SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "Agreement") is made this 24th
day of January, 1997, by and between HYDROGEL DESIGN SYSTEMS,
INC., a Delaware corporation (the "Debtor"), with an address at
000 Xxxxxxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000
and Becton Xxxxxxxxx Transdermal Systems, a division of Becton
Xxxxxxxxx and Company (the "Secured Party"), with an address at 0
Xxxxxx Xxxxx, Xxxxxxxx Xxxxx, Xxx Xxxxxx 00000-0000.
Under the terms hereof, the Secured Party desires to obtain
and the Debtor desires to grant the Secured Party security for
all of the Obligations (as hereinafter defined).
NOW, THEREFORE, the Debtor and the Secured Party, intending
to be legally bound, hereby agree as follows:
1. Definitions.
(a) "Collateral" shall include (i) the Debtor's
equipment and fixtures, as more fully described on Exhibit A
attached hereto and made a part hereof and all fittings,
accessories, equipment, special tools, and other parts of or
relating to such equipment as more fully described on Exhibit A
and all fixtures, additions and accessions thereto, substitutions
therefor and replacements thereof (collectively, the
"Equipment"); (ii) all products of the Equipment; (iii) all cash
and non-cash proceeds of the Collateral described in clauses (i)
and (ii) of this section 1(a), including without limitation,
insurance proceeds, and (iv) all contract rights, accounts,
chattel paper, instruments and general intangibles related to the
Collateral described in clauses (i), (ii) and (iii) of this
section 1(a), including, without limitation, any warranties
relating to the Equipment and any other contract rights of the
Debtor set forth in that certain Transfer Agreement, dated
January 10, 1997, by and between Alcon Laboratories, Inc., a
Delaware corporation (together with its successor, assigns and
affiliates "Alcon") and the Debtor (together with each other
documents entered into by Debtor and Alcon in connection with the
purchase by the Debtor from Alcon of the Equipment, the "Purchase
Documents") or otherwise.
(b) "Obligations" shall include all loans, advances,
debts, liabilities, obligations, covenants and duties owing to
the Secured Party from the Debtor of any kind or nature, present
or future, whether or not evidenced by any note, guaranty or
other instrument, whether arising under any agreement, instrument
or document, whether or not for the payment of money, whether
arising by reason of an extension of credit, opening of a letter
of credit, loan or guarantee or in any other manner, whether
arising out of overdrafts on deposit or other accounts or
electronic funds transfer (whether through automatic clearing
houses or otherwise) or out of the Secured Party's non-receipt of
or inability to collect funds or otherwise not being made whole
in connection with depository transfer check or other similar
arrangements, whether direct or indirect (including those
acquired by assignment or participation), absolute or contingent,
joint or several, due or to become due, now existing or hereafter
arising, and any amendments, extensions, renewals or increases
and all costs and expenses of the Secured Party incurred in the
documentation, negotiation, modification, enforcement, collection
or otherwise in connection with any of the foregoing, including
but not limited to reasonable attorneys' fees and expenses.
2. Grant of Security Interest. To secure the Obligations,
the Debtor, as debtor, hereby assigns and grants to the Secured
Party, as secured party, a continuing lien on and security
interest in the Collateral. It is the intention of the parties
that to the extent the foregoing security interest secures
Obligations that constitute purchase money obligations, such
security interest shall be a purchase money security interest to
such extent.
3. Change in Name or Location. The Debtor hereby agrees
that if the location of the Collateral changes from the location
listed on Exhibit A hereto and made part hereof, or if the Debtor
changes its name or form of organization, or establishes a name
in which it may do business that is not listed as a tradename on
Exhibit A hereto, the Debtor will immediately notify the Secured
Party in writing of the additions or changes. The Debtor's chief
executive office is also shown on Exhibit A hereto. In addition,
the Debtor agrees that is shall not move or arrange to have moved
the Collateral (or any part thereof) to any location (other than
a location wholly-owned by the Debtor, free and clear of all
claims, liens or other encumbrances of any kind) without first
obtaining from the owner and/or mortgagee of such location a
landlord waiver and/or a mortgagee waiver in form and substance
satisfactory to the Secured Party.
4. Representations, Warranties and Certain Covenants. The
Debtor represents, warrants and covenants to the Secured Party
that: (a) the Debtor has delivered to the Secured Party a true
and complete copy of each Purchase Document, (b) upon payment of
$600,000 to Alcon, the Debtor will own and have good title to the
Collateral free and clear any claims, liens or other encumbrances
or rights (as an owner, secured party or otherwise) of any person
or entity (other than the Secured Party), (c) the Debtor has not
made any prior sale, pledge, encumbrance, assignment or other
disposition of any of the Collateral and the same are free from
all encumbrances and rights of setoff of any kind; (d) except as
herein provided, the Debtor will not hereafter without the prior
written consent of the Secured Party sell, pledge, encumber,
assign or otherwise dispose of any of the Collateral or permit
any right of setoff, lien or security interest to exist thereon
except to the Secured Party; and (e) the Debtor will defend the
Collateral against all claims and demands of all persons at any
time claiming the same or any interest therein.
5. Debtor's Covenants. The Debtor covenants that it
shall:
(a) from time to time and at all reasonable times
allow the Secured Party, by or through any of its officers,
agents, attorneys, or accountants, to examine or inspect the
Collateral, and obtain valuations and audits of the Collateral,
at the Debtor's expense (up to $2,500 per year), wherever
located. The Debtor shall do, obtain, make, execute and deliver
all such additional and further acts, things, deeds, assurances
and instruments as the Secured Party may require to vest in and
assure to the Secured Party its rights hereunder and in or to the
Collateral, and the proceeds thereof, including, but not limited
to, waivers from landlords, warehousemen and mortgagees;
(b) keep the Collateral in good order and repair at
all times and immediately notify the Secured Party of any event
causing a material loss or decline in value of the Collateral
whether or not covered by insurance and the amount of such loss
or depreciation;
(c) only use or permit the Collateral to be used in
accordance with all applicable federal, state, country and
municipal laws and regulations;
(d) deliver to the Secured Party (I) quarterly
unaudited financial statements, prepared in accordance with
generally accepted accounting principals, within 45 calendars
after each March 31, June 30, September 30 and December 31 during
the period the Obligations remain outstanding and (ii) audited
financial statements, prepared in accordance with generally
accepted accounting principals, within 90 calendar days after the
end of each fiscal year during the period the Obligations remain
outstanding.
(e) have and maintain insurance at all times with
respect to all Collateral against risks of fire (including so-called extended
coverage), theft, sprinkler leakage, and other
risks (including risk of flood if any Collateral is maintained at
a location in a flood hazard zone) as the Secured Party may
require, in such form, in such amount, for such period and
written by such companies as may be satisfactory to the Secured
Party in its sole discretion. The policies of all such casualty
insurance shall contain a standard Secured Party's Loss Payable
Clauses issued in favor of the Secured Party under which all
losses thereunder shall be paid to the Secured Party as the
Secured Party's interest may appear. Such policies shall
expressly provide that the requisite insurance cannot be altered,
canceled or not renewed without at least thirty (30) days prior
written notice to the Secured Party and shall insure the Secured
Party notwithstanding the act or neglect of the Debtor. Upon
demand of the Secured Party, the Debtor shall furnish the Secured
Party with duplicate original policies of insurance or such other
evidence of insurance as the Secured Party may require. In the
event of failure to provide insurance as herein provided, the
Secured Party may, at its option, obtain such insurance and the
Debtor shall pay to the Secured Party, on demand, the costs
thereof. Proceeds of insurance may be applied by the Secured
Party to reduce the Obligations or to repair or replace
Collateral, all in the Secured Party's sole discretion.
(f) not, without the prior written consent of the
Secured Party, (I) in addition to the covenants set forth in
section 4, sell, assign, transfer or otherwise dispose or grant
or suffer a lien against any portion of its assets or properties
other than in the ordinary course of business, (ii) make any
loans, advances or investments to or with any Person other than
in the ordinary course of business, (iii) incur any additional
indebtedness, enter into a sale and leaseback transaction or
enter into any other financing arrangement other than in the
ordinary course of business, (iv) distribute any money or any
other assets or property to any shareholder of the Debtor other
than payment for reasonable salaries or similar compensation or
(v) change in any material respect the business activities in
which it is currently engaged; and
(g) within five business days of the Secured Party's
advancement of funds to Alcon, on behalf of the Debtor, in the
amount of $600,000 and evidenced by the certain Promissory Note
dated the date hereof from the Debtor for the benefit of the
Grantor, pay to Grantor an amount not in excess of $2,500 for all
out-of-pocket cost and expenses incurred by the Secured Party in
connection with such advance, including, without limitation, all
filing and search fees, and fees and expenses of the Secured
Party's legal counsel.
6. Negative Pledge; No Transfer. The Debtor will not sell
or offer to sell or otherwise transfer or dispose or grant or
suffer the imposition of a lien or security interest upon the
Collateral or use any portion thereof in any manner inconsistent
with this Agreement or with the terms and conditions of any
policy of insurance thereon.
7. Further Assurances. At the request of the Secured
Party, the Debtor will join with the Secured Party in executing
one or more financing, continuation or amendment statements
pursuant to the Uniform Commercial Code in form satisfactory to
the Secured Party and will pay the cost of preparing and filing
the same in all jurisdictions in which such filing reasonably is
deemed by the Secured Party to be necessary or desirable. A
carbon, photographic or other copy of this Agreement or of a UCC-1 financing
statement may be filed as and in lieu of a UCC-1 financing statement.
8. Events of Default. The Debtor shall, at the option of
the Secured Party, be in default under this Agreement upon the
happening of any of the following events or conditions (each, an
"Event of Default"); (a) any Event of Default (as defined in any
of the Obligations); (b) any default under any of the Obligations
that does not have a defined set of "Events of Default" and the
lapse of any notice or cure period provided in such Obligations
with respect to such default; (c) demand by the Secured Party
under any of the Obligations that have a demand feature; (d) the
failure by the Debtor to perform any of its obligations under
this Agreement; (e) falsity, inaccuracy or material breach by the
Debtor of any written warranty, representation or statement made
or furnished to the Secured Party by or on behalf of the Debtor;
(f) an uninsured material loss, theft, damage, or destruction to
any of the Collateral, or the entry of any judgment against the
Debtor or any lien against or the making of any levy, seizure or
attachment of or on the Collateral; (g) the failure of the
Secured Party to have a perfected first priority purchase money
security interest in the Collateral; or (h) any indication or
evidence received by the Secured Party's discretion, might result
in the forfeiture of any property of the Debtor to any
governmental entity, federal, state or local.
9. Remedies. Upon the occurrence of any such Event of
Default and at any time thereafter, the Secured Party may declare
all Obligations secured hereby immediately due and payable and
shall have, in addition to any remedies provided herein or by any
applicable law or in equity, all the remedies of a secured party
under the Uniform Commercial Code. As permitted by such Code,
the Secured Party may (a) peaceably by its own means or with
judicial assistance enter the Debtor's premises and take
possession of the Collateral, (b) render the Collateral unusable,
(c) dispose of the Collateral on the Debtor's premises, and (d)
require the Debtor to assemble the Collateral and make it
available to the Secured Party at a place designated by the
Secured Party. Unless the Collateral is perishable or threatens
to decline speedily in value or is of a type customarily sold on
a recognized market, the Secured Party will give the Debtor
reasonable notice of the time and place of any public sale
thereof or of the time after which any private sale or any other
intended disposition thereof is to be made. The requirements of
commercially reasonable notice shall be met if such notice is
sent to the Debtor at least five (5) days before the time of the
intended sale or disposition. Expenses of retaking, holding,
preparing for sale, selling or the like shall include the Secured
Party's reasonable attorney's fees and legal expenses, incurred
or expended by the Secured Party to enforce any payment due it
under this Agreement either as against the Debtor, or in the
prosecution or defense of any action, or concerning any matter
growing out of or connection with the subject matter of this
Agreement and the Collateral pledged hereunder.
10. Power of Attorney. The Debtor does hereby make,
constitute and appoint any officer or agent of the Secured Party
as the Debtor's true and lawful attorney-in-fact, with power to
endorse the name of the Debtor or any of the Debtor's officers or
agents upon any notes, checks, drafts, money orders, or other
instruments of payment or Collateral that may come into the
possession of the Secured Party in full or part payment of any
amounts owing to the Secured Party; granting to the Debtor's said
attorney full power to do any and all things necessary to be done
in and about the premises as fully and effectually as the Debtor
might or could do, including the right to sign, for the Debtor,
UCC-1 financing statements and UCC-3 Statements of Change and to
xxx for, compromise, settle and release all claims and disputes
with respect to, the Collateral. The Debtor hereby ratifies all
that said attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an
interest, and is irrevocable.
11. Payment of Expenses. At its option, the Secured Party
may discharge taxes, liens, security interests or such other
encumbrances as may attach to the Collateral, may pay for
required insurance on the Collateral and may pay for the
maintenance, appraisal or reappraisal, and preservation of the
Collateral, as determined by the Secured Party to be necessary.
The Debtor will reimburse the Secured Party on demand for any
payment so made or any expense incurred by the Secured Party
pursuant to the foregoing authorization, and the Collateral also
will secure any advances or payments so made or expenses so
incurred by the Secured Party.
12. Notices. All notices, demands, requests, consents,
approvals and other communications required or permitted
hereunder must be in writing and will be effective upon receipt
if delivered personally to such party, of if sent by facsimile
transmission with confirmations of delivery, or by nationally
recognized overnight courier service, to the address set forth
above or to such other address as any party may give to the other
in writing for such purpose.
13. Preservation of Rights. No delay or omission on the
part of the Secured Party to exercise any right or power arising
hereunder will impair any such right or power or be considered a
waiver of any such right or power or any acquiescence therein,
nor will the action or inaction of the Secured Party impair any
right or power arising hereunder. The Secured Party's rights and
remedies hereunder are cumulative and not exclusive of any other
rights or remedies which the Secured Party may have under other
agreements, at law or in equity.
14. Illegality. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and
enforceability of the remaining provisions contained herein shall
not in any way be affected or impaired thereby.
15. Changes in Writing. No modification, amendment or
waiver of any provision of this Agreement nor consent to any
departure by the Debtor therefrom, will in any event be effective
unless the same is in writing and signed by the Secured Party,
and then such waiver or consent shall be effective only in the
specific instance and for the purpose for which given. No notice
to or demand on the Debtor in any case will entitle the Debtor to
any other or further notice or demand in the same, similar or
other circumstance.
16. Entire Agreement. This Agreement (including the
documents and instruments referred to herein) constitutes the
entire agreement and supersedes all other prior agreements and
understandings, both written and oral, between the parties with
respect to the subject matter hereof.
17. Counterparts. This Agreement may be signed in any
number of counterparts copies and by the parties hereto on
separate counterparts, but all such copies shall constitute one
and the same instrument.
18. Successors and Assigns. This Agreement will be bind
upon and inure to the benefit of the Debtor and the Secured Party
and their respective heirs, executors, administrators, successors
and assigns; provided, however, that the Debtor may not assign
this Agreement in whole or in part without the prior written
consent of the Secured Party and the Secured Party at any time
may assign this Agreement in whole or in part.
19. Interpretation. In this Agreement, unless the Secured
Party and the Debtor otherwise agree in writing, the singular
includes the plural and the plural the singular; words importing
any gender include the other genders; references to statutes are
to be construed as including all statutory provisions
consolidating, amending or replacing the statute referred to; the
word "or" shall be deemed to include "and/or", the words,
"including", "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to
articles, sections (or subdivisions of sections) or exhibits are
to those of this Agreement unless otherwise indicated. Section
headings in this Agreement are included for convenience of
reference only and shall not constitute a part of this Agreement
for any other purpose. If this Agreement is executed by more
than one Debtor, the obligations of such persons or entities will
be joint and several.
20. Indemnity. The Debtor agrees to indemnify each of the
Secured Party, its directors, officers and employees and each
legal entity, if any, who controls the Secured Party (the
"Indemnified Parties") and to hold each Indemnified Party
harmless from and against any and all claims, damages, losses,
liabilities and expenses (including, without limitation, all fees
of counsel with whom any Indemnified Party may consult and all
expenses of litigation or preparation therefor) which any
Indemnified Party may incur or which may be asserted against any
Indemnified Party as a result of the execution of or performance
under this Agreement; provided, however, that the foregoing
indemnity agreement shall not apply to claims, damages, losses,
liabilities and expenses solely attributable to an Indemnified
Party's gross negligence or willful misconduct. The indemnity
agreement contained in this Section shall survive the termination
of this Agreement. The Debtor may participate at its expense in
the defense of any such claim.
21. Governing Law and Jurisdiction. This Agreement has
been delivered to and accepted by the Secured Party and will be
deemed to be made in the State where the Secured Party's office
indicated above is located. THIS AGREEMENT WILL BE INTERPRETED
AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED
IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE SECURED
PARTY'S OFFICE INDICATED ABOVE IS LOCATED, EXCEPT THAT THE LAWS
OF THE STATE WHERE ANY COLLATERAL IS LOCATED (IF DIFFERENT FROM
THE STATE WHERE SUCH OFFICE OF THE SECURED PARTY IS LOCATED)
SHALL GOVERN THE CREATION, PERFECTION AND FORECLOSURE OF THE
LIENS CREATED HEREUNDER ON SUCH PROPERTY OR ANY INTEREST THEREIN.
The Debtor hereby irrevocably consents to the exclusive
jurisdiction of any state or federal court for the county or
judicial district where the Secured Party's office indicated
above is located, and consents that all service of process be
sent by nationally recognized overnight courier service directed
to the Debtor at the Debtor's address set forth herein and
service so made will be deemed to be completed on the business
day after deposit with such courier; provided that nothing
contained in this Agreement will prevent the Secured Party from
bringing any action, enforcing any award or judgment or
exercising any rights against the Debtor individually, against
any security or against any property of the Debtor within any
other county, state or other foreign or domestic jurisdiction.
The Secured Party and the Debtor agree that the venue provided
above is the most convenient forum for both the Secured Party and
the Debtor. The Debtor waives any objection to venue and any
objection based on a more convenient forum in any action
instituted under this Agreement.
22. Self Help Remedies. THE DEBTOR BEING FULLY AWARE OF
THE RIGHT TO NOTICE AND A HEARING ON THE QUESTION OF THE VALIDITY
OF ANY CLAIMS THAT MAY BE ASSERTED AGAINST THE DEBTOR BY THE
SECURED PARTY UNDER THIS AGREEMENT, AND RELATED AGREEMENTS AND
DOCUMENTS, BEFORE THE DEBTOR CAN BE DEPRIVED OF ANY PROPERTY IN
THE DEBTOR'S POSSESSION, HEREBY WAIVES THESE RIGHTS AND AGREES
THAT THE SECURED PARTY MAY EMPLOY SELF-HELP OR ANY LEGAL OR
EQUITABLE PROCESS PROVIDED BY LAW TO TAKE POSSESSION OF ANY SUCH
PROPERTY WITHOUT FIRST OBTAINING A FINAL JUDGMENT OR WITHOUT
FIRST GIVING THE DEBTOR NOTICE AND THE OPPORTUNITY TO BE HEARD ON
THE VALIDITY OF THE CLAIM UPON WHICH SUCH TAKING IS MADE. THE
DEBTOR WAIVES ALL RELIEF FROM ALL APPRAISEMENT OR EXEMPTION LAWS
NOW IN FORCE OR HEREAFTER ENACTED.
23. Waiver of Jury Trial. EACH OF THE DEBTOR AND THE
SECURED PARTY IRREVOCABLY WAIVES ANY AND ALL RIGHT IT MAY HAVE TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE
RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION
WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF
SUCH DOCUMENTS. THE DEBTOR AND THE SECURED PARTY ACKNOWLEDGE
THAT THE FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
IN WITNESS WHEREOF this Agreement has been executed and
delivered on the date first above written by a duly authorized
officer of parties hereto.
HYDROGEL DESIGN SYSTEMS, INC.
Attest: By:
Print Name: Print Name:
Title: Title:
BECTON XXXXXXXXX TRANSDERMAL
SYSTEMS, A DIVISION OF BECTON
XXXXXXXXX AND COMPANY
Attest: By:
Print Name: Print Name:
Title: Title:
EXHIBIT A
TO SECURITY AGREEMENT
Description of Equipment
See Attachment 1 to this Exhibit A
Address of Debtor's chief executive office, including the County:
Address of other Equipment locations, including Counties and name
and address of landlord of owner if location is not owned by the
Debtor:
Other names or tradenames now or formerly used by the Debtor:
None
