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AGREEMENT
between
HYDROGEL DESIGN SYSTEMS, INC.
and
BH FUNDING, LLC
Dated October 1, 1997
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LOAN AGREEMENT
THIS AGREEMENT is made as of October 1, 1997, by and
among BH Funding, LLC (the "Lender") and Hydrogel Design Systems,
Inc., a Delaware corporation (the "Borrower").
SECTION 1. DEFINITIONS
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1.1 Definitions. As used in this Agreement, the following
terms have the respective meanings set forth below:
"Affiliate" of a Person shall mean any Person controlling,
controlled by, or under common control with, such person.
"Bankruptcy Law" shall mean Title 11 of the U.S. Code, as in
effect from time to time, or any similar Federal or state law for
the relief of debtors.
"Borrowing Date" shall mean the date of any borrowing
by the Borrower pursuant hereto.
"Business Day" means any day other than a Saturday, Sunday
or other day on which commercial banks are authorized or required
by law to close in New York City.
"Debt" shall mean any indebtedness, contingent or
otherwise, of the Borrower, including, without limitation, (i)
indebtedness evidenced by guarantees or in effect guarantees by
the Borrower of Debt of any other Person, (ii) indebtedness
evidenced by notes, debentures, bonds or similar instruments or
letters of credit, (iii) indebtedness representing the deferred
and unpaid balance of the purchase price of any property or
interest therein and obligations of the Borrower under any
agreement to lease, or lease of, any real or personal property in
each case which, in accordance with generally accepted accounting
principles then in effect, appears as a liability upon a balance
sheet of the Borrower, and (iv) obligations of the Borrower under
interest rate swaps, caps, collars, calls and similar
arrangements, and foreign currency ▇▇▇▇▇▇ entered into in respect
of any indebtedness or obligations.
"Default" shall mean any event which, with the giving
of notice or lapse of time or both, would constitute an Event of
Default.
"Event of Default" shall have the meaning assigned to it in
Section 7.1.
"Governmental or Regulatory Body" means any government
or political subdivision thereof, whether federal, state, county,
local or foreign, or any agency, authority or instrumentality of
any such government or political subdivision.
"Lien" shall mean any mortgage, pledge, hypothecation,
assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other
title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing,
and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction in respect
of any of the foregoing).
"Loan" shall have the meaning assigned to it in Section
2.1.
"Material Adverse Effect" or "Material Adverse Change" means
any change or changes or effect or effects that individually or
in the aggregate are or may reasonably be expected to be
materially adverse to (a) the business or the assets, operations,
income, prospects or conditions (financial or otherwise) of the
Borrower or its Subsidiaries or (b) the ability of the Borrower
to perform its obligations under this Agreement.
"Note" shall have the meaning assigned to it in Section 2.2.
"Person" shall mean an individual, a corporation, a
partnership, a joint venture, a firm, an enterprise, a trust, an
unincorporated organization, a government or any agency or
political subdivision thereof.
"Repayment Date" shall mean the date upon which the Lender
demands payment by and from the Borrower.
"Tax" or "Taxes" mean all taxes, charges, fees, levies or
other assessments imposed by any federal, state, local or foreign
Taxing Authority, including, without limitation, gross income,
gross receipts, income, capital, excise, property (tangible and
intangible), sales, transfer, value added, employment, payroll
and franchise taxes and such terms shall include any interest,
penalties or additions attributable to or imposed on or with
respect to such assessments.
SECTION 2. AMOUNT AND TERMS OF LOAN
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2.1 The Loan. Subject to the terms and conditions
contained in Section 6 of this Agreement, the Borrower
acknowledges the receipt of a loan in the principal amount of
Three Hundred Fifty Thousand ($350,000) Dollars made by Lender to
Borrower (the "Loan").
2.2 The Note. The Loan made by the Lender shall be
evidenced by a promissory note of the Borrower substantially in
the form of Exhibit A, with appropriate insertions, which shall
be payable to the order of the Lender and shall represent the
obligation of the Borrower to pay the amount of the Loan to the
Lender (the "Note"). The Note shall (i) be dated the date hereof,
(ii) be payable upon the demand of the Lender (the "Repayment
Date") and (iii) bear interest for the period from the date of
the Loan until paid in full on the unpaid principal amount
thereof from time to time outstanding at the rate prescribed in
Section 2.3.
2.3 Interest Rate. The Loan shall bear interest (calculated
on the basis of a 360-day year for the actual number of days
elapsed) on the unpaid principal amount thereof at a rate per
annum equal to eight (8%) percent, payable quarterly.
2.4 Payment. All payments made by the Borrower to the
Lender shall be made in federal or other immediately available
funds in lawful money of the United States for credit, not later
than 12:00 noon, New York time, on the day when due, or in any
case by such other reasonable method or at such other address as
the Lender shall have from time to time notified the Borrower.
2.5 Repayment of Loan. The outstanding principal amount of
the Loan shall be due and payable upon the demand of Lender at
any time (the "Repayment Date").
2.6 Commitment Fee. As and in consideration for making
the Loan to the Borrower, the Lender shall receive options to
purchase one hundred thousand (100,000) shares of the Borrower's
Common Stock, par value $.0001 per share (the "Commitment Fee").
Such options shall be exercisable in whole or in part for a
period of five (5) years and are exercisable at $0.40 per share.
The shares of Common Stock underlying the option shall be
"restricted stock" as that term is defined in the Securities Act
of 1933, as amended (the "Securities Act"), and shall bear a
legend restricting the distribution, resale, transfer, pledge,
hypothecation or other disposition of the shares unless and until
the shares of Common Stock are registered under the Securities
Act or an opinion of counsel for the Company is received that
registration is not required under the Securities Act. The legend
will read substantially as follows:
THE SECURITIES WHICH ARE REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND
MAY NOT BE SOLD, TRANSFERRED, MADE SUBJECT TO A
SECURITY INTEREST, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT,
OR AN OPINION OF COUNSEL FOR THE COMPANY IS RECEIVED
THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR AN
EXEMPTION FROM REGISTRATION IS AVAILABLE.
SECTION 3. The Closing
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3.1 The Closing. The closing hereunder shall take place
simultaneously upon the execution hereof, at the offices of
▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other time and in such other
fashion that may be mutually agreed upon by the parties hereto
(the "Closing") The Closing shall be subject to the parties
hereto complying with all the terms and conditions hereof, and
all of the obligations to Closing.
SECTION 4. COVENANTS
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4.1 Payment of Note. The Borrower shall pay the principal
of, and interest on, the Note on the date and in the manner
provided in the Note.
4.2 Financial and Business Information. The Borrower
covenants and agrees that so long as the Loan shall be in effect
or any Debt under the Note shall be outstanding, the Borrower
will deliver to the Lender:
(a) as soon as available, but not later than 45 days
after the close of each fiscal year of the Borrower, the
consolidated balance sheet of the Borrower as at the end of such
fiscal year and the related consolidated statements of income and
retained earnings and changes in financial position of the
Borrower for such fiscal year, setting forth in each case in the
comparative form the figures for the previous year, reported on
by independent certified public accountants of nationally
recognized standing selected by the Borrower;
(b) promptly on their becoming available, any such
other financial data, information or reports as from time to time
may be furnished to all stockholders of the Borrower in their
capacity as stockholders.
4.3 Notice of Default. If any one or more events occur
which constitute a Default or an Event of Default, upon obtaining
knowledge thereof, the Borrower will forthwith give notice to the
Lender, specifying the nature and status of the Default or Event
of Default.
4.4 Covenant of the Borrower. The Borrower covenants and
agrees that from and after the date hereof the Borrower shall
continue to conduct its business and affairs in the ordinary
course of business and shall not enter into any agreement,
commitment, instrument or contract or take any action out of the
ordinary course of business.
SECTION 5. REPRESENTATIONS AND WARRANTIES
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In order to induce the Lender to enter into this Agreement
and to make the Loan hereunder, the Borrower hereby represents
and warrants as follows:
5.1 Organization and Qualification. Each of the Borrower
and its direct and indirect subsidiaries ("Subsidiaries") is a
corporation validly existing and in good standing under the laws
of the state of its incorporation, and has all requisite
corporate power and authority to (a) own, lease and operate its
properties and assets as they are now owned, leased and operated
and (b) carry on its business as now presently conducted and as
proposed to be conducted. Each of the Borrower and its
Subsidiaries is duly qualified to do business in each
jurisdiction in which the nature of its business or properties
makes such qualification necessary, except where the failure to
do so would not have a Material Adverse Effect.
5.2 Validity and Execution of Agreement. The Borrower has
the full legal right, capacity and power and all requisite
corporate authority and approval required to enter into, execute
and deliver this Agreement and any other agreement or instrument
contemplated hereby, and to perform fully its respective
obligations hereunder and thereunder. The board of directors of
the Borrower has approved the transactions contemplated pursuant
to this Agreement and each of the other agreements required to be
entered into pursuant hereto by the Borrower. This Agreement and
such other agreements and instruments have been duly executed and
delivered by the Borrower and each constitutes the valid and
binding obligation of the Borrower enforceable against it in
accordance with its terms, subject to the qualifications that
enforcement of the rights and remedies created hereby is subject
to (i) bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting the rights and
remedies of creditors, and (ii) general principals of equity
(regardless of whether such enforcement is considered in a
proceedings in equity or at law).
5.3 No Conflict. Neither the execution and delivery of
this Agreement nor the performance by the Borrower of the
transactions contemplated hereby will violate or conflict with
(a) any of the provisions of the Articles of Incorporation or By-Laws of the
Borrower; (b) or result in the acceleration of, or
entitle any party to accelerate the maturity or the cancellation
of the performance of any obligation under, or result in the
creation or imposition of any Lien in or upon the assets of the
Borrower or constitute a default (or an event which might, with
the passage of time or the giving of notice, or both, constitute
a default) under any contract, (c) to the best of Borrower's
knowledge, any order, judgment, regulation or ruling of any
Governmental or Regulatory Body to which the Borrower is a party
or by which any of its property or assets may be bound or
affected or to the best of Borrower's knowledge, with any
provision of any law, rule, regulation, order, judgment, or
ruling of any Governmental or Regulatory Body applicable to the
Borrower.
5.4 Litigation. Except as previously disclosed by Borrower
to Lender, there are no material outstanding orders, judgments,
injunctions, investigations, awards or decrees of any court,
Governmental or Regulatory Body or arbitration tribunal by which
the Borrower or its Subsidiaries, or any of its securities,
assets, properties or business is bound. Except as previously
disclosed by Borrower to Lender, there are no material actions,
suits, claims, legal, administrative or arbitration proceedings
pending or, to the best knowledge of the Borrower, overtly
threatened (whether or not the defense thereof or liabilities in
respect thereof are covered by insurance) against or affecting
the Borrower or any Affiliate or Subsidiary thereof, or any of
its assets or properties, that, individually or in the aggregate,
could, if determined adversely to the Borrower or such Affiliate
have a Material Adverse Effect, nor, to the best knowledge of the
Borrower, are there any facts which are likely to give rise to
any such action, suit, claim, investigation or legal,
administrative or arbitration proceeding.
5.5 Undisclosed Liabilities. To the best of Borrower's
knowledge, the Borrower does not have any material liabilities
that is not fully and adequately reflected or reserved against on
the Borrower's financial statements or covered in full by
insurance.
5.6 Survival. All of the representations and warranties of
the Borrower contained herein shall survive the date hereof until
the date upon which the liability to which any claim relating to
any such representation or warranty is barred by all applicable
statutes of limitations.
SECTION 6. CONDITIONS TO ALL LOANS
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The obligation of the Lender to make the Loan is subject to
fulfillment of the following conditions precedent to the
satisfaction of the Lender:
6.1 Representations and Warranties. The representations
and warranties made by the Borrower in this Agreement and in any
certificate, document or financial or other statement furnished
at any time hereunder shall be true and correct in all material
respects unless stated to relate to a specific earlier date.
6.2 No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing on such date.
SECTION 7. DEFAULTS AND REMEDIES
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7.1 Events of Default. "Event of Default" whenever used
herein means any of the following events:
(a) the Borrower defaults in the due and punctual
payment of principal of, interest on, or any other amount owing
in respect of, the Note when and as the same shall become due and
payable, and continuance of such default for a period of five (5)
Business Days after receipt of notice; or
(b) the Borrower defaults in the performance or
observance of any covenant or agreement of the Borrower in this
Agreement, the Note, or any agreement contemplated by this
Agreement and the continuance of such default for a period of 30
calendar days after there has been given to the Borrower by the
Lender a written notice specifying such default and requiring it
to be remedied; or
(c) the Borrower shall (i) allow to exist an uncured
judgement against Borrower in excess of $50,000 for more than
thirty (30) days or (ii) default in the observance or performance
of any agreement or condition relating to any such Debt or any
other event shall occur or condition exist, the effect of which
default or other event or condition is to cause (immediately or
with the giving of notice or lapse of time or both) any such Debt
to become due prior to its stated maturity; or
(d) the Borrower, either pursuant to or within the
meaning of any Bankruptcy Law: (i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in
an involuntary case, (iii) consents to the appointment of a
Custodian of it or for all or substantially all of its property,
or (iv) makes a general assignment for the benefit of its
creditors; or
(e) a court of competent jurisdiction enters an order
or decree under any Bankruptcy Law that: (i) is for relief
against the Borrower in an involuntary case, (ii) appoints a
custodian of the Borrower for any substantial part of all the
property of the Borrower, or (iii) orders the liquidation of the
Borrower; and the order or decree remains unstayed and in effect
for 60 days.
The term "Custodian" means any receiver, trustee, assignee,
custodian, liquidator or similar official under any Bankruptcy
Law.
7.2 Acceleration of Repayment Date. If an Event of Default
occurs and is continuing, then and in every such case the Lender
may, declare the principal of the Note and any accrued interest
on the Note to be due and payable immediately and the Loan to be
terminated, by a notice in writing to the Borrower, and upon any
such declaration the principal of the Note together with any
accrued interest shall become immediately due and payable and the
Loan shall be terminated.
SECTION 8. MISCELLANEOUS
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8.1 Amendments and Waiver. This Agreement and the Note may
be amended, and the terms hereof waived, only by a written
instrument signed by the parties hereto or, in the case of a
waiver, by the party waiving compliance.
8.2 Notices. Any notice, demand or delivery pursuant to
the provisions hereof shall be sufficiently given or made if sent
by hand, facsimile transmission or by registered or certified
mail, postage prepaid, addressed to the Lender at
_______________________________ or, except as otherwise expressly
provided herein, to the Borrower at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, or such other address as shall have
been furnished to the party giving or making such notice, demand
or delivery. Any such notice shall be deemed given when so
delivered personally or, if mailed, three days after the date of
deposit in the United States mails or one day following the
deposit with a reputable overnight courier.
8.3 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New
York without regard to principles of conflicts of law.
8.4 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Lender, any right,
remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right,
remedy, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exclusive of
any rights, remedies, powers and privileges provided by law.
8.5 Successors and Assigns. This Agreement and each
document and certificate delivered pursuant thereto shall be
binding upon and inure to the benefit of the Borrower, SIPCO and
the Lender and their respective successors and permitted assigns,
except that neither the Borrower nor the Lender may assign or
transfer any of its rights under this Agreement or the Note
without the prior written consent of the other.
8.6 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement in any number of separate
counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the
copies of this Agreement signed by all the parties shall be
lodged with the Borrower and the Lender.
8.7 Severability. Any provision of this Agreement or the
Note which is prohibited, invalid or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, invalidity or unenforceability
without invalidating the remaining provisions hereof, and any
such prohibition, invalidity or unenforceability in any juris-
diction shall not invalidate or render unenforceable such
provision in any other jurisdiction or any other provision of
this Agreement or the Note.
8.8 Entire Agreement. This Agreement (including the
Exhibits and Schedules hereto) and the agreements, certificates
and other documents delivered pursuant to this Agreement contain
the entire agreement among the parties with respect to the
transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and
duly authorized officers as of the day and year first above
written.
BH FUNDING, LLC
By:/s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
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Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇
Title:
HYDROGEL DESIGN SYSTEMS, INC.
By:/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: President/CEO
EXHIBIT A
PROMISSORY NOTE
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$350,000 October 1, ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇
FOR VALUE RECEIVED, HYDROGEL DESIGN SYSTEMS, INC.,
together with its successors and assigns (the "Borrower" or
"Maker"), hereby unconditionally promises to pay to the order of
BH Funding, LLC together with their successors and assigns (the
"Lender" or "Holder"), in lawful currency of the United States of
America, at the Lender's offices at ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇, or at such other address as shall be designated
by the Lender in a written notice to the Borrower, the principal
sum of $350,000 together with simple interest at the rate of
eight percent (8%) per annum, upon the demand of the Lender (the
"Repayment Date") at which time all of the indebtedness or any
portions thereof shall be immediately due and payable, together
with accrued interest thereon, and payment thereof may be
enforced by suit or other process of law.
All payments of principal and interest hereunder shall be
payable in lawful money of the United States.
If this Note is not paid when due, whether at maturity or by
acceleration, Maker agrees to pay all reasonable costs of
collection and such costs shall include without limitation all
costs, attorneys' fees and expenses incurred by Holder hereof in
connection with any insolvency, bankruptcy, reorganization,
arrangement or similar proceedings involving Holder, or involving
any endorser or guarantor hereof, which in any way affects the
exercise by Holder hereof of its rights and remedies under this
Note.
Presentment, demand, protest, notices of protest, dishonor
and non-payment of this Note and all notices of every kind are
hereby waived.
The terms "Maker" and "Holder" shall be construed to include
their respective heirs, personal representatives, successors,
subsequent holders and assigns.
Regardless of the place of execution or performance, this
Note shall be governed by, and construed in accordance with, the
laws of the State of New York without giving effect to such
state's conflicts of laws provisions. Each of the parties hereto
irrevocably consents to the jurisdiction and venue of the federal
and state courts located in the State of New York, County of New
York.
HYDROGEL DESIGN SYSTEMS, INC
By: /s/▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President