EXHIBIT 10.3
PROMISSORY NOTE
$220,000 May 8, 2002
Minnetonka, Minnesota
FOR VALUE RECEIVED, the undersigned, LECTEC CORPORATION, a Minnesota
corporation with a mailing address of 10701 Red Circle Drive, Minnetonka, MN
55343 (hereinafter referred to as the "LecTec"), promises to pay to the order of
NOVARTIS CONSUMER HEALTH, INC. with a mailing address of 200 Kimball Drive,
Parsippany, NJ 07054 (hereinafter referred to as "Novartis"), the sum of Two
Hundred Twenty Thousand ($220,000) Dollars together with interest and costs
thereon as set forth below.
All amounts outstanding under this Note, together with interest
thereon, shall be repaid in full on December 31, 2003. This Note may be subject
to mandatory prepayment under circumstances as set forth in a certain Supply and
Non-Exclusive License Agreement between LecTec and Novartis dated as of May 8,
2002 (the "Agreement").
Interest on the principal amount outstanding hereunder shall begin to
accrue as of the date hereof, and shall be payable monthly in arrears on the
tenth day of each month, commencing with the first payment on June 10, 2002.
Interest shall be payable at the rate per annum which shall be two (2)
percentage points higher than the "prime" rate as reported in The Wall Street
Journal on the first business day of each month, adjusted monthly.
Interest shall be computed daily on the basis of a 360-day year, but
shall be payable for the actual number of days in the month. Interest on sums
advanced hereunder shall be payable at the rates set forth herein until all such
sums are fully paid, whether before or after maturity, by acceleration or
otherwise, and whether or not any judgment has been issued thereon.
All payments received by the holder hereof shall be applied first to
the payment of costs, fees, and expenses due from LecTec to the holder, then to
the payment of interest, and finally to the payment of principal. This Note is
the Recall Debt Note as defined in the Agreement, to
which reference may be made for a description of a method of payment by way of
credits for products sold and delivered by LecTec to Novartis that may be
elected by Novartis. The indebtedness described herein shall have the benefit of
the Collateral as set forth in a Security Agreement between LecTec and Novartis
of even date herewith.
This Note may be prepaid, at any time, in whole or in part, without
premium or fee. If this Note is not paid when due, LecTec agrees to pay all
costs of collection, including reasonable attorneys' fees. LecTec hereby waives
demand, presentment, notice of dishonor, protest, and notice of protest.
WITHOUT LIMITING OTHER RIGHTS ACCORDED TO NOVARTIS HERE-UNDER, LECTEC
HEREBY CERTIFIES THAT THE TRANSACTION CONTEMPLATED BY THIS NOTE IS A COMMERCIAL
TRANSACTION AND HEREBY WAIVES (A) ITS RIGHTS TO NOTICE AND HEARING AS OTHERWISE
ALLOWED BY LAW WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH NOVARTIS MAY DECIDE
TO USE, AND (B) ALL RIGHTS AS OTHERWISE ALLOWED BY LAW TO REQUEST THAT NOVARTIS
POST A BOND, WITH OR WITHOUT SURETY, TO PROTECT LECTEC OR ANY OTHER PERSON OR
ENTITY LIABLE UNDER THIS NOTE AGAINST DAMAGES THAT MAY BE CAUSED BY ANY
PREJUDGMENT REMEDY SOUGHT OR OBTAINED BY NOVARTIS BY VIRTUE OF ANY DEFAULT OR
PROVISION OF THIS NOTE OR THE AGREEMENT, AND LECTEC HEREBY CONSENTS TO THE
ISSUANCE OF ANY SUCH PREJUDGMENT REMEDY WITHOUT SUCH A BOND.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Note as of the date and year first above written.
LECTEC CORPORATION
By /s/ Douglas J. Nesbit, CFO and Corp. Secretary
------------------------------------------------
Name and Title:
2.
EXHIBIT 10.4
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Security Agreement") dated as of May 8, 2002
between NOVARTIS CONSUMER HEALTH, INC., 200 Kimball Drive, Parsippany, NJ 07054
("Creditor"), a Delaware corporation, and LECTEC CORPORATION, 10701 Red Circle
Drive, Minnetonka, MN 55343 ("Debtor"), a Minnesota corporation.
Recitals
A. Creditor has agreed to advance funds to Debtor as provided in a
certain Supply and Non-Exclusive License Agreement of even date herewith
("Supply Agreement") and Debtor is otherwise indebted to Creditor. Debtor has
issued it promissory note (the "Note") to Creditor evidencing Debtor's
obligation to repay advances made or to be made by Creditor to Debtor and such
other indebtedness of Debtor to Creditor.
B. Debtor has agreed to grant a security interest in its assets as
provided in this Security Agreement to secure its payment obligations under the
Note.
NOW, THEREFORE, the parties hereby agree as follows:
1. Security Interest. To secure the full and prompt payment to Creditor of the
obligations of Borrower under the Note (hereinafter, the "liabilities"), Debtor
has granted and hereby grants to Creditor a continuing security interest in and
to all of Debtor's accounts receivable, inventory, equipment and general
intangibles (hereinafter, the "Collateral"), whether now owned or existing or
hereafter acquired or arising, the proceeds of the Collateral, and all books and
records (including, without limitation, customer lists, credit files, computer
programs, print-outs, and other computer materials and records) of Debtor
pertaining to the Collateral.
2. Disclosure of Security Interest. Debtor shall make appropriate entries upon
its financial statements disclosing Creditor's security interest in the
Collateral.
3. Financing Statements. At Creditor's request, Debtor shall execute or deliver
to Creditor, at any time or times hereafter, all supplemental documentation that
Creditor may reasonably request relating to the perfection of the security
interest granted in Section 1, in form and substance acceptable to Creditor, and
pay the costs of any recording or filing of the same.
4. Perfection and Priority; Location of Collateral. Debtor represents that:
(A) None of the Collateral is subject to any lien, security
interest or other encumbrance, except as disclosed on Exhibit A attached hereto
and made a part hereof;
(B) The address specified above is Debtor's chief executive
office and
principal place of business and Debtor is incorporated under the laws of the
state of Minnesota.
5. Event of Default. The occurrence of any one or more of the following events
shall constitute an "Event of Default":
(A) Debtor fails to pay the Liabilities when due and payable
as provided in the Note;
(B) Debtor fails or neglects to perform, keep or observe any
other term, provision, condition, covenant, warranty or representation contained
in this Security Agreement which is required to be performed, kept or observed
and the same is not cured to Creditor's satisfaction within ten (10) days after
Creditor gives Debtor written notice thereof;
(C) Any material representation by Debtor to Creditor
concerning its financial condition is not true and correct when made, in all
material respects;
(D) The Collateral or any other of Debtor's material assets
are attached, seized, levied upon or subjected to a writ or distress warrant, or
come within the possession of any receiver, trustee, custodian or assignee for
the benefit of creditors and the same is not cured within sixty (60) days
thereafter; an application is made by any person other than Debtor for the
appointment of a receiver, trustee, or custodian for the Collateral or any other
of Debtor's assets and the same is not dismissed within sixty (60) days after
the application therefor;
(E) An application is made by Debtor for the appointment of a
receiver, trustee or custodian for the Collateral or any other of Debtor's
assets; a petition under any section or chapter of the Bankruptcy Code or any
similar law or regulation shall be filed by Debtor; Debtor makes an assignment
for the benefit of its creditors or any case or proceeding is filed by Debtor
for its dissolution, liquidation, or termination; or
(F) Debtor ceases to conduct its business as now conducted or
is enjoined, restrained or in any way prevented by court order from conducting
all or any material part of its business affairs; a petition under any section
or chapter of the Bankruptcy Code or any similar law or regulation is filed
against any Debtor or any case or proceeding is filed against Debtor for its
dissolution or liquidation and such injunction, restraint or petition is not
dismissed within sixty (60) days after the entry or filing thereof.
6. Remedies. Upon and after an Event of Default, Creditor shall have the
following rights and remedies:
(A) All the rights and remedies of a secured party under the
Uniform Commercial Code as in effect at the time in Minnesota, all of which
rights and remedies shall be cumulative, and none exclusive, to the extent
permitted by law, in addition to any other rights and remedies contained in this
Security Agreement.
(B) The right to sell or to otherwise dispose of all or any
Collateral in its then
condition, or after any further manufacturing or processing thereof, at public
or private sale or sales, with such notice as may be required by law, in lots or
in bulk, for cash or on credit, all as Creditor, in its sole discretion, may
deem advisable; such sales may be adjourned from time to time with or without
notice. Creditor shall have the right to conduct such sales on the premises of
Debtor or elsewhere and shall have the right to use Debtor's premises without
charge for such sales for such time or times as Creditor may see fit. Creditor
is hereby granted a license or other right to use, without charge, Debtor's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks and advertising matter, or any property of a similar nature,
as it pertains to the Collateral; provided, however, that the grant of license
and right to use herein shall be subject to the license provisions of the Supply
Agreement. Creditor shall have the right to sell, lease or otherwise dispose of
the Collateral, or any part thereof, for cash, credit or any combination thereof
and Creditor may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and in lieu of actual payment of such purchase
price, may setoff the amount of such price against the Liabilities. The proceeds
realized from the sale of any Collateral shall be applied first to the
reasonable costs, expenses (including attorneys' fees and expense) incurred by
Creditor for collection and for acquisition, completion, protection, removal,
storage, sale and delivery of the Collateral; second to interest due upon any of
the Liabilities; third to the principal of the Liabilities; fourth to the holder
of any junior lien or any of the Collateral. If any deficiency shall arise,
Debtor shall remain liable to Creditor therefor. Notwithstanding anything else
in this Agreement, Creditor shall not sell, lease or otherwise dispose of that
portion of the Collateral consisting of the Intellectual Property, as that term
is defined in the Supply Agreement, in whole or in part, so long as the Supply
Agreement is in effect.
7. Subordination by Creditor. On no more than a single occasion and upon the
written request of Debtor, Creditor shall subordinate its security interest in
the Collateral to a security interest that Debtor may propose to grant to an
institutional lender to secure a new loan to Debtor in a principal amount of not
less than $1,000,000. Such subordination shall have the effect only of making
Creditor's security interest in the Collateral junior to the security interest
granted to such new lender notwithstanding the priority of the perfection of
Creditor's security interest and shall not otherwise affect any of Creditor's
rights under the Note or this Security Agreement.
8. Waiver. Each party acknowledges and agrees that any failure on the part of
the other party to enforce at any time, or for any period of time, any of the
provisions of this Security Agreement shall not be deemed or construed to be a
waiver of such provisions or of the right of such other party thereafter to
enforce each an every such provision.
9. Enforcement. If and to the extent that any provision of this Security
Agreement is determined by any legislature, court or administrative agency to
be, in whole or in part, invalid or unenforceable, such provision or part
thereof shall be deemed to be surplusage and, to the extent not so determined to
be invalid or unenforceable, each provision hereof shall remain in full force
and effect unless the purposes of this Security Agreement cannot be achieved. In
the event any provisions shall be held invalid, illegal or unenforceable the
parties shall use commercially reasonable efforts to substitute a valid, legal
and enforceable provision which insofar as practical implements the purposes
hereof.
10. Choice of Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Minnesota as though made and to be
fully performed in said State.
11. Notices. All notices required or permitted hereunder shall be given in
writing and sent by confirmed facsimile transmission, or mailed postage prepaid
by first-class certified or registered mail, or sent by a nationally recognized
express courier service, or hand-delivered to the following addressees:
Creditor: Novartis Consumer Health, Inc.
200 Kimball Drive
Parsippany, NJ 07054
Attn: General Counsel
Debtor: LecTec Corporation
10701 Red Circle Dr.
Minnetonka, MN 55343
Attn: Chief Executive Officer
or to such other address as may be specified in a notice given to the other
party in accordance with this Section 11. Any notice, if sent properly
addressed, postage prepaid, shall be deemed made three (3) days after the date
of mailing as indicated on the certified or registered mail receipt, or on the
next business day if sent by express courier service or on the date of delivery
or transmission (if delivered or sent during ordinary business hours, otherwise
on the next business day) if hand-delivered or sent by confirmed facsimile
transmission.
12. Captions. The captions of each section of this Security Agreement are
inserted only as a matter of convenience and for reference and in no way shall
be deemed to define, limit, enlarge, or describe the scope of this Security
Agreement and the relationship of the parties hereto, and shall not in any way
affect this Security Agreement or the construction of any provisions herein.
13. Entire Agreement; Amendment. This Security Agreement, including Exhibit A
annexed hereto, and the Supply Agreement represent and incorporate the entire
understanding between the parties hereto with respect to the subject matter of
this Security Agreement and supersedes any prior offers, proposals, drafts or
other communications with respect thereto. In the event of a conflict between
the terms of this Security Agreement and the Supply Agreement, the provisions of
the Supply Agreement shall prevail. Each party acknowledges that there are no
warranties, representations, covenants or understandings of any kind, nature or
description whatsoever made by any party to any other, except such as are
expressly hereinabove set forth. This Security Agreement shall not be subject to
change or modification except by the execution of a writing specified to be an
explicit amendment to this Security Agreement duly executed by all parties
hereto.
14 Counterparts. This Security Agreement may be executed in two or more
counterparts, each of which shall constitute an original and all of which
together shall constitute a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LECTEC CORPORATION
By: /s/ Douglas J. Nesbit
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Name: Douglas J. Nesbit
--------------------------------------
Title: CFO and Corp. Secretary
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NOVARTIS CONSUMER HEALTH, INC.
By: /s/ Mark Smedley
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Name: Mark Smedley
--------------------------------------
Title: V.P. Supply and Logistics
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