATING to all products within the LICENSED APPLICATION, subject to rights, if any, retained by any co-inventor, (iii) an exclusive license, throughout the TERRITORY, under all applicable proprietary rights, with right to sublicense, to use, sell, offer for sale, import and export all products within the LICENSED APPLICATION coated with each NEW COATING, subject to rights, if any, retained by any co-inventor, (iv) the exclusive right to distribute, through the TERRITORY, each NEW COATING solely for use for the LICENSED APPLICATION, subject to rights, if any, retained by any third party from whom LICENSOR procures such rights. LICENSOR shall notify BARD of the existence of each NEW COATING within thirty (30) days of the date on which the same is reduced to practice or any rights thereto are acquired by LICENSOR. LICENSOR shall include in each notice issued by LICENSOR pursuant to this Section 2.3 the following: (i) all technical information 9 in its possession relating to the NEW COATING which is the subject of its notice, (ii) a statement advising whether LICENSOR owns or licenses the proprietary rights relating to the NEW COATING which is the subject of its notice, (iii) the terms of LICENSOR's offer to BARD with respect to such NEW COATING which shall consist of the following: (a) a royalty on sales by BARD and its AFFILIATES of products within the LICENSED APPLICATION coated with such NEW COATING, at a rate of two percent (2%) of net sales calculated in a manner consistent with NET SALES, (b) minimum annual royalties of $20,000.00 on sales by BARD and its AFFILIATES of products within the LICENSED APPLICATION coated with the NEW COATING which is the subject of LICENSOR's offer, (iii) the proposed selling price by HYDROMER to BARD and its AFFILIATES of such NEW COATING under the SUPPLY AGREEMENT. No such offer shall include any other financial terms. BARD shall have one hundred-eighty (180) days to accept or reject any such offer by notice to LICENSOR but may extend any such one hundred eighty (180) day period, for up to two (2) additional ninety (90) day periods, by payment to LICENSOR of the sum of $25,000.00 per extension. In the event BARD rejects or fails to timely accept any offer made by LICENSOR pursuant to this Section 2.3, LICENSOR thereafter shall be free to offer the rights which BARD rejected or failed to timely accept to any third party on terms no 10 more favorable than those offered to BARD. If, however, LICENSOR intends to offer any third party such rights on terms more favorable than those which BARD rejected or failed to timely accept, prior to offering such terms to the third party, LICENSOR shall notify BARD of the more favorable terms. Any such notice from LICENSOR shall be deemed an amended offer which may be accepted by BARD by notice to LICENSOR given within thirty (30) days of the date of the amended offer. III. CONSIDERATION; ROYALTIES 3.1 In connection of the licenses granted by LICENSOR to BARD pursuant to Section 2.1 hereof and the rights of first refusal granted by LICENSOR to BARD pursuant to Section 2.3 hereof, BARD has paid LICENSOR concurrently herewith the sum of $120,000 in immediately available funds. Such consideration shall be allocated as set forth on SCHEDULE D, which is attached hereto and incorporated herein. 3.2 In further consideration of the licenses granted by LICENSOR to BARD pursuant to Section 2.1 hereof, BARD hereby agrees to pay LICENSOR a royalty of two percent (2%) of NET SALES. In the event royalties earned by LICENSOR on NET SALES during any year, commencing with the EFFECTIVE DATE, are less than U.S. $20,000, BARD, within forty five (45) days of the end of such year, shall pay the shortfall to LICENSOR. Notwithstanding the foregoing, 11 the provisions of this Section 3.2 shall not apply for so long as BARD purchases SUPERSLIP COATING, BIOSTATIC COATING or STAY WET COATING from LICENSOR pursuant to the SUPPLY AGREEMENT. 3.3 Earned royalties, if any, payable hereunder shall be paid by BARD to LICENSOR within forty five (45) days of the close of each ROYALTY PERIOD. With respect to sales of PRODUCT outside the United States on which any earned royalties are payable hereunder, conversions to U.S. dollars, if applicable, shall be made on the last business day of each month during the ROYALTY PERIOD, based upon the applicable average exchange rates quoted by the WALL STREET JOURNAL during each such month. At the time of BARD's remittance of each earned royalty payment, BARD shall furnish to LICENSOR a report showing the number of units of PRODUCT sold by BARD or any AFFILIATE to any non-AFFILIATE during each month during the ROYALTY PERIOD, the gross invoiced selling price of such PRODUCT and offsets and deductions taken in arriving at NET SALES. Notwithstanding anything to the contrary contained in this Agreement, BARD shall be entitled to withhold, from earned royalties payable hereunder, all taxes thereon required, by competent governmental authorities, to be withheld. BARD hereby covenants to promptly remit or to cause its applicable AFFILIATE to remit all such taxes to the proper authorities as required by law and further agrees to 12 furnish LICENSOR with evidence of remittance within forty five (45) business days of each such remittance. 3.4 BARD hereby agrees to maintain and agrees to cause its AFFILIATES to maintain, for a period of five (5) years following sale, records concerning the number of each PRODUCT sold by BARD and its AFFILIATES to non-AFFILIATES, the gross invoiced selling price of such PRODUCT and offsets and deductions taken in arriving of NET SALES. BART hereby grants to LICENSOR the right, during normal business hours and upon reasonable advance notice to BARD, to have an independent certified public accounting firm, reasonably acceptable to BARD, inspect such records, no more often than annually, for purposes of ascertaining the truth and accuracy of reports furnished by BARD to LICENSOR hereunder and the calculations of earned royalties paid and payable by BARD hereunder. The cost of any such audit shall be borne by LICENSOR; provided however, in the event any such audit indicates a discrepancy of five percent (5%) or more, to the detriment of LICENSOR, between royalties actually paid hereunder and royalties actually owing, BARD, within thirty (30) days of receipt from LICENSOR of a copy of the auditor's certified report evidencing such discrepancy and a copy of the auditor's invoice for such audit, shall reimburse LICENSOR for its actual incurred cost in having such audit conducted and shall pay LICENSOR the royalty shortfall as 13 determined by the auditor, subject to BARD's rights under the provisions of Section 7.4 hereof. IV. NO EFFORTS OBLIGATIONS 4.1 LICENSOR hereby acknowledges and agrees that: (i) BARD shall have no obligation to manufacture or have manufactured any quantity of SUPERSLIP BOATING, BIOSTATIC COATING or STAY WET COATING, except to the extent otherwise provided in the SUPPLY AGREEMENT, (ii) neither BARD nor any AFFILIATE shall be obligated to use any efforts whatsoever to promote, market or sell any PRODUCT, (iii) the consideration set forth in Section 3.2 hereof (or in lieu thereof BARD's minimum purchase obligations under the SUPPLY AGREEMENT) have been bargained for in lieu of any obligation by BARD or any AFFILIATE to use any efforts to promote, market or sell any PRODUCT, (iv) subject to the provisions of Section 24.1 of the SUPPLY AGREEMENT, nothing contained herein is intended to prohibit or restrict the right of BARD and its AFFILIATES to manufacture, have manufactured, use, promote, market or sell any product which is or may be deemed to be competitive with any PRODUCT. V. PATENT MATTERS 5.1 LICENSOR hereby covenants to BARD that, during the term of this Agreement, LICENSOR, at its expense: (i) shall maintain all issued Letters Patent listed on SCHEDULE E, SCHEDULE F, and SCHEDULE G, which are attached hereto and 14 incorporated herein, and (ii) shall diligently prosecute all applications for Letters Patent listed on SCHEDULE E, SCHEDULE F and SCHEDULE G and shall maintain all Letters patent issuing thereon, and (iii) shall prepare such other applications for Letters Patent directed toward SUPERSLIP COATING, BIOSTATIC COATING, STAY WET COATING and each NET COATING which LICENSOR deems advisable, shall file such applications in such countries as LICENSOR deems advisable, shall diligently prosecute the same and shall maintain all Letters Patent issuing thereon. 5.2 In the event any party hereto knows or has reason to believe that any issued patent included in the PROPRIETARY RIGHTS is being infringed, either directly or indirectly by any third party which is not an AFFILIATE, with respect to the LICENSED APPLICATION, the party possessing such knowledge or belief shall promptly notify the other. In said event, BARD, at its sole cost and expense, shall have the first right, but not the obligation, to attempt to stop any such infringement by taking such action as BARD, in its sole judgment, deems appropriate, including prosecution of a lawsuit. In the event BARD institutes a lawsuit against any such infringer, LICENSOR hereby agrees to be named as a nominal party herein, if required by applicable law. In the last mentioned event, (ii) LICENSOR is named as a nominal party, BARD hereby agrees to reimburse LICENSOR for reasonable attorneys' fees incurred 15 by LICENSOR incident to its being named a nominal party within thirty (30) days of BARD's receipt of documentation supporting such fees. The parties hereby agree that all recoveries and awards that may be obtained as a result of any action taken by BARD with respect to any such infringement, including any settlement thereof, shall be the sole and exclusive property of BARD. In the event BARD fails to take any action against the alleged infringer within sixty (60) business days of issuance of any notice referred in the first sentence of this Section 5.2, LICENSOR, thereafter, shall have the right, but not the obligation, at its sole cost and expense, to attempt to stop such alleged infringement by taking such action as LICENSOR, in its sole judgment, deems appropriate, including prosecution of a lawsuit. The parties hereby agree that all recoveries and awards that may be obtained as a result of any action taken by LICENSOR with respect to such alleged infringement, including any settlement thereof, shall be the sole and exclusive property of LICENSOR, it being expressly agreed that LICENSOR shall have the right to settle any such action on such terms as it deems appropriate, provided such settlement is not inconsistent with the rights herein granted to BARD. VI. REPRESENTATIONS AND WARRANTIES 6.1 LICENSOR represents and warrants to BARD that: 16 (i) LICENSOR has the power and authority to execute and deliver this Agreement and perform the transactions contemplated hereby. The execution, delivery and performance of this Agreement has been duly authorized by the Board of Directors of LICENSOR and no other corporate proceedings or other actions are necessary on the part of LICENSOR to execute, deliver, and perform this Agreement, and (ii) this Agreement has been duly executed and delivered by LICENSOR and constitutes the legal, valid and binding obligation of LICENSOR, enforceable against LICENSOR in accordance with the terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally or by the application of general principles of equity, and (iii) LICENSOR is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. LICENSOR has the corporate power and authority to own all of its properties and assets and to carry on its business as it is now conducted, and is duly licensed and qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted by in or the character or location of the properties and assets owned or 17 leased by it makes such licensing or qualifications necessary, and (iv) neither the execution by LICENSOR of this Agreement, the consummation of the transactions contemplated hereby nor the performance by LICENSOR of any of the obligations imposed on it hereunder will: (a) conflict with or result in a breach of any provision in the certificate of incorporation, by-laws or any resolutions of LICENSOR, or (b) give rise to a default, or any right of termination, cancellation or acceleration, or otherwise be in conflict with any of the terms, conditions or provisions of any obligation to which LICENSOR is a party or by which it or any of its ssets, including the PROPRIETARY RIGHTS, may be bound or require any consent, approval or notice under the terms of any such instrument evidencing any such obligation, or (c) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon any of the PROPRIETARY RIGHTS, and (v) LICENSOR is the sole and exclusive owner of the PROPRIETARY RIGHTS existing on the EFFECTIVE DATE and owns the same free and clear of all liens and encumbrances of any nature whatsoever, and 18 (vi) no improvement to or enhancement of the SUPERSLIP COATING described on SCHEDULE C has been reduced to practice by LICENSOR or acquired by LICENSOR, by purchase, license or otherwise, and (vii) all applications for Letters Patent existing on the EFFECTIVE DATE directed toward the SUPERSLIP COATING described on SCHEDULE C and all issued Letters Patent existing on the EFFECTIVE DATE covering the SUPERSLIP COATING as so described are listed on SCHEDULE E, and (viii) no improvement to or enhancement of the BIOSTATIC COATING described on SCHEDULE A has been reduced to practice by LICENSOR or acquired by LICENSOR, by purchase, license or otherwise, and (ix) all applications for Letters Patent existing on the EFFECTIVE DATE directed toward the BIOSTATIC COATING described on SCHEDULE A and all issued Letters Patent existing on the EFFECTIVE DATE covering the BIOSTATIC COATING as so described are listed on SCHEDULE F, and (x) no improvements to or enhancement of the STAY WET COATING described on SCHEDULE B has been reduced to practice by LICENSOR or acquired by LICENSOR, by purchase, license or otherwise, and (xi) all applications for Letters Patent existing on the EFFECTIVE DATE directed toward the STAY WET COATING described on SCHEDULE B and all issued Sellers Patent 19 existing on the EFFECTIVE DATE covering the STAY WET COATING as so described are listed on SCHEDULE G, and (xii) prior to entering into any agreement with any third party which reasonably may result in an improvement to or enhancement of the SUPERSLIP COATING described on SCHEDULE C or the BIOSTATIC COATING described on SCHEDULE A or the STAY WET COATING described on SCHEDULE B, LICENSOR shall procure from the third party an assignment of the third party's entire right title and interest in and to any such improvement or enhancement or, alternatively, shall procure from such third party an exclusive license, with right to sublicense, under all rights of the third party in and to any such improvement or enhancement for the LICENSED APPLICATION. (xiii) no NEW COATING has been reduced to practice on or prior to the EFFECTIVE DATE, and (xiv) prior to entering into any agreement with any third party which reasonably may result in the reduction to practice of any NEW COATING, LICENSOR shall use its reasonable efforts to negotiate and have included in such agreement: (a) an assignment of the third party's entire right title and interest in and to any NEW COATING resultant from work performed under such agreement, or (b) an exclusive license, with right to sublicense, under all rights of the third party in and 20 to any NEW COATING resultant from work performed under such agreement to manufacture, have manufactured, use, sell, offer for sale, import and export any such NEW COATING throughout the TERRITORY, and (xv) to the best of LICENSOR'S knowledge: (a) no issued patent included in PROPRIETARY RIGHTS on the EFFECTIVE DATE is being infringed by any third party in any country in the TERRITORY, and (b) no third party action or proceeding is pending, nor has any claim been made or threatened, challenging the validity or enforceability of any issued patent included in PROPRIETARY RIGHTS on the EFFECTIVE DATE or LICENSOR'S rights in and to any other PROPRIETARY RIGHTS existing on the EFFECTIVE DATE; and (xvi) LICENSOR has made no public disclosure of any non-patented PROPRIETARY RIGHTS existing on the EFFECTIVE DATE and shall make no public disclosure of any such PROPRIETARY RIGHTS or any PROPRIETARY RIGHTS which come into existence during the term of this Agreement, except to the extent required by law or to obtain patent protection therefor, unless LICENSOR obtains BARD's prior written consent, which shall not be unreasonably delayed or withheld. 6.2 BARD represents and warrants to LICENSOR that: 21 (i) BARD has the power and authority to execute and deliver this Agreement and perform the transactions contemplated hereby. The execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate action of BARD and no other corporate proceedings or other actions are necessary on the part of BARD to execute, deliver, and perform this Agreement, and (ii) this Agreement has been duly executed and delivered by BARD and constitutes the legal, valid and binding obligation of BARD, enforceable against BARD in accordance with the terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors rights generally or by the application of general principles of equity, and (iii) BARD is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. BARD has the corporate power and authority to own all of its properties and assets and to carry on its business as it is now conducted, and duly licensed and qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased 22 by it makes such licensing or qualifications necessary, and (iv) neither the execution by BARD of this Agreement, the consummation of the transactions contemplated hereby nor the performance by BARD of any of the obligations imposed on it hereunder will: (a) conflict with or result in a breach of any provision in the certificate of incorporation, by-laws or any resolution of BARD, or (b) give rise to a default, or any right of termination, cancellation or acceleration, or otherwise be in conflict with any of the terms, conditions or provisions of any obligation to which BARD is a party or by which it or any of its assets may be bound or require any consent, approval or notice under the terms of any such instrument evidencing any such obligation, or (c) result in the creation or imposition of any lien, claim, restriction, charge or encumbrance upon any of its assets. VII. INDEMNIFICATION 7.1 LICENSOR agrees to indemnify, defend (using counsel selected by LICENSOR which is reasonably acceptable to BARD) and hold harmless BARD, its AFFILIATES and their respective officers, directors, employees and customers, from and against any and all liabilities, losses, damages, 23 costs and expenses (including, without limitation, reasonable attorneys' fees, court costs and out-of-pocket expenses) suffered or incurred arising out of or in condition with: (i) the breach of any warranty or inaccuracy of any representation of LICENSOR contained in this Agreement, (ii) any failure by LICENSOR to perform any of the covenants, agreements or obligations of LICENSOR contained in this Agreement, (iii) any third party claim alleging that the manufacture, use, sale, offer for sale or import of any PRODUCT infringes the proprietary rights of the third party where the basis of the alleged infringement is SUPERSLIP COATING, BIOSTATIC COATING or STAY WET COATING alone and not the combination of any such coating with any other item, (iv) any third party claim alleging that the manufacture, use, sale, offer for sale or import of any product within the LICENSED APPLICATION coated with any NEW COATING on which BARD exercised its right of first refusal hereunder infringes the proprietary rights of the third party where the basis of the alleged infringement is such NEW COATING alone and not the combination of such NEW COATING with any other item. 7.2 Subject to LICENSOR's obligations under Section 7.1 hereof and subject further to LICENSOR's defense and indemnification obligations under the SUPPLY AGREEMENT, BARD agrees to indemnify, defend (using counsel selected 24 by BARD which is reasonably acceptable to LICENSOR) and hold harmless LICENSOR and its officers, directors and employees, from and against any and all liabilities, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees, court costs and out-of-pocket expenses) suffered or incurred arising out of or in connection with: (i) the breach of any warranty or inaccuracy of any representation of BARD contained in this Agreement, (ii) any failure by BARD to perform any of the covenants, agreements or obligations of BARD contained in this Agreement, (iii) the sale of any PRODUCT or any product coated with a NEW COATING on which BARD exercises its right of first refusal hereunder. 7.3 Within thirty (30) days after BARD or LICENSOR, as the case may be (hereinafter the "Indemnified Party"), has received notice of or has acquired knowledge of any claim by any person or entity not a party to this Agreement of the commencement or threatened commencement of any action or proceeding by any person or entity not a party to this Agreement ("third party claim") or has acquired knowledge of any other claim hereunder against the other party hereto ("first party claim") the Indemnified Party shall, if such claim is indemnifiable by the other party pursuant thereto (hereinafter the "Indemnifying Party", give the Indemnifying Party written notice of such claim and the commencement or threatened commencement of such action or 25 proceeding, if any. Such notice shall state the nature and basis of such claim and, if ascertainable, the amount thereof. Notwithstanding the foregoing, the failure of the Indemnified Party to give such notice shall not excuse the Indemnifying Party's obligation to indemnify and, in the case of a third party claim, defend the Indemnified Party, except to the extent the Indemnifying Party has suffered damage or prejudice by reason of the Indemnified Party's failure to give or delay in giving such notice. Within ten (10) business days of receipt of any notice issued by the Indemnified Party pursuant to this Section 7.3, the Indemnifying Party shall notify the Indemnified Party whether the Indemnifying Party acknowledges its indemnification obligation and, in the case of a third party claim, its defense obligation with respect to the claim which was the subject of the Indemnified Party's notice or whether it disclaims such obligations. In the event the Indemnifying Party disclaims or fails to timely acknowledge its obligations with respect to any claim by the Indemnified party relating to any third party claim, the Indemnified Party shall have the right to defend such claim, with counsel of its own selection, and compromise such claim without prejudice to its right to indemnification hereunder. In the event the indemnifying Party timely acknowledges its obligations hereunder with respect to any third party claim, the indemnifying Party shall defend the same with counsel in 26 accordance with the foregoing provisions of this Article VII. Where the Indemnifying Party shall have acknowledged in writing its obligations hereunder with respect to any third party claim, the Indemnified Party may, at its expense, participate in the defense of such third party claim and no such third party claim shall be settled by the Indemnified Party without the prior written consent of the Indemnifying Party. At any time after the Indemnifying Party acknowledges its obligations hereunder with respect to any third party claim, the Indemnifying Party may request the Indemnified Party to agree in writing to the payment or compromise of such third party claim (provided such payment or compromise has been previously approved in writing by the third party claimant), whereupon such action shall be deemed agreed to by the Indemnified Party and shall be agreed to in writing by the Indemnified Party unless such settlement would involve a remedy or remedies other than the payment of money damages by the Indemnifying Party. 7.4 In the event either party makes a claim against the other party under Article VII hereof and further in the event the party receiving notice of such claim fails to timely acknowledge its obligations hereunder with respect in such claim or disclaims such obligations, the parties, within sixty (60) days of the date of issuance of notice by the party making such claim, shall meet and attempt to resolve 27 in good faith the dispute between the parties with respect to such claim. If the parties fail to resolve such dispute within seventy-five (75) days of the date of issuance of notice by the party making such claim, the party making such claim may thereafter commence litigation against the other party in a court of competent jurisdiction for determination of its claim. Upon resolution of any claim pursuant to this Section 7.4, whether by agreement between the parties or the rendering of a final judgment from which no appeal lies in any litigation, the appropriate party under an agreement or the party against which judgment is rendered in litigation shall, within ten (10) days of such resolution, pay over and deliver to the other party funds in the amount of any claim as resolved, and any fees, including attorneys' fees, incurred by such other party with respect to any such litigation. VIII. TERM/TERMINATION 8.1 This Agreement shall commence on the EFFECTIVE DATE and shall continue thereafter for term(s) coextensive with the SUPPLY AGREEMENT, unless sooner terminated in accordance with Section 8.2 or 8.3 hereof, provided however, in the event the SUPPLY AGREEMENT is terminated pursuant to Section 11.2(i), 11.2(ii) or 11.2(iii), this Agreement shall continue through May 5, 2025, unless sooner terminated by BARD, with or without cause, upon not less than ninety (90) days' notice given by BARD to HYDROMER. 28 8.2 In the event of a material breach or default by BARD of any term or provision of this Agreement on its part to be observed or performed hereunder, LICENSOR shall have the right to give BARD notice thereof, whereupon BARD shall have thirty (30) days from the date of such notice to cure or cause the cure of such breach or default. If such breach or default is timely cured, this Agreement shall remain in full force and effect. If such breach is not timely cured, LICENSOR shall have the right to immediately terminate this Agreement upon notice to BARD. 8.3 In the event of a material breach or default by LICENSOR of any term or provision of this Agreement on its part to be observed or performed hereunder, BARD shall have the right to give LICENSOR notice thereof, whereupon LICENSOR shall have thirty (30) days from the date of such notice to cure or cause the cure of such breach or default. If such breach or default is timely cured, this Agreement shall remain in full force and effect. If such breach is not timely cured, BARD shall have the right to immediately terminate this Agreement upon notice to LICENSOR. 8.4 During the nine (9) month period following termination of this Agreement for any reason, BARD and its AFFILIATES shall have the right to sell their remaining inventory of PRODUCT and any product coated with any NEW COATING. All sales pursuant to this Section 8.4 shall be subject to the 29 provisions of Section 2.3 and Article III relating to royalties, exclusive of minimum annual royalties. 8.5 Termination of this Agreement by either party in accordance with the provisions of this Article VIII shall not constitute an election of remedies. IX. SURVIVAL 9.1 The provisions of Section 2.3 (with respect to product coated with any NEW COATING sold prior to termination of this Agreement), Article III (with respect to PRODUCT sold prior to termination of this Agreement) Section 5.2 (with respect to actions instituted prior to termination), Sections 8.4 and 9.1 and Articles VI, VII and XI shall survive the termination of this Agreement for a period of six (6) years. X. NO CIRCUMVENTION 10.1 As a material inducement to the execution by BARD of this Agreement, LICENSOR hereby represents and warrants to BARD that, during the term of this Agreement, LICENSOR shall not sell any SUPERSLIP COATING, BIOSTATIC COATING, STAY WET COATING or any NEW COATING on which BARD exercises its right of first refusal hereunder to any person or entity which LICENSOR knows or has reasonable grounds to believe intends to use or sell the same for use for the LICENSED APPLICATION. LICENSOR agrees that any remedy at law for any breach by it of the provisions of this Section 10.1 will be inadequate by reason of the fact the irreparable 30 harm will be sustained by BARD and its affiliates in the event of such breach and that BARD shall be entitled to injunctive relief and/or specific performance in respect of each such breach. The remedies provided in Section 10.1 shall be in addition to any other remedy which BARD may have at law or in equity. XI. MISCELLANEOUS 11.1 All notices required or permitted to be given under this Agreement shall be in writing and shall be deemed effective and given when delivered in person or sent by certified or registered mail, posted and certification prepaid, addressed to the party to be notified at its address first above written or to such other address as a party shall designate by notice given in the aforementioned manner. Notices to BARD shall be directed to the attention of its General Counsel. Notices to LICENSOR shall be directed of its President. 11.2 This Agreement may not be assigned by BARD or LICENSOR without the prior written consent of the non-assigning party, which consent shall not be unreasonably delayed or withheld, except that BARD or LICENSOR may assign this Agreement upon notice of but without the consent of the non-assigning party: (a) to any AFFILIATE of the assigning party; or (b) to any purchaser of substantially all the stock of the assigning party; or (c) to a purchaser of substantially all of the assets of the assigning party 31 relating to lubricious coatings, provided the assignee assumes all of the assignor's obligations hereunder. 11.3 BARD or LICENSOR'S failure to observe and perform any term or provision of this Agreement on their respective parts to be so observed and performed shall be excused in the event, to the extent and only during the period that same arises beyond the excused party's control not resulting from its fault or negligence, including, but not limited to, fire, acts of a public enemy, government or God, strikes and lockouts, priorities, allocations, and unavailability of materials at a reasonable cost. 11.4 This Agreement shall be binding upon and enure to the benefit of BARD, its successors and permitted assigns, and LICENSOR, its successors and permitted assigns. 11.5. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey; provided, however, that all questions concerning the construction or effect of patent applications and patents shall be decided in accordance with the laws of the country in which the particular patent application or patent concerned has been filed or granted, as the case may be. 11.6 The invalidity or unenforceability of any term or provision of this Agreement shall not effect the other terms and provisions, and the same shall be construed in 32 all respects as if such invalid or unenforceable term or provision was omitted herefrom. 11.7 This Agreement, the Schedules and Exhibit thereto and any agreement between the parties incorporated herein by reference constitutes the entire agreement between BARD and LICENSOR respecting the subject matter hereof and incorporates and supersedes all prior negotiations, agreements and undertakings, all of which are merged herein. This Agreement may not be changed or modified except by written instrument executed by the parties. 11.8 The Article and Paragraph headings of this Agreement are intended for convenience of reference only and shall not define or limit the provisions of this Agreement. 11.9 The failure of a party to exercise its rights under this Agreement regarding any misrepresentation, breach or default by another party shall not prevent such party from exercising such right unless such waiver is in writing nor shall any such waiver constitute a waiver of any other right hereunder. 11.10 The singular of any term used herein shall be deemed to include the plural of any term used herein shall be deemed to include the singular, as the context requires. The masculine, feminine or neuter gender of any word used herein shall include the others, as context requires. 33 11.11 During the term of this Agreement and during the six (6) year period following the expiration or termination thereof, each party which received RESTRICTED INFORMATION from the other shall hold the same in strict confidence and shall not use the same for its benefit (except as contemplated herein) or for the benefit of any third party. Any party receiving RESTRICTED INFORMATION from the other shall return the same to the disclosing party within thirty (30) days of the expiration or termination of this Agreement; provided however, each party shall have the right to retain one (1) copy of all RESTRICTED INFORMATION received from the other in its Law Department files, under lock and key, for archival purposes only. 34 IN WITNESS WHEREOF, BARD and LICENSOR have caused this Agreement to be executed by their duly authorized officers on the dates indicated below. C.R. BARD, INC. By: [Illegible] ----------------------------- Title: GROUP PRESIDENT ------------------------ Dated: FEBRUARY 25, 1999 ------------------------- HYDROMER, INC. By: [Illegible] ----------------------------- Title: VICE PRESIDENT ------------------------ Dated: FEBRUARY 25, 1999 ------------------------- 35 LICENSE AND SUPPLY AGREEMENT THIS AGREEMENT made this 25th day of February, 1999 by and between HYDROMER, INC., a New Jersey corporation, having its principal place of business at 35 Industrial Parkway, Branchburg, New Jersey 08876 ("HYDROMER") and C. R. BARD, INC., a New Jersey corporation having its principal place of business at 730 Central Avenue, Murray Hill, New Jersey 07974 ("BARD"). WHEREAS, simultaneously with the execution of this Agreement BARD and HYDROMER executed the "LICENSE AGREEMENT" (hereinafter defined), and WHEREAS, BARD is desirous of licensing back to HYDROMER certain rights licensed to BARD by HYDROMER under the LICENSE AGREEMENT; and WHEREAS, HYDROMER is desirous of accepting such license back from BARD, on the subject to the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the terms and provisions of this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by the execution and delivery thereof, HYDROMER and BARD agree as follows: I. DEFINITIONS. 1.1 AFFILIATE -- means any person or entity which controls, is controlled by, or is under common control with BARD; For purposes of this definition, the term "control", including the correlative meanings of the terms "controlled by" and "under common control with" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of management or policies of such person or entity. 1.2 BIOSEARCH -- means Biosearch Medical Products, Inc., a New Jersey corporation, having its principal place of business at 35A Industrial Parkway, Somerville, New Jersey 08876. 1.3 BIOSTATIC COATING -- shall have the meaning set forth in Section 1.2 of the LICENSE AGREEMENT. 1.4 BIOSTATIC RIGHTS -- mean those PROPRIETARY RIGHTS relating to BIOSTATIC COATING licensed by HYDROMER to BARD under the LICENSE AGREEMENT. 1.5 COATINGS -- mean SUPERSLIP COATING, BIOSTATIC COATING and STAY WET COATING. 1.6 CPI -- means the Consumer Price Index for Urban Consumers, Northern New Jersey, all items (1982-1984 Standard Reference Base Period), as published by the United States Department of Labor Bureau of Labor Statistics. 1.7 EFFECTIVE DATE -- means the date and year first above written. 1.8 GAAP -- means generally accepted accounting principles. 2 1.9 LICENSE AGREEMENT -- means the license agreement which is attached hereto and incorporated herein as EXHIBIT 1. 1.10 LICENSED APPLICATION -- shall have the meaning set forth in Section 1.4 of the LICENSE AGREEMENT. 1.11 NEW COATING -- shall have the meaning set forth in Section 1.5 of the LICENSE AGREEMENT. 1.12 PROPRIETARY RIGHTS -- shall have the meaning set forth in Section 1.9 of the LICENSE AGREEMENT. 1.13 SPECIFICATIONS -- mean the raw material, manufacturing, quality assurance and finished product specifications and protocols relating to SUPERSLIP COATING, STAY WET COATING, BIOSTATIC COATING and each NEW COATING, on which BARD exercises its option pursuant to Section 2.3 of the LICENSE AGREEMENT, as may be amended or supplemented by mutual written agreement of the parties. The SPECIFICATIONS applicable to SUPERSLIP COATING are attached hereto and incorporated herein as EXHIBIT 2. 1.14 STAY WET COATING -- shall have the meaning set forth in Section 1.12 of the LICENSE AGREEMENT. 1.15 STAY WET RIGHTS -- mean those PROPRIETARY RIGHTS relating to STAY WET COATING licensed by HYDROMER to BARD under the LICENSE AGREEMENT. 1.16 SUPERSLIP COATING -- shall have the meaning set forth in Section 1.13 of the LICENSE AGREEMENT. 3 1.17 SUPERSLIP RIGHTS -- mean those PROPRIETARY RIGHTS relating to SUPERSLIP COATING licensed by HYDROMER to BARD under the LICENSE AGREEMENT. II. LIMITED LICENSE 2.1 BARD hereby grants to HYDROMER a limited, exclusive, royalty free license, under those SUPERSLIP RIGHTS licensed to BARD under the LICENSE AGREEMENT which exist on the EFFECTIVE DATE for the sole and limited purpose of manufacturing SUPERSLIP COATING and supplying the same to BARD and any AFFILIATE in accordance with the terms of this Agreement. In the event any SUPERSLIP RIGHTS not in existence on the EFFECTIVE DATE come into existence after the EFFECTIVE DATE, the license granted by BARD TO HYDROMER pursuant to the immediately preceding sentence shall be deemed amended to include the same without any further action of the parties. 2.2 BARD hereby grants to HYDROMER a limited, exclusive, royalty free license, under those STAY WET RIGHTS licensed to BARD under the LICENSE AGREEMENT which exist on the EFFECTIVE DATE, for the sole and limited purpose of manufacturing STAY WET COATING and supplying the same to BARD and any AFFILIATE in accordance with the terms of this Agreement. In the event any STAY WET RIGHTS not in existence on the EFFECTIVE DATE come into existence after the EFFECTIVE DATE, the license granted by BARD to HYDROMER pursuant to the immediately preceding sentence shall 4 be deemed amended to include the same without any further action of the parties. 2.3 BARD hereby grants to HYDROMER a limited, exclusive, royalty free license, under those BIOSTATIC RIGHTS licensed to BARD under the LICENSE AGREEMENT which exist on the EFFECTIVE DATE, for the sole and limited purpose of manufacturing BIOSTATIC COATING and supplying the same to BARD and any AFFILIATE in accordance with the terms of this Agreement. In the event any BIOSTATIC RIGHTS not in existence on the EFFECTIVE DATE come into existence after the EFFECTIVE DATE, the license granted by BARD to HYDROMER pursuant to the immediately preceding sentence shall be deemed amended to include the same without any further action of the parties. 2.4 Nothing contained in this Agreement is intended to grant to HYDROMER: (i) the right to apply SUPERSLIP COATING, STAY WET COATING or BIOSTATIC COATING to any product within the LICENSED APPLICATION, or (ii) the right to use, sell, offer to sale, import or export any product within the LICENSED APPLICATION coated with SUPERSLIP COATING, STAY WET COATING or BIOSTATIC COATING. 2.5 HYDROMER shall have no right to further sublicense any of the licenses granted to it pursuant to this Agreement or to assign any of its rights hereunder without the prior written consent of BARD which will not be unreasonably delayed or withheld. Any sublicense or assignment of any of the 5 rights licensed to HYDROMER pursuant to this Agreement shall be null, void and without force or effect. III. NEW COATINGS 3.1 In the event BARD, pursuant to Section 2.3 of the LICENSE AGREEMENT, exercises its right of first refusal on a particular NEW COATING, HYDROMER shall manufacture and sell such NEW COATING (except where HYDROMER merely possesses distribution rights in which case it shall sell such NEW COATING) to BARD and its AFFILIATES, as ordered, and BARD and its AFFILIATES shall purchase such NEW COATING from HYDROMER on the financial terms relating to such NEW COATING accepted by BARD pursuant to Section 2.3 of the LICENSE AGREEMENT. In the event BARD exercises its right of first refusal under Section 2.3 of the LICENSE AGREEMENT with respect to a particular NEW COATING, the parties shall promptly cooperate to agree upon mutually acceptable specifications for such NEW COATING and promptly following agreement thereon shall promptly amend and supplement the SPECIFICATIONS to include mutually acceptable specifications for such NEW COATING. Further, in the event BARD exercises its right of first refusal under Section 2.3 of the LICENSE AGREEMENT with respect to any NEW COATING, BARD shall be deemed to have granted to HYDROMER, at the time of its exercise of such option, without requiring any further action by BARD, a royalty free license, under all proprietary rights relating to such NEW COATING licensed to BARD pursuant to the LICENSE AGREEMENT, if 6 any, for the sole and limited purpose of manufacturing such NEW COATING and supplying the same to BARD and its AFFILIATES in accordance with the terms of this Agreement. No license granted by BARD to HYDROMER pursuant to this Section 3.1 shall be construed as granting to HYDROMER: (i) the right to apply any NEW COATING to any product within the LICENSE APPLICATION, or (ii) the right to use, sell, offer for sale, import or export any product within the LICENSED APPLICATION coated with any NEW COATING. IV. MANUFACTURE. 4.1 The parties hereby acknowledge that the commercial embodiment of BIOSTATIC COATING has not been finalized by HYDROMER as of the EFFECTIVE DATE. HYDROMER agrees to use its reasonable efforts to finalize the commercial embodiment of BIOSTATIC COATING, at its expense, and agrees to notify BARD within thirty (30) days of finalization of such commercial embodiment. Promptly after receipt by BARD of the notice issued by HYDROMER pursuant to the immediately preceding sentence, if BARD notifies HYDROMER that BARD or any AFFILIATE is interested in purchasing BIOSTATIC COATING hereunder, the parties shall promptly amend and supplement the SPECIFICATIONS to include mutually acceptable specifications for BIOSTATIC COATING. 4.2 The parties hereby acknowledge that, while there is a commercial embodiment of STAY WET COATING existing on the EFFECTIVE DATE, the parties have not included the 7 specifications relating thereto on EXHIBIT 2 as neither BARD nor any AFFILIATE has a current intention to purchase the same from HYDROMER. In the event BARD notifies HYDROMER that BARD or any AFFILIATE is interested in purchasing STAY WET COATING hereunder, the parties shall promptly amend and supplement the SPECIFICATIONS to include mutually acceptable specifications for STAY WET COATING. 4.3 If HYDROMER, at any time deems, it necessary to change any of the SPECIFICATIONS applicable to any of the COATING or applicable to any NEW COATING on which BARD exercises its right of first refusal pursuant to Section 2.3 of the LICENSE AGREEMENT, HYDROMER shall notify BARD in writing of such proposed change prior to implementation of the same. Any change to any of the SPECIFICATIONS may only be implemented upon BARD's prior written consent thereto. 4.4 At the time of shipment of any COATING or NEW COATING ordered by BARD or any AFFILIATE hereunder, HYDROMER shall furnish BIOSEARCH and BARD or its ordering AFFILIATE with a Certificate of Analysis, signed by an authorized representative of HYDROMER, certifying that each COATING and NEW COATING, if any, included in such shipment: (i) has been manufactured in conformity with applicable SPECIFICATIONS and, (ii) conformed with applicable SPECIFICATIONS at the time of tender by HYDROMER to the selected carrier. 8 4.5 During the term of this Agreement: (i) HYDROMER shall manufacture, sell and deliver all SUPERSLIP COATING, STAY WET COATING (if any) and BIOSTATIC COATING (if any ) ordered by BARD or any AFFILIATE, all in accordance with the terms of this Agreement, (ii) HYDROMER shall manufacture, sell and deliver (except where HYDROMER merely possesses distribution rights in which case it shall sell and deliver) all quantities of NEW COATING on which BARD exercised its right of first refusal under Section 2.3 of the LICENSE AGREEMENT, as ordered by BARD or any of its AFFILIATES, all in accordance with the terms of this Agreement. V. PURCHASE AND SALE OF SUPERSLIP COATING. 5.1 All purchases and sales of COATINGS, if any, and NEW COATING, if any, under this Agreement will be initiated by issuance and delivery to HYDROMER by BARD or an AFFILIATE of a purchase order. The only terms and conditions of any purchase order issued by BARD or any AFFILIATE pursuant to this Agreement that will be binding on HYDROMER shall be those establishing the quantity of any COATING or NEW COATING to be purchased, the required delivery date(s) therefor and the designated shipping destination. VI. WARRANTIES; INSPECTION; PROCEDURE; ACCEPTANCE; REMEDIES. 6.1 HYDROMER warrants to BARD that all COATINGS and NEW COATING sold and delivered hereunder: (a) will 9 be free from defects in material, design and workmanship, and (b) will be manufactured in accordance with the SPECIFICATIONS applicable thereto and in substantial compliance with Good Manufacturing Practices under the Federal Food, Drug and Cosmetics Act of 1938, as amended and regulations promulgated thereunder. VII. PRICES AND PAYMENT TERMS. 7.1 HYDROMER agrees to sell to BARD and its AFFILIATES, during the initial term of this Agreement and during any renewal term, all quantities of SUPERSLIP COATING, STAY WET COATING (if any), BIOSTATIC COATING (if any) and NEW COATING (if any), as ordered in accordance with this Agreement, at the applicable selling price established in accordance with Section 7.1 and 7.2 hereof. The parties agree that the initial selling price of SUPERSLIP COATING and STAY WET COATING shall be U.S. $140.00 per U.S. gallon and further agree that, subject to any adjustment in accordance with Section 7.2 hereof, said selling prices shall be firm for orders placed through December 31, 1999. Further, the parties agree that the initial selling price of BIOSTATIC COATING shall be established based upon the sum of U.S. $140.00 per U.S. gallon for the base coating plus HYDROMER's actual material costs for the anti-microbial contained therein, established in accordance with the GAAP, plus HYDROMER's direct manufacturing expenses, established in accordance with GAAP, for application, on a per U.S. gallon basis, of such anti-microbial 10 to such base coating. Additionally, the parties agree that the initial selling price of BIOSTATIC COATING, as so established shall be firm through December 31, 1999, subject to any adjustment in accordance with Section 7.2 hereof. Further, the parties agree that in the event BARD exercises its right of first refusal under Section 2.3 of the LICENSE AGREEMENT with respect to a particular NEW COATING the initial selling price thereof shall be as set forth in HYDROMER's offer accepted by BARD pursuant to Section 2.3 of the LICENSE AGREEMENT, which price shall be firm through December 31st of the year in which such offer is accepted. Further, the parties agree that the initial selling prices of SUPERSLIP COATING, STAY WET COATING, BIOSTATIC COATING and any such NEW COATING shall be subject to increase on January 1, 2000 and annually thereafter during the remainder of the initial term of this Agreement and during any renewal thereof (each an "Adjustment Date") by an amount equal to fifty percent (50%) of the increase, if any, in HYDROMER's actual incurred cost, established and consistently applied in accordance with GAAP, for purchased raw materials utilized in the COATING or NEW COATING on which the selling price is being increased, calculated as of the relevant Adjustment Date, versus the corresponding actual incurred cost, established in accordance with GAAP, for such materials on the anniversary prior to the relevant Adjustment Date. Notwithstanding the foregoing, in the event fifty percent (50%) of the increase in any such purchased raw 11 material, calculated in accordance with the above provisions of this Section 7.1, exceeds the percentage increase in the CPI during the one (1) year period beginning fifteen (15) months prior to the applicable Adjustment Date, such excess shall not be used in the calculation of increase in the selling price of the COATING(s) or NEW COATING which utilizes such raw material. Further, it is expressly understood that any adjustment in the selling prices made in accordance with the provisions of Section 7.2 hereof shall not be taken into account in any calculation made pursuant to this Section 7.1. 7.2 The parties hereby expressly agree that in the event HYDROMER's actual incurred cost, established and consistently applied in accordance with GAAP, for any purchased raw material utilized in any of the COATINGS or any NEW COATING being purchased by BARD or any of its AFFILIATES hereunder increases by more than fifteen percent (15%), HYDROMER shall notify BARD of the name of such raw material and the COATING(s) and/or NEW COATING in which such raw material is used and shall include with its notice a certification signed by the Chief Financial Officer or other officer of HYDROMER certifying the percentage and dollar amount of such increase. In the event HYDROMER issues a notice pursuant to the immediately preceding sentence, the selling price by HYDROMER to BARD and its AFFILIATES of the COATING(s) and/or NEW COATING set forth in such notice shall immediately be increased to reflect fifty percent 12 (50%) of the increase in the raw material, as certified by HYDROMER. In the event HYDROMER issues any notice in accordance with the first sentence of this Section 7.2, HYDROMER shall have its Chief Financial Officer or another officer certify to BARD, on a quarterly basis, any fluctuation in HYDROMER's actual incurred cost, established and consistently applied in accordance with GAAP, of the raw material which was the subject of such notice. If any certification issued by HYDROMER indicates a further increase of fifteen percent (15%) or more in HYDROMER's cost of such raw material, the selling price hereunder of the COATING(s) and/or NEW COATING in which such raw material is used shall immediately be further increased in a manner consistent with the foregoing provisions of this Section 7.2. If any certification issued by HYDROMER indicates a decrease in HYDROMER's cost of such raw material, the selling price hereunder of the COATING(s) and/or NEW COATING in which such raw material is used shall immediately be decreased to reflect fifty percent (50%) of the decrease in the cost of such raw material, as certified by HYDROMER; provided, however, in no event shall any such decrease result in a selling price hereunder lower than the initial selling price hereunder, as may have been adjusted in accordance with Section 7.1. In the event HYDROMER issues a notice pursuant to the first sentence of this Section 7.2, the quarterly certification and any required adjustment process shall continue until HYDROMER's actual incurred cost for the relevant 13 raw material equals HYDROMER's actual incurred cost for the same used in calculating the last increase, taken in accordance with Section 7.1, of the selling price of the COATING(s) and/or NEW COATING in which such raw material is used. 7.3 HYDROMER shall invoice BARD or its ordering AFFILIATE at the applicable selling price at the time of shipment. Payment terms are net thirty (30) days from date of receipt of shipment at the shipping destination designated in the purchase order to which the shipment corresponds. VIII. PURCHASE ORDERS. 8.1 All purchase orders hereunder shall be issued not less than ninety (90) days prior to the required delivery date and shall specify the quantity ordered, required delivery date(s) and designated shipping destination. 8.2 All purchase orders hereunder shall be in fifty-five (55) gallon drum multiples and shall be for at least one (1)-fifty-five (55) gallon drum. 8.3 During each year during the term of this Agreement, BARD and/or its AFFILIATES shall order from HYDROMER a minimum of one thousand (1000) gallons of any combination of COATINGS. 8.4 Within thirty (30) days of the EFFECTIVE DATE, BARD shall furnish to HYDROMER with a non-binding forecast of its orders of COATINGS during the next twelve (12) month period, broken down by quarter. BARD shall update such forecast 14 on a monthly basis. In the event BARD exercises its right of first refusal pursuant to Section 2.3 of the LICENSE AGREEMENT with respect to any NEW COATING, the parties agree that the provisions of this Section 8.4 shall apply mutatis mutandis to such NEW COATING. IX. SHIPPING TERMS. 9.1 All COATINGS ordered hereunder will be delivered to BARD or its ordering AFFILIATE, as applicable, by tender to its selected carrier, F.O.B. HYDROMER's facility located at 35 Columbia Road, Branchburg, New Jersey, on the delivery date set forth in the corresponding purchase order. Title and risk of loss shall pass upon acceptance of tender by such carrier. X. TERM 10.1 This Agreement shall commence on the EFFECTIVE DATE and shall have an initial term continuing through May 6, 2005, unless sooner terminated in accordance with the provisions of Article XI hereof. BARD shall have the right to renew this Agreement, at its option, for up to four (4) additional successive five (5) year renewal terms by notice given to HYDROMER not less than ninety (90) days prior to the expiration of the then current term. XI. TERMINATION 11.1 HYDROMER shall have the right to terminate this Agreement immediately upon notice to BARD in the event BARD 15 becomes insolvent, makes a general assignment for the benefit of its creditors, files or has filed against it a petition in bankruptcy which is not dismissed or stayed without renewal within the applicable statutory period or files a petition in any State or Federal proceeding seeking relief from its creditors. Further, in the event of a material breach or default by BARD of any term or provision of this Agreement on its part to be observed or performed hereunder, HYDROMER shall have the right to give BARD notice thereof, whereupon BARD shall have thirty (30) days from the date of such notice to cure or cause the cure of such breach or default. If such breach or default is timely cured, this Agreement shall remain in full force and effect. If such breach is not timely cured, HYDROMER shall have the right to immediately terminate this Agreement upon notice to BARD. 11.2 BARD shall have the right to terminate this Agreement: (i) immediately upon notice to HYDROMER in the event HYDROMER becomes insolvent, makes a general assignment for the benefit of its creditors, files or has filed against it a petition in bankruptcy which is not dismissed or stayed without renewal within the applicable statutory period or files a petition in any State or Federal proceeding seeking relief from its creditors, (ii) immediately upon notice to HYDROMER in the event HYDROMER fails to timely perform any of its material obligations hereunder for a period of ninety (90) days, either consecutively or in the aggregate, during any twelve (12) month period, regardless of 16 whether such failure is due to Force Majeure, as defined in Section 12.1(a) hereof, (iii) immediately upon notice to HYDROMER in the event of a material breach or default by HYDROMER of any term or provision of this Agreement on its part to be observed or performed which is not cured by HYDROMER within thirty (30) days of the date of notice by BARD to HYDROMER of such breach or default, (iv) with or without cause, at any time after May 6, 2005, upon not less than one hundred twenty (120) days' prior written notice to HYDROMER. 11.3 In the event BARD terminates this Agreement pursuant to Section 11.2(iv), the parties hereby agree that the following rights and obligations of the respective parties shall apply: (i) BARD and its AFFILIATES shall have the right to purchase from HYDROMER and HYDROMER shall have the obligation to supply BARD and its AFFILIATES, on a purchase order basis and on the terms and conditions set forth in this Agreement (exclusive of Section 8.3) COATINGS and NEW COATING purchased by BARD or any AFFILIATE prior to termination of this Agreement, (ii) all obligations of HYDROMER under this Agreement shall apply with respect to any COATINGS or NEW COATING ordered by BARD or any AFFILIATE pursuant to Section 11.3(i) of this Agreement, (iv) all obligations of BARD under this Agreement shall apply with respect to any COATINGS or NEW COUNTING ordered by BARD or any AFFILIATE pursuant to Section 11.3(i) of this agreement, exclusive of those set forth in Section 8.3., (v) notwithstanding the last sentence of Section 3.2 of the LICENSE AGREEMENT, BARD shall be obligated to 17 pay HYDROMER earned royalties in accordance with the terms of the LICENSE AGREEMENT: (a) on all PRODUCTS, as defined in the LICENSE AGREEMENT, coated with any of the COATINGS purchased pursuant to this Section 11.3, (b) all products coated with any NEW COATING purchased pursuant to this Section 11.3. 11.4 Except as expressly set forth in this Agreement, termination of this Agreement: (i) will not affect or impair the rights, liabilities and obligations of any party under any purchase order issued prior to the effective date of termination or pursuant to Section 11.3 hereof; and (ii) will not relieve any party of any obligation or liability incurred under this Agreement prior to the effective date of termination or pursuant to Section 11.3 hereof; (iii) shall not constitute an election of remedies. XII. FORCE MAJEURE. 12.1 (a) Subject to the provisions of Section 11.2(ii) which shall supercede this Section 12.1(a), the failure by HYDROMER to make or by BARD to take or require any delivery hereunder (or any portion thereof) when due shall not subject the non-performing party to any liability to the other party if the non-performing party declares in writing to the other party that performance cannot be made due to: (i) an act of God or the public enemy, fire, explosion, perils of the sea, flood, drought, war, riot, sabotage, accident or embargo; (ii) without limiting the foregoing circumstances, any circumstances of like or different character beyond the reasonable control of the party so failing 18 exclusive of inability to pay money unless caused by national bank closure or failure; (iii) interruption of or delay in transportation beyond the reasonable control of the party so failing; (iv) inadequacy or shortage or failure of normal sources of supply of materials, energy or equipment beyond the reasonable control of the party so failing; (v) equipment breakdowns beyond the reasonable control of the party so failing; (vi) labor trouble from whatever cause arising and whether or not the demands of the employees involved are reasonable and within said party's power to concede; or (vii) compliance by HYDROMER or BARD with any order, action, direction or request of any governmental officer, department, agency, authority or committee thereof (any occurrence or condition set forth in subsections (i) through (vii) above are herein referred to as "Force Majeure"). (b) The party claiming an excuse hereunder shall promptly notify the other party in writing, specifying the reasons therefor and expected duration thereof. Such party shall take reasonable steps to ensure resumption of full performance hereunder as soon as reasonably possible. (c) In the event of a Force Majeure event effecting HYDROMER, HYDROMER shall have the right to obtain COATINGS and any NEW COATING on which BARD exercised its right of first refusal pursuant to Section 2.3 of the LICENSE AGREEMENT from a third party only in the event it has obtained BARD's prior written consent which will not be unreasonably delayed or withheld. 19 BARD may impose reasonable conditions to granting such consent which may include, but are not necessarily limited to, qualifying the third party as an approved vendor and/or requiring the third party to agree in writing to all relevant terms and conditions of this Agreement. (d) During the pendency of any Force Majeure situation, should HYDROMER retain any manufacturing capacity relating to any of the COATINGS or any NEW COATING on which BARD exercised its right of first refusal pursuant to Section 2.3 of the LICENSE AGREEMENT, HYDROMER shall allocate a proportion of such manufacturing capacity to BARD which is no less favorable than that granted to any other customer of HYDROMER. XIII. PRODUCTS LIABILITY INSURANCE; INDEMNIFICATION. 13.1 During the term of this Agreement and for so long as HYDROMER supplies any of the COATINGS or NEW COATING pursuant to Section 11.3 of this Agreement, HYDROMER shall maintain, at its expense, a policy of comprehensive general liability insurance, with products liability endorsement, in the minimum amount of $3,000,000.00 per occurrence and in the annual aggregate. Said policy shall name BARD and its AFFILIATES as additional insureds only with respect to COATINGS and NEW COATING sold by HYDROMER hereunder. HYDROMER shall furnish BARD with a certificate of insurance evidencing such coverage within thirty (30) days of the execution of this Agreement, which certificate 20 shall provide for not less than thirty (30) days notice to BARD prior to material change in coverage or policy cancellation. 13.2 HYDROMER agrees to indemnify, defend (using counsel selected by HYDROMER which is reasonably acceptable to BARD) and hold harmless BARD, its AFFILIATES and their respective officers, directors, employees and customers, from and against any and all liabilities, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees, court costs and out-of-pocket expenses) suffered or incurred arising out of or in condition with: (i) the falsity of any Certificate of Analysis delivered pursuant to Section 4.4 hereof or the breach of any warranty contained in Section 6.1 hereof, provided however, in no event shall HYDROMER be liable for any lost profits resultant from any breach or falsity referred to in this Section 13.2(i), (ii) any failure by HYDROMER to perform any of the covenants, agreements or obligations of HYDROMER contained in this Agreement, (iii) any third party claim alleging that the manufacture, use, sale, offer for sale or import of any product within the LICENSED APPLICATION coated with any COATING or NEW COATING purchased hereunder infringes the proprietary rights of the third party where the basis of the alleged infringement is such COATING or NEW COATING alone and not its combination with any other item. 13.3 BARD agrees to indemnify, defend (using counsel selected by BARD which is reasonably acceptable to 21 HYDROMER) and hold harmless HYDROMER and its officers, directors and employees, from and against any and all liabilities, losses, damages, costs and expenses (including, without limitation, reasonable attorneys' fees, court costs and out-of-pocket expenses) suffered or incurred arising out of or in connection with: (i) any failure by BARD or any AFFILIATE to perform any of the covenants, agreements or obligations of BARD contained in this Agreement, (ii) the sale of any product within the LICENSED APPLICATION coated with any COATING or NEW COATING purchased hereunder, subject to HYDROMER's obligations under Section 13.2 hereof and subject further to HYDROMER's defense and indemnification obligations under the LICENSE AGREEMENT. 13.4 Within thirty (30) days after BARD or HYDROMER, as the case may be (hereinafter the "Indemnified Party"), has received notice of or has acquired knowledge of any claim by any person or entity not a party to this Agreement of the commencement or threatened commencement of any action or proceeding by any person or entity not a party to this Agreement ("third party claim") or has acquired knowledge of any other claim hereunder against the other party hereto ("first party claim") the Indemnified Party shall, if such claim is indemnifiable by the other party pursuant hereto (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim and the commencement or threatened commencement of such action or proceeding, if any. Such notice shall state the 22 nature and basis of such claim and, if ascertainable, the amount thereof. Notwithstanding the foregoing, the failure of the Indemnified Party to give such notice shall not excuse the Indemnifying Party's obligation to indemnify and, in the case of a third party claim, defend the Indemnified Party, except to the extent the Indemnifying Party has suffered damage or prejudice by reason of the Indemnified Party's failure to give or delay in giving such notice. Within ten (10) business days of receipt of any notice issued by the Indemnified Party pursuant to this Section 13.4, the Indemnifying Party shall notify the Indemnified Party whether the Indemnifying Party acknowledges its indemnification obligation and, in the case of a third party claim, its defense obligation with respect to the claim which was the subject of the Indemnified Party's notice or whether it disclaims such obligations. In the event the Indemnifying Party disclaims or fails to timely acknowledge its obligations with respect to any claim by the Indemnified Party relating to any third party claim, the Indemnified Party shall have the right to defend such claim, with counsel of its own selection, and compromise such claim without prejudice to its right to indemnification hereunder. In the event the Indemnifying Party timely acknowledges its obligations hereunder with respect to any third party claim, the Indemnifying Party shall defend the same with counsel in accordance with the foregoing provisions of this Section 13. Where the Indemnifying Party shall have acknowledged 23 in writing its obligations hereunder with respect to any third party claim, the Indemnified Party may, at its expense, participate in the defense of such third party claim and no such third party claim shall be settled by the Indemnified Party without the prior written consent of the Indemnifying Party. At any time after the Indemnifying Party acknowledges its obligations hereunder with respect to any third party claim, the Indemnifying Party may request the Indemnified Party to agree in writing to the payment or compromise of such third party claim (provided such payment or compromise has been previously approved in writing by the third party claimant), whereupon such action shall be deemed agreed to by the Indemnified Party and shall be agreed to in writing by the Indemnified Party unless such settlement would involve a remedy or remedies other than the payment of money damages by the Indemnifying Party. 13.5 In the event either party makes a claim against the other party under Section 13 hereof and further in the event the party receiving notice of such claim fails to timely acknowledge its obligations hereunder with respect to such claim or disclaims such obligations, the parties, within sixty (60) days of the date of issuance of notice by the party making such claim, shall meet and attempt to resolve in good faith the dispute between the parties with respect to such claim. If the parties fail to resolve such dispute within seventy-five (75) days of the date of issuance of notice by the party making such 24 claim, the party making such claim may thereafter commence litigation against the other party in a court of competent jurisdiction for determination of its claim. Upon resolution of any claim pursuant to this Section 13.5, whether by agreement between the parties or the rendering of a final judgment from which no appeal lies in any litigation, the appropriate party under an agreement or the party against which judgment is rendered in litigation shall, within ten (10) days of such resolution, pay over and deliver to the other party funds in the amount of any claim as resolved, and any fees, including attorneys' fees, incurred by such other party with respect to any such litigation. XIV. NOTICES. 14.1 All notices required or permitted to be given under this Agreement shall be in writing and shall be deemed effective and given when delivered in person or sent by certified or registered mail, postage and certification prepaid, addressed to the party to be notified at its address first above written or to such other address as a party shall designate by notice given in the aforementioned manner. Notices to BARD shall be directed to the attention of its General Counsel. Notices to HYDROMER shall be directed of its President. XV. ASSIGNMENT. 15.1 This Agreement may not be assigned by BARD or HYDROMER without the prior written consent of the non- 25 assigning party, which consent shall not be unreasonably delayed or withheld, except that BARD or HYDROMER may assign this Agreement upon notice to but without the consent of the non-assigning party: (a) to any purchaser of substantially all the stock of the assigning party; or (b) to a purchaser of substantially all of the assets of the assigning party relating to lubricious coatings, provided the assignee assumes all of the assignor's obligations hereunder. XVI. BINDING EFFECT. 16.1 This Agreement shall be binding upon and inure to the benefit of BARD, its successors and permitted assigns, and HYDROMER, its successors and permitted assigns. XVII. GOVERNING LAW. 17.1 This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. XVIII. INVALIDITY. 18.1 The invalidity or unenforceability of any term or provision of this Agreement shall not effect the other terms and provisions, and the same shall be construed in all respects as if such invalid or unenforceable term or provision was omitted herefrom. XIX. ENTIRE AGREEMENT. 19.1 This Agreement, the Exhibits thereto and any agreement between the parties incorporated herein by reference constitutes the entire agreement between BARD and 26 HYDROMER respecting the subject matter hereof and incorporates and supersedes all prior negotiations, agreements and undertakings, all of which are merged herein. This Agreement may not be changed or modified except by written instrument executed by the parties. XX. CAPTIONS. 20.1 The Article and Section headings of this Agreement are intended for convenience of reference only and shall not define or limit the provisions of this Agreement. XXI. WAIVERS. 21.1 The failure of a party to exercise its rights under this Agreement regarding any breach or default by the other party shall not prevent such party from exercising such right unless such waiver is in writing nor shall any such waiver constitute a waiver of any other right hereunder. XXII. CONSTRUCTION. 22.1 The singular of any term used herein shall be deemed to include the plural and the plural of any term used herein shall be deemed to include the singular, as the context requires. The masculine, feminine or neuter gender of any word used herein shall include the others, as context requires. XXIII. SURVIVAL. 23.1 The provisions of Sections 11.3, 11.4 and the provisions of Article XIII, XVI, XVII, XVIII, XIX, XX, XXI, XXII and XXIII, as well as all other rights and obligations of 27 the respective parties which accrued prior to the expiration or termination of this Agreement or are intended to be observed or performed after the expiration or termination of this Agreement, shall survive and continue thereafter in full force and effect. XXIV. LUBRICIOUS COATING REQUIREMENTS. 24.1 BARD hereby covenants that, from the EFFECTIVE DATE through May 6, 2205, BARD and its AFFILIATES shall purchase from HYDROMER their entire requirements of lubricious coatings intended for use on intermittent urological catheters. Nothing contained in this Section 24.1 shall be deemed or construed to require BARD or any of its AFFILIATES to purchase from HYDROMER any lubricious coatings intended for use on foley catheters. IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers to execute this Agreement in duplicate on the dates indicated below. HYDROMER, INC. Date: 2/25/99 By: [Illegible] ------------------ ----------------------------------- Title: Vice President -------------------------------- C.R. BARD, INC. Date: February 25, 1999 By: [Illegible] ------------------ ----------------------------------- Title: Group President -------------------------------- 28 EXHIBIT 2 --------- TO LICENSE AND SUPPLY AGREEMENT BY AND BETWEEN C.R. BARD, INC. AND HYDROMER, INC. SPECIFICATIONS applicable to SUPERSLIP COATING are set forth in Hydromer's technology transfer files which were delivered to C.R. Bard, Inc. at closing by Joseph Ehrhard, Vice President of Hydromer, Inc. and are incorporated herein by reference. STOCK PURCHASE AGREEMENT This Stock Purchase Agreement is made as of the 25th day of February, 1999, by and between Hydromer, Inc., a New Jersey corporation, having its principal place of business at 35 Industrial Parkway, Branchburg, New Jersey 08876 (the "Seller") and C.R. Bard, Inc., a New Jersey corporation, having its principal place of business at 730 Central Avenue, Murray Hill, New Jersey 07974 (the "Purchaser"). W I T N E S S E T H WHEREAS, Seller desires to issue and sell to Purchaser, and Purchaser desires to purchase from Seller, an aggregate of 220,000 shares (the "Shares") of common stock, without par value (the "Common Stock") of Seller, all on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and mutual representations, warranties and covenants contained herein, the parties agree as follows: 1. SALE OF SHARES. At the Closing (as defined in Paragraph 3 herein) and subject to all other terms and conditions of this Agreement, Seller shall issue, sell and transfer the Shares to Purchaser, free and clear of all liabilities, liens, encumbrances, arrangements and other restrictions, except for any restrictions on resale which may be imposed on Purchaser under the Securities Act of 1933, as amended (the "Securities Act"). 2. PAYMENT OF PURCHASE PRICE. In consideration of the Seller's performance of this Agreement, Purchaser shall pay to Seller the aggregate purchase price of $880,000, payable at Closing by certified or bank cashier's check or by wire transfer to an account specified by Seller. 3. CLOSING. The sale and purchase of the Shares referred to in Section 1 herein shall be consummated at a closing (the "Closing") to be held on or about February 25, 1999 (the "Closing Date"). The Closing shall take place at 12:00 p.m. on the Closing Date at the offices of Shanley & Fisher, P.C., 131 Madison Avenue, Morristown, New Jersey 07962. 4. SELLER'S CLOSING DOCUMENTATION. At the Closing, Seller shall deliver to Purchaser the following: (a) a stock certificate of Seller, in proper form, duly issued in the name of Purchaser, evidencing the Shares; (b) resolutions of the Board of Directors of Seller approving the execution, delivery and the performance by Seller of this Agreement and all other documents required to be executed and delivered by Seller hereunder (the "Related Documents"); (c) a secretary's certificate, in form satisfactory to Purchaser, certifying as to the Certificate of Incorporation and By-laws 2 of Seller and as to the resolutions referred to in Section 4.(b). 5. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents and warrants as follows: (a) Seller has the power and authority to execute and deliver this Agreement and perform the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the Related Documents have been duly authorized by the Board of Directors of Seller and no other corporate proceedings or other actions are necessary on the part of Seller to execute, deliver and perform this Agreement or any of the Related Documents. (b) This Agreement has been duly executed and delivered by Seller and constitutes the legal, valid and binding obligations of Seller, enforceable against Seller in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally or by the application of general principles of equity. The Related Documents, when executed and delivered by Seller, will constitute legal, valid and binding obligations of Seller, enforceable against Seller in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally or by the application of general principles of equity. 3 (c) The execution, delivery and performance of this Agreement and each any of the Related Documents by Seller, and the consummation of the transactions contemplated by this Agreement and by the Related Documents, do not require any consent or waiver of any governmental authority or any other person or entity not otherwise already obtained and delivered to Purchaser. (d) The execution, delivery and performance of this Agreement and any of the Related Documents will not violate any provision of Seller's organizational documents or any law, rule, regulation or order applicable to or binding upon Seller or any of its properties, or any contract, agreement or instrument to which Seller is a party. (e) The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. Seller has the corporate power and authority to own or lease all of its properties and assets and to carry on its business as it is now being conducted, and is duly licensed and qualified to do business and is in good standing in each jurisdiction in which the nature of the business conducted by it or the character or location of the properties and assets owned or leased by it makes such licensing or qualification necessary. (f) The sale of the Shares by Seller hereby is exempt from registration under the Securities Act. (g) The Shares being issued and sold by Seller have been duly authorized, validly issued and, upon payment by Purchaser hereunder, will be fully paid and nonassessable. 4 (h) Seller is not a party to or bound by any stockholder's agreement, standstill agreement, buy-sell agreement or similar agreement or arrangement. (i) The authorized capital stock of Seller consists of 6,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. As of the date hereof, there are 4,367,987 shares of Common Stock issued and outstanding. As of the date hereof, there are 45,000 shares of Common Stock issuable upon exercise of stock options and 1,367,013 shares of Common Stock available for granting of stock options. As of the date hereof, there are no shares of Preferred Stock issued and outstanding. All material terms relating to stock options on Common Stock exercisable as of the date hereof and all material terms relating to issuance of stock options on Common Stock available for such purpose as of the date hereof are described on SCHEDULE 5.(i), which is attached hereto and incorporated herein. Except for the stock options, Seller has not granted and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the transfer, purchase, subscription or issuance of any shares of capital stock of Seller or any securities representing the right to purchase, subscribe or otherwise receive shares of such capital stock or any securities convertible or exchangeable into any such shares. (j) All annual, quarterly, current and special reports, proxy statements, annual reports to stockholders and any other reports and materials required to be filed by Seller pursuant 5 to Sections 13 or 15(d) of the Securities and Exchange Act of 1934 and/or delivered to stockholders and all registration statements and other filings required to be filed under the Securities Act (collectively, the "Reports") have been timely filed. All of the Reports comply in all material respects, as to form and substance, with securities laws and applicable Securities and Exchange Commission ("SEC") rules and regulations. Such Reports do not contain any untrue statement of a material fact or fail to state a material fact necessary in order to make the statement therein not misleading. (k) There has not been any material adverse change or development or event which could be reasonably expected to have a material adverse impact on the business, operations, assets or financial condition of Seller from that set forth in Seller's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998 and Quarterly Reports on Form 10-Q for the fiscal quarters thereafter. There has been no amendment to any said reports, and no Current Reports on SEC 8-K or press releases have been filed or issued by Seller subsequent to December 31, 1998. (l) Except as disclosed in the Reports or in SCHEDULE 5.(l), which is attached hereto and incorporated herein, there are no pending or, to the best of the Seller's knowledge, threatened, legal, administrative, arbital or other proceedings, claims, actions or governmental investigations of any nature against Seller nor is Seller a party to any order, judgment or decree entered in any lawsuit or proceeding. 6 (m) Seller has duly completed and filed (and until the Closing will so file) all returns, declarations, reports, information returns and statements (collectively, the "Returns") required to be filed by it in respect of any Federal, State and local taxes (including withholding taxes, penalties or other payments required) and has duly paid (and until the Closing will so pay) all such taxes as the same become due and payable, other than taxes or other charges which are being contested in good faith (and have been disclosed to the Purchaser in writing). Seller has established (and until the Closing will establish) on its books and records reserves that are adequate for the payment of all Federal, State and local taxes not yet due and payable, but are incurred in respect of Seller through such date. No deficiencies were asserted as a result of examinations of Federal and State income tax returns which have not been resolved and paid in full. There are no audits or other administrative or court proceedings presently pending nor any other disputes pending with respect to, or claims asserted for, taxes or assessments upon Seller, nor has Seller given any currently outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any taxes or Returns. Seller has provided Purchaser with true and correct copies of its Returns for the last three (3) fiscal years. (n) Seller holds all material licenses, franchises, permits and authorizations necessary for the lawful conduct of its business and has complied with and is not in default in any respect under any applicable law, statute, order, rule, 7 regulation, policy and/or guideline of any Federal, State or local governmental authority relating to Seller (other than where such default or noncompliance will not result in a material adverse effect on the business, operations, assets or financial condition of Seller) and Seller has not received notice of violation of, and Seller does not know of any violation of, any of the above. (o) Except as disclosed in the Reports, Seller is not a party to or bound by any contract or understanding (whether written or oral) with respect to the employment of any officers, employees, directors or consultants, and, other than as set forth in this Agreement, the consummation of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional acts or events) result in any payment (whether of severance pay or otherwise) becoming due from Seller to any officer, employee, director or consultant thereof. Seller is not a party to any collective bargaining agreement or any agreement with any labor union covering any employee of Seller. The business of Seller is not affected by any labor disturbance involving the employees of Seller nor, to the best knowledge of Seller, is any union attempting to represent any person employed by Seller. Seller has complied with all applicable laws relating to the hiring and employment of employees and independent contractors. There are no unfair labor practice claims or any complaints or charges relating to employment or dismissal pending, or, to the best knowledge of Seller, threatened against Seller. Seller does not sponsor or maintain and is not otherwise a party to or liable under 8 any plan, program, fund or arrangement (whether or not qualified for Federal income tax purposes) that is an "employee pension benefit plan" or an "employee welfare benefit plan", as such terms are defined in the Employee Retirement Income Security Act of 1974, as amended, or any other benefit arrangement for its employees, their dependents and beneficiaries (except for the Stock Options and standard health and disability plans). (p) Seller has good title to all material assets and properties, real and personal, subject to no encumbrances, liens, mortgages, security interests or pledges except to the extent disclosed in SCHEDULE 5.(p), which is attached hereto and incorporated herein. Seller, as lessee, has the right under valid and subsisting leases to occupy, use, possess and control all real property leased by Seller as presently occupied, used, possessed and controlled by Seller. The business operations and all insurable properties and assets of Seller are insured for its benefit against all risks which, in the reasonable judgment of Seller, should be insured against, in each case under policies or bonds issued by insurers of recognized responsibility, in such amounts with such deductibles and against such risks and losses as are in the opinion of Seller adequate for the business engaged in by Seller. As of the date hereof, Seller has not received any notice of cancellation or notice of a material amendment of any such insurance policy or bond and is not in default under any such policy or bond, no coverage thereunder is being disputed and all material claims thereunder have been filed in a timely fashion. 9 (q) The minute books of Seller contain accurate records of all meetings and other corporate action held or taken by the stockholders and Board of Directors of Seller (including committees of the Board of Directors). (r) Except as disclosed in the Reports, Seller has not received any written notice, citation, claim, assessment, proposed assessment or demand for abatement alleging that Seller is responsible for the correction or cleanup of any condition resulting from the violation of any law, ordinance or other governmental regulation regarding environmental matters. Seller has no actual knowledge that any toxic or hazardous substances or materials have been emitted, generated, disposed of or stored on any property currently owned or leased by Seller, or owned or leased by Seller prior to the date of this Agreement, in any manner that violated any applicable Federal, State or local law or regulation governing or pertaining to such substances and materials, the violation of which could reasonably be expected to have a material adverse effect on the business, operations, assets or financial condition of Seller. (s) The accounts receivable of Seller reflected in the financial statements set forth in the Reports are true, bona fide accounts receivable of Seller, have been fully collected or are fully collectible in amounts not less than the aggregate amount thereof, net of reserves, and are not subject to any offsets, credits or counterclaims. 10 (t) Except as disclosed in the Reports, Seller is not a party to or bound by: (i) any mortgage, security agreement, promissory note or other commitment relating to the borrowing of money, extension of credit or imposition of an encumbrance on any assets of Seller, or (ii) any guarantee or obligation to provide funds or assume the debt of any person or entity, or (iii) any other material contracts or agreements. Seller is not in default, or with the passage of time or the giving of notice would be in default, under the terms of any of the foregoing. (u) Seller's financial statements (including the notes thereto) have been prepared in accordance with generally acceptable accounting principles consistently applied during the periods involved and fairly present the financial condition of Seller as of the respective dates set forth therein and the results of operations, changes in shareholders' equity and cash flows of Seller for the respective periods set forth therein. The books and records of Seller are maintained in accordance with applicable legal and accounting requirements and fairly and accurately reflect all of the transactions of Seller and are complete and correct in all material respects. (v) Except as disclosed in the financial statements in the Reports or incurred in the ordinary course of business since June 30, 1998, there exist no liabilities or obligations of any nature whatsoever (whether absolute, contingent or otherwise) in respect of the business or assets of Seller of the type customarily reflected in financial statements prepared in 11 accordance with generally accepted accounting principles. Seller knows of no claim or liability of Seller, or the basis of any claim or liability, not fully described pursuant to this Agreement. (w) Seller's Annual Report on Form 10-KSB for the fiscal year ended June 30, 1998 describes all material patents, copyrights, copyright registrations, trademarks, trademark registrations, service marks, logos or other identifying symbols, names or marks therefore used or held for use in the business of Seller. All of such items and all of the technology, trade secrets, know-how, manufacturing processes and procedures, formulae, quality control procedures, test procedures, specifications, protocols, drawings, designs and other intellectual property used or held for use in the business of Seller (collectively, the "Proprietary Rights") are complete and include all the rights necessary for the conduct of the business of Seller as conducted on the date hereof and as currently contemplated by Seller to be conducted in the future. All of such Proprietary Rights are owned exclusively by Seller, free and clear of all liens, charges, claims and encumbrances of any kind whatsoever, and Seller has good and marketable title to such Proprietary Rights. Seller has made no public disclosure of any know-how or trade secret included in the Proprietary Rights. All such Proprietary Rights are in good standing, are valid and enforceable and are free from default on the part of Seller. No proceeding is pending and no claim has been made or, to the best knowledge of Seller, threatened which challenges the rights of Seller in respect of any 12 of the Proprietary Rights or alleges that any of the Proprietary Rights infringes upon or otherwise violates the rights of others, is being infringed by others, or is subject to any outstanding order, decree, judgment or stipulation. (x) Seller has not incurred any liability to any broker, finder or agent for any broker's fees, finder's fees, commissions or similar obligation with respect to the transactions contemplated by this Agreement or by any of the Related Documents. 6. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents and warrants as follows: (a) Purchaser has the power and authority to execute and deliver this Agreement and to perform the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the Related Documents have been duly authorized by all necessary corporate action of Purchaser and no other corporate proceedings or other actions are necessary on the part of Purchaser to execute, deliver and perform this Agreement or any of the Related Documents. (b) This Agreement has been duly executed and delivered by Purchaser and constitutes the legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally or by the application of general principles of equity. The Related Documents, when executed and 13 delivered by Purchaser, will constitute a legal, valid and binding obligation of Purchaser, enforceable against Purchaser in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors rights generally or by the application of general principles of equity. (c) No consent of any governmental authority or any other person or entity is required for the execution, delivery and performance of this Agreement or any of the Related Documents by Purchaser. (d) Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of New Jersey. (e) Purchaser is acquiring the Shares solely for its own account for investment and not with a view to resale or distribution thereof, in whole or part. (f) Purchaser understands that the Shares have not been registered under the Securities Act and that the offering and sale of the Shares by Seller to Purchaser is intended to be exempt from registration under the Securities Act. (g) Purchaser understands that the Shares may not be sold, hypothecated or otherwise disposed of unless subsequently registered under the Securities Act and applicable state securities laws or pursuant to an exemption from such registration. 14 (h) Purchaser did not become aware of the offer of the Shares through or as a result of any form of general solicitation or general advertising, including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television or radio. (i) Purchaser has such knowledge and experience in business and financial matters that it is capable of evaluating the merits and risks of the purchase of the Shares and making an informed investment decision with respect thereto. Purchaser is an accredited investor as such term is defined in Rule 501 under the Securities Act. (j) Purchaser understands that the Shares will bear a legend restricting their transfer and further understands and agrees that transfer of the Shares must comply with the restrictions set forth therein. (k) Purchaser has not incurred any liability to any broker, finder or agent for any broker's fees, finder's fees, commissions or similar obligation with respect to the transactions contemplated by this Agreement or by any of the Related Documents. 7. REGISTRATION RIGHTS. At Closing, Seller and Purchaser shall execute and deliver a Registration Rights Agreement in form attached hereto and incorporated herein as EXHIBIT A. 8. PURCHASER'S PREEMPTIVE RIGHTS. In the event Seller proposes to issue, for any reason whatsoever, shares of equity of any class, including, but not limited to Common Stock, 15 or proposes to grant any option, warrant or right to purchase equity shares of any class or other securities convertible into or carrying rights or options to purchase equity shares of any class (all of the foregoing hereinafter referred to as the "Securities") at a per equity share price lower than the per equity share price paid by Purchaser pursuant to Section 2 above (subject to appropriate adjustment in the case of stock splits, reverse stock splits or changes in the equity of Seller through reclassification or reorganization), then prior to Seller entering into any binding commitment for the sale of said Securities, Seller shall provide Purchaser with notice specifying in detail the terms and conditions of the proposed issuance of Securities, and Purchaser shall have the right to purchase some or all of said Securities on the terms and conditions hereafter provided. Purchaser shall have thirty (30) days from receipt of a given notice issued by Seller pursuant to this Section 8 (the "Exercise Period") to notify Seller whether it intends to exercise its right to purchase all or some portion, in Purchaser's sole discretion, of the Securities, upon the terms and conditions set forth therein. For purposes of this Section 8, the "per equity share price", with respect to options, warrants, rights or convertible securities shall be deemed to be the total consideration payable for the issuance of a share of equity (i.e. the consideration paid for the option, warrant, right or convertible security at the time of issuance plus the 16 consideration payable upon exercise or conversion). Securities which have been offered to Purchaser and which have not been purchased by Purchaser may be sold by Seller for such consideration not less than, and upon conditions no less restrictive than, those which were offered to Purchaser, for a period of six (6) months following the expiration of the applicable Exercise Period. Notwithstanding the foregoing, Securities shall not be subject to this Section 8 if they are issued upon exercise of options, warrants, rights or convertible securities outstanding as of the date of this Agreement or upon exercise of any stock options granted to employees or directors under any stock option plan of Seller in effect as of the date of this Agreement (but not including material amendments thereto subsequent to the date of this Agreement unless approved by the stockholders of Seller). 9. CONDITIONS TO THE OBLIGATIONS OF EACH PARTY UNDER THIS AGREEMENT. The respective obligations of each party under this Agreement shall be subject to the satisfaction, at or prior to the Closing, that no order, decree or ruling issued by any court of competent jurisdiction, nor any rule, regulation or order entered, promulgated or enacted by any governmental, regulatory or administrative agency nor any suit, action or other proceeding would prevent the consummation of the transactions as contemplated hereby. 17 10. CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS. The obligations of Purchaser to consummate the transactions contemplated hereby are subject to and conditioned upon the performance, prior to or on the Closing Date, of each of the following (unless waived in writing by Purchaser): (a) All the terms and conditions of this Agreement to be complied with and performed by Seller on or before the Closing Date shall have been complied with and performed. (b) All representations and warranties by Seller which are contained in this Agreement or in any of the Related Documents shall be true and correct in all material respects when made and as of the Closing Date as though such representations and warranties were made as of the Closing Date. (c) Purchaser shall have received a certificate of the President or a Vice President of Seller, in form and substance satisfactory to Purchaser, dated the Closing Date, certifying, in such detail as Purchaser may request, to the fulfillment of the conditions specified in paragraphs (a) and (b) of this Section 10. (d) Purchaser shall have received from Seller all documents referred to in Paragraph 4(a) through 4(c) of this Agreement. (e) Seller shall have executed on the Closing Date and delivered to Purchaser the following Related Documents: (i) a Registration Rights Agreement in form and substance as set forth on EXHIBIT A, (ii) a License Agreement in form and substance as set 18 forth on EXHIBIT B, which is attached hereto and incorporated herein, (iii) a License and Supply Agreement in form and substance as set forth on EXHIBIT C which is attached hereto and incorporated herein. (f) Purchaser shall have received from its outside patent counsel a written legal opinion satisfactory to Purchaser opining that the manufacture, use or sale of intermittent and indwelling urinary catheters coated with "SUPERSLIP COATING", as defined in SCHEDULE C to the License Agreement which is attached hereto as EXHIBIT B, will not, based on such SUPERSLIP COATING alone and not the combination thereof with any other item, infringe any valid patent owned by a third party. (g) Biosearch Medical Products, Inc., a New Jersey corporation, having its principal place of business at 35A Industrial Parkway, Somerville, New Jersey 08876, and Purchaser shall have executed and delivered: (i) an Asset Purchase Agreement, in form and substance as set forth on EXHIBIT D, which is attached hereto and incorporated herein, (ii) an Equipment Lease Agreement, in form and substance as set forth on EXHIBIT E, which is attached hereto and incorporated herein, (iii) a License and Supply Agreement, in form and substance as set forth on EXHIBIT F, which is attached hereto and incorporated herein. (h) Purchaser shall have received from Seller an Incumbency Certificate, dated the Closing Date, executed by the Secretary of Seller or by an Assistant Secretary of Seller which shall identify the name and title and bear the signature of each 19 officer of Seller individually authorized to execute and deliver this Agreement and all other documents required to be delivered by Seller pursuant thereto, including the Related Documents. (i) Purchaser shall have received an opinion of Robert D. Frawley, counsel for Seller, dated the Closing Date, in form and substance as set forth on EXHIBIT G, which is attached hereto and incorporated herein. 11. CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS. The obligations of Seller to consummate the transactions contemplated hereby are subject to and conditioned upon the performance prior to or on the Closing Date of each of the following (unless waived in writing by Seller): (a) All the terms and conditions of this Agreement to be complied with and performed by Purchaser on or before the Closing Date shall have been complied with and performed. (b) All representations and warranties by Purchaser which are contained in this Agreement or in any of the Related Documents shall be true and correct in all material respects when made and as of the Closing Date as though such representations and warranties were made as of the Closing Date. (c) Seller shall have received a certificate of an officer of Purchaser, in form and substance satisfactory to Seller, dated the Closing Date, certifying, in such detail as Seller may request, to the fulfillment of the conditions specified in paragraphs (a) and (b) of this Section 12. 20 (d) Purchaser shall have executed on the Closing Date and delivered to Seller the following Related Documents: (i) a Registration Rights Agreement in form and substance as set forth on EXHIBIT A, (ii) a License Agreement in form and substance as set forth on EXHIBIT B, (iii) a License and Supply Agreement in form and substance as set forth on EXHIBIT C. (e) Seller shall have received from Purchaser an Incumbency Certificate, dated the Closing Date, executed by the Secretary of Purchaser or by an Assistant Secretary of Purchaser which shall identify the name and title and bear the signature of each officer of Purchaser individually authorized to execute and deliver this Agreement and all other documents required to be delivered by Purchaser pursuant thereto, including the Related Documents. (f) Seller shall have received an opinion of Nadia C. Adler, General Counsel of Purchaser or John R. Myers, Assistant General Counsel of Purchaser, in form and substance as set forth on EXHIBIT H, which is attached hereto and incorporated herein. 12. INDEMNIFICATION (a) Seller hereby agrees to defend (utilizing counsel selected by Seller that is reasonably acceptable to Purchaser), indemnify and hold Purchaser, its officers, directors, and employees harmless from and against any and all liabilities, losses, damages, costs or expenses (including, without limitation, reasonable attorneys' and accountants' fees and expenses, court costs and all other out-of-pocket expenses) directly or indirectly 21 incurred by such persons or entities arising out of or in connection with: (i) the breach of any warranty or the inaccuracy of any representation by Seller contained in this Agreement or in any Exhibit or Schedule hereto or in any agreement, instrument, certificate or other document executed by or on behalf of Seller in connection herewith, and (ii) any failure by Seller to perform any of the covenants, agreements or obligations under this Agreement or any other agreement or instrument executed and delivered by or on behalf of Seller pursuant hereto or in connection herewith, and (iii) the assertion against Purchaser or any of its officers, directors, or employees of any claim, liability or obligation relating to or arising out of the business, operations or assets of Seller, whether incurred before or after the Closing Date. The indemnification obligations of Seller herein shall survive the Closing. (b) Purchaser hereby agrees to defend (utilizing counsel selected by Purchaser that is reasonably acceptable to Seller), indemnify and hold Seller and its officers, directors, and employees harmless, from and against any and all liabilities, losses, damages, costs or expenses (including, without limitation, reasonable attorneys' fees and expenses, court costs and all other out-of-pocket expenses) directly or indirectly incurred by such persons or entities arising out of or in connection with: (i) the breach of any warranty or the inaccuracy of any representation by Purchaser contained in this Agreement or in any Exhibit or Schedule 22 hereto or in any agreement, instrument, certificate or other document executed by or on behalf of Purchaser in connection herewith, and (ii) any failure by Purchaser to perform any of the covenants, agreements or obligations under this Agreement or any other agreement or instrument executed and delivered by or on behalf of Purchaser pursuant hereto or in connection herewith. The indemnification obligations of Purchaser herein shall survive the Closing. (c) Within thirty (30) days after Purchaser or Seller, as the case may be (hereinafter the "Indemnified Party"), has received notice of or has acquired knowledge of any claim by any person or entity not a party to this Agreement of the commencement or threatened commencement of any action or proceeding by any person or entity not a party to this Agreement ("third party claim") or has acquired knowledge of any other claim hereunder against the other party hereto ("first party claim") the Indemnified Party shall, if such claim is indemnifiable by the other party pursuant hereto (hereinafter the "Indemnifying Party"), give the Indemnifying Party written notice of such claim and the commencement or threatened commencement of such action or proceeding, if any. Such notice shall state the nature and basis of such claim and, if ascertainable, the amount thereof. Notwithstanding the foregoing, the failure of the Indemnified Party to give such notice shall not excuse the Indemnifying Party's obligation to indemnify and, in the case of a third party claim, 23 defend the Indemnified Party, except to the extent the Indemnifying Party has suffered damage or prejudice by reason of the Indemnified Party's failure to give or delay in giving such notice. Within ten (10) business days' of receipt of any notice issued by the Indemnified Party pursuant to this Section 12(c), the Indemnifying Party shall notify the Indemnified Party whether the Indemnifying Party acknowledges its indemnification obligation and, in the case of a third party claim, its defense obligation with respect to the claim which was the subject of the Indemnified Party's notice or whether it disclaims such obligation(s). In the event the Indemnifying Party disclaims or fails to timely acknowledge its obligations with respect to any claim by the Indemnified Party relating to any third party claim, the Indemnified Party shall have the right to defend such claim, with counsel of its own selection, and compromise such claim without prejudice to its right to indemnification hereunder. In the event the Indemnifying Party timely acknowledges its obligations hereunder with respect to any third party claim, the Indemnifying Party shall defend the same with counsel in accordance with the foregoing provisions of this Section 12. Where the Indemnifying Party shall have acknowledged in writing its obligations hereunder with respect to any third party claim, the Indemnified Party may, at its expense, participate in the defense of such third party claim and no such third party claim shall be settled by the Indemnified Party without the prior written consent of the Indemnifying Party. At any time after the 24 Indemnifying Party acknowledges its obligations hereunder with respect to any third party claim, the Indemnifying Party may request the Indemnified Party to agree in writing to the payment or compromise of such third party claim (provided such payment or compromise has been previously approved in writing by the third party claimant), whereupon such action shall be deemed agreed to by the Indemnified Party and shall be agreed to in writing by the Indemnified Party unless such settlement would involve a remedy or remedies other than the payment of money damages by the Indemnifying Party. (d) In the event either party makes a claim against the other party under Section 12 hereof and further in the event the party receiving notice of such claim fails to timely acknowledge its obligations hereunder with respect to such claim or disclaims such obligations, the parties, within sixty (60) days of the date of issuance of notice by the party making such claim, shall meet and attempt to resolve in good faith the dispute between the parties with respect to such claim. If the parties fail to resolve such dispute within seventy-five (75) days of the date of issuance of notice by the party making such claim, the party making such claim may thereafter commence litigation against the other party in a court of competent jurisdiction for determination of its claim. Upon resolution of any claim pursuant to this Section 12, whether by agreement between the parties or the rendering of a final judgment from which no appeal lies in any litigation, the 25 appropriate party under an agreement or the party against which judgment is rendered in litigation shall, within ten (10) days of such resolution, pay over and deliver to the other party funds in the amount of any claim as resolved, and any fees, including attorneys' fees, incurred by such other party with respect to any such litigation. (e) Notwithstanding the foregoing, any limitation on the respective obligations of Seller or Purchaser under this Section 12 which are set forth in the agreement attached hereto as EXHIBIT B or in the agreement attached hereto as EXHIBIT C shall modify the respective obligations of the parties under this Section 12. Further, notwithstanding anything to the contrary contained herein, in no event shall the obligations of Seller or Purchaser under this Section 12 exceed the aggregate Purchase Price set forth in Section 2 of this Agreement. 13. TERMINATION. This Agreement may be terminated prior to the Closing: (a) by mutual written consent of the parties hereto; (b) by Purchaser, if there shall have occurred a material adverse change in the business, operations, assets or financial condition of the Company from that disclosed by Seller in Seller's Form 10-KSB for the fiscal year ended June 30, 1998; 26 (c) by Purchaser, if any of the conditions set forth in Section 10 herein are not satisfied or are not capable of being satisfied by the Closing Date; (d) by Seller, if any of the conditions set forth in Section 11 herein are not satisfied or are not capable of being satisfied by Closing Date; (e) by Seller or Purchaser if the Closing does not take place by February 26, 1999. 14. EFFECT OF TERMINATION. In the event of termination of this Agreement pursuant to Section 13, this Agreement shall thereafter become void and have no effect, and neither party shall have any liability to the other party, except that nothing herein shall relieve any party from liability for any willful breach hereof. 15. NO PUBLIC ANNOUNCEMENTS. Neither Seller nor Purchaser shall issue any press release or make any public statement with respect to this Agreement, or the transactions contemplated hereby, without the consent of the other party, except as may be required by applicable securities or other laws. In the event any such disclosure is required by applicable law, the disclosing party shall provide the non-disclosing party with a copy of the proposed release not less than two (2) business days prior to its proposed release and shall provide the non-disclosing party with an opportunity to comment on the substance thereof. 27 16. FEES AND EXPENSES. Each of the parties hereto shall be responsible for their own expenses incurred in connection with the transactions contemplated hereby. 17. SURVIVAL OF CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations, warranties and covenants of the parties in this Agreement and in any instrument delivered pursuant hereto shall survive the Closing. 18. COVENANT ON OPERATIONS -- Seller covenants, for so long as Purchaser or any affiliate of Purchaser owns any of the Shares, it will maintain its books and records in accordance with generally accepted accounting principles consistently applied with prior periods and will, within forty-five (45) days of the end of each fiscal quarter of Seller, furnish Purchaser with a copy of its audited (or unaudited, if it does not have audited quarterly financial statements at such time) financial statements for such quarter and within ninety (90) days of the end of each fiscal year furnish Purchaser with a copy of its audited financial statements for such year. 19. NOTICES. All notices that are required or may be given pursuant to the terms of this Agreement shall be in writing and shall be sufficient in all respects if given in writing and delivered by hand or national overnight courier service, transmitted by telecopy or mailed by registered or certified mail, postage prepaid, as follows: 28 If to Seller: C.R. Bard 730 Central Avenue Murray Hill, New Jersey 07974 Attention: General Counsel If to Purchaser: Hydromer, Inc. 35 Industrial Parkway Branchburg, New Jersey 08876 or such other address or addresses as any party hereto shall have designated by notice in writing to the other party hereto. 20. WAIVERS. Each party may, by written notice to the other: (i) extend the time for the performance of any of the obligations or other actions of the other under this Agreement; (ii) waive any inaccuracies in the representations or warranties of the other contained in this Agreement or in any document delivered pursuant to this Agreement; (iii) waive compliance with any of the conditions of the other contained in this Agreement; or (iv) waive performance of any of the obligations of the other under this Agreement. Except as provided in the preceding sentence, no action taken pursuant to this Agreement, including, without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained in this Agreement. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. 29 21. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. 22. BINDING EFFECT, BENEFITS. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective permitted successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, express or implied, is intended to confer on any person other than the parties hereto or their respective permitted successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. 23. NO ASSIGNABILITY. Neither this Agreement nor the rights of either party hereunder shall be assignable without the prior written consent of the other party hereto. 24. AMENDMENTS; MODIFICATION. This Agreement may only be amended, modified or supplemented by an instrument in writing, signed by the parties hereto. 25. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 30 IN WITNESS WHEREOF, each of the undersigned has caused this Agreement to be duly executed and delivered by its duly authorized officers as of the date hereinabove set forth. SELLER: HYDROMER, INC. By /s/ Joseph A. Shuhard Jr. ------------------------------------ Name: Joseph A. Shuhard Jr. ------------------------------- Title: Vice President ------------------------------- PURCHASER: C.R. BARD, INC. By /s/ John H. Weiland ------------------------------------ Name: John H. Weiland ------------------------------- Title: Group President ------------------------------- 31 REGISTRATION RIGHTS AGREEMENT February 25, 1999 To: C.R. Bard, Inc. 730 Central Avenue Murray Hill, New Jersey 07974 Dear Sirs: In accordance with the terms of the Stock Purchase Agreement dated February 25, 1999 ("Stock Purchase Agreement") between you and Hydromer, Inc. (the "Company"), and for other good and valuable consideration, the Company hereby covenants and agrees with you, as follows: 1. CERTAIN DEFINITIONS. As used herein, the following terms shall have the following respective meanings: "COMMISSION" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act (hereinafter defined). "COMMON STOCK" shall mean the common stock, without par value, of the Company. "EFFECTIVE DATE" shall mean the date of this Registration Rights Agreement. "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934 or any similar federal statute, and the rules and regulations of the Commission thereunder, as in effect at the time on the date hereof as may be amended from time to time. "REGISTERABLE STOCK" shall mean: (i) any shares of the Common Stock of the Company issued to you in connection with the Stock Purchase Agreement, together with any additional shares of Common Stock issued or distributed to you by way of a dividend, stock split or other distribution in respect of the shares described in clause (i) above effected without the receipt of consideration therefor, (ii) any additional shares of Common Stock acquired by you by way of any rights offering or similar offering made in respect of the shares described in clause (i) above, and (iii) any additional shares of Common Stock issued or issuable to you upon conversion, exercise or exchange of any capital stock, right, option, warrant, evidence of indebtedness or other security of any type whatsoever that shall have been issued with respect to the shares described in clause (i) above and not transferred or otherwise disposed of by you except as contemplated hereunder. "REGISTRATION PERIOD" shall mean the period commencing on the Effective Date and ending on the earlier to occur of: (i) the sale by the holders of Registerable Stock of all the Registerable Stock covered by the registration 2 statement referred to in Section 3 below, or (ii) the fifth (5th) anniversary of the Effective Date. "REGISTRATION EXPENSES" shall mean the expenses so described in Section 4 hereof. "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder as in effect on the date hereof as it may be amended from time to time "SELLING EXPENSES" shall mean the expenses so described in Section 4 hereof. 2. INCIDENTAL REGISTRATION. If the Company at any time, and from time to time, during the Registration Period proposes to register any of its Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Forms S-4 or S-8 or another form not available for registering Registerable Stock for sale to the public), it will give written notice at least thirty (30) days prior to the anticipated-filing date to all holders of outstanding Registerable Stock of its intention to do so, specifying the form and manner and other material facts involved in such proposed registration. Upon the written request of any such holder(s), given within 20 days after receipt of any such notice by the Company, to register any of its Registerable Stock, the Company will use its best efforts to 3 cause the Registerable Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to permit the sale by such holder(s) to the public of such Registerable Stock so registered. In the event that any registration pursuant to this Section 2 shall be an underwritten public offering of Common Stock, the Registerable Stock to be included in such underwriting shall be included, insofar as practicable, on the same terms and conditions as the shares of Common Stock otherwise being sold through underwriters. Notwithstanding the foregoing, the number of shares of Registerable Stock to be included in such an underwriting may be reduced (pro rata among the selling shareholders participating in such underwriting, including, without limitation, the requesting holders of Registerable Stock, based upon the number of shares of Registerable Stock so requested to be registered by the holders thereof) if and to the extent that the managing underwriter shall have advised the Company in writing (with copies to all holders of Registerable Stock) that, in its good faith opinion, such inclusion would have a material adverse effect on the successful marketing of the securities to be sold therein by the Company. 3. REGISTRATION PROCEDURES. If and whenever the Company is required by the provisions of Section 2 hereof to use its best efforts to effect the registration of any of the Registerable Stock under the Securities Act, the Company will use its best efforts to 4 effect the registration and sale of such Registerable Stock in accordance with the intended methods of disposition thereof. Without limiting the foregoing, the Company in each such case will: (a) prepare and file with the Commission a registration statement with respect to such securities (which shall be on Form S-3 if the Company is then eligible to use such form and otherwise on Form S-1 or other form of general applicability acceptable to the Company), and shall use its best efforts to cause such registration statement to become and remain effective for the period of distribution set forth hereinbelow; (b) prepare and file with the Commission such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective at all times for the period of distribution set forth hereinbelow; (c) furnish to each seller and to each underwriter, if any such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) and any amendment or supplement thereto as such persons may reasonably request in order to facilitate the public sale or other disposition of 5 the Registerable Stock covered by such registration statement; (d) use its best efforts to register or qualify the Registerable Stock covered by such registration statement under the securities or blue sky laws of such jurisdictions as shall be reasonably required by the holders of Registerable Stock and to prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements and to take such other actions as may be necessary to maintain such registration or qualification at all times for the period of distribution set forth hereinbelow (provided that the Company will not be required to: (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this Paragraph 3 (d), or (ii) subject itself to general taxation in any such jurisdiction, or (iii) consent to general service of process in any jurisdiction); (e) use its best efforts to cause all Registerable Stock covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable each holder thereof to consummate the disposition of such Registerable Stock (provided that the Company will not be required to: (i) qualify generally to do business 6 in any jurisdiction where it would not otherwise be required to qualify but for this Paragraph; or (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any jurisdiction); (f) promptly notify each seller of Registerable Stock and the managing underwriter, if any, and confirm such advice in writing: (i) when such registration statement or any amendment or supplement thereto or to the prospectus or preliminary prospectus contained therein has been filed, (ii) of any request by the Commission for amendments or supplements to such registration statement or prospectus or for additional information, (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registerable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for that purpose; (g) promptly notify each seller under such registration statement and each underwriter, if any, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of material fact or omits 7 to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and promptly thereafter prepare and file with the Commission a supplement or amendment to such prospectus, such registration statement or any document incorporated therein by reference, or make such other filing, such that as thereafter delivered to the purchasers of Registerable Stock, the prospectus will not contain an untrue statement of material fact or omit to state any material fact necessary to make the statements therein not misleading; (h) promptly notify each seller of Registerable Stock of the issuance of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and the Company shall use its best efforts to prevent the issuance of any stop order, and if any order is issued, to obtain the withdrawal of any order suspending the effectiveness of such registration statement; (i) in the case of an underwritten public offering of Registerable Stock, if requested by the managing underwriter of such offering, promptly incorporate in a prospectus supplement or post-effective amendment to such registration statement such information as such 8 managing underwriter shall agree should be included relating to the plan of distribution of such Registerable Stock, including without limitation, information with respect to the number of shares of Registerable Stock being sold to the underwriters, the purchase price being paid therefor by the underwriters and other material terms of such underwriting), and file with the Commission such supplement or post-effective amendment as promptly as practicable after notification of the information to be incorporated therein; (j) make available for inspection by each seller, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement and permit such seller, attorney, accountant or agent to participate in the preparation of such registration statement; (k) enter into an underwriting agreement with the underwriter of the offering which shall contain standard 9 representations and warranties customarily contained in such agreements; (1) furnish to the sellers and to the underwriter of the offering, if any, at the effective date of such registration statement: (i) a signed counterpart of an opinion of counsel for the Company, dated the effective date of such registration statement and, if applicable, the date of the closing under the underwriting agreement, covering substantially the same matters with respect to such registration statement as are customarily covered in opinions of issuer's counsel submitted and delivered to underwriters in underwritten public offerings, and (ii) a signed counterpart of a report from the independent certified public accountants of the Company in form and substance as is customarily given by independent certified public accountants to underwriters in underwritten public offerings, and (iii) such other documents or instruments as the sellers of the Registerable Stock, or their underwriters, may reasonably request; (m) use its best efforts to list all Registerable Stock covered by such registration statement on any national securities exchange or the Nasdaq Stock Market, as the case may be, on which Registerable Stock of the same 10 class covered by such registration statement is then listed. (n) take all actions necessary to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Stock, and the transfer thereof upon resale by the seller of such Registrable Stock; and (o) take all other actions reasonably necessary to expedite and facilitate the registration of the Registrable Stock. For purposes of Section 3(a) and (b) above, the period of distribution of Registerable Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Registerable Stock in any other registration shall be deemed to extend until the earlier to occur of the sale of all Registerable Stock covered thereby or two years after the effective date thereof. In connection with each registration hereunder, each selling holder of Registerable Stock will furnish to the Company in writing such information with respect to himself and the proposed distribution by him as shall be reasonably necessary in order to assure compliance with federal and applicable state securities laws. 11 No holder of Registrable Stock shall be required to make any representations or warranties to or agreements with the Company or the underwriters other than representations, warranties or agreements regarding such holder and its ownership of the securities being registered on his behalf and any other representation required by law. 4. EXPENSES. All expenses incurred by the Company in complying with Sections 2 and 3 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees of the applicable stock exchange or automated quotation system, transfer taxes and fees of transfer agents and registrars, but excluding any Selling Expenses (hereinafter defined), are herein called "Registration Expenses." All underwriting discounts and selling commissions applicable to the sale of Registerable Stock are herein called "Selling Expenses." The Company will pay all Registration Expenses in connection with the registration statements filed pursuant to Section 2 hereof. 5. INDEMNIFICATION. In the event of a registration of any of the Registerable Stock under the Securities Act pursuant to Section 2 hereof, the Company will, and hereby does, indemnify and hold harmless each seller of such Registerable Stock thereunder, each partner, officer and director of each such seller which is an 12 entity, if any, and each underwriter of Registerable Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages, or liabilities, as incurred, joint or several, to which such seller, partner, officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Registerable Stock was registered under the Securities Act pursuant to Section 2 hereof, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, and (ii) the omission or alleged omission to state therein a material fact necessary to make the statements therein not misleading, and (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under any of the same in connection with the offering covered by such registration statement, and the Company will reimburse each such seller, partner, officer and director, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the Company will not be liable in any such 13 case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in reliance upon and in conformity with information furnished by such seller or any of its partners, officers, directors (if such seller is an entity), such underwriter or such controlling person in writing specifically for use in such registration statement or prospectus. In the event of a registration of any of the Registrable Stock under the Securities Act pursuant to Section 2 hereof, each seller of such Registrable Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each person who controls any of the foregoing within the meaning of the Securities Act, and each underwriter, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer or director or controlling person or underwriter may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in the registration statement filed pursuant to Section 2 hereof, any preliminary prospectus or final prospectus contained therein, or 14 any amendment or supplement thereof, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under any of the same in connection with the offering covered by such registration statement, and each such seller will reimburse the Company and each such officer, director, controlling person and underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus, and PROVIDED FURTHER that any liability of any seller shall be limited under this Paragraph for only that amount of losses, claims, damages and liabilities as does not exceed the net proceeds actually received by such seller as a result of the sale of Registrable Stock pursuant to such registration statement. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party 15 shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under this Section 5. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and after notice from the indemnifying party to such indemnified party of its election to so assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Paragraph 5 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; PROVIDED, HOWEVER, that, if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and 16 otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding the foregoing, any indemnified party shall have the right to retain its own counsel in any such action, but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless: (i) the indemnifying party shall have failed to retain counsel for the indemnified party as aforesaid or shall have failed to defend such action in accordance with the preceding paragraph, or (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel. It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified party. Subject to any provision to the contrary herein, the indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent (which-consent shall not be unreasonably withheld or delayed), but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. 17 If the indemnification provided for in the first two paragraphs of this Paragraph 5 is unavailable or insufficient to hold harmless an indemnified party under such paragraphs in respect of any losses, claims, damages or liabilities or actions in respect thereof referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion, as appropriate, to reflect the relative fault of the Company, on the one hand, and the underwriters and the sellers of such Registerable Stock, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or actions, as well as any other relevant equitable considerations including the failure to give any notice under the third paragraph of this Paragraph 5. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement or omission or alleged omission of a material fact relates to information supplied by the Company, on the one hand, or the underwriters and the sellers of such Registerable Stock, on the other, and to the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. You and the Company agree that it would not be just and equitable if contributions pursuant to this paragraph were determined by PRO RATA allocation (even if all of the sellers of such Registerable Stock were treated as one 18 entity for such purpose) or by any other method of allocation which did not take into account of the equitable considerations referred to above in this paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or action in respect thereof, referred to above in this paragraph, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph, the sellers of such Registerable Stock shall not be required to contribute any amount in excess of the amount, if any, by which the total price at which the Common Stock sold by each of them was offered to the public exceeds the amount of any damages which they would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. No seller shall be liable for any amount of any losses, claims, damages or liabilities in excess of the net proceeds actually received by such seller as a result of the sale of such Registerable Stock pursuant to such registration statement. The indemnification of underwriters provided for in this Paragraph 5 shall be on such other terms and condition as are at the time customary and reasonably required by such underwriters. 19 6. EFFECTIVENESS OF THIS AGREEMENT/SURVIVAL. This Agreement shall become effective on the Effective Date. All of the representations and covenants of the parties set forth herein shall survive the execution and delivery of this Agreement and any registration of Common Stock hereunder. 7. MISCELLANEOUS. (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not, PROVIDED, HOWEVER, that the obligations of the Company to register the Registerable Stock hereunder shall inure only to the benefit of you and a person who shall become a holder of Registerable Stock or by donation and/or pledge and the term "Registerable Stock" as used herein shall be limited to Registerable Stock held by you or any such person. (b) All notices, consents and other communications hereunder shall be in writing and shall be mailed by first class registered mail, postage prepaid, addressed as follows: if to the Company, to it at Hydromer, Inc. 35 Industrial Parkway Branchburg, New Jersey 08876 Attention: President if to you, at your address as set forth above; if to any subsequent holder of Registerable Stock pursuant to Paragraph 7(a) hereof to it 20 at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Registerable Stock or to such holders of Registerable Stock (in the case of the Company). (c) This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey. (d) This Agreement constitutes the entire agreement of the parties which respect to the subject matter hereof and may not be modified or amended except in writing signed by the holders of not less than a majority of the Registerable Stock. (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (f) In the event any provision of this Agreement is deemed invalid or unenforceable by a court of competent jurisdiction, then such provision shall be deemed inoperative and the validity or enforceability of any other provision in this Agreement shall be unaffected. Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon 21 this letter (herein sometimes called "this Agreement") shall be a binding agreement between the Company and you. Very truly yours, HYDROMER, INC. By: /s/ Joseph A. Ehrhed Jr. ---------------------------------- Name: Joseph A. Ehrhed Jr. ---------------------------- Title: Vice President ---------------------------- AGREED TO AND ACCEPTED as of the date first above written. C.R. Bard, Inc. By: /s/ John H. Weiland ------------------------------- Name: John H. Weiland ------------------------ Title: Group President ------------------------ 22 EX-10.BU 3 EXHIBIT 10.BU Exhibit 10.BU AGREEMENT to PURCHASE and USE T-HEXX CONCENTRATE and T-HEXX TRADEMARK T-HEXX PRODUCT AGREEMENT Page-2 TABLE OF CONTENTS 1. GRANT OF LICENSE............................................................1 2. OWNERSHIP OF MARKS..........................................................1 3. ADVERTISING COPY/LABELING...................................................1 4. QUALITY MAINTENANCE.........................................................2 5. FORM OF USE.................................................................3 6. USE FEE.....................................................................3 7. INFRINGEMENT PROCEEDINGS....................................................4 8. TERM........................................................................4 9. TERMINATION OF EXCLUSIVE LICENSE FOR NOT ABIDING BY MINIMUM PURCHASES.......4 10. TERMINATION ...............................................................4 11. EFFECT OF TERMINATION......................................................5 12. SUPPLY OF CONCENTRATE......................................................5 13.PATENT LICENSE TO USE.......................................................5 14. INDEMNIFICATION AND INSURANCE..............................................6 15. GENERAL PROVISIONS.........................................................6 Assignment............................................................6 Entire Agreement......................................................6 Not a franchise.......................................................6 Waiver................................................................6 Controlling Law and Place of Suit.....................................6 Exhibit A......................................................................9 Exhibit B.....................................................................10 T-HEXX PRODUCT AGREEMENT Page-3 Exhibit C.....................................................................11 Exhibit D.....................................................................12 Exhibit E.....................................................................17 T-HEXX PRODUCT AGREEMENT Page-4 This Agreement entered into on the 9th day of March, 1999, between: Hydromer, Inc. ("Hydromer"), a corporation organized and existing under the laws of New Jersey, located at 35 Industrial Parkway, Branchburg, N.J., U.S.A and AST, Inc. ("AST"), a Pennsylvania corporation organized and existing under the laws of Pennsylvania, located at 579 Route 185, Bernville, Pa 19506. Hydromer is the owner of the trademarks and service marks (the "Marks"), and applications and registrations for the Marks, listed in Exhibit A. AST desires to use the Marks in connection with its business. In consideration of the foregoing and of the mutual promises set forth in this agreement, the parties agree as follows: 1. GRANT OF LICENSE Hydromer grants to AST a conditional exclusive, non-transferable license, without the right to sub-license, to use the Marks in connection with the goods and services listed in Exhibit B in the United States of America, Canada and Mexico. AST accepts the license subject to the following additional terms and conditions. 2. OWNERSHIP OF MARKS AST acknowledges that Hydromer owns the Marks and agrees that it will do nothing inconsistent with such ownership, including but not limited to selling any product that competes with the goods or services in Exhibit B. All uses of the Marks by AST shall inure to the benefit of, and be on behalf of Hydromer. AST will assist Hydromer in recording this agreement with appropriate governmental authorities. Nothing in this license shall give AST any right, title, or interest in the Marks, other than the right to use the Marks in accordance with the terms of this license. AST will not attack the title of Hydromer to the Marks or attack the validity of this license. 3. ADVERTISING COPY/LABELING Hydromer at it's own expense will provide all advertising copy and creative works (which Hydromer claims are copyrights of Hydromer) to AST. AST shall not, without written permission, place ads, develop sales material, communicate clinical results or otherwise develop any communications to third parties relating to the Marks or the goods/services on which the Marks are used including the labeling and labels used on or with the goods and services. T-HEXX PRODUCT AGREEMENT Page-5 Hydromer agrees to provide matching funds up to $50,000 per year to be used as placement fees to HYDROMER APPROVED: NATIONAL journals, papers and magazine to enable the advertising of the Marks and the Products. AST shall upon request provide reasonable documentation to substantiate the expenditure of such funds and a like amount by AST. Such matching funds may be in the form of direct payment by Hydromer or by a credit memo issued by Hydromer to AST in Hydromer's sole discretion. 4. QUALITY MAINTENANCE The nature and quality of all services rendered and goods sold by AST in connection with the Marks shall conform to standards set by and be under the control of Hydromer. Standards for product formulation and testing are attached as Exhibit C. Hydromer has the right to make changes to the formula in its sole discretion provided such changes could not effect the safety or lessen the effectiveness of the goods sold by AST. AST will cooperate with Hydromer in facilitating Hydromer's control of the quality aspects and will permit reasonable inspection of AST's operation. AST will supply Hydromer with specimens and test results for each batch of product which carries the Marks. UNDER NO CIRCUMSTANCES WILL AST RELEASE ANY BATCH OF T-HEXX FOR SALE until the tests set forth in exhibit C are completed by AST. Until such release the batch(s) are to be quarantined. Any release of untested, partially tested or inaccurately tested Product is a material breach of this Agreement. AST agrees that the safety and effectiveness of the T-HEXX goods made by AST are the sole responsibility of AST, however Hydromer has the right to take all reasonable steps to insure that its trademarks are not tainted, clouded or diluted by a poor quality T-HEXX product. Any recall of a T-HEXX product shall be done at the expense of AST unless the defect is caused by the T-HEXX concentrate supplied by Hydromer. The quality of the T-HEXX concentrate shall be determined by the retained samples kept at Hydromer. AST shall comply with all applicable laws and regulations and obtain all appropriate governmental approvals pertaining to the manufacture, sale, distribution, and advertising of goods and services covered by this license, including but not limited to the "National Mastitis Council Recommended Protocol for Determining Efficacy of a Postmilking Barrier Teat Dip Based on Reduction of Naturally Occurring New Intramammary Infections" a copy of which is attached to this contract as Exhibit D. In addition, AST will abide by all other recommendations of the National Mastitis Council and guidance documents issued by the U.S. Food and Drug Administration from time to time or the government of a particular sovereignty as the case may be. AST shall provide all copies of submissions to, and approvals of T-HEXX PRODUCT AGREEMENT Page-6 any governments with respect to the PRODUCTS. Starting May 1, 1999 and ending June 30, 2000 AST will: a. Follow the specific protocol to test the goods in conformance with the NMC recommended protocol set forth in Exhibit D. Submit the testing plan, the investigators identity(s), the schedule and the estimated cost to Hydromer for approval. b. Upon approval, test the goods pursuant to the testing plan. c. Submit the final report and data to Hydromer. Hydromer agrees to reimburse AST for one half of the cost up to $50,000 (evidenced by paid invoices submitted to Hydromer by AST) of devising a protocol and performing the testing as devised pursuant to sub-paragraph a. above. Said reimbursement may be in he form of direct payment by Hydromer or by a credit memo issued by Hydromer to AST in Hydromer's sole discretion. Hydromer may terminate this Agreement if the activity in sub-paragraph a, b and c above is not completed by July 1, 2000, time being of the essence. In the event that the quality of AST's goods or services with which the Marks are used falls below acceptable standards established by Hydromer, the FDA or the National Mastitis Council, or AST fails to submit samples and test results to Hydromer for each batch, at the sole and exclusive judgment of Hydromer, which shall be conclusive, Hydromer shall notify AST in writing. AST shall cure any deficiency in quality within thirty (30) days of receipt of such notice of deficiency from Hydromer. In the event that such deficiency is not cured within thirty (30) days, Hydromer shall have the right to terminate this agreement. 5. FORM OF USE AST will use the Marks only in the form and manner and with appropriate legends as prescribed from time to time by Hydromer, and will not use any other trademark or service mark in combination with any of the Marks without the prior written approval of Hydromer. 6. USE FEE AST agrees to pay a use fee to Hydromer for all uses of the Marks pursuant to the rate set forth in Exhibit E. The uses of the Marks and the payment of the use fee must be received by Hydromer within 45 days after the end of any calendar quarter. In the event Exhibit E contains minimum payments, said payments will be T-HEXX PRODUCT AGREEMENT Page-7 so included. 7. INFRINGEMENT PROCEEDINGS AST agrees to notify Hydromer of any unauthorized use of the Marks by others as soon as it comes to AST's attention. Hydromer shall have the right and discretion to bring infringement or unfair competition suit or proceedings involving the Marks. In the event Hydromer fails to bring such suit or proceeding, AST shall have the right to bring such suit or proceedings after a 60 day written notice to Hydromer. 8. TERM This agreement shall continue in full force and effect until June 30, 2000, ("expiration date") unless sooner terminated as provided for in this agreement. Thereafter this Agreement shall self renew for successive one year periods ("renewed period") unless either party notifies the other 60 days before expiration date or the end of any renewed period that this agreement shall not self renew. Nothing in this agreement shall be construed as granting AST or any other person a perpetual license to the Marks. 9. TERMINATION OF EXCLUSIVE LICENSE FOR NOT ABIDING BY MINIMUM PURCHASES Starting with the quarter beginning 10/1/99, and for each quarter thereafter, the quarterly minimum purchases of T-Hexx concentrate shall be as set forth in Exhibit E. ("the Minimum"). Hydromer reserves the unilateral right to convert this license to a non-exclusive license if the Minimums are not met after a 30 day written notice, however Hydromer agrees that any other T-HEXX Product Agreement entered into within the now non-exclusive territory will be at terms no more favorable then the terms herein. 10. TERMINATION Hydromer shall have the right to terminate this agreement upon thirty (30) days' written notice to AST in the event of any affirmative act of insolvency by AST, or upon the appointment of any receiver or trustee to take the possession of the properties of AST, or upon the winding-up, sale, consolidation, merger, change of control or any other sequestration by governmental authority of AST, upon attaining a total receivable to Hydromer in the amount over $50,000 for more then 60 days for any product purchased or use fee owed or upon breach of any of the provisions of this agreement by AST. Hydromer may also terminate this Agreement if AST commits a material breach and such breach is not cured after a 30 day notice is sent to AST by Hydromer. T-HEXX PRODUCT AGREEMENT Page-8 AST shall have the right to terminate this Agreement for any reason upon a 30 day written notice to Hydromer. 11. EFFECT OF TERMINATION Upon termination of this agreement AST agrees to immediately discontinue all use of the Marks and any term similar to the Marks. AST agrees to delete the similar term or Mark from its corporate or business name, to cooperate with Hydromer or its appointed agent to apply to the appropriate authorities to cancel recording of this agreement from all governmental records, and to destroy all printed material bearing any of the Marks. AST agrees that all rights in the Marks and the goodwill connected with those Marks shall remain the property of Hydromer. AST shall have 90 days to liquidate the then existing inventory of T-HEXX Teat Dip which comply with all the standards in this Agreement including but not limited to testing and releasing. 12. SUPPLY OF CONCENTRATE HYDROMER will make the patented T-HEXX 12% concentrate available to AST at $8.20 per Kg., not including use fees. Hydromer reserves the right to increase the price at a rate not to exceed the increase in the CPI for Northern New Jersey. Hydromer will give AST a 60 day written notice of any increase. In the event that the cost increase ratio of any raw material which Hydromer purchases exceeds the CPI for Northern New Jersey, Hydromer may pass this additional incremental cost to AST. All invoices from Hydromer to AST must be paid in 45 days time being of the essence. If AST fails to pay an invoice in 45 days, such omission is a material breach of this Agreement. 13. PATENT LICENSE TO USE. AST recognizes and agrees that the T-Hexx concentrate formula uses art taught by patents 4,642,267; 5,837,266 and/or 5,851,540 and other patents and patent applications that are now in existence or will be in existence. Nothing herein is intended to grant a license to make, sell, offer for sale or import any chemical or concentrate covered by any Hydromer patents, patent applications or trade secrets, but only the exclusive right to use T-Hexx concentrate to make the goods set forth in Exhibit B and selling the goods with the Marks set forth in Exhibit A. 14. INDEMNIFICATION AND INSURANCE AST indemnifies Hydromer from all damages resulting from AST's products or T-HEXX PRODUCT AGREEMENT Page-9 services. AST agrees that it will obtain, at its own expense, product liability insurance from a recognized insurance company, providing adequate protection (at least in the amount of $3,000,000/$5,000,000) naming Hydromer as an additional insured, against any claims, suits, loss, and damage (including reasonable attorneys' fees arising out of any alleged defects in the goods and services listed in Exhibit B. As proof of such insurance, a fully paid certificate of insurance naming Hydromer as an insured party will be submitted to Hydromer by AST for Hydromer's prior approval before any of the goods and services listed in Exhibit B are distributed or sold, and at the latest within thirty (30) days after the commencement of the term of this agreement. Any proposed change in certificates of insurance shall be submitted to Hydromer for its prior approval. Hydromer shall be entitled to a copy of the then prevailing certificate of insurance, which shall be furnished to Hydromer by AST. 15. GENERAL PROVISIONS Assignment. This agreement shall be binding upon the parties' respective successors and permitted assignees. AST may not assign this agreement or any rights or obligations under this agreement without the prior written consent of Hydromer, and any such attempted assignment shall be void. A change of control of AST is considered to be an assignment. Entire Agreement. This agreement contains the entire understanding of the parties and supersedes all prior written or verbal agreements or representations. No change or waiver of any provision of this agreement shall be valid unless in writing and signed by the party against whom such change or waiver is sought to be enforced. Any signing by Hydromer, Inc. must be done by the President of the corporation. No employee, agent, or representative of either party has authority to bind such party by any oral representation or warranty. Not a franchise. The parties agree that this Agreement shall not be considered a franchise and any provision of any state law to the contrary is hereby waived by both parties to the maximum extent allowed by law. Surviving Clauses. If a court deems or declares invalid or unenforceable any clause or provision of this agreement, all other terms and provisions shall remain in full force and effect. Waiver. No delay or omission by Hydromer to exercise any right or power under this agreement shall impair any such right or power or be construed as a waiver. Controlling Law and Place of Suit. This agreement shall be subject to and shall be interpreted according to the laws of the New Jersey and both parties agree to the jurisdiction thereof. T-HEXX PRODUCT AGREEMENT Page-10 The parties execute below this agreement in duplicate by their respective authorized representatives. Hydromer, Inc. By: _____________________________ Manfred F. Dyck Title: President and CEO AST, Inc. BY: __________________________________ Steven Pugliese TITLE: President T-HEXX PRODUCT AGREEMENT Page-11 Exhibit A T-HEXX T-HEXX PRODUCT AGREEMENT Page-12 Exhibit B Teat dip for use on the teats of dairy cows T-HEXX PRODUCT AGREEMENT Page-13 Exhibit C. Formulation and tests to be performed on each T-HEXX Product. T-HEXX PRODUCT AGREEMENT Page-14 Exhibit D National Mastitis Council Recommended Protocol for Determining Efficacy of a Postmilking Barrier Teat Dip Based on Reduction of Naturally Occurring New Intramammary Infections Experimental Design Dip teats of half of the quarters after each milking in the experimental barrier teat dip being tested. Experimental design can be either a split-udder or split-herd design. Determine the number of new intramammary infections (IMI) in quarters with teats dipped in the experimental product and in quarters dipped in a positive-control germicidal teat dip. Positive-control teat dips should previously been shown efficacious compared with not dipping in either experimental challenge or natural exposure trials. Selecting Experimental Herds, Cows, and Quarters Trials should be conducted in at least two herds. Conduct trials in herds where whole-hearted cooperation of managers to comply with experimental procedures can be attained. Monitor milking equipment and milking management practices carefully and regularly to minimize machine-mediated infections. This is especially necessary in commercial herds where constant supervision by the investigator will not be practical. All quarters are eligible except quarters with teats that are deformed due to previous injury. Exclude quarters with teats that are injured during the trial for the remainder of that lactation; such quarters may re-enter the trial after a dry period if the injury has healed. Teat Dipping Dip teats of half the cows in the experimental product in a split-herd design. Cows in the remainder of the herd serve as positive-controls. In this situation, take care to ensure that cows are balanced by: 1) parity; 2) stage of lactation; and 3) bacteriological status of quarters. Ensure that the two groups are milked in the same facility. When a split-udder design is used, either dip two diagonal teats or teats on either the right or left side of each udder with the experimental barrier product. The other two teats on each cow is dipped with the positive-control germicidal product. Apply teat dips immediately after milking machine removal. T-HEXX PRODUCT AGREEMENT Page-15 Sampling Schedule and Procedures Collect duplicate or two consecutive single quarter milk samples to determine existing infections in the herd at the beginning of the trial. Obtain a third sample when results of the first two samples do not agree. Culture single quarter milk samples monthly during the trial. A second quarter milk sample should be collected within seven days from all quarters in which the bacteriological status of the gland had changed from the previous month. Culture duplicate samples from cows calving and herd additions prior to inclusion in the trial. When any quarter develops clinical mastitis, collect and culture duplicate milk samples from all four quarters before any treatment is administered. Collect and culture duplicate milk samples from individual cows at drying off or upon leaving the herd. Collect all samples consistently either immediately before or after a regular milking using standard procedures (1,3). Criteria for Diagnosing Infections Examine all milk samples bacteriologically and identify organisms isolated according to standard procedures (1,3). In determining that a quarter is free of infection when it enters the trial, no pathogens may be recovered from two of the initial samples. Diagnose a new IMI when the same bacterial species is isolated from: 1) both of the duplicate samples taken from clinical quarters or; 2) two consecutive samples taken during the trial. The status of a quarter should be recorded as a bacteriologically-negative clinical case when bacteriological results of duplicate samples from a clinical quarter do not match. Clinical mastitis and IMI diagnosed during the first seven days of lactation should not be included in data analyses of teat dip efficacy. An individual quarter is eligible for only one infection per bacterial species during a lactation (i.e., only one Escherichia coli infection per quarter per lactation). Quarters infected in one lactation may be included in the trial in the subsequent lactation if it is determined that the infection was eliminated during the dry period either spontaneously or as a result of therapy. Data Presentation The report of a trial should include: 1) duration of the trial; 2) number of quarters in the trial at the onset and on the date of each monthly or bimonthly sampling; 3) number of total new IMI, categorized by bacterial species or type, that occurred in positive-control and treated quarters; 4) the percentage differences in total new IMI between treated and control quarters and for each bacterial species; 5) the number of new clinical cases, categorized by bacteriological status, that occurred T-HEXX PRODUCT AGREEMENT Page-16 in control and treated quarters; and 6) the percentage difference in new clinical cases between treated and control quarters. Data Analyses The purpose of the trial must be decided a priori when using a positive-control. The purpose is most often to determine either: 1) if the experimental product is more efficacious than the positive-control or; 2) the efficacy of the experimental product does not vary from that of the positive-control by greater than a predetermined amount. Environmental pathogens: Although germicidal teat dips can effectively reduce incidence of new IMI by the contagious pathogens Staphylococcus aureus and Streptococcus agalactiae, germicidal teat dips do not reduce rate of new IMI by environmental pathogens (3). Therefore, to claim an experimental barrier teat dip is efficacious against environmental pathogens (i.e., Escherichia coli, Klebsiella spp., Streptococcus uberis), the efficacy of the experimental product should be greater than that of the positive-control germicide. To determine if the efficacy of an experimental product is greater than that of a positive-control, the hypothesis is formulated and tested as if teats on control quarters were not being dipped. Data must express the relation between quarters becoming infected in quarters treated with the experimental teat dip and in quarters with teats dipped in the control product. Differences between percent quarters becoming infected in treatment groups can be tested where t approximates a standard Student's t statistic: t = [(x1/n1)-(x2/n2)]/[(x1+x2)/(n1n2)].5 x1 = number new IMI in control quarters x2 = number new IMI in treated quarters n1 = (number of control quarters)(time unit) n2 = (number of treated quarters)(time unit) The denominators n1 and n2 can be expressed as the summation of either quarter-days, quarter-months, or quarter-years dependant upon the experimental design. The percent reduction in new infection rate in the treated group compared with that in the control group is expressed as: 100 [(x1/n1)-(x2/n2)]/(x1/n1). Contagious pathogens: The efficacy of an experimental barrier teat dip against Staphylococcus aureus and Streptococcus agalactiae should not be less than that of the positive-control teat dip. Experimental products may be tested to determine if efficacy is "equal" to that of the positive control. T-HEXX PRODUCT AGREEMENT Page-17 Equivalence can be evaluated by constructing a confidence interval on the difference between two proportions. A 95% one-sided confidence interval for the difference between proportions can be computed using the normal approximation (1): LLCI = [(x1/n1)-(x2/n2)] - [Z"/2][(x1/n1)-(x2/n2)]/[(x1+x2)/(n1n2)].5 x1 = number new IMI in control quarters x2 = number new IMI in treated quarters n1 = (number of control quarters)(time unit) n2 = (number of treated quarters)(time unit) Z" /2 = 1.645 for a 95% CI LLCI = lower limit confidence interval The denominators n1 and n2 can be expressed as the summation of either quarter-days, quarter-months, or quarter-years dependant upon the experimental design. Two points of concern about the use of this computation: 1) the lower limit of CI is the only figure computed. The upper limit of CI is set at 1 because the issue in question is how much the efficacy of the positive control is greater than the efficacy of the experimental product. Therefore, if the CI contains the value 0, equivalence between dips can be assumed; and 2) this normal approximation should be used only when x1 and x2 are both > 5. Trial Duration Duration of each trial should be at least 12 months to include each season of the year. The length of a trial required to demonstrate efficacy of a teat dip will depend on the number of quarters available initially and the rate of new IMI in the control and treated groups. Guidelines for estimating the number of quarters required, the probable duration of a trial and the point at which a trial may be terminated after 12 months are those detailed in (1). These guidelines are applied to total IMI and separately to each species of bacteria against which efficacy is tested. References 1. Hogan, J. S., D. M. Galton, R. J. Harmon, S. C. Nickerson, S. P. Oliver, and J. W. Pankey. 1990. Protocols for evaluating efficacy of post-milking teat dips. J. Dairy Sci. 73:2580. T-HEXX PRODUCT AGREEMENT Page-18 2. Current Concepts of Bovine Mastitis. 1996. National Mastitis Council, Inc., Madison WI. 3. Microbiological Procedures for the Diagnosis of Bovine Udder Infection. 1990. National Mastitis Council, Inc., Madison, WI. Protocol developed by the National Mastitis Council Research Committee, 1997. T-HEXX PRODUCT AGREEMENT Page-19 Exhibit E. (use fees) $3.50 per Kg. of T-Hexx 12% concentrate purchased by AST in addition to the standard price. All purchase of T-Hexx concentrate from Hydromer shall be on non cancelable purchase order for a minimum quantity of 4-55 gallon drums at the then current price computed in section 11 with at least a 3 week notice, AST to supply containers/drums. Hydromer shall supply and affix T-Hexx labels. Minimum quarterly purchases shall be: 4/1/99-6/30/99 1,600 gallons 7/1/99-9/30/99 5,000 " 10/1/99-12/31/99 12,500 " 1/1/2000-3/31/2000 17,500 " 4/1/2000-6/30/2000 23,125 " 7/1/2000-9/30/2000 37,500 " 10/1/2000-12/31/2000 50,0000 " 1/1/2001-3/31/2001 60,000 " 4/1/2001-6/30/2001 75,000 and for each quarter thereafter 85,000 gallons EX-10.BV 4 EXHIBIT 10.BV Exhibit 10.BV THIS AGREEMENT, made this 1st day of November, 1998, by and between: Donald Lorenz, Ph.D. and Ridge Scientific Enterprises, Inc. (jointly and severally "LORENZ") both residing at 12 Radel Place, Basking Ridge, N.J. 07920; and Hydromer, Inc., a New Jersey Company with its principle place of business at 35 Industrial Parkway, Somerville, N.J. 08876 ("HYDROMER"). WHEREAS, LORENZ owns patent rights and possesses know-how relating to hydrogel polymer gels, hereinafter defined; and WHEREAS, HYDROMER desires to obtain an exclusive license from LORENZ under those patent rights and access to the know-how to enable HYDROMER to make, use, sell, offer for sale or import articles using the PATENT RIGHTS as defined herein below. NOW, THEREFORE, in consideration of the premises and the performance of the mutual covenants herein contained, the parties hereto agree to as follows: 1.0 DEFINITIONS. For the purpose of this AGREEMENT, the following shall apply: 1.1 "PATENT RIGHTS" means United States Patents 5,306,504 and 5,645,855 and foreign patents and patent applications based thereon in Schedule "A" and any division, continuation, continuation-in-part, patent of addition, confirmation or reissue of said patents and applications, and any improvements thereto, as provided in Article 5.0. 1.2 "KNOW-HOW" means all of LORENZ'S trade secrets, technical data and information, and other technical accumulated information, including, but not limited to, any devices, processes, methods, control procedures, formulas, EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-2 clinical tests, and use intelligence, drawings, specifications, research and development reports, processed data or special equipment which are useful to assist HYDROMER to make, use, sell promote for sale and import any article or products using the PATENT RIGHTS, which LORENZ is free to disclose. 1.3 "COMMERCIALIZATION" means the date on which any articles or products using the PATENT RIGHTS are first billed to a third party, or a sublicense of the PATENT RIGHTS is executed with any other third party, in the "TERRITORY" 1.4 "NET SALES PRICE" shall mean the gross invoice price at which products or articles using the PATENT RIGHTS are sold, less discounts allowed to distributors, discounts allowed dealers, refunds, replacements or credits allowed to purchasers for return of products or articles using the PATENT RIGHTS or as reimbursement for damaged products or articles using the PATENT RIGHTS, freight, postage, insurance and other shipping charges, sales and use taxes, customs duties and any other governmental charges imposed on the production, importation, use or sale of products or articles using the PATENT RIGHTS except income taxes. Should HYDROMER sell products or articles using the PATENT RIGHTS in combination with other components or products, then the net sales price computation shall be based on the average net sales price charged during the applicable quarter by HYDROMER for the products or articles using the PATENT RIGHTS when separately invoiced or priced. In the event the products or articles using the PATENT RIGHTS has not been separately invoiced or priced during the applicable quarterly period, net sales computation shall be based on the fair market price which the seller would charge for the products or articles using the PATENT RIGHTS to an unrelated purchaser in an arms length transaction, FOB plant of manufacture thereof. EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-3 1.5 "TERRITORY" means worldwide. 2.0 GRANT. 2.1 LORENZ hereby grants HYDROMER an exclusive license (even to the exclusion of LORENZ) to make, use, sell, offer for sale and import products or articles using the PATENT RIGHTS and KNOW HOW in the TERRITORY without limitation or granting sublicenses to any third party under any terms as long as there is no additional burden on LORENZ. 2.2 On or before January 1, 2001, HYDROMER shall have commercialized the PATENT RIGHTS or the parties hereto shall have agreed to a plan of COMMERCIALIZATION therefor. If products or articles using the PATENT RIGHTS are not commercialized, or the parties hereto shall not have agreed to a plan of COMMERCIALIZATION, on or before said date, then LORENZ may elect to cancel this AGREEMENT upon thirty (30) days advance written notice to LICENSE. 2.3 HYDROMER shall use its best efforts to exploit the PATENT RIGHTS and other rights granted or it shall be a material breach. 3.0 CONSIDERATION. 3.1. As consideration for this grant of exclusive rights, HYDROMER will pay any outstanding legal fees to perfect foreign PATENT RIGHTS and maintain U.S. PATENT RIGHTS incurred after August 15, 1998. (Such obligation from August 15, 1998 to December 31, 1998 will be limited to $20,000.) In addition HYDROMER will be responsible for prosecution or maintenance of any U.S. or foreign PATENT RIGHTS after the date of this Agreement and such prosecution shall be done by counsel of Hydromer's choosing. LORENZ will execute any and all documents required to accomplish the purposes of this license including but not limited to a change in patent counsel. Beginning January 1, EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-4 1999, HYDROMER shall be entitled to a credit against future compensation for sublicenses of up to $10,000 or the actual cost if less then $10,000 to maintain or prosecute of the PATENT RIGHTS in each calendar year this Agreement is in effect. The credits for sublicenses in this section 3.1 shall accumulate over the term of this Agreement and be used in future calendar years as credits against future compensation for sublicenses. 3.2 A running royalty on sales ("royalty") and/or compensation on royalty received by HYDROMER ("compensation") payable quarterly will accrue from HYDROMER to LORENZ as set forth in Schedule B. 3.3 The exclusive grant of rights under this AGREEMENT shall be dependent on COMMERCIALIZATION of the PATENT RIGHTS and the payment by HYDROMER to LORENZ of royalties and compensation and minimum royalties and compensation for each calendar year subsequent to COMMERCIALIZATION. Such minimums are hereby established as follows: For calendar year 2000 $ 10,000 total of royalty plus compensation For calendar year 2001 $ 15,000 total of royalty plus compensation For calendar year 2002 and each year thereafter through the quarter of the last to expire PATENT RIGHTS $20,000 total royalty plus compensation. Beginning January 1, 1999 any credits for prosecution or maintenance of the PATENT RIGHTS as set forth in section 3.1 shall be regarded as credits against compensation for sublicenses as if paid. If HYDROMER fails to pay minimums in respect of any calendar year, then EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-5 LORENZ may terminate the exclusive grant of rights under section 2.1 and convert this AGREEMENT to a non-exclusive grant, upon thirty (30) days' written notice to HYDROMER. HYDROMER may render such notice ineffective by payment of an amount which when added to amounts actually paid, equals the minimums. 4.0 ACCOUNTING. For accounting purposes, quarters will start on the first day of each January, April, July, and October, following the date of execution of this AGREEMENT and end on the last day of the next succeeding March, June, September, and December, respectively. Within forty-five (45) days after the close of each quarter hereof, HYDROMER shall render to LORENZ a written accounting with respect to all royalty and compensation payments due hereunder, and with such accounting, pay in full in United States dollars all amounts due in respect of such quarter. The rate of exchange to be used in computing the amount of local currency equivalent to the United States Dollars due to LORENZ as royalty and/or compensation shall be the commercial exchange rate in effect in New York, New York, on the date on which payment is due. Such report shall indicate for such quarter the number of units, the NET SALES PRICE, and the amount of sales by HYDROMER product code of products or articles using the PATENT RIGHTS sold by HYDROMER with respect to which royalty payments are due or an accounting of the royalties received from sub-licensees. In case no payment is due for any quarter, HYDROMER shall so report. HYDROMER shall keep accurate records in sufficient detail to enable the aforesaid payments to be determined. At LORENZ'S request, HYDROMER, shall permit an independent certified public account acceptable to HYDROMER to have access once in each calendar year, during regular business hours and upon reasonable notice to HYDROMER, to such of the records of HYDROMER as may be necessary to verify the accuracy of the reports required under this AGREEMENT; provided, however EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-6 said accountant shall keep all information of HYDROMER confidential and shall disclose to LORENZ only the amount of any deficiency found. In the event the deficiency exceeds 5% of royalty plus compensation payments audited, HYDROMER shall bear the full costs of the audit. 5.0 IMPROVEMENT. During the term of this AGREEMENT, LORENZ shall promptly and fully disclose to HYDROMER any development or improvement relating to the use or practicing of the PATENT RIGHTS or related KNOW-HOW conceived and/or reduced to practice by LORENZ which LORENZ is free to disclose ("LORENZ IMPROVEMENT"). LORENZ shall automatically add such LORENZ IMPROVEMENT to this AGREEMENT. 6.0 SECRECY. Each party undertakes to keep secret and confidential and not to disclose to any third party, except as it is necessary in carrying out the purposes of this AGREEMENT, during the term of this AGREEMENT and for a period of ten (10) years thereafter any information, data or KNOW-HOW disclosed to it by the other party except: 6.1 Information, data and KNOW-HOW which at the time of disclosure is in the public domain or publicly known or available; 6.2 Information, data or KNOW-HOW which, after disclosure, becomes part of the public domain or publicly known or available by publication or otherwise, except by breach of this AGREEMENT by the receiving party; 6.3 Information, data or KNOW-HOW which the receiver receives from a third party; provided, however, that such information was not obtained by said third party from the other party; and 6.4 Information, data and KNOW-HOW which the receiver derives independently of such disclosure. 7.0 TECHNICAL ASSISTANCE. Promptly following the execution of this EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-7 AGREEMENT and on a continuing basis during the term of this AGREEMENT, LORENZ shall: 7.1 Furnish to HYDROMER all KNOW-HOW; 7.2 Furnish his services as may be necessary or appropriate in order to fully (1) to disclose to HYDROMER all details and particulars of the KNOW-HOW, and in particular, but without limitation, the manufacturing methods contained therein, (2) to consult with HYDROMER technical personnel concerning the manufacture, assembly, raw material purchase and other tasks required for the production and applications of articles/products covered by the PATENT RIGHTS, including subsequent improvements thereto; provided HYDROMER shall reimburse LORENZ for the reasonable travel and living expenses incurred for travel requested by HYDROMER hereunder. 8.0 WARRANTY/REPRESENTATIONS. 8.1 LORENZ represents that he is the owner of all right, title and interest in and to the PATENT RIGHTS and has the unrestricted power and authority to grant the licenses and give access to the KNOW-HOW as provided herein. LORENZ represents that as of the date of this AGREEMENT it has no knowledge of any pending or threatened litigation against LORENZ which might impair the rights licensed hereunder. No other third parties have any rights to the PATENT RIGHTS. 8.2 LORENZ also represents: a. The U.S. Patents are still in effect as of the date of this Agreement. b. There are no known acts of infringement against the claims of the Licensed Patents by third parties as of the date of this Agreement. c. No patent rights or patent application rights have been lost in any sovereignty by either missing a filing date or being rejected other then those EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-8 set forth on exhibit C for the sovereignties of interest in exhibit D. d. No known impediments exist on the date of this license to prosecuting patent applications for the PATENT RIGHTS in any sovereignty, except those on Schedule C for the sovereignties of interest in Schedule D. 8.3 In the event that any representations in this section 8 are not true, HYDROMER is excused from paying any royalties to LORENZ until such facts indicate the representations are true. 9.0 EFFECTIVE DATE AND TERM. 9.1 This AGREEMENT will become effective on the day and year first written above and expire upon the expiration of the last to expire of the PATENT RIGHTS, except that after expiration of the U.S. PATENT RIGHTS, royalties and/or compensation will continue to be paid only on sales of products or articles or sublicenses using the PATENT RIGHTS in countries in which unexpired patents are in effect. After such expiration of this AGREEMENT, HYDROMER shall have the right to make, use, sell, offer for sale or import products or articles using the PATENT RIGHTS without the further payment or otherwise accounting to LORENZ. 9.2 If either party hereto shall commit any breach of the provisions of this AGREEMENT, and shall not, within thirty (30) days' written notice of such breach by the other party hereto, correct such breach then such other party may, by written notice to the breaching party, immediately terminate this AGREEMENT. The right of either party to take such action shall not be affected in any way by its failure to take any action with respect to any previous breach. 9.3 HYDROMER shall have the right to terminate this AGREEMENT on sixty (60) days advance written notice to LORENZ. In the event HYDROMER terminates this Agreement, its responsibilities to prosecute or maintain the EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-9 PATENT RIGHTS shall end on the date said advanced written notice to terminate is received by LORENZ. 9.4 If either party should exercise its right to terminate this AGREEMENT, under any applicable provision of this AGREEMENT, then HYDROMER'S rights and licenses under Section 2.0 hereof shall immediately terminate, including its right to make further use of the KNOW-HOW acquired from LORENZ under this AGREEMENT, and which HYDROMER is obliged to hold in confidence pursuant to Section 6.0 of this AGREEMENT. Termination of this AGREEMENT shall not relieve either party of obligations incurred prior to termination. 10.0 INFRINGEMENT. 10.1 In the event LORENZ shall fail, within thirty (30) days of notice by HYDROMER of any material infringement, direct or contributory, by a third party of rights granted to HYDROMER in Section 2.0 hereunder, to institute legal action to end such infringement, HYDROMER shall have the right to suspend the accrual of running royalties and/or compensation in the country where such infringement is occurring for the period of such infringement. HYDROMER shall also have the right, at that time, and at its option, to initiate and prosecute such action in its own or LORENZ'S name, but at HYDROMER'S sole cost and expense; provided, however, that LORENZ cooperates fully with HYDROMER in the initiation and prosecution of such action. 10.2 Should any patent infringement action be brought against HYDROMER in any country of the TERRITORY as a result of HYDROMER'S exercising of rights granted to it hereunder, then in respect of such country, HYDROMER shall have the right to suspend payment of royalties and/or compensation due to LORENZ until such time as the action is resolved, although EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-10 such royalties and/or compensation shall continue to accrue. If the action is resolved favorably to HYDROMER, all accrued royalties and/or compensation shall immediately be paid to LORENZ. If the action is resolved unfavorably to HYDROMER, then accrued royalties and/or compensation shall be applied to costs of litigation and damages, if any, incurred by HYDROMER. Any excess shall be paid to LORENZ. 11.0 GENERAL. 11.1 ASSIGNMENT. This AGREEMENT and all rights and obligations hereunder shall be binding upon and shall inure to the benefit of the respective successors of LORENZ and HYDROMER. Neither HYDROMER nor LORENZ shall have the right to assign any or all of its rights and obligations under this AGREEMENT without the prior written consent of the other party, except that LORENZ'S consent shall not be required in the event of an assignment or transfer of the AGREEMENT by HYDROMER to an affiliate of HYDROMER, who undertakes to accept all terms and conditions hereof and carry out all obligations of HYDROMER hereunder. 11.2 ENTIRE AGREEMENT. This AGREEMENT contains the entire agreement between the parties hereto in respect of the subject matter hereof. This AGREEMENT may not be released, discharged, abandoned, changed or modified in any manner except by an instrument in writing signed by a duly authorized officer or representative of each of the parties hereto. 11.3 WAIVER AND SEVERABILITY. The waiver by either of the parties of any breach of any provision hereof by the other party shall not be construed to be a waiver of any succeeding breach of such provision of a waiver of the provision itself. 11.4 GOVERNING LAW. This AGREEMENT shall be construed and EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-11 interpreted in accordance with the laws of the State of New Jersey and the courts of the State of New Jersey shall have jurisdiction over the parties hereto and all matters arising hereunder. 11.5 INVALIDITY. If any of the provisions of this AGREEMENT, or part thereof, is held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this AGREEMENT. 11.6 NOTICE. Any notice required or to be given hereunder shall be considered delivered when deposited, postage prepaid, in the United States mail, registered mail, to the address of the other party as specified below or as subsequently modified in writing by the parties. IF TO HYDROMER: Hydromer, Inc. 35 Industrial Parkway Branchburg, New Jersey 08876 Attn: Manfred F. Dyck, President IF TO LORENZ: Donald H. Lorenz 12 Radel Place Basking Ridge, N.J. 07920 And President Ridge Scientific Enterprises, Inc. 12 Radel Place Basking Ridge, N.J. 07920 IN WITNESS WHEREOF, the parties hereto have caused this AGREEMENT to be executed effective the day and year set forth above. EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-12 HYDROMER, INC. By:______________________________________ Title:___________________________________ Date:______________________ RIDGE SCIENTIFIC ENTERPRISES, INC. By:_______________________________________ Title:____________________________________ Date:______________________ DONALD H. LORENZ By:________________________________________ Date:____________________ EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-13 Schedule A: EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-14 Schedule B: ROYALTIES Royalties on SALES: 10% on the first U.S. $1,000,000 in sales accumulated over the life of this agreement. 5% on the balance. ------------------------------------------------ COMPENSATION Compensation on sub-licenses: 33 1/3% of actual royalties received including any "up front" or minimum payments required to be paid by a sub-licensee ANY AND ALL COSTS INCURRED BY HYDROMER FOR EFFORT TO PROSECUTE OR MAINTAIN THE PATENT RIGHTS ON OR AFTER JANUARY 1, 1999 ARE TO BE CONSIDERED PAYMENTS OF COMPENSATION FOR SUB-LICENSES (but not a credit against royalties on sales) PURSUANT TO SECTION 3.1. EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-15 Schedule C List of lost rights as to "Sovereignties of interest (see Schedule D) on each patent. Letter written to Lorenz's patent counsel on 10/8/98 EXCLUSIVE LICENSE AGREEMENT WITH HYDROMER, INC Page-16 Schedule D Sovereignties of interest -----END PRIVACY-ENHANCED MESSAGE-----