FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 17598
CONSYGEN, INC.
(Exact name of registrant as specified in its charter)
Texas 76-0260145
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
125 South 52nd Street Tempe, AZ 85281
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 394-9100
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.003
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Title of class
Indicate by check mark whether the registrant (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 reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, computed by reference to the closing price of such stock as quoted
on the National Association of Securities Dealers, Inc.'s SmallCap Market as of
July 31, 1998, was approximately $11,870,000 The number of shares of common
stock outstanding at that date was 15,342,064 shares, $.003 par value.
Documents Incorporated By Reference
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Part Item
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1. ConSyGen, Inc. Definitive Proxy Statement with
respect to its Annual Meeting of Stockholders to
be held on November 12,1998 III 10,11,12,13
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PART I
CONSYGEN, INC.
Item 1. Business
Overview
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ConSyGen, Inc., a Texas corporation ("ConSyGen-Texas'), was
incorporated on September 28, 1988 as C-Square Ventures, Inc. ConSyGen-Texas was
formed for the purpose of obtaining capital in order to take advantage of
domestic and foreign business opportunities which may have profit potential. On
March 16, 1989, ConSyGen-Texas (then C Square Ventures, Inc.)
completed an initial public offering.
Acquisition of ConSyGen, Inc.
-----------------------------
ConSyGen-Texas entered into an agreement, dated as of August 28, 1996,
to acquire 100% of the issued and outstanding shares of ConSyGen, Inc., a
privately held Arizona corporation formed on October 11, 1979
("ConSyGen-Arizona") (f/k/a International Data Systems, Inc.). Immediately prior
to the acquisition transaction (the "Acquisition"), ConSyGen-Texas effected a
1-for-40 reverse split of its common stock. ConSyGen-Texas closed the
Acquisition on September 5, 1996. As a result of the Acquisition,
ConSyGen-Arizona became a wholly-owned subsidiary of ConSyGen-Texas. The
Acquisition was treated as a reverse acquisition (purchase), with
ConSyGen-Arizona being the acquirer and ConSyGen-Texas being the acquired
company.
In connection with the Acquisition, ConSyGen-Texas issued an aggregate
of 9,275,000 shares of its common stock directly to the stockholders of
ConSyGen-Arizona, in exchange for all of the issued and outstanding shares of
ConSyGen-Arizona. Upon the closing of the Acquisition, ConSyGen-Texas issued an
additional 3,850,000 shares of common stock to various consultants for services
rendered. Such shares were registered under the Securities Act of 1933, as
amended, pursuant to a Registration Statement on Form S-8. In addition,
ConSyGen-Texas issued 150,000 shares of common stock to a consultant for
services to be rendered. After the Acquisition, ConSyGen-Arizona's stockholders
held approximately 69% of the outstanding common stock of ConSyGen-Texas.
In connection with the Acquisition, outstanding options to purchase
1,275,000 shares of ConSyGen-Arizona's common stock previously granted under its
Non-Qualified Stock Option Plan were terminated, and ConSyGen-Texas adopted a
new Non-Qualified Stock Option Plan and issued options to purchase an equal
number of shares of ConSyGen-Texas common stock at an exercise price of $1.00
per share. In addition, warrants to purchase 1,000,000 shares of
ConSyGen-Arizona's common stock at $5.00 per share issued in connection with the
private placement of approximately $1,200,000 in debt earlier in 1996 (The
"Pre-Acquisition Debt") were terminated, and ConSyGen-Texas issued replacement
warrants to purchase 1,000,000 shares of ConSyGen-Texas common stock at $5.00
per share. The warrants became exercisable on August 1, 1997, expire on
September 5, 1998, and are redeemable upon 60 days' notice. ConSyGen-Texas also
issued an aggregate of 200,000 shares of its common stock in cancellation of the
Pre-Acquisition Debt and certain other indebtedness. The Pre-Acquisition Debt
had provided for interest at the rate of 10% per annum, was unsecured, and was
to be repaid in one year. ConSyGen-Texas and its wholly-owned subsidiary,
ConSyGen-Arizona, are hereafter collectively referred to as the "Company."
Post Acquisition Financing
--------------------------
Since the closing of the Acquisition on September 5, 1996, the Company
has raised an aggregate of approximately $11,000,000 in net proceeds from
private financing transactions involving the sale of common stock and notes or
debentures convertible into common stock of the Company. See Item 7 of this
report ("Recent Financings") for a description of each individual transaction.
Of the total amount raised, approximately $6,800,000 was obtained through the
sale of common stock, and approximately $4,200,000 from the sale of convertible
notes or debentures. In October 1997, the Company issued 30,747 shares of common
stock including 19,912 shares to related parties, in satisfaction of outstanding
indebtedness in the aggregate amount of $250,575.
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Description of Business of ConSyGen, Inc.
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Overview
The Company's business consists solely of the business of its wholly
owned subsidiary, ConSyGen-Arizona. ConSyGen-Arizona began business in 1979 for
the purpose of developing and marketing vertical market software for the hotel
and airline industries. In addition to providing these software packages, for
many of its clients, ConSyGen-Arizona converted these applications from
proprietary Honeywell computers to open systems (UNIX-compliant hardware), using
an internally-developed approach which automated the conversion process. Until
1995, ConSyGen-Arizona licensed its proprietary computer software, which was
used in the hotel and airline industries, and also provided software maintenance
services. In 1996, ConSyGen-Arizona discontinued its practice of software
licensing and providing software maintenance services.
In 1991, in response to growing business demand for migration of older
software applications from mainframe computers to open systems, ConSyGen-Arizona
commenced development of a fully-automated capability to allow clients to move
software applications from mainframes to open systems, while simultaneously
performing migration to alternative databases and providing replacement of
existing languages (primarily, COBOL). This process, also known as "down-sizing"
or "re-hosting", was designed to move application software from expensive,
inflexible, proprietary mainframe computers to newly-available, lower-cost
open-system computers, thereby opening up more effective environments, while
substantially reducing operating costs. After significant research and
development, an automated software conversion toolset - ConSyGen ConversionSM -
was completed.
Full automation of this otherwise-manual process eliminates most of the
manual conversion tasks, thereby reducing effort, time and expense, while
improving accuracy and reducing testing requirements.
In early 1996, ConSyGen-Arizona began to expand the existing conversion
capability to deal specifically with the Year 2000 problem; that is the
inability of a software application to recognize the Year 2000.
ConSyGen-Arizona's objective was to develop a fully automated process for the
identification and correction of date occurrences in software applications.
Prior to the fiscal year ended May 31, 1998, the Company's Year 2000 toolset,
which provides automated date conversions, had been utilized only in pilot
(non-revenue generating) projects. During the fiscal year ended May 31, 1998,
although still under development, the Company's ConSyGen 2000SM toolset has been
used to complete several revenue generating Year 2000 conversion projects.
Automation of the process by which software is made compliant for the Year 2000
and beyond, as compared with a manual process, offers the benefits of speed;
accuracy; reduced staffing, time and cost; and higher confidence in the
delivered result. Client staff involvement is reduced to project-related tasks
(such as test planning), and to confirmation of some date origins and
cross-references in the software.
ConSyGen-Arizona now concentrates on the marketing and provision of
services related to its primary software products - ConSyGen 2000 and ConSyGen
Conversion. Marketing is performed by ConSyGen directly, through selected
teaming partners, and through a sales representative program. See "Sales,
Marketing and Distribution." Although the Company is actively marketing its
ConSyGen 2000 and ConSyGen Conversion toolsets, the Company, to date, has not
generated any significant revenue, either from its ConSyGen 2000 or its ConSyGen
Conversion toolset, or otherwise.
Although the Company completed several revenue generating Year 2000
conversion projects during the fiscal year ended May 31, 1998, the Company did
not complete a revenue generating migration project during the year. The Company
did complete several revenue generating migration projects from 1993 to 1995,
but the Company has not since completed such a project. Instead, the Company's
efforts have been focused on the further development of its ConSyGen Conversion
toolset, including extending the toolset to cover new hardware environments.
Such further development and extension of the toolset was necessary, as the
toolset was limited in application to Honeywell/BULL
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systems and did not perform conversions with sufficient speed.
The Year 2000 Issue and Market
The year 2000 problem relates to the inability of many existing
computer systems to process information or logic completely or accurately
involving the year 2000 and beyond. The problem results from the traditional use
of two-digit date fields to perform computations and decision-making functions.
For example, a program using a two-digit date field may misinterpret "00" as the
year 1900 rather than as 2000. As a result, many legacy systems are at risk. For
example, unless year 2000 compliance is completed in certain systems, credit
cards and ATM cards may expire prematurely and insurance policies that span
three to seven years may not be able to be written. These date-dependent
programs are ubiquitous in legacy software applications used in many critical
business operations.
Many organizations lack the internal resources to address adequately
the year 2000 problem in a timely manner. A number of solutions providers,
including the Company, have developed special programs to meet the needs of year
2000 compliance. The Company believes that over the next two to three years many
organizations will attempt to acquire cost-effective solutions for the year 2000
problem. As a result, the Company anticipates that demand for year 2000 tools
and solutions will grow significantly. Since the problem requires a large number
of programs and systems to be corrected, it is anticipated that most
organizations will not have adequate internal resources to perform all the year
2000 conversion tasks. Consequently, most organizations will attempt to utilize
highly-automated solutions and in many cases to outsource the conversion to
service providers who can achieve economies of scale by setting up procedures,
or "factories", that utilize automation tools and well-defined processes for
year 2000 compliance. In addition, the Company believes that the year 2000
problem will cause many organizations to explore further the possibility of
migrating all or portions of their legacy systems to client/server systems.
The Company believes that the following are the major approaches to Year 2000
solutions:
- - Manual approach - conversions are performed manually by programmers.
The drawbacks of this approach include the possibility that there may
be insufficient personnel available with the skills requisite to do the
work, the length of time required to perform manual conversions and a
high rate of error. In addition, since there is no assurance that all
of a client's systems will be found or corrected, in-depth and
prolonged testing is required.
- - Tools - Basic software products designed to read through client
programs, and to identify anything resembling a date. Having acquired
these often-expensive tools, clients are required to train staff in
their use. This approach, though faster than a purely manual approach,
is still lengthy, arduous, and error-prone, and does not ensure that
all of a client's programs are actually being examined or that all
dates are being found.
- - Tool-assisted - To obviate the problem of client staff shortages, many
service providers have arisen, using a combination of tools and
specialized staff. Although the quality and range of these new tools is
improving dramatically, and although many of the vendors describe their
service as "automated", there is still a level of manual programming
required. This approach, though faster than a client could provide, is
still error-prone, and does not ensure that all of a client's programs
are actually being examined or that all dates are being found.
The Company offers a fully automated Year 2000 correction service. This
means that 100% of a client's code is collected and analyzed automatically, date
fields are identified automatically, and the correction of the identified and
confirmed date fields is done automatically. The only manual intervention
involves setup and quality control functions.
The Company believes that ConSyGen 2000's ability both to identify and
to automatically convert software, so that it is compliant for the Year 2000 and
beyond, is unique among the various solutions being offered and that its fully
automated Year 2000 conversion service offers several advantages, including
consistency of changes throughout all cross-referenced date fields and programs,
error reduction, reduced testing, and reduced conversion time. While the Company
believes that the fully automated feature of
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the ConSyGen 2000 conversion service positions it to compete efficiently in the
Year 2000 market, as described above, the Company has not yet generated any
significant revenue from Year 2000 related services or otherwise.
The Software Conversion Market
There are many thousands of mainframe computers installed worldwide.
The recent advent of "open-system" computers, using UNIX-compliant operating
systems (such as Hewlett-Packard and Sun Microsystems), particularly when
combined with new relational databases (such as Oracle or Sybase), has provided
mainframe computer users with the option of more efficient, less expensive
technology which also provides substantially-enhanced performance and business
capabilities.
The result is the "down-sizing" movement (also known as "re-hosting",
or "migration"), now established in all areas of computing in government and
commercial organizations in the U.S. and internationally. The Company believes
that users of older mainframe computers are attempting to reduce the high costs
associated with supporting and maintaining their computers, and are now actively
replacing them with new equipment operating under standard operating systems
with more modern languages and with relational database technology.
The Company believes that the market for conversion services worldwide
is significant and that it is likely that this market will grow significantly as
newer technologies arise to replace currently-acceptable environments. Since the
Company has now extended the capabilities of the ConSyGen Conversion toolset to
cover automated date correction - the ConSyGen 2000 toolset - there is new
interest in the capabilities of ConSyGen Conversion among many organizations,
and the potential to provide platform conversion services along with Year 2000
correction services presents an additional marketing opportunity with respect to
both services.
Since the ConSyGen Conversion toolset is designed to address the
migration of software from any brand of hardware, the market for the Company's
ConSyGen Conversion toolset is virtually all mainframe computers used by
business or government, both domestically and internationally. The Company
believes that the market with the most immediate need for conversion services
consists of mainframe-dependent organizations which are dissatisfied with their
mainframe systems and with their mainframe providers. The Company believes that
users of Honeywell/BULL and other older mainframes computers manufactured by
Burroughs, Sperry, Unisys, Tandem, Digital and a steadily-increasing section of
IBM are becoming dissatisfied with their hardware and related support services.
The Company believes that the conversion market is expanding as businesses
dispose of obsolescent hardware in favor of new open systems which provide the
client with the ability to move readily between hardware platforms.
With respect to its ConSyGen Conversion toolset, the Company believes
that the primary market is those organizations, which require immediate
conversions, namely, organizations using mainframe computers with declining user
bases. For a variety of reasons, there has been an overall decline in Bull users
internationally. The Company anticipates that as these organizations move their
applications from Bull systems to open environments, the need for software
conversion services will increase.
The Company believes that the market for its conversion activities also
includes businesses and governments seeking to convert their software systems to
those standard environment components now most in demand:
- UNIX Operating Systems: Those who want to convert to modern computer
hardware utilizing UNIX-standard operating systems (e.g.,
Hewlett-Packard, Sun Microsystems, etc.).
- Relational Technology: Those who want to incorporate relational
database management systems (e.g., Oracle, Sybase, Informix) into their
application software.
- Enhanced Programming Languages: Those who want converted code to be in
the most recent versions of ANSI-standard procedural languages, such as
MicroFocus COBOL; those who wish to introduce interpretive languages,
such as Oracle's SQL*Forms/PL*SQL or PowerSoft's PowerBuilder; or those
who wish to enhance their on-line operations and to ease the transition
to graphic-based processing.
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ConSyGen Conversion provides a rapid and efficient conversion
capability into open systems, relational database design and modern programming
languages.
The Company has entered the down-sizing market with a fully-automated
software conversion service. Through ConSyGen Conversion's capability to
efficiently migrate existing software from mainframes to alternative
environments with no loss or change in the underlying business functionality,
the Company believes it is positioned to take advantage of the market created by
the demand for migration services. However, as described above, the Company is
not currently generating any significant revenue from its ConSyGen Conversion
related services or otherwise.
ConSyGen 2000 Conversion Services
Although the actual identification and conversion of Year 2000
occurrences in client programs is performed automatically through the ConSyGen
2000 toolset, there are a range of associated tasks in a Year 2000 conversion
project, and each project is managed according to the following phases:
Impact Assessment - ConSyGen offers an optional impact assessment
service. ConSyGen does not require the performance of an impact assessment to
provide pricing for a conversion project. Since the conversion project is fully
automated, and since ConSyGen's pricing is based on the number of lines of
client code (not on the number of identified date occurrences), ConSyGen
provides a fixed-price quotation based on the client's estimate of its system's
size. The fixed price is adjusted if the actual system size exceeds the client's
estimate by more than 10%.
Date Estimation - ConSyGen uses a proprietary parser to review all
received client source entities, and generates a report of all identified
candidate date fields, summarized by source entity. A detailed report,
identifying each candidate date field, is also available to project staff.
Cataloging - On receipt of client source entities (control language
programs, application programs, copy members, and data definitions), ConSyGen
conducts a cataloging exercise, in which client code is analyzed in detail in
order to identify and report any missing source entities, any programs without
initiating control programs, any system utilities, and any non-standard
technical conditions (e.g., other languages) within the applications. If
necessary, ConSyGen will extend the ConSyGen 2000 toolset to accommodate these
non-standard technical conditions.
This process is iterative, and is repeated until all source members
have been received and read, and all technical issues have been resolved. At
completion of cataloging, ConSyGen 2000 will have confirmed that all of the
client's environment has been received in a form that can be read and processed
by the toolset, and the exact size of the client's environment, with exact line
and entity counts, which is then used to confirm the fixed price for the
project.
The cataloging exercise also generates a detailed hierarchical report
of all of the relationships within the client's environment. This report is used
to enable the client to define the composition of the converted code
deliverables ("Work Units") and to prepare test plans. Since the ConSyGen 2000
toolset can convert several million lines of code in a single overnight pass,
Work Units may be as large as the client requires (e.g., 1 million lines); they
will be converted and delivered in a client-defined sequence to enable a regular
and manageable approach to the preparation of test plans and to testing.
The successful completion of this cataloging exercise means that there
are substantially fewer errors due to missing programs during the automated
identification and conversion exercises, and that a full set of data
cross-references will be able to be established in preparation for the
conversion process.
Identification - From the information derived during the cataloging
exercise, all source components are searched automatically to identify all date
occurrences using known date identifiers, client-specified naming conventions
for date occurrences, and data fields with known implicit or explicit date
characteristics. All procedural logic involving date occurrences or date-holding
data variables will be automatically identified to provide a basis for
determining translation rules for both storage locations and the procedural
logic.
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ConSyGen 2000 searches all client information and reports the first use
of each date condition ("origin"). As far as possible, the desired new date
formats will be identified automatically for each original occurrence and
matched with the origin date occurrence and all of its cross-referenced date
fields within the client's programs. This provides an efficient and accurate
method of preparing the system for conversion.
Conversion - ConSyGen's Year 2000 conversion service is fully
automated. There is no manual intervention by ConSyGen or the client in the
actual conversion process, and there is no requirement for any manual
modifications to the delivered code. The only manual intervention involves setup
and quality control functions. ConSyGen expects that there will be only a
limited number of errors in the delivered code, and that any identified errors
will be corrected rapidly and fully by re-translation of the affected Work Unit.
Data Conversion - After conversion, the Company generates
extract/re-load and data re-population programs to assist the client to correct
data in their data files and databases and to allow the client to prepare for
testing. Actual change of the data is the client's responsibility.
Testing - The client is responsible for testing of the converted
programs, using test plans which are prepared on the basis of reports generated
by the Company during the project. The Company supervises the performance of a
set of tests on the initial set of programs delivered to the client.
The Company expects a Year 2000 conversion project to take a total of
approximately one month. The portion of the project performed by the Company is
expected to take approximately one to two weeks. The time necessary for the
Company to complete its portion of the project is not generally dependent on the
size of the applications involved. The Company typically staffs a Year 2000
conversion project with two employees on a part-time basis. The Company
currently has the capacity to perform a total of eight to ten Year
2000/migration projects simultaneously.
ConSyGen Conversion Solution
Although the actual conversion or migration between hardware platforms
is performed automatically through the ConSyGen Conversion toolset, there are a
range of associated tasks in a conversion project, and the typical project is
managed according to the following five phases:
Strategy and Requirements Phase - During this phase, a joint
Company/client team is formed, the major technical and scope directions of the
project are defined and the project work plan is created. The Company takes all
of the client's source code and performs a cataloging exercise, resulting in a
comprehensive view of the code statistics and internal dependencies; this
information is used during the design phase of the project to define the work
units for delivery of the translated code.
The Company uses the cataloging of information about the client's code
to generate a repository, which will be used to identify non-standard coding and
system conditions, to generate the maps relating the source and target systems,
and to generate target code. The Company also identifies any additional
constructs for inclusion in the toolset.
Analysis and Design Phase - This phase involves a detailed examination
of the functionality of the source system. The project team conducts a series of
sessions during which the application system is de-composed to its component
functions, entities, and data, and then re-modeled in an efficient database
design which reflects the client's chosen design objectives. Additionally, any
agreed re-engineering tasks are defined and embodied into the final design or
into the toolset.
During this phase, the project team uses the cataloging information to
establish the toolset's acceptance criteria, and begins the preparation of
detailed test plans designed to verify the toolset's accuracy.
Data Conversion Phase - The Company converts the data required for
testing of the first delivered work unit, and the client analyzes the accuracy
of its data in anticipation of the data conversion and transfer exercise to be
conducted during preparation for moving the converted code to production.
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Translation Phase - During this phase, the Company uses the toolset to
translate the original source code and conducts internal testing to establish
the accuracy and consistency of the translation results. The first delivered
translated code (known as a verification work unit (VWU)) is tested by the
client against its own test plans to verify the toolset's accuracy. On
acceptance of the VWU, the Company is then ready to commence the progressive
delivery of the remaining translated code, separated into manageable units.
Transition and Documentation Phase - The client is responsible during
this phase for internal systems and acceptance testing, data migration, and
migration of the translated code into production. The Company's primary
activities during this phase are the preparation of systems and operations
documentation, and the provision of on-going support during the client's
preparation for transition to production.
The Company expects the typical migration project to take a total of
approximately three to four months. The portion of the migration project
performed by the Company is expected to take approximately one month. The time
necessary for the Company to complete a project is not generally dependent on
the size of the applications involved. The Company expects to staff a typical
migration project with two employees on a part-time basis. The Company currently
has the capacity to simultaneously perform a total of eight to ten
migration/Year 2000 projects.
The Company believes that its ConSyGen Conversion solution offers the
following benefits:
- New environment - Through use of the ConSyGen Conversion toolset, the
Company is able to move the client into a new "open" hardware
environment, which offers the Client several benefits, including
preservation of existing software functionality; translation of
existing code into a new language; substitution of a new database
design; ability to operate under a new hardware environment;
introduction of new tools; and identification and resolution of the
Year 2000 date problem.
- - Reduced Migration time - The average "legacy" software system usually
consists of several million lines of application software code. A
manual conversion or re-write of an average existing legacy system may
involve years of intensive work with the involvement of a large group
of costly technical staff. Further, manual conversions do not provide
as reliable a result as an automated conversion. The ConSyGen
Conversion automated software conversion approach involves only limited
client staff resources that are needed to coordinate project decision
issues and to perform client-specific project tasks. The Company
believes that the ConSyGen Conversion approach significantly reduces
total conversion time, as compared with a manual approach, and is less
costly than a manual conversion.
- Reduced Migration cost - Manually rewriting software, whether using
internal or external resources is costly. The use of external resources
usually results in conversion costs averaging several dollars per line
of code, and costs as high as $8.00 per line are not uncommon. The cost
of software package replacement carries the additional costs of
re-training, internal modifications and additions, organizational
disruption and change, and on-going maintenance and license fees.
Because the Company's automated software conversion approach is done
automatically, the Company is able to offer conversion projects at
guaranteed fixed prices, which are materially lower than a manual
conversion.
Sales, Marketing and Distribution
---------------------------------
The market for the Company's products and services consists of a wide range of
business and governmental organizations which require the kinds of products and
services that the Company provides. The Company's sales and marketing efforts
are implemented through a direct sales force, supported by promotion through
articles in trade publications and trade shows that address the software
maintenance market, its independent sales representative program, teaming
partners (distributors which provide local service) and arrangements with system
integrators that provide computer-related services to end users. The Company
considers that its sales and marketing efforts to date have been unsatisfactory.
Revenues generated from sales of the Company' products and services
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amounted to approximately $815,000 for the fiscal year ended May 31, 1998. See
the Financial Statements included herein. On July 17, 1998, Thomas L. Dreaper,
the former executive vice president for sales and marketing of Compaq Computer
Corporation, joined the Company as president and chief executive officer. See
"Executive Officers." Mr. Dreaper has instituted a program to increase industry
awareness and acceptance of the Company's products and services through expanded
publicity and staffing of sales personnel. It is the Company's objective to hire
and train 24 new sales representatives nationwide by October of 1998 in order to
increase the Company's sales. There is no assurance that these objectives can be
achieved.
Competition
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The market for The Company's software products and solutions, including
its solutions for the year 2000 problem and client/server migration, is
intensely competitive and is characterized by rapid change in technology and
user needs and the frequent introduction of new products. The Company's
principal competitors in the software tools market include CCD Online, Progeni,
Forecross, and Alydaar.
The Company believes that the principal factors affecting competition
in the software tools market include product performance and reliability,
product functionality, ability to respond to changing customer needs, ease of
use, training, quality of support and price. The primary competitive factors in
the solutions markets, including the year 2000 compliance market, are price,
service, the expertise and experience of the service personnel and the ability
of such personnel to provide solutions to application problems. Other than
technical expertise and, with respect to the year 2000 compliance market, the
limited time available until the year 2000 arrives, there are no significant
proprietary or other barriers to entry that could prevent potential competitors
from developing or acquiring similar tools or providing competing solutions in
the Company's market.
The Company's ability to compete successfully in the sale of its
conversion services will depend in large part upon its ability to attract
customers and respond effectively to continuing technological change by
developing new products and solutions. The Company believes that its tools
enable it to compete effectively in cost, performance, including speed and
accuracy, and support with other service providers/tool vendors for the year
2000 market and the systems migration market.
Research and Development
------------------------
The Company plans to continue to expend a portion of its available
funds on research and development to enhance the functionality and performance
of its ConSyGen Conversion and ConSyGen 2000 toolsets. The Company's product
development has been accomplished primarily with in-house development personnel
and resources.
As of May 31, 1998, the Company had 11 employees engaged in product
development. All of the Company's research and development employees are located
at the Company's Tempe, Arizona headquarters. At the present time, the Company's
research and development efforts are devoted primarily to improving its existing
products.
Effective January 1, 1997, the Company changed from a calendar year to
a May 31 fiscal year. During the year ended May 31, 1998, five (5) months ended
May 31, 1997 and the years ended December 31, 1996 and 1995, research and
development expenditures were approximately $1,046,000, $335,000, $740,000 and
$492,000, respectively.
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Employees
---------
The Company had 35 employees as of May 31, 1998, including five in
sales and marketing, eleven in research, development and support, ten in
conversion services and nine in corporate operations and administration. Since
May 31, 1998, the Company has hired three additional persons to perform sales
and marketing. The Company plans to hire additional 24 sales personnel by the
end of October 1998. In light of the Company's plans for expansion and growth in
order to capture a significant share of the year 2000 compliance market, the
future success of the Company will depend in large part upon its continued
ability to attract and retain highly skilled and qualified personnel.
Competition for such personnel is intense in the computer software industry,
particularly for talented software developers, service consultants and sales and
marketing personnel. None of the Company's employees is represented by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
Executive Officers
------------------
The Company furnishes the following information concerning the
executive officers of the Company. Executive officers are elected annually by
and serve at the pleasure of the board of directors.
Thomas S. Dreaper (age 55). Mr. Dreaper joined the Company as
president, chief executive officer effective July 17, 1998. Mr. Dreaper has over
20 years of experience in the computer hardware and software industry. Mr.
Dreaper's former positions include national sales manager for Compaq Computer
Corporation and Royal Business Machines, national product marketing manager-word
processing for Savin Business Machines Corporation, vice president of sales and
marketing, Pearlsoft Software corporation, and executive vice president of Summa
Software corporation.
Robert L. Stewart (age79). Mr. Stewart is the chairman of the board of
ConSyGen-Texas and ConSyGen-Arizona. He has served in this capacity at
ConSyGen-Texas since its acquisition of ConSyGen-Arizona and at ConSyGen-Arizona
since 1980. Mr. Stewart also served as president and chief executive officer of
ConSyGen-Arizona from 1980 until January 15, 1997 and as president and chief
executive officer of ConSyGen-Texas from September 5, 1996 until January 15,
1997.
Stephen J. Kelly (age 43). Mr. Kelly has served as vice president and
general counsel since February 12, 1998. He was appointed as corporate secretary
of the Company in March 1998. On June 29, 1998 Mr. Kelly was appointed to the
board of directors of the Company to fill an existing vacancy and was promoted
to executive vice president and chief administrative officer. Mr. Kelly
previously served as corporate counsel at Motorola, Datapoint and Fujitsu.
Rajesh K. Kapur (age 39). Mr. Kapur has served as vice president and
chief financial officer since March 2, 1998 and was promoted to executive vice
president and chief financial officer on June 29, 1998. From 1982 to 1998, Mr.
Kapur was employed in various corporate accounting positions at Dynaco Corp.,
CMD and Honeywell Inc.
Ronald I. Bishop (age 61). Mr. Bishop served as president, chief
executive officer and a member of the board of directors of ConSyGen-Texas and
ConSyGen-Arizona from January 15, 1997 until his resignation on June 30, 1998.
From September 1986 to January 1, 1995, Mr. Bishop served as vice president and
director of operations of Motorola Computer Group for Asia, and from January 2,
1995 to January 3, 1997, he served as vice president and director of operations
for Motorola Computer Group for South America.
Jeffrey R. Richards (age 56). Mr. Richards served as vice president and
director of marketing, international operations, from January 1996, until July
20, 1998 and as executive vice president from September 1995 until January 1997.
Mr. Richards also served as a member of the board of directors of
ConSyGen-Arizona from June 1996 to January 1997.
Leslie F. Stewart (age 43). Until his resignation on February 24, 1998,
Mr. Stewart served as the secretary and a member of the board of directors of
ConSyGen-Arizona (since 1985) and of ConSyGen-Texas (since the Acquisition of
ConSyGen-Arizona on September 5, 1996). Mr. Stewart is Robert L. Stewart's son.
10
<PAGE>
Item 2. Properties
The Company's principal administrative, research and development,
customer support and marketing facilities are located in approximately
10,000square foot building at 125 South 52nd Street, Tempe AZ 85281. The Company
acquired the building in March 1998 for approximately $800,000 in cash. The
Company believes that its facilities are adequate for its current needs and that
suitable additional space will be available as needed.
Item 3. Legal Proceedings
None
Not applicable.
Item 4. Submission to a Vote of Security Holders
Not applicable
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
Recent Sales of Unregistered Securities
---------------------------------------
The Company furnishes the following information regarding sales of unregistered
securities during the fiscal year covered by this report:
On May 29, 1998, the Company completed a private placement of
$3,500,000 in principal amount of convertible debentures and warrants to
purchase 105,000 shares of common stock (the "Warrant Shares") for aggregate net
proceeds, after payment of finders' fees and expenses, of approximately
$3,200,000. Included in the finders' fees paid in connection with the
convertible debentures, the Company issued warrants to purchase an additional
10,000 shares of its common stock. The debentures are convertible into common
stock of the Company at a rate equal to the lesser of $ 4.8818 per share or 80%
of the average closing bid price of the common stock on the
over-the-counter-market for the 5 day trading period immediately preceding the
applicable conversion date. The Agreement provides for liquidated damages to be
paid by the Company in the event that the shares issuable upon conversion of the
debentures are not delivered by the Company within the period specified in the
Agreement. The warrants are exercisable at a purchase price of $ 4.8818 per
share, are exercisable as to one third of the Warrant Shares at any time after
November 29, 1998, and as to the remainder of the Warrant Shares after May 29,
1998, and expire on May 29, 2003. The subscription agreement relating to the
convertible debentures and warrants (the "Agreement") provides that if the
number of shares into which the debentures are convertible plus the shares
subject to the warrants would exceed 3,051,929 shares of common stock and the
Company is unable (for the reasons specified in the Agreement) to issue the
excess shares, then the Company must pay to the holders of the debentures the
cash equivalent of the value of the excess shares.
The Agreement also contains restrictions upon the conversion of the
debentures which prevents any holder from converting any portion of the
debenture which would result in the holder being deemed (under applicable
Securities and Exchange Commission rules and regulations) the beneficial owner
of 4.99% or more of the Company's common stock then outstanding. Subject to
these restrictions, the debentures are convertible in accordance with the
provisions of the Agreement at any time after the earlier of September 25, 1998
(120 days after the issue date) or upon the effectiveness of a registration
under the Securities Act of 1933 as amended (the "Act") of the shares underlying
the debentures required to be filed under the provisions of the registration
rights agreement executed concurrently with the Agreement. Pursuant to agreement
with the holders of the debentures, the Company is obligated to file such
registration statement by August 14, 1998; and the registration rights agreement
provides for payment by the Company of liquidated damages to the extent of
$35,000 for the first month and $70,000 for each succeeding month (prorated on a
daily basis) that the registration statement is not timely filed or is not
declared effective by September
11
<PAGE>
25, 1998. To the extent that the debentures have not been converted by May 29,
2003 (the maturity date), the remaining principal amount of the debentures will
be automatically converted into common stock of the Company.
The foregoing securities were sold in reliance upon the exemption
provided by Section 4(2) under the Act relating to sales by an issuer not
involving any public offering based upon the following facts: to the knowledge
of the Company, there was no general solicitation; there were a limited number
of purchasers: the purchasers were provided with or had access to information
about the Company; and either the purchasers or their respective representatives
were sophisticated about business and financial matters. The convertible
debentures and related warrants were sold exclusively to "accredited investors"
as that term is defined in Regulation D ("Regulation D") promulgated under the
Act in reliance upon the exemption from registration under the Act provided by
Rule 506 of Regulation D.
Information regarding other sales of unregistered securities by the
Company during the fiscal year covered by this report is contained in the
Company's Quarterly Reports on Form 10Q for the quarters ended August 31, 1997,
November 30, 1997, and February 28, 1998, filed with the Securities and Exchange
Commission on October 15, 1997, January 14, 1998, and April 14, 1998,
respectively.
Record Holders
--------------
As of July 31, 1998, there were 342 record holders. This number does
not include those stockholders whose shares are held in "nominee" or "street"
name.
Market Information
------------------
On April 9, 1998, the Company's Common Stock began trading on the
Nasdaq SmallCap Market. Prior to Nasdaq Small Cap the Company's Common Stock had
been quoted on the National Association of Securities Dealers, Inc.'s OTC
Bulletin Board since September 1997. Prior to September 1996, there was no
trading market for the Company's Common Stock. Accordingly, no quotations were
available for the first quarter of fiscal 1997. The over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, markdown, or
commission, and may not necessarily represent actual transactions. There is a
limited trading market for the Company's Common Stock.
- --------------------------------------------------------------------------------
Year Ended May 31, 1998 Year Ended May 31, 1997
- --------------------------------------------------------------------------------
Quoted Bid Quoted Bid
- --------------------------------------------------------------------------------
High Low High Low
- --------------------------------------------------------------------------------
First Quarter $15.00 $7.00 $ -- $ --
- --------------------------------------------------------------------------------
Second Quarter 11.125 5.75 16.25 3.50
- --------------------------------------------------------------------------------
Third Quarter 7.375 3.75 13.25 6.50
- --------------------------------------------------------------------------------
Fourth Quarter 10.25 2.875 13.125 8.50
- --------------------------------------------------------------------------------
Dividends
---------
It is the Company's current policy to retain any future earnings to
finance the continuing development of its business. The company has not paid any
dividends since the initial public offering of its stock.
Item 6. Selected Financial Data
The following table sets forth certain selected financial information
and should be read in conjunction with the Consolidated Financial Statements of
the Company and the related notes thereto and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in this
report.
12
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
(in thousands Five Months
except per share Year Ended Ended
data) May 31 May 31 Years Ended December 31
- ------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
- ------------------------------------------------------------------------------------------------------
Revenues $815 $20 $44 $329 $790 $854
- ------------------------------------------------------------------------------------------------------
Net Loss (3079) (1648) (6621) (1120) (655) (595)
- ------------------------------------------------------------------------------------------------------
Net Loss per Common (.21) (.12) (.70) (.18) (.11) (.17)
Share
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
(in thousands except per May 31 May 31 December 31
share data)
- ----------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
- ----------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents $4991 $21 $83 $3 $14 $1
- ----------------------------------------------------------------------------------------------------------
Working Capital (Deficit) 5039 (857) (820) (1460) (795) (3363)
- ----------------------------------------------------------------------------------------------------------
Total Assets 6904 211 222 173 64 230
- ----------------------------------------------------------------------------------------------------------
Long -Term Debt 3500 1000 -- -- -- --
- ----------------------------------------------------------------------------------------------------------
Stockholders' Equity 3004 (1720) (742) (1392) (779) (3325)
(Deficit)
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
--------
ConSyGen, Inc., a Texas Corporation ("ConSyGen-Texas'), was
incorporated on September 28, 1988 as C Square Ventures, Inc. ConSyGen-Texas was
formed for obtaining capital in order to take advantage of domestic and foreign
business opportunities which may have profit potential. On March 16, 1989,
ConSyGen-Texas (then C Square Ventures, Inc.)
completed an initial public offering.
Acquisition of ConSyGen, Inc.
-----------------------------
ConSyGen-Texas entered into an agreement, dated as of August 28, 1996,
to acquire 100% of the issued and outstanding shares of ConSyGen, Inc., a
privately held Arizona corporation formed on October 11, 1979
("ConSyGen-Arizona") (f/k/a International Data Systems, Inc.). Immediately prior
to the acquisition transaction ("Acquisition"), ConSyGen-Texas effected a
1-for-40 reverse split of its common stock. ConSyGen-Texas closed the
acquisition of ConSyGen-Arizona on September 5, 1996. As a result of the
Acquisition, ConSyGen-Arizona became a wholly-owned subsidiary of
ConSyGen-Texas. The transaction has been treated as a reverse acquisition
(purchase), with ConSyGen-Arizona being the acquirer and ConSyGen-Texas being
the acquired company. ConSyGen-Texas and its wholly owned subsidiary,
ConSyGen-Arizona, are hereafter collectively referred to as the "Company".
Recent Financings
-----------------
In 1996, prior to the Acquisition, ConSyGen-Arizona raised
approximately $1,200,000 in a private placement of debt (the "Pre-Acquisition
Debt"). In connection with such debt, ConSyGen-Arizona issued warrants to
purchase 1,000,000 shares of its common stock at $5.00 per share. These warrants
were terminated in connection with the Acquisition of ConSyGen- Arizona by
ConSyGen-Texas, and ConSyGen-Texas issued replacement warrants to purchase
1,000,000 shares of ConSyGen-Texas common stock at $5.00 per share. The
replacement warrants became exercisable on August 1, 1997, expire on September
5, 1998, and are redeemable upon 60 days' notice. ConSyGen-Texas also issued an
aggregate of 200,000 shares of its common stock in cancellation of the
Pre-Acquisition Debt and certain other indebtedness. The Pre-Acquisition Debt
had provided for interest at the rate of 10% per annum, was unsecured, and was
to be repaid in one year.
13
<PAGE>
On March 20, 1997, the Company raised $1,000,000 before deducting
finder's fees of $100,000 through a private placement of convertible notes (the
"Notes"). The Notes were unsecured, bore interest at the rate of 6% per annum,
were payable in March 2000 and were convertible into common stock of
ConSyGen-Texas at a rate equal to the lesser of (1) $10.85 per share or (2) that
price which is equal to 70% of the average closing bid price of the common stock
for the five trading days preceding the date of conversion. During the Company's
fiscal quarter ended February 28, 1998, the $1,000,000 principal amount of the
Notes was converted into 328,445 shares of ConSyGen Texas common stock.
During June 1997, the Company sold 120,000 shares of its common stock
in a private placement for gross proceeds of $1,080,000. In connection with the
sale, the Company paid finders' fees of $75,000 in cash and 3600 shares of
common stock valued at $21,600.
On September 6, 1997, the Company completed the sale of 152,000 shares
of its common stock in a private placement for gross proceeds of $882,500. In
connection with the sale, the Company paid finders' fees of $66,000.
On September 29, 1997, the Company sold 900,000 shares of its common
stock in a private placement for gross proceeds of $5,276,250. In connection
with the sale, the Company paid finders' fees of $184,667 in cash and 31,500
shares of common stock valued at $184,669.
On May 29, 1998, the Company completed a private placement of
$3,500,000 in principal amount of convertible debentures and warrants to
purchase 105,000 shares of common stock (the "Warrant Shares") for aggregate net
proceeds, after payment of finders' fees and expenses, of approximately
$3,200,000. The debentures are convertible into common stock of the Company at a
rate equal to the lesser of $ 4.8818 per share or 80% of the average closing bid
price of the common stock on the over-the-counter-market for the 5 day trading
period immediately preceding the applicable conversion date. The warrants are
exercisable at a purchase price of $ 4.8818 per share, are exercisable as to one
third of the Warrant Shares at any time after May 29, 1998, as to another one
third after November 29, 1998, and as to the remainder of the Warrant Shares
after May 29, 1999, and expire on May 29, 2003.
The Agreement also contains restrictions upon the conversion of the
debentures which prevents any holder from converting any portion of the
debenture which would result in the holder being deemed (under applicable
Securities and Exchange Commission rules and regulations) the beneficial owner
of 4.99% or more of the Company's common stock then outstanding. Subject to
these restrictions, the debentures are convertible in accordance with the
provisions of the Agreement at any time after the earlier of September 25, 1998
(120 days after the issue date) or upon the effectiveness of a registration
under the Securities Act of 1933 as amended of the shares underlying the
debentures required to be filed under the provisions of the registration rights
agreement executed concurrently with the Agreement. To the extent that the
debentures have not been converted by May 29, 2003 (the maturity date), the
remaining principal amount of the debentures will be automatically converted
into common stock of the Company. For a description of certain other provisions
contained in the agreements relating to the private placement of the convertible
debentures, see Item 5, "Recent Sales of Unregistered Securities."
RESULTS OF OPERATIONS
- ---------------------
Comparison of Year Ended May 31, 1998 to Twelve Months Ended May 31, 1997
-------------------------------------------------------------------------
For the year ended May 31, 1998, the Company incurred net losses of
$3.1 million, compared with net losses of $8.0 million for twelve months ended
May 31, 1997. An explanation of these losses is set forth below.
For the year ended May 31, 1998, the Company had revenues of $815,000,
compared with revenues of $20,000 for twelve months ended May 31, 1997. The
Company started the Year 2000 ("Y2K") compliant services in fiscal 1998. The
increase in revenue was related to several completed and in process conversion
service contracts. The Company is not currently generating any significant
revenue. The Y2K
14
<PAGE>
market is anticipated to increase as many companies are yet to start Year 2000
conversions. The Company's ability to compete successfully in the sale of its
conversion services will depend in large part upon its ability to attract
customers. (See Item 1, "Sales, marketing and Distribution")
For the year ended May 31, 1998, the Company's cost of conversion
services was $353,000 compared with $0 for twelve months ended May 31, 1997.
There were no year 2000 conversion services offered in the prior twelve months.
Cost of conversion services consists primarily of personnel costs directly
related to the performance of conversion services by the Company. Before the
commencement of revenue generating operations, the personnel currently dedicated
to the provision of conversion services were dedicated to software development,
and, accordingly, the costs directly related to such personnel were previously
included in software development expense. The increase in cost of conversion
services is primarily attributable to the redeployment of personnel, from
software development to the provision of conversion services, and the hiring of
additional personnel.
For the year ended May 31, 1998, software development costs were
$1,046,000, compared with $864,000 for the twelve months ended May 31, 1997. The
increases in software development expenses are primarily attributable to the
Company's hiring of additional personnel dedicated to the development of
software for use in providing Year 2000 conversion services and migration
services.
For the year ended May 31, 1998, selling, general and administrative
expenses were $2,299,000, compared with $6,792,000 for the twelve months ended
May 31, 1997. The decrease is primarily due to the non-cash charge of $4,900,000
in twelve months ended May 31, 1997, related to the issuance of common stock to
consultants for services offset by increase in salaries of $430,000, advertising
of $278,000 and professional fees of $226,000 for the year ended May 31, 1998.
Five Months Ended May 31, 1997
ConSyGen Texas' fiscal year end is May 31. Effective January 1, 1997,
ConSyGen-Arizona changed its fiscal year from December 31 to May 31 to coincide
with the fiscal year end of its parent company, ConSyGen-Texas. Since
ConSyGen-Texas' acquisition of ConSyGen-Arizona has been accounted for as a
reverse acquisition (purchase), with ConSyGen-Arizona being the acquirer and
ConSyGen-Texas being the acquired company, only the historical operations of
ConSyGen-Arizona are presented for periods through the date of acquisition.
Subsequent to the acquisition date, the consolidated operations of the Company
are presented. Accordingly, the financial statements presented are for the 5
month period ended May 31, 1997, and for the years ended December 31, 1996 and
1995.
Comparison of Years Ended December 31, 1996 and December 31, 1995
For the year ended December 31, 1996, the Company incurred net losses
of $6.6 million, compared with net losses of $1.1 million in 1995. An
explanation of these losses is set forth below.
For the years ended December 31, 1996 and 1995, the Company had
revenues of $44,000 and $329,000, respectively. The decreases in operating
revenue are primarily attributable to the Company's abandonment of its software
licensing and maintenance business. The Company abandoned software licensing and
maintenance so that it could focus on the development of software for use in
providing conversion services, including Year 2000 conversion services.
For the years ended December 31, 1996 and 1995, cost of sales were $0,
and $200,000, respectively. The $200,000 decrease in cost of sales from 1995 to
1996 was attributable to the abandonment of the Company's software licensing and
maintenance business.
For the years ended December 31, 1996 and 1995, software development
costs were $740,000 and $492,000, respectively. The $248,000 increase in
software development costs from 1995 to 1996 was primarily attributable to the
Company's shift in focus from software maintenance to the development of
software for use in
15
<PAGE>
providing conversion services, including Year 2000 conversion services.
For the year ended December 31, 1996, selling, general and
administrative expenses were approximately $5,650,000, compared with
approximately $594,000 for the year ended December 31, 1995, an increase of
$5,056,000. This increase in general and administrative expenses was primarily
attributable to an increase in non-cash charges of $4,868,000, related to the
issuance of common stock to consultants for services, and increased professional
fees and salaries and related expenses.
For the year ended December 31, 1996, depreciation and amortization
expense was approximately $117,000, compared with $50,000 for the year ended
December 31, 1995, an increase of $67,000. This increase is attributable
primarily to a $59,000 increase in amortization of debt issuance expenses
incurred in connection with obtaining debt financing.
Material Changes in Financial Condition, Liquidity and Capital
--------------------------------------------------------------
Resources
---------
The Company's cash balances were approximately $4,991,000 at May 31,
1998, compared with $21,000 at May 31, 1997. The Company had working capital of
approximately $5,000,000 at May 31, 1998, compared with a working capital
deficit of approximately $857,000 at May 31,1997, an $5,857,000 increase in the
working capital. The increase in the working capital is primarily attributable
to a net increase in cash provided by financing activities of approximately
$9,300,000 during fiscal year 1998. The Company utilized the funds for
operations, capital expenditures and to pay off notes and loans payables. At the
present time, the Company is not generating sufficient revenues to cover its
expenses, and there can be no assurance that the Company will be able to
generate such funds internally to continue its operations. The failure of the
Company to generate sufficient funds either internally through operations or
from outside sources during such 12 month period will have a material effect
upon the subsequent ability of the Company to continue its operations.
During fiscal year ended May 31, 1998, the Company raised approximately
$10,100,000, net of finders' fees, through several equity and one convertible
debt financing arrangement to meet its operational finances, as follows:
In early June 1997, the Company raised approximately $1,000,000, net of
finders' fees, through the private sale of common stock. During September 1997,
the Company sold 152,000 shares of common stock for gross proceeds of $882,500.
In connection with this sale, the Company paid finder's fees of $66,000. During
September 1997, the Company sold 900,000 shares of common stock in a private
placement for gross proceeds $5,276,250. In connection with this offering, the
Company paid the following finder's fee: $184,667 in cash and 31,500 shares of
Common Stock valued at $184,669. In May 1998, the Company completed the private
placement of $3,500,000 in principal amount of convertible debentures, and
warrants to purchase 105,000 shares of common stock, for aggregate net proceeds
of approximately $3,200,000. As of May 31, 1998, the Company had committed to
spend approximately $75,000 for capital expenditures, consisting of $50,000 for
computer equipment and $25,000 for furniture and fixtures. The Company has since
incurred approximately $50,000 in capital expenditures for these purposes, which
was paid out of the Company's then available cash.
Year 2000
---------
The Company's review of its own operating systems does not indicate any
Year 2000 problems. There can no assurance that the Year 2000 issue can be
resolved by third parties such as banks, electric, water and phone utility
companies prior to the upcoming change in the century. Although the Company may
incur costs resulting from increased charges by such third party service
providers as a result of such third party service providers correcting Year 2000
issues, such costs are not significantly certain to estimate at this time.
Impact of Inflation
-------------------
Increases in the inflation rate are not expected to affect the
Company's operating expenses. Although the Company has no current plans to
borrow additional funds, if it were to do so at variable interest rates, any
increase in interest rates would increase the Company's cost of borrowed funds.
16
<PAGE>
Seasonality
-----------
The Company's operations are not affected by seasonal fluctuations,
although the Company's cash flows may at times be affected by fluctuations in
the timing of cash receipts from large contracts.
Item 7A. Quantitative and Quantitative Disclosures about Market Risk
Not Applicable.
Item 8. Financial Statements and Supplementary Data
The Consolidated Financial Statements of the company listed in Item 14
(a) of Part IV hereof are filed as part of this Annual Report following Item
14(a). See also Index to Financial Statements on Page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not Applicable.
PART III
Item 10. Directors and Executive Officers
Information concerning the Company's directors and executive officers
required by this Item is incorporated by reference to the text appearing under
Part I, Item 1 -- Business under the caption "Executive Officers". Information
concerning compliance with Section 16(a) of the Securities Exchange Act of 1934
is incorporated by reference to the Company's Definitive Proxy Statement for the
Annual Meeting of Stockholders to be held November 12, 1998.
Item 11. Executive Compensation
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 12, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 12, 1998.
Item 13. Certain Relationships and Related Transactions
Information required by this Item is incorporated by reference from the
Company's Definitive Proxy Statement for the Annual Meeting of Stockholders to
be held on November 12, 1998.
17
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8K
(a) The following documents are filed as a part of this report:
(1) Financial Statements
Consolidated Balance Sheets as of May 31, 1998 and May 31, 1997.
Consolidated Statements of Operations for year ended May 31, 1998, the
five months ended May 31, 1997 and each of the years ended December 31,
1996 and 1995.
Consolidated Statements of Stockholders' Deficit for the year ended May
31, 1998, the five months ended May 31, 1997 and each of the years
ended December 31, 1996 and 1995.
Consolidated Statements of Cash Flows for the year ended May 31, 1998,
the five months ended May 31, 1997 and each of the years ended December
31, 1996 and 1995.
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Statement of Management's Responsibility
(2) Financial Statement Schedules
No financial statement schedules are included since the information is
not applicable, not required, or is included in the financial statements or
notes thereto.
(3) The list of Exhibits filed with this report or incorporated by
reference herein is set forth in the Exhibit Index that appears following the
Consolidated Financial Statements, which Exhibit Index is incorporated herein by
this reference.
(b) The Company did not file a crrent rport on Form 8-K during the 4th qarter
ended May 31, 1998 of fiscal 1998.
(c) See item 14(a)(3) above.
(d) See item 14(a)(2) above.
18
<PAGE>
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.
CONSYGEN, INC.
Registrant
By:/s/ Thomas S. Dreaper
- ----------------------------------
Thomas S. Dreaper, President
and Chief Executive Officer
Date: August 7, 1998
Pursuant to the requirements of the Securities 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.
SIGNATURE TITLE DATE
- --------- ----- ----
/S/ Robert L. Stewart Chairman August 7, 1998
- -------------------------
Robert L. Stewart
/S/ Thomas S. Dreaper President, August 7, 1998
- ------------------------- Chief Executive Officer
Thomas S. Dreaper and Director
/S/ J. Stephen Kelly Executive Vice President August 7, 1998
- ------------------------- Secretary and Director
J. Stephen Kelly
/S/ Rajesh K. Kapur Executive Vice President August 7, 1998
- ------------------------- and Chief Financial Officer
Rajesh K. Kapur
19
<PAGE>
Annual Report on Form 10-K
Item 8, Item 14(a)
----------
INDEX TO FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
EXHIBITS
----------
YEAR ENDED MAY 31, 1998
ConSyGen, Inc.
TEMPE, ARIZONA
Index to Consolidated Financial Statements
Page Number
-----------
Report of Independent Accountants F-2
Consolidated Balance Sheets as of May 31, 1998 and May 31, 1997 F-3
Consolidated Statements of Operations for year ended May 31, 1998,
the five months ended May 31, 1997 and each of the years ended
December 31, 1996 and 1995. F-4
Consolidated Statements of Stockholders' Deficit for the year
ended May 31, 1998, the five months ended May 31, 1997 and each
of the years ended December 31, 1996 and 1995. F-5
Consolidated Statements of Cash Flows for the year ended May
31, 1998, the five months ended May 31, 1997 and each of the
years ended December 31, 1996 and 1995. F-7
Notes to Consolidated Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
The Board of Directors and Stockholders
ConSyGen, Inc. (A Texas Corporation)
We have audited the accompanying consolidated balance sheet of ConSyGen, Inc. (a
Texas corporation) and its subsidiary as of May 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit), and cash flows for year ended May 31, 1998, five months ended May 31,
1997 and the years ended December 31, 1996 and 1995. 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 audit 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 consolidated financial position of ConSyGen, Inc. (a
Texas corporation) and its subsidiary as of May 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for the year ended
May 31, 1998, five months ended May 31, 1997 and the years ended December 31,
1996 and 1995 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses from operations
which raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans in this regard are described in Notes 1 and 13. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
July 17, 1998
F-2
<PAGE>
CONSYGEN, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
------
<TABLE>
<CAPTION>
May 31, 1998 May 31, 1997
------------ ------------
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 4,991,434 $ 21,483
Accounts Receivable 338,192 --
Debt Issuance Expense - Net 62,601 33,336
Prepaid Expenses 40,000 18,225
Other Current Assets 7,135 --
------------ ------------
Total Current Assets 5,439,362 73,044
------------ ------------
Property and Equipment - Net 1,207,842 72,031
------------ ------------
Other Assets:
Debt Issuance Expense - Net of Current Portion 250,402 61,108
Other Assets 6,496 4,596
------------ ------------
Total Other Assets 256,898 65,704
------------ ------------
Total Assets $ 6,904,102 $ 210,779
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current Liabilities:
Accounts Payable $ 134,157 $ 62,704
Notes Payable 60,000 259,507
Loans Payable -- 160,000
Loans Payable - Related Parties -- 139,177
Accrued Liabilities 205,840 308,899
------------ ------------
Total Current Liabilities 399,997 930,287
Long-Term Debt 3,500,000 1,000,000
------------ ------------
Total Liabilities 3,899,997 1,930,287
------------ ------------
Commitments & Contingencies
Stockholders' Equity (Deficit):
Common Stock, $.003 par Value, Authorized
40,000,000 Shares in 1998 and 16,666,666
Shares in 1997, Issued 15,407,653 Shares
in 1998 and 13,796,231 Shares in 1997 46,223 41,389
Additional Paid-in Capital 25,306,532 17,108,689
Accumulated Deficit (21,948,650) (18,869,586)
Treasury Stock, at cost ( 70,000 shares in 1998 ) (400,000) --
------------ ------------
Total Stockholders' Equity (Deficit) 3,004,105 (1,719,508)
------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 6,904,102 $ 210,779
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CONSYGEN, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
For The
For The Year Ended Five Months Ended For The Year Ended
------------------ ----------------- ------------------------------
May 31, May 31, December 31, December 31,
1998 1997 1996 1995
------------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ 814,835 $ 20,000 $ 43,552 $ 328,546
------------ ------------ ------------ ------------
Costs and Expenses:
Cost of Conversion Services 353,076 -- -- --
Cost of Sales -- -- -- 199,561
Software Development 1,045,847 334,868 740,000 492,399
Selling, General and Administrative 2,297,262 1,211,502 5,650,179 593,710
Expenses
Interest Expense 164,504 56,348 157,210 112,779
Depreciation and Amortization 172,191 65,036 117,231 50,494
------------ ------------ ------------ ------------
Total Costs and Expenses 4,032,880 1,667,754 6,664,620 1,448,943
------------ ------------ ------------ ------------
Loss from Operations (3,218,045) (1,647,754) (6,621,068) (1,120,397)
Interest Income 138,981 -- -- --
------------ ------------ ------------ ------------
Net Loss $ (3,079,064) $ (1,647,754) $ (6,621,068) $ (1,120,397)
============ ============ ============ ============
Earnings Per Common Share - Basic:
Weighted Average Common Shares
Outstanding 14,835,559 13,700,231 9,438,062 6,116,661
============ ============ ============ ============
Net Loss Per Common Share -Basic $ (0.21) $ (0.12) $ (0.70) $ (0.18)
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CONSYGEN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1995 THROUGH May 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
--------------------------- Paid-In Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity (Deficit)
------ ------ ------------ ------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 5,999,994 $ 18,000 $ 8,683,703 $ (9,480,367) $ -- $ (778,664)
Issuance of ConSyGen-Arizona
Common Stock for Services 700,000 2,100 347,900 -- -- 350,000
Interest on Loans -- -- 67,016 -- -- 67,016
Debt Issuance Expense -- -- 90,000 -- -- 90,000
Net Loss -- -- -- (1,120,397) -- (1,120,397)
------------ ------------ ------------ ------------ ------- ------------
Balance - December 31, 1995 6,699,994 20,100 9,188,619 (10,600,764) -- (1,392,045)
Issuance of ConSyGen-Arizona
Common Stock for Services 98,000 294 48,706 -- -- 49,000
Issuance of ConSyGen-Arizona
Common Stock As Payment of Debt 700,000 2,100 347,900 -- -- 350,000
Donated Capital - Debt Cancellation
by Stockholder -- -- 350,000 -- -- 350,000
Issuance of ConSyGen-Arizona
Common Stock for Services 1,777,006 5,331 883,172 -- -- 888,503
Interest on Loans -- -- 90,802 -- -- 90,802
Effect of Reverse Acquisition 111,231 334 (7,134) -- -- (6,800)
Issuance of Common Stock
for Services 4,126,352 12,379 4,267,078 -- -- 4,279,457
Issuance of Common Stock as
Payment of Debt 173,648 521 1,182,022 -- -- 1,182,543
Donated Capital -- -- 87,200 -- -- 87,200
Net Loss -- -- -- (6,621,068) -- (6,621,068)
------------ ------------ ------------ ------------ ------- ------------
Balance - December 31, 1996 13,686,231 41,059 16,438,365 (17,221,832) -- (742,408)
Interest on Loans -- -- 14,404 -- -- 14,404
Issuance of Common Stock
for Services 110,000 330 655,920 -- -- 656,250
Net Loss -- -- -- (1,647,754) -- (1,647,754)
------------ ------------ ------------ ------------ ------- ------------
Balance - May 31, 1997 13,796,231 41,389 17,108,689 (18,869,586) -- (1,719,508)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CONSYGEN, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD JANUARY 1, 1995 THROUGH May 31, 1998
(Continued)
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------------- Paid-In Accumulated Treasury Stockholders'
Shares Amount Capital Deficit Stock Equity (Deficit)
------ ------ ---------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of Common Stock
- Private Placements - Net of
Finders' Fees 1,172,000 3,516 6,908,966 -- -- 6,912,482
Issuance of Common Stock - Finders'
Fees on Sale of Common Stock 35,100 105 (105) -- -- --
Issuance of Common Stock - Services
and other 24,000 72 129,828 -- -- 129,900
Issuance of Common Stock as
Payment of Debt 339,280 1,018 1,087,282 -- -- 1,088,300
Issuance of Common Stock -
Stock Options Exercised 21,130 63 21,067 -- -- 21,130
Issuance of Common Stock as
Payment of Debt - Related Parties 19,912 60 162,215 -- -- 162,275
Interest on Loans -- -- 13,590 -- -- 13,590
Expenses of Stock offerings -- -- (125,000) -- -- (125,000)
Purchase of Treasury stock, at cost
(70,000) Shares -- -- -- -- (400,000) (400,000)
Net Loss -- -- -- (3,079,064) -- (3,079,064)
---------- -------- ----------- ----------- ---------- -----------
Balance - May 31, 1998 15,407,653 $ 46,223 $ 25,306,532 $(21,948,650) $ (400,000) $ 3,004,105
========== ======== =========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
CONSYGEN, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For The Year For The Five For The Year Ended
Ended Months Ended December 31,
May 31, May 31, --------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net Loss $(3,079,064) $(1,647,754) $(6,621,068) $(1,120,397)
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating
Activities:
Depreciation 77,747 9,480 18,231 10,494
Stock Issued for Services and Other 129,900 656,250 5,167,961 300,000
Increase in Allowance for Doubtful Accounts 29,000 -- -- (15,910)
Amortization of Debt Issuance Expense 94,444 55,556 99,000 40,000
Loan Interest - Additional Paid-in Capital 13,590 14,404 90,802 67,016
Changes in Operating Assets and Liabilities:
Accounts Receivable (367,192) -- 1,876 35,381
Prepaid Expenses and Other Assets (30,810) (6,562) (9,470) 11,502
Accounts Payable 71,453 (34,495) (26,802) 13,603
Accrued Liabilities (96,759) 89,098 43,905 90,658
Deferred Revenues -- -- (7,386) (1,215)
----------- ----------- ----------- -----------
Net Cash (Used) by Operating Activities (3,157,691) (864,023) (1,242,951) (568,868)
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Capital Expenditures (1,213,558) (8,998) (30,227) (60,927)
----------- ----------- ----------- -----------
Net Cash (Used) by Investing Activities (1,213,558) (8,998) (30,227) (60,927)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Proceeds of Debt Financings 3,500,000 1,000,000 1,123,700 --
Proceeds from Sale of Common Stock 7,238,752 -- -- --
Finders' Fees Paid on Sales of Common Stock (326,269) -- -- --
Expenses of Stock Offerings (125,000) -- -- --
Proceeds of Loans and Notes Payable -- -- 305,396 212,492
Payments of Loans and Notes Payable (277,508) (84,000) (50,000) (3,200)
Proceeds of Loans payable -- Related Parties 23,190 -- 11,271 433,407
Payments of Loans payable -- Related Parties (92) (4,700) (37,404) (23,351)
Payments for Debt Issuance Expense (313,003) (100,000) -- --
Purchase of treasury stock (400,000)
Proceeds of Stock Options Exercised 21,130 -- -- --
----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities 9,341,200 811,300 1,352,963 619,348
----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 4,969,951 (61,721) 79,785 (10,447)
Cash and Cash Equivalents --Beginning of Period 21,483 83,204 3,419 13,866
----------- ----------- ----------- -----------
Cash and Cash Equivalents --End of Period $ 4,991,434 $ 21,483 $ 83,204 $ 3,419
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For The Year For The Five For The Year Ended
Ended Months Ended December 31,
May 31, May 31, --------------------------
1998 1997 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Supplemental Cash Flow Information:
Cash Paid for Interest $ 214,718 $ 182 $ 3,300 $ 24,491
========== ========== ========== ==========
Cash Paid for Income Taxes $ -- $ -- $ -- $ --
========== ========== ========== ==========
Supplemental Disclosure of Non-Cash Financing Activities:
Cancellation of Debt into Additional Paid-In Capital-
Related Parties $ -- $ -- $ 350,000 $ --
========== ========== ========== ==========
Issuance of Common Stock as Debt Issuance Expense $ -- $ -- $ 49,000 $ 50,000
========== ========== ========== ==========
Issuance of Common Stock as Payment of Debt-
Related Parties $ 162,275 $ -- $ 350,000 $ --
========== ========== ========== ==========
Debt issuance Expense as Additional Paid-In capital $ -- $ -- $ -- $ 90,000
========== ========== ========== ==========
Effect of Reverse Acquisition - Accounts Payable Acquired $ -- $ -- $ 6,800 $ --
========== ========== ========== ==========
Issuance of Common Stock as payment of Debt $1,088,300 $ -- $1,182,543 $ --
========== ========== ========== ==========
Cancellation of Debt into Additional Paid-in Capital $ -- $ -- $ 87,200 $ --
========== ========== ========== ==========
Issuance of Common Stock as Commissions on Sale of
Common Stock $ 206,269 $ -- $ -- $ --
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
NOTE 1 - Operations and Basis of Presentation
------------------------------------
History of ConSyGen, Inc., (f/k/a C Square Ventures, Inc.)
----------------------------------------------------------
ConSyGen, Inc., a Texas Corporation ("ConSyGen-Texas'), was
incorporated on September 28, 1988 as C Square Ventures, Inc. ConSyGen-Texas was
formed for obtaining capital in order to take advantage of domestic and foreign
business opportunities, which might have profit potential. On March 16, 1989,
ConSyGen-Texas (then C Square Ventures, Inc.) completed an initial public
offering.
On September 5, 1996, ConSyGen-Texas acquired 100% of the
issued and outstanding shares of ConSyGen, Inc., a privately held Arizona
corporation formed on October 11, 1979 ("ConSyGen-Arizona") (f/k/a International
Data Systems, Inc.) ("the acquisition"). On June 25, 1996, International Data
Systems, Inc. changed its name to ConSyGen, Inc. Immediately prior to the
acquisition, ConSyGen-Texas effected a 1-for-40 reverse split of its common
stock. In connection with the acquisition, ConSyGen-Texas issued an aggregate of
9,275,000 shares of its common stock directly to the stockholders of
ConSyGen-Arizona in exchange for all of the issued and outstanding shares of
ConSyGen-Arizona (see Note 11 and 12). As a result of the acquisition,
ConSyGen-Arizona became a wholly-owned subsidiary of ConSyGen-Texas. The
transaction has been treated as a reverse acquisition (purchase) with
ConSyGen-Arizona being the acquirer and ConSyGen-Texas being the acquired
company. Consequently, only the historical operations of ConSyGen-Arizona are
presented for the periods through September 5, 1996. Subsequent to the
acquisition, ConSyGen-Texas changed its name to ConSyGen, Inc. (A Texas
corporation). ConSyGen-Texas and its wholly-owned subsidiary ConSyGen-Arizona
are hereafter collectively referred to as the "Company".
Description of Business
-----------------------
Until 1995, ConSyGen-Arizona licensed its proprietary computer
software used in the hotel and airline industries, and provided software
maintenance services. In 1996 ConSyGen-Arizona discontinued its practice of
software licensing and providing maintenance services. The Company is currently
engaged in the business of rendering automated software conversion services,
including "year 2000" conversions.
NOTE 1 - Operations and Basis of Presentation (Continued)
------------------------------------
Basis of Presentation
---------------------
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The Company has
suffered recurring losses from operations, which raise substantial doubt about
the Company's ability to continue as a going concern. Continuation of the
Company is dependent on (1) achieving sufficiently profitable operations and (2)
obtaining adequate financing. Management's plans in this regard include forming
additional strategic alliances with computer hardware and consulting firms and
implementation of a direct sales force (see Note 13).
Fiscal Year
-----------
ConSyGen-Texas' fiscal year end is May 31. Effective January
1, 1997, ConSyGen-Arizona changed its fiscal year from December 31 to May 31 to
coincide with the fiscal year end of its parent company, ConSyGen-Texas. Since
ConSyGen-Texas' acquisition of ConSyGen-Arizona has been accounted for
F-9
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
as a reverse acquisition (purchase), with ConSyGen-Arizona being the acquirer
and ConSyGen-Texas being the acquired company, only the historical operations to
ConSyGen-Arizona are presented for periods through the date of acquisition.
Subsequent to the acquisition date, the consolidated operations of the Company
are presented. Accordingly, the financial statements presented are for the year
ended May 31, 1998, for the five month period ended May 31, 1997 and for the
years ended December 31, 1996 and 1995.
NOTE 2 - Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
ConSyGen-Texas and its wholly-owned subsidiary, ConSyGen-Arizona. Significant
intercompany accounts and transactions have been eliminated in consolidation.
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 these estimates.
Reclassifications
-----------------
Certain items in these financial statements have been
reclassified to conform to the current period presentation.
Revenue Recognition
-------------------
Revenue was recognized in accordance with Statement of
Position 91-1, "Software Revenue Recognition." Revenue in 1995 from software
license fees that were related to the Company's obligation to provide certain
post-contract customer support without charge for the first year of the license
was unbundled from the license fee at its fair value and was deferred and
recognized straight-line over the contract support period. Revenue from annual
or other renewals of maintenance contracts (including long-term contracts) was
deferred and recognized straight-line over the term of the contracts. In 1996,
the Company discontinued its practice of software licensing and entering into
maintenance contracts. For the year ended May 31, 1998, revenues from
fixed-price contracts are principally recognized on achievement of specified
performance milestones negotiated with customers. This method, which recognizes
revenues on substantially the same basis as the percentage-of-completion method,
is used because management considers milestones to be the best available measure
of progress on these contracts. Provision for estimated losses on uncompleted
contracts is made in the period in which such losses are determinable.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
The carrying amount of all cash and cash equivalents approximates fair value
because of the short-term maturity of these instruments.
F-10
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
Property and Equipment
----------------------
Property and equipment is stated at cost, less accumulated
depreciation. Deprecation is computed principally by the straight-line method
over the estimated useful lives of the related assets, which ranges from three
to five years except real property which will be depreciated over 20 years.
Debt Issuance Expense
---------------------
Costs associated with the Company's debt financing
transactions have been capitalized. These costs include the value of common
stock issued, both by the Company or directly from a significant stockholder, as
consideration for obtaining various loans. Such costs are being amortized over
the terms of the related loans outstanding. At May 31, 1998, debt issuance
expense is amortized over a 5 year period.
Research and Development
------------------------
Research and development expenditures, including the cost of
software development, are expensed as incurred.
Employee Stock Plans
--------------------
The Company accounts for its stock option plans in accordance
with provisions of the Accounting Principle Board's Opinion No. 25 (APB 25),
"Accounting for Stock Issued to Employees." In 1995, the Financial Accounting
Standards Board released Statement of Financial Accounting Standard No. 123
(SFAS 123), "Accounting for Stock Based Compensation." SFAS 123 provides an
alternative to APB 25 and is effective for fiscal years beginning after December
15, 1995. The Company will continue to account for its employee stock option
plans in accordance with the provisions of APB 25, and therefore is required to
disclose certain pro-forma information in the notes to its financial statements.
Fair Value Information
----------------------
The following disclosure of the estimated fair value of
financial instruments at May 31,1998 and 1997 is made in accordance with the
requirements of SFAS No.107, Disclosures about Fair Value of Financial
Instruments. The estimated fair value amounts have been determined by the
Company using available market information and appropriate valuation
methodologies. However, considerable judgement is required in interpreting
market data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts that the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on the
estimated fair value amounts. The carrying amounts of cash and cash equivalents,
accounts receivable and accounts payable and accrued liabilities and loans
payable are a reasonable estimate of their fair values. The carrying amounts of
long-term debt approximate fair value.
The fair value information presented herein is based on
pertinent information available to management as of May 31, 1998. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
F-11
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
Income Taxes
------------
The Company accounts for income taxes under SFAS No. 109,
Accounting for Income Taxes. In accordance with SFAS No. 109, deferred tax
assets and liabilities are established for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities at enacted tax rates expected to be in effect when such amounts are
realized or settled.
Loss Per Share
--------------
Prior to the acquisition, the computation of net loss per
share is based on the weighted average number of outstanding common shares of
ConSyGen-Arizona. Following the acquisition, shares presented are adjusted for
the effect of the reverse acquisition. Common stock equivalents have not been
included in this calculation since their inclusion would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128, "Earnings per Share"
(SFAS 128). The new rules are effective for both interim and annual financial
statements for periods ending after December 15, 1997. SFAS 128 supersedes APB
No. 15 to conform earnings per share with international standards as well as to
simplify the complexity of the computation under APB No. 15. The previous
primary earnings per share ("EPS") calculation is replaced with basic EPS
calculation. The basic EPS differs from the primary EPS calculation in that the
basic EPS does not include any potentially dilutive securities. Fully dilutive
EPS is replaced with diluted EPS and should be disclosed regardless of dilutive
impact to basic EPS. Since SFAS 128 states that the computation of diluted EPS
shall not assume conversion, exercise or contingent issuance of securities that
would have an anti-dilutive effect on earnings per share, presentation of
diluted EPS has been omitted.
New Accounting Pronouncements
-----------------------------
During 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 130, Reporting Comprehensive Income, which established standards
for the reporting and displaying of comprehensive income. Comprehensive income
is defined as all changes in a Company's net assets except changes resulting
from transactions with shareholders. It differs from net income in that certain
items currently recorded to equity would be part of comprehensive income.
Comprehensive income must be reported in a financial statement with the
cumulative total presented as a component of equity. This statement is effective
for fiscal years beginning after December 15, 1997.
In 1997, the FASB issued SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. SFAS No. 131 redefines how
operating segments are determined and requires disclosures of certain financial
and descriptive information about a company's operating segments. This statement
is effective for fiscal years beginning after December 15, 1997.
In 1998, the FASB issued SFAS No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, which is effective for fiscal
years beginning after December 15, 1997. This statement standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis and eliminates certain disclosures that are no longer as useful as they
were under previous statements.
In 1998, the FASB issued SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This statement, which is
effective for years beginning after June 15, 1999, establishes accounting and
reporting standards for derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. It
F-12
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure of changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction, or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security, or a
foreign-currency-denominated forecasted transactions.
Note 3 - Property and Equipment
----------------------
Property and equipment consists of the following:
1998 1997
---- ----
Land $ 152,792 $ --
Buildings and improvements 704,254 --
Computers 446,025 176,851
Furniture and fixtures 94,580 7,243
---------- ---------
1,397,651 184,094
Less: Accumulated depreciation 189,809 112,063
---------- ---------
$1,207,842 $ 72,031
========== =========
NOTE 4 - Loans Payable - Related Parties
-------------------------------
Loans payable to related parties with interest imputed at 10%
per annum, are due on demand and are unsecured (see Note 10).
NOTE 5 - Notes Payable
-------------
Notes payable consist of the following:
May 31, May 31,
------- -------
1998 1997
---- ----
Note payable, bearing interest at 10% per Annum,
no stated maturity and unsecured .As additional
consideration to the lender for making the loan, a
significant stock holder personally transferred to
the lender 30,000 shares of his common stock,
valued at $1.00 per share. The value of such shares
has been capitalized as debt issuance expense. $ 30,000 $ 30,000
Note payable, bearing interest at 10% per annum,
due July 31, 1996 and unsecured. The Company
defaulted in the payment of the Principal when
due, and interest accrued thereafter at the
default rate of 18% per annum. As additional
consideration to the lender for making the loan, a
significant stockholder personally transferred to
the lender 60,000 shares of his common stock,
valued at $1.00 per share.
The value of such shares has been capitalized as
debt issuance expense. -- 100,000
Note payable, bearing interest at the prime
F-13
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
rate, original maturity June 30, 1989 and
unsecured. -- 23,000
Note payable, bearing interest at 10% per annum,
due on demand and unsecured. -- 23,317
Note payable, bearing interest at 10% per annum,
payable on demand, and unsecured. As additional
consideration to the lender for making the loan,
the Company issued 25,000 shares of its common
stock to the lender valued at $1.00 per share. The
value of such shares has been capitalized as debt
issuance expense. 25,000 25,000
Note payable, with interest imputed at 10% per
annum, no stated maturity and unsecured. -- 23,190
Note payable, with interest imputed at 10% per
annum, no stated maturity and unsecured. 5,000 5,000
Note payable, bearing interest at 10% per annum,
payable on demand and unsecured. As additional
consideration to the lender for making the loan,
the Company issued 50,000 shares of its common
stock to the lender valued at $1.00 per share. The
value of such shares has been capitalized as debt
issuance expense. -- 30,000
------- --------
$60,000 $259,507
======= ========
NOTE 6 - Loans Payable
-------------
Loans payable consist of the following:
May 31, May 31,
------- -------
1998 1997
---- ----
May 31, May 31 1998 1997 Loan payable, with
interest imputed at 10% per annum, due on demand
and unsecured. $ -- $ 52,000
Loan payable, non-interest bearing, due on demand
and unsecured. -- 8,000
Loan payable, with interest imputed at 10% per
annum, due on demand and unsecured. -- 100,000
------- --------
$ -- $160,000
======= ========
NOTE 7 - Long-Term Debt
--------------
On May 29, 1998, the Company completed a private placement of
$3,500,000 in principal amount of convertible debentures and warrants to
purchase 105,000 shares of common stock (the "Warrant Shares') for aggregate net
proceeds, after payment of finders' fees and expenses, of approximately
$3,200,000. Included in the finders' fees paid in connection with the
convertible debentures, the Company issued warrants to purchase an additional
10,000 shares of its common stock. The debentures are convertible into common
stock of the Company at a rate equal to the lesser of $4.8818 per share or 80%
of the average closing bid price of the common stock for the 5 day trading
period immediately preceding the applicable conversion date. The Agreement
provides for liquidated damages to be paid by the Company in the event that the
shares issuable upon conversion of the debentures are not delivered by the
Company within the period specified in the Agreement. The warrants are
exercisable at a purchase price of $4.8818 per share, are exercisable as to one
third of the Warrant Shares at any time after May 29, 1998, as to another one
third after November 29, 1998, and as to the remainder of the Warrant Shares
after May 29, 1999, and expire on May 29, 2003. The subscription agreement
relating to the convertible debentures and warrants (the"Agreement") provides
that if the number of shares into which the debentures are
F-14
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
convertible plus the shares subject to the warrants would exceed 3,051,929
shares of common stock and the Company is unable (for the reasons specified in
the Agreement) to issue the excess shares, then the Company must pay to the
holders of the debentures the cash equivalent of the value of the excess shares.
The Agreement also contains restrictions upon the conversion
of the debentures which prevents any holder from converting any portion of the
debenture which would result in the holder being deemed (under applicable
Securities and Exchange Commission rules and regulations) the beneficial owner
of 4.99% or more of the Company's common stock then outstanding. Subject to
these restrictions, the debentures are convertible in accordance with the
provisions of the Agreement at any time after the earlier of September 25, 1998
(120 days after the issue date) or upon the effectiveness of a registration
under the Securities Act of 1933 as amended of the shares underlying the
debentures required to be filed under the provisions of the registration rights
agreement executed concurrently with the Agreement. Pursuant to agreement with
the holders of the debentures, the Company is obligated to file such
registration statement by August 14, 1998; and the registration rights agreement
provides for payment by the Company of liquidated damages to the extent of
$35,000 for the first month and $70,000 for each succeeding month (prorated on a
daily basis) that the registration statement is not timely filed or is not
declared effective by September 25, 1998. To the extent that the debentures have
not been converted by May 29, 2003 (the maturity date), the remaining principal
amount of the debentures will be automatically converted into common stock of
the Company.
In March 1997, ConSyGen-Texas raised $1,000,000, before
deducting finder's fees of $100,000, through a private placement of convertible
notes (the "Notes") in the principal amount of $1,000,000. The Notes were
unsecured bore interest at the rate of 6% per annum, were payable in March 2000,
and were convertible into common stock of ConSyGen-Texas. The principal amount
of the Notes was convertible into common stock of ConSyGen-Texas at a rate equal
to the lesser of (1) $10.85 per share (115% of the closing bid price of the
common stock on March 21,1997); or (2) that price which is equal to 70% of the
average closing bid price of the common stock for the five trading days
preceding the date of conversion. ConSyGen-Texas was obligated to register the
shares of common stock issuable upon conversion of the Notes, under the
Securities Act of 1933, as soon as practicable after the closing date. The Notes
provided that if the underlying shares were not registered within 90 days of
closing, ConSyGen-Texas was obligated to pay penalties amounting to 2% of the
principal amount of the Notes. In addition, the Company was obligated to pay
penalties equal to 3% of the principal amount of the Notes for each subsequent
month after expiration of the 90 day period during which the underlying shares
are not registered under the Securities Act of 1933. The Notes were redeemable,
at a price equal to 130% of the principal amount of the Notes, in the event that
the price of ConSyGen-Texas' common stock was less than the bid price on March
21, 1997. During the quarter ended February 28, 1998, the Company converted the
$1,000,000 debt into equity by issuing 328,445 shares of common stock.
NOTE 8 - Commitments and Contingencies
-----------------------------
Leases
------
The Company's former corporate offices are leased under a
non-cancelable operating lease, as amended, which expires October 31, 1998.
During the fiscal year ended May 31, 1998 the Company also leased additional
office space on a month to month basis. Rental expense aggregated $120,000 for
the year ended May 31, 1998, $31,503 for the five months ended May 31, 1997, and
$61,434 and $49,884 for the years ended December 31, 1996 and 1995,
respectively. Future minimum rental payments are as follows:
Year Ending May 31, 1998 $ 42,005
=========
F-15
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
Legal Proceedings
-----------------
From time to time, the Company may be named in legal actions
which are incidental to the industry in which the Company operates. Currently,
the Company is not a party to any legal proceedings.
Concentration of Credit Risk
----------------------------
The Company's cash, cash equivalents and accounts receivable
are subject to potential credit risk. The Company's cash management and
investment policies restrict investments to highly-liquid investments. Cash and
cash equivalents are in excess of the FDIC and SIPC insurance limits.
NOTE 9 - Income Taxes
------------
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards, No. 109, "Accounting for Income
Taxes". Deferred income taxes are provided with respect to differences between
results of operations for financial reporting purposes and income tax purposes.
For the year ended May 31, 1998, five months ended May 31, 1997, and the years
ended December 31, 1996 and 1995, the Company generated net operating losses.
Deferred tax assets and liabilities are recorded based on
differences between the financial statement and tax bases of assets and
liabilities and the tax rates in effect when those differences are expected to
reverse. Effective May 31, 1997, the Company filed its federal corporation
income tax return on a consolidated basis. As of May 31, 1998, the Company has a
net operating loss carry-forward (NOLC) for federal income tax purposes of
approximately $16,000,000, which begins to expire in1999. Pursuant to Section
382 of the Internal Revenue Code, due to changes in the ownership of the
Company, the utilization of these loss carry-forwards may be subject to an
annual limitation.
For income tax purposes, the NOLC may be used by the Company
to offset future taxable income. However, due to the Company's historical
operating results, the Company has placed a 100% valuation reserve on the NOLC.
The following table sets forth the components of deferred tax assets at:
May 31, May 31,
1998 1997
----------- -----------
Net Operating Loss Carryforwards $ 6,000,000 $ 6,000,000
Less: Valuation Reserve (6,000,000) 6,000,000
----------- -----------
$ -0- $ -0-
=========== ===========
Income tax benefit attributable to net loss differed from the
amounts computed by applying the statutory Federal Income tax rate applicable
for eachperiod as a result of the following:
<TABLE>
<CAPTION>
Year Ended Five Months Ended Year Ended
---------- ----------------- ----------
May 31, 1998 May 31, 1997 December 31, 1996
------------ ------------ -----------------
<S> <C> <C> <C>
Computed "expected" tax benefit $1,000,000 $ 337,000 $2,251,000
Decrease in tax benefit resulting
from:
Net operating loss for which no
benefit is currently available $1,000,000 (337,000) 2,251,000)
---------- ---------- ----------
$ 0 $ 0 $ 0
========== ========== ==========
</TABLE>
F-16
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
NOTE 10 - Related Party Transactions
--------------------------
A significant shareholder, who is also an officer and director
of the Company, and his relatives and affiliates have advanced funds to the
Company on an as needed basis. As of May 31, 1997 such shareholder and relatives
had outstanding advances of $139,177. (see Notes 4 and 11). An additional
$23,098 was loaned to the Company during the year ended May 31, 1998. These
loans were repaid in October 1997 by the issuance of 19,912 shares of common
stock as consideration.
In connection with the significant stockholder's private sale
of 300,000 shares of common stock of the Company to certain individuals, the
Company registered such shares for resale by such individuals under the
Securities Act of 1933 in November 1997.
NOTE 11 - Stockholders' Equity (Deficit)
------------------------------
In November 1995, ConSyGen-Arizona issued 700,000 shares of
common stock to advisors and consultants of ConSyGen-Arizona as consideration
for services rendered, including 100,000 shares issued to a consultant as a
retainer for services to be rendered. For accounting purposes the shares were
valued at $.50 per share, which was management's best estimate of fair value at
the date of issuance. The accompanying financial statements include a charge of
$300,000 for the issuance of 600,000 of such shares, which is included in
general and administrative expenses. In addition, $50,000 has been capitalized
and subsequently amortized as debt issuance expense in connection with the
issuance of the remaining 100,000 shares.
During 1996, ConSyGen-Arizona issued to a significant
shareholder, who is also an officer and director of the Company, an aggregate of
2,477,006 shares of common stock, of which 700,000 were issued in satisfaction
of a $350,000 loan payable to such stockholder, and the remaining 1,777,006
shares were issued as compensation for services rendered by such person in his
capacity as an officer and director of ConSyGen-Arizona. In addition, such
shareholder forgave, without further consideration, an additional $350,000 of
indebtedness of ConSyGen-Arizona owed to him. In addition, 98,000 shares of
common stock were issued to certain individuals as consideration for advancing
funds to ConSyGen-Arizona. For accounting purposes, all the shares were valued
at $.50 per share, which was management's best estimate of fair value at the
date of issuance.
During 1996 the Company issued to a consultant for services
100,000 shares of common stock valued at $1.00 per share, which was management's
best estimate of fair value at date of issuance.
During June 1997, the Company sold 120,000 shares of its
common stock in a private placement for gross proceeds of $1,080,000. In
connection with the sale, the Company paid finders' fees of $75,000 in cash and
3600 shares of common stock valued at $21,600.
On September 6, 1997, the Company completed the sale of
152,000 shares of its common stock in a private placement for gross proceeds of
$882,500. In connection with the sale, the Company paid finders' fees of
$66,000.
On September 29, 1997, the Company sold 900,000 shares of its
common stock in a private placement for gross proceeds of $5,276,250. In
connection with the sale, the Company paid finders' fees of $184,667 in cash and
31,500 shares of common stock valued at $184,669.
F-17
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
ConSyGen-Arizona has recognized a financial (imputed) interest
charge on loans and notes payable as to which there were originally no stated
interest rates. The interest has been charged to operations and credited to
additional paid-in capital and is summarized as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended Five Months Ended December
May 31, 1998 May 31, 1997 1996 1995
------------ ------------ ---- ----
<S> <C> <C> <C> <C>
Significant Stockholder $ 4,057 $ 5,854 $72,179 $65,516
Others 9,533 8,550 18,623 1,500
------- ------- -------------------
$13,590 $14,404 $90,802 $67,016
======= ======= ===================
</TABLE>
Increase in Common Shares Authorized
------------------------------------
In July 1997, the Company amended its Articles of
Incorporation to increase its authorized common shares from 16,666,666 to
40,000,000 shares.
Treasury Stock
--------------
In March 1998, the Company purchased 70,000 shares of its
common stock for $400,000 in cash from a former consultant.
Debt Financings
---------------
During 1995 ConSyGen-Arizona entered into an agreement with a
consultant, as supplemented in 1996, under which the consultant agreed to assist
ConSyGen-Arizona in obtaining financing. As noted above, ConSyGen-Arizona issued
100,000 shares of its common stock to the consultant as a retainer for services
to be rendered. In 1996 such consultant assisted ConSyGen-Arizona in raising
approximately $1,200,000 in a private placement of debt. The debt bore interest
at a rate of 10% per annum, was unsecured, and was to be repaid in one year. As
additional consideration to the lenders, ConSyGen-Arizona agreed to issue
warrants to purchase an aggregate of 1,000,000 shares of ConSyGen-Arizona's
common stock at an exercise price of $5.00 per share. The warrants would have
become exercisable one year from the date of the loan, had a term of two years
and were callable upon 60 days notice. As described in Note 11, in connection
with ConSyGen-Texas' acquisition of ConSyGen-Arizona, ConSyGen-Arizona
terminated these warrants and ConSyGen-Texas reserved for issuance new warrants
to purchase 1,000,000 shares of ConSyGen-Texas common stock at $5.00 per share.
The warrants became exercisable on August 1, 1997, expire on September 5, 1998,
and are redeemable upon 60 days' notice.
Following the loan transaction in September 1996, the
Company's consultant transferred 200,000 shares of common stock of
ConSyGen-Texas held by the consultant to the lenders in exchange for
ConSyGen-Arizona's debt. As a result of this transaction, ConSyGen-Arizona's
obligation to repay the lenders was extinguished and ConSyGen-Arizona became
obligated to repay such consultant. Subsequently, ConSyGen-Texas and the
consultant agreed that ConSyGen-Texas would issue an aggregate of 200,000 shares
of its common stock to such consultant, of which 173,648 shares were issued in
cancellation of ConSyGen-Arizona's debt acquired by the consultant from the
lenders and 26,352 shares were issued as payment for services.
On May 19, 1997, the Company entered into a new agreement with
the consultant which superseded all prior agreements with the consultant. Under
this agreement, the Company (1) granted to the consultant, until June 1998, a
right of first refusal with respect to future financing and (2) issued to the
consultant 100,000 shares of common stock in full satisfaction of all amounts
owing under all existing arrangements with the consultant. These 100,000 shares,
which are restricted under the Securities Act of 1933, were valued at $6.00 per
share. In addition, the Company issued the consultant warrants to purchase
300,000 shares of common stock (see Note 12). The consultant agreed
F-18
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
to provide such consulting services as the Company may request until June 1998.
In addition, the consultant would be entitled to receive compensation, in an
amount to be agreed upon, if any individual previously introduced by the
consultant to the Company made an investment in the Company. Effective September
1, 1997, the Company and the consultant entered into an agreement terminating
the May 19, 1997 agreement and all other existing agreements between the
Company, the consultant, and their respective affiliates.
Acquisition of ConSyGen-Arizona
-------------------------------
ConSyGen-Texas entered into an agreement, dated as of August
28, 1996, to acquire 100% of the issued and outstanding shares of ConSyGen,
Inc., a privately held Arizona corporation formed on October 11, 1979
("ConSyGen-Arizona") (f/k/a International Data Systems, Inc.). Immediately prior
to the acquisition transaction (the "Acquisition"), ConSyGen-Texas effected a
1-for-40 reverse split of its common stock. ConSyGen-Texas closed the
Acquisition on September 5, 1996. As a result of the Acquisition,
ConSyGen-Arizona became a wholly-owned subsidiary of ConSyGen-Texas. The
Acquisition was treated as a reverse acquisition (purchase), with
ConSyGen-Arizona being the acquirer and ConSyGen-Texas being the acquired
company.
In connection with the Acquisition, ConSyGen-Texas issued an
aggregate of 9,275,000 shares of its common stock directly to the stockholders
of ConSyGen-Arizona, in exchange for all of the issued and outstanding shares of
ConSyGen-Arizona. Upon the closing of the Acquisition, ConSyGen-Texas issued an
additional 3,850,000 shares of common stock to various consultants for services
rendered. Such shares were registered under the Securities Act of 1933, as
amended, pursuant to a Registration Statement on Form S-8. In addition,
ConSyGen-Texas issued 150,000 shares of common stock to a consultant for
services to be rendered. After the Acquisition, ConSyGen-Arizona's stockholders
held approximately 69% of the outstanding common stock of ConSyGen-Texas.
In connection with the Acquisition, outstanding options to
purchase 1,275,000 shares of ConSyGen-Arizona's common stock previously granted
under its Non-Qualified Stock Option Plan were terminated, and ConSyGen-Texas
adopted a new Non-Qualified Stock Option Plan and issued options to purchase an
equal number of shares of ConSyGen-Texas common stock at an exercise price of
$1.00 per share. In addition, warrants to purchase 1,000,000 shares of
ConSyGen-Arizona's common stock at $5.00 per share issued in connection with the
private placement of approximately $1,200,000 in debt earlier in 1996 (The
"Pre-Acquisition Debt") were terminated, and ConSyGen-Texas issued replacement
warrants to purchase 1,000,000 shares of ConSyGen-Texas common stock at $5.00
per share. The warrants became exercisable on August 1, 1997, expire on
September 5, 1998, and are redeemable upon 60 days' notice. ConSyGen-Texas also
issued an aggregate of 200,000 shares of its common stock in cancellation of the
Pre-Acquisition Debt and certain other indebtedness. The Pre-Acquisition Debt
had provided for interest at the rate of 10% per annum, was unsecured, and was
to be repaid in one year.
NOTE 12 - Stock Option Plans and Warrants
-------------------------------
In October 1995, ConSyGen-Arizona's Board of Directors
approved the ConSyGen-Arizona Non-Qualified Stock Option Plan (the "1995 Plan"),
which covered 1,275,000 shares of ConSyGen-Arizona's common stock. The terms of
the1995 Plan provided that the exercise price per share could not be less than
the par value of ConSyGen-Arizona's common stock and that options could be
granted for terms of up to five years from the date of grant. At December 31,
1995, options to purchase an aggregate of 1,275,000 shares had been granted
under the 1995 Plan. The 1995 Plan and all options outstanding thereunder were
terminated effective as of September 5, 1996, the closing of the ConSyGen-Texas
acquisition. ConSyGen-Texas adopted a new non-qualified stock
F-19
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
option plan (the "1996 Plan") on September 5, 1996, covering 1,500,000 shares
for key employees and any other persons ("Non-Employee Participants") who are in
a position to contribute to the long term success and growth of the Company. At
May 31, 1998 and May 31, 1997, options to purchase an aggregate of 1,278,870 and
1,230,000 shares were outstanding, respectively, under the 1996 Plan.
On March 1, 1997, ConSyGen-Texas adopted the ConSyGen, Inc.
1997 Non-Qualified Stock Option Plan (the "1997 Plan"),which reserved for
issuance options to purchase 1,000,000 shares of common stock for key employees
and any other persons ("Non-Employee Participants") who are in a position to
contribute to the long term success and growth of the Company. On September 10,
1997, the Company amended the 1997 Plan by increasing the common shares reserved
for options from 1,000,000 to 2,000,000 options to purchase shares of common
stock. At May 31, 1998 and May 31, 1997, options to purchase an aggregate of
1,355,000 and 400,000 shares were outstanding, respectively, under the 1997
Plan.
Effective as of the closing of the ConSyGen-Texas acquisition,
ConSyGen-Arizona terminated warrants to purchase 1,000,000 shares of its common
stock, which had been issued in connection with ConSyGen-Arizona's $1,200,000
debt financing in 1996. ConSyGen-Texas simultaneously issued replacement
warrants to purchase 1,000,000 shares of ConSyGen-Texas common stock. These
warrants have an exercise price of $5.00 per share, became exercisable on August
1,1997, expire on September 5, 1998, and are redeemable upon 60 days notice.
In July 1997, in connection with the May 19, 1997 agreement
with the Company's consultant, which superseded all prior agreements with the
consultant, the Company issued to the consultant warrants to purchase 300,000
shares of common stock at a price of $5.00 per share. The shares of common stock
issuable upon exercise of these warrants will be restricted securities under the
Securities Act of 1933. The warrants became exercisable on August 1, 1997,
expire two years from the date of grant, and are redeemable upon 60 days notice.
As of September 1, 1997 the Company and the consultant, by mutual agreement,
terminated all prior agreements between them, including the May 19, 1997
agreement.
On November 10, 1997, the Company issued to a consultant for
services rendered warrants to purchase an aggregate of 100,000 shares of common
stock at an exercise price of $5.00 per share. The warrants become fully
exercisable on November 10, 1998, expire November 10, 2000, and are redeemable
upon 60 days notice.
In May 1998, the Company issued 5 year warrants to purchase
105,000 shares of common stock at an exercise price of $5.00 to the holders of
convertible debentures (see note 7). The Company also issued warrants to
purchase 10,000 shares of common stock at $5.00 per share, as a part of the
finder's fee in connection with the convertible debenture financing.
The following tables summarize the activity under the 1995,
1996 and 1997 Plans along with common stock warrant activity for the periods
indicated:
Weighted
Price of Average
Options Option Exercise
Outstanding Grants Price
----------- ------ -----
Outstanding at December 31, 1995 1,275,000 $ .01 $.01
Terminated (1,275,000) -- --
Replacement Options 1,275,000 $ 1.00 --
Terminated (450,000) -- --
Granted 375,000 $ 1.00 --
Granted 50,000 $ 6.50 --
------
F-20
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
Outstanding at December 31, 1996 1,250,000 -- $1.22
Granted 405,000 $8.88-$10.00 --
Terminated (25,000)
---------
Outstanding at May 31, 1997 1,630,000 -- $3.11
Terminated (455,000) -- --
Granted 1,480,000 $ 3.50-4.875 --
Exercised (21,130) $ 6.50 --
---------
Outstanding at May 31, 1998 2,633,870 -- $2.84
========= =====
Weighted
Price of Average
Warrants Warrant Exercise
Outstanding Grants Price
----------- ------ -----
1995 Grant 1,000,000 $ 5.00
---------
Outstanding at December 31, 1996 1,000,000 $ 5.00
Granted --
---------
Outstanding at May 31, 1997 1,000,000 $ 5.00
Granted 515,000 $ 4.88-5.00
---------
Outstanding at May 31, 1998 1,515,000 $ 4.99
========= ========
At December 31, 1996, options to purchase 293,750 and warrants
to purchase 0 shares were exercisable. The weighted average exercise price of
the exercisable options is $1.
At May 31, 1997, options to purchase 698,750 and warrants to
purchase 0 shares were exercisable. The weighted average exercise price of the
exercisable options is $5.58. At May 31, 1997 the average life of outstanding
options and warrants was 9.5 years and 1.3 years respectively and the average
life of exercisable options was 9.5 years. At May 31, 1998, options to purchase
1,400,969, and warrants to purchase 1,300.000 shares were exercisable. The
weighted average exercise price of the exercisable options is $2.84 and the
weighted exercise price of the exercisable warrants is $5.00.
At May 31, 1998 the average life of outstanding options and
warrants was 8.86 years and .6 years respectively; the average life of
exercisable options was 8.86 years; and the average life of exercisable warrants
is 2.33 years.
Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation", requires companies to measure
employee stock compensation plans based on the fair value method of accounting.
However, the Statement allows the alternative of continued use of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," with pro forma disclosure of net income and earnings per share
determined as if the fair value based method had been applied in measuring
compensation cost.
The Company applies APB Opinion No. 25 and related
interpretations in accounting for its stock option plans. Had compensation cost
for the Company's stock option plans been determined consistent with SFAS No.
123, the Company's net loss and net loss per share for the year ended May 31,
1998, the five months ended May 31, 1997 and the year ended December 31, 1996
would have been increased to the pro forma amounts indicated in the following
table.
F-21
<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
For The Year For The Five Months For The Year
Ended Ended Ended
December 31, 1998 May 31, 1997 December 31, 1996
----------------- ------------ -----------------
Net loss-as reported $ (3,079,064) $ (1,647,754) $(6,621,068)
Net Loss- pro forma $ (5,502,783) $ (1,754,326) $(6,965,592)
Net loss per share-
as reported $ ( .21) $ ( .12) $( .70)
Net loss per share-
pro forma $ ( .37) $ ( .13) $( .74)
Weighted average and
pro forma weighted
average common shares 14,835,559 13,700,231 9,438,062
The fair value of each option grant is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for options granted; risk free interest rates
of 7.0% expected dividend yields of 0.0%; expected lives of three years, and
expected volatility of 30%.
The fair value for options was estimated at the date of grant
using a Black-Scholes option pricing model. The Black-Scholes option valuation
model was developed for use in estimating the fair value of traded options which
have no vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the value of its employee
stock options.
NOTE 13 - Sales and Marketing
-------------------
The market for the Company's products and services consists of
a wide range of business and governmental organizations which require the kinds
of products and services that the Company provides. The Company's sales and
marketing efforts are implemented through a direct sales force, supported by
promotion through articles in trade publications and trade shows that address
the software maintenance market, its independent sales representative program,
teaming partners (distributors which provide local service) and arrangements
with system integrators that provide computer-related services to end users. On
July 17, 1998, Thomas S. Dreaper joined the Company as president and chief
executive officer. Mr. Dreaper has instituted a program to increase industry
awareness and acceptance of the Company's products and services through expanded
publicity and staffing of sales personnel. It is the Company's objective to hire
and train 24 new sales representatives nationwide by October of 1998 in order to
increase the Company's sales. There is no assurance that these objectives can be
achieved.
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<PAGE>
CONSYGEN, INC. AND SUBSIDIARY
-----------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
May 31, 1998
------------
NOTE 14 - Subsequent Events
-----------------
Mr. Thomas S. Dreaper joined the Company as president and
chief executive officer effective July 17, 1998. In connection with his
employment, the Company agreed to grant to Mr. Dreaper an option to purchase
1,000,000 shares of the Company's common stock at $2.8125 per share and on terms
which provide for vesting to the extent of 500,000 shares if and when the
Company's stock price closes at $5.00, and to the extent of the remaining
500,000 shares if and when the Company's stock price closes at $10.00. Subject
to the foregoing provisions, Mr. Dreaper's options are to be exercisable at any
time prior to July 18, 2008.
Mr. Ronald I. Bishop resigned as president, chief executive
officer and a member of the board of directors of ConSyGen-Texas and
ConSyGen-Arizona on June 30, 1998. He received $75,000 in severance and the
exercise period of his vested options of 669,205 was extended from three months
to three years.
F-23
<PAGE>
EXHIBIT INDEX
2 Plan of Acquisition between the Registrant and the stockholders of
ConSyGen, Inc., an Arizona corporation, dated August 28, 1996, filed as
Exhibit 2 to the Registrant's Current Report on Form 8-K dated
September 5, 1996 and incorporated herein by reference.
3.1 Articles of Incorporation of the Registrant, as amended. (1)
3.2 Amended and Restated By-Laws of the Registrant. (4)
4.1 Specimen common stock certificate, filed as Exhibit 4.B to the
Registrant's Registration Statement on Form S-18, File No. 33-22900 -
FW, and incorporated herein by reference.
4.2 Form of Common Stock Purchase Warrant used in connection with issuance
of warrants to purchase an aggregate of 1,000,000 shares of the
Registrant's Common Stock, $.003 par value. (2)
4.3 Subscription Agreement used in connection with the Rule 506 sale of
Convertible Debentures in the aggregate principal amount of $3,500,000
(including form of Convertible Debenture, form of Warrant, and form of
Registration Rights Agreement, attached as Exhibits A, B and D,
respectively, to the Subscription Agreement). *
4.4 Form of Common Stock Purchase Warrant to purchase an aggregate of
10,000 shares issued in partial payment of finders' fees in connection
with sale of Convertible Debentures in aggregate principal amount of
$3,500,000.*
4.5 Form of Subscription Agreement used in connection with Rule 506 sale of
120,000 shares for gross proceeds of $1,080,000. (1)
4.6 Form of Subscription Agreement used in connection with Rule 506 sale of
152,000 shares for gross proceeds of $882,500. (1)
4.7 Form of Common Stock Purchase Warrant to purchase 200,000 shares issued
to consultant, Howard R, Baer, on August 1, 1997. (1)
4.8 Form of Common Stock Purchase Warrant to purchase 100,000 shares issued
to Howard R, Baer's designee, Kevin C. Baer, on August 1, 1997. (1)
4.9 Subscription Agreement used in connection with Rule 506 sale of 900,000
shares for gross proceeds of $5,276,250. (3)
4.10 Form of Subscription Agreement used in connection with issuance of
30,747 shares in payment of indebtedness in the aggregate amount of
$250,575. (3)
4.11 Common Stock Purchase Warrant to purchase 100,000 shares issued to a
consultant's designee, Irvington International Limited, as of November
10, 1997. (3)
4.12 Agreement dated as of July 17, 1998 between the Registrant and Tom S.
Dreaper relating to employment and grant of options to purchase
1,000,000 shares of common stock of the Registrant. *
10.7 Registrant's 1996 Non-Qualified Stock Option Plan. (2)
10.8 Registrant's Amended and Restated 1997 Non-Qualified Stock Option Plan.
(3)
10.9 Consulting Agreement between the Registrant and M.H. Meyerson & Co.,
Inc. dated August 19, 1996. (5)
10.10 Form of Indemnification Contract between the Registrant and each
executive officer and director of the Registrant. (3)
10.11 Agreement between the Registrant and Carriage House Capital, Inc.,
effective as of September 1, 1997, terminating all existing agreements
between the Registrant and Carriage House Capital, Inc., and its
affiliates. (3)
21 List of Subsidiaries of the Registrant. *
27 Financial Data Schedule. *
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<PAGE>
(1) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1997, and
incorporated herein by reference.
(2) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended August 31, 1996, and
incorporated herein by reference.
(3) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Registration Statement on Form S-1, File No. 333-40649, and incorporated
herein by reference.
(4) Filed as an Exhibit, with the same Exhibit number, to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended February 28, 1998,
and incorporated herein by reference.
(5) Filed as Exhibit No. 10.10 to the Registrant's Annual Report on Form 10K
for the year ended May 31, 1997, and incorporated herein by reference.
* Filed Herewith
Exhibit 4.3
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR THE SECURITIES COMMISSION OF ANY STATE
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND APPLICABLE STATE SECURITIES LAWS. THIS SUBSCRIPTION
AGREEMENT SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. THE SECURITIES MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR
ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS, OR IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE PROVISIONS OF THE SECURITIES ACT AND
UNDER PROVISIONS OF APPLICABLE STATE SECURITIES LAWS.
6% CONVERTIBLE DEBENTURE
SUBSCRIPTION AGREEMENT
----------------------
CONSYGEN, INC.
THIS AGREEMENT is executed in reliance upon the transaction
exemption afforded by Regulation D as promulgated by the Securities and Exchange
Commission ("SEC"), under the Securities Act of 1933, as amended (the "Act").
This Agreement has been executed by the undersigned in
connection with the private placement of the 6% Convertible Debenture
(hereinafter referred to as the "Debentures") of CONSYGEN, INC. (Nasdaq Small
Cap Stock Market symbol "CSGI"), located at 10201 South 5lst Street, Suite 140,
Phoenix, Arizona, a corporation organized under the laws of the State of Texas,
USA (hereinafter referred to as the "Company"). The terms on which the
Debentures may be converted into common stock of the Company, $0.003 par value
per share, (the "Common Stock") and the other terms of the Debentures are set
forth in the 6 % Convertible Debenture due May 29, 2003 annexed hereto as
Exhibit A. In addition, the Company will sell to the entities listed on Schedule
A annexed hereto (the "Subscribers" or "Purchasers"), warrants (the "Warrants")
to purchase Thirty Thousand (30,000) shares of Common Stock of the Company for
each One Million Dollars ($1,000,000) in principal amount of Convertible
Debentures purchased, representing in the aggregate Warrants to purchase One
Hundred Five Thousand (105,000) shares of Common Stock of the Company (assuming
the sale of $3,500,000 in principal amount of Convertible Debentures) (such
number of shares of Common Stock underlying the Warrants shall be pro rated for
each subscription amount) which shall be exercisable for a period of five (5)
years from the Closing Date (as defined herein), as per the terms of a separate
Common Stock Purchase Warrant (Exhibit B annexed hereto). This Subscription and,
if accepted by the Company, the offer and sale of the Debentures, Warrants and
the Common Stock underlying the Warrants and Debentures (collectively the
"Securities"),
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<PAGE>
are being made in reliance upon the provisions of Regulation D under the Act.
The Closing Date shall be determined in accordance with Section 14 herein.
Each of the Subscribers hereby represents and warrants to, and
agrees with the Company as follows:
Section 1. Agreement to Subscribe; Purchase Price.
1.1 Closing. The Company will sell and the Subscribers will
buy, in reliance upon the representations and warranties of the Company and
Subscribers contained in this Agreement and the Debenture, upon the terms and
conditions set forth herein and therein, that principal amount of Debenture set
forth next to their names on Schedule A for an aggregate purchase price of Three
Million Five Hundred Thousand ($3,500,000) U.S. Dollars (the "Purchase Price").
1.2 Form of Payment. The Subscribers shall pay the Purchase
Price by delivering good funds in United States Dollars by wire transfer to
Goldstein, Goldstein & Reis, LLP, the Escrow Agent, against delivery of the
original Debentures, and Warrants to the Escrow Agent, as per a separate Escrow
Agreement, annexed hereto as Exhibit C, as payment in full for their portion of
the Securities.
1.3 Wire Instructions. Wire instructions for Goldstein,
Goldstein & Reis, LLP are as follows:
Chase Manhattan Bank, N.A.
ABA No. 021000021
For the Account of:
United States Trust Company of New York Account
No. 920-1-073195
In favor of:
Goldstein, Goldstein & Reis, LLP Attorney Escrow Account
Account No. 59-01383
Section 2. Representations and Warranties of the Subscribers.
Subscribers each acknowledge, represent, warrant and agree as follows:
2.1 Organization and Authorization. Each of the Subscribers is
duly incorporated or organized and validly existing in the state or country of
their incorporation or organization and has all requisite power and authority to
purchase and hold the Securities. The decision to invest and the execution and
delivery of this Agreement by the Subscribers, the performance by the
Subscribers of their obligations hereunder and the consummation by the
Subscribers of the transactions contemplated hereby have been duly authorized
and requires no other proceedings on the part of the Subscribers. The
undersigned signatories have all right, power and authority to execute and
deliver this Agreement on behalf of the Subscribers. This Agreement has been
duly executed and delivered by the Subscribers and, assuming the execution
-2-
<PAGE>
and delivery hereof and acceptance thereof by the Company, will constitute the
legal, valid and binding obligations of the Subscribers, enforceable against the
Subscribers in accordance with its terms.
2.2 Evaluation of Risks. Each of the Subscribers has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of, and bearing the economic risks entailed by,
an investment in the Company and of protecting its interests in connection with
this transaction. They each recognize that their investment in the Company
involves a high degree of risk and could result in the complete loss of their
investment.
2.3 Independent Counsel. Each of the Subscribers acknowledge
that they have been advised to consult with their own attorney regarding legal
matters concerning the Company and to consult with their tax advisor regarding
the tax consequences of acquiring the Securities.
2.4 Disclosure Documentation. Each of the Subscribers has each
received and reviewed copies of the Company's reports and registration
statements filed under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and the Act, including the Company's 10- IO-Qs, 8-K's, and
registration statements (including, without limitation, the section entitled
"Risk Factors" in the Company's Form S-1 Registration Statement), filed by the
Company since April 15, 1997 (collectively, the "Reports"). Except for the
Reports, the Subscribers are not relying on any other information relating to
the offer and sale of the Securities. Subscribers acknowledge that the Company
has offered to make available any additional public information that the
Subscribers may reasonably request, including technical information, and other
material information about the Company and Subscribers have been offered
Company's full and unconditional cooperation in making such information
available to Subscribers and acknowledge that the Company has recommended that
the Subscribers request and review such information prior to making an
investment decision. No oral or written representations have been made, or oral
or written information furnished to the undersigned or its advisors, if any, in
connection with the offering of the Securities which were or are in any way
inconsistent with the Reports.
2.5 Opportunity to Ask Questions. Each of the Subscribers has
had a reasonable opportunity to ask questions of and receive answers from the
Company concerning the Company and the offering, and all such questions, if any,
have been answered to the full satisfaction of each of the Subscribers.
2.6 Reports Constitute Sole Representations. Except as set
forth in the Reports, no representations or warranties have been made to
Subscribers by (a) the Company or any agent, employee or affiliate of the
Company or (b) any other person, and in entering into this transaction
Subscribers are not relying upon any information, other than that contained in
the Reports and the results of independent investigation by Subscribers.
2.7 Each of the Subscribers is an Accredited Investor. Each of
the Subscribers are "Accredited Investors", as defined under Regulation D, and
represent and warrant that it is included within one or more of the following
categories of "Accredited Investors."
-3-
<PAGE>
(i) Any bank as defined in Section 3(a)(2) of the
Act, or any savings and loan associated or other institution as defined
in Section 3(a)(5)A of the Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section
15 of the 1934 Act; any insurance company as defined in Section 2(13)
of the Act; any investment company registered under the Investment
Company Act of 1940 or a business development company as defined in
Section 2(a)(48) of that Act; any Small Business Investment Company
licensed by the U.S. Small Business Administration under Section 301(c)
or (d) of the Small Business Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivision, for the
benefits of its employees if such plan has total assets in excess of
$5,000,000; and employee benefit plan within the meaning of Title I of
the Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such Act, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the employee
benefit plan has total assets in excess of $5,000,000 or, if a
self-directed plan, with investment decisions made solely by persons
that are accredited investors;
(ii) Any private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(iii) Any organization described in Section 501(c)(3)
of the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(iv) Any director, executive officer, or general
partner of the issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general partner of
that issuer;
(v) Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the time of his purchase
exceeds $ 1,000,000;
(vi) Any natural person who had an individual income
in excess of $200,000 in each of the two (2) most recent years or joint
income with that person's spouse in excess of $300,000 in each of those
years and has a reasonable expectation of reaching that same income
level in the current year;
(vii) Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the
securities offered, whose purchase is directed by a sophisticated
person as described in Section 230.506(b)(2)(ii) of Regulation D under
the Act;
(viii) Any entity in which all of the equity owners
are accredited investors; and
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<PAGE>
(ix) Any self-directed employee benefit plan with
investment decisions made solely by persons that are accredited
investors within the meaning of Rule 501 of Regulation D promulgated
under the Act.
2.8 No Registration, Review or Approval. Each of the
Subscribers acknowledge and understand that the limited private offering and
sale of Securities pursuant to this Agreement has not been reviewed or approved
by the SEC or by any state securities commission, authority or agency, and is
not registered under the Act or under the securities or "blue sky" laws, rules
or regulations of any state. Each of the Subscribers acknowledges, understands
and agrees that the Securities are being offered and sold hereunder pursuant to
(i) a private placement exemption to the registration provisions of the Act
pursuant to Section 3(b) or Section 4(2) of such Act and Regulation D
promulgated under such Act, and (ii) a similar exemption to the registration
provisions of applicable state securities laws. Each of the Subscribers
understands that the Company is relying upon the truth and accuracy of the
representations, warranties, agreements, acknowledgments and understandings of
the Subscribers set forth herein in order to determine the applicability of such
exemptions and the suitability of the Subscribers to acquire the Securities.
2.9 Investment Intent. Without limiting their ability to
resell the Securities pursuant to an effective registration statement, each of
the Subscribers is acquiring the Securities solely for their own account and not
with a view to the distribution, assignment or resale to others. Each of the
Subscribers understands and agrees that it may have to bear the economic risk of
its investment in the Securities for an indefinite period of time.
2.10 No Advertisements. The Subscribers are not subscribing
for the Securities as a result of or subsequent to any advertisement, article,
notice or other communication published in any newspaper, magazine, or similar
media or broadcast over television or radio, or presented at any seminar or
meeting.
2.11 Registration Rights. The parties have entered into a
Registration Rights Agreement (Exhibit D).
Section 3. Representations and Warranties of the Company. The
Company acknowledges, represents, warrants and agrees as follows:
3.1 Organization/Qualification. The Company is a corporation
duly organized and validly existing under the laws of the State of Texas and is
in good standing under such laws. The Company has all requisite corporate power
and authority to own, lease and operate its properties and assets, and to carry
on its business as presently conducted. The Company is qualified to do business
as a foreign corporation in each jurisdiction in which the ownership of its
property or the nature of its business requires such qualification, except where
failure to so qualify would not have a material adverse effect on the Company.
-5-
<PAGE>
3.2 Accuracy of Reports and Information. The Company is in
compliance, to the extent applicable, with all reporting obligations under
either Section 12(b), 12(g) or 15(d) of the 1934 Act, and shall maintain such
status on a timely basis. The Company has registered its Common Stock pursuant
to Section 12 of the 1934 Act and the Common Stock is listed and trades on the
Nasdaq Small Cap Stock Market. The Company has filed all material required to be
filed pursuant to all reporting obligations, under either Section 13(a) or 15(d)
of the 1934 Act during the twelve (12) months immediately preceding the offer
and sale of the Securities (or for such shorter period that the Company has been
required to file such material).
3.3 SEC Filings/Full Disclosure. (i) For the period of twelve
(12) immediately preceding this offer and sale, or such shorter period that the
Company has been required to file such Reports as defined herein, none of the
Company's filings with the Securities and Exchange Commission contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made, not misleading, and (ii) since July 4,
1997, the Company has timely filed all requisite forms, reports and exhibits
thereto with the Securities and Exchange Commission. There is no fact known to
the Company (other than general economic conditions known to the public
generally) that has not been publicly disclosed by the Company or disclosed in
writing to each of the Subscribers which (i) could reasonably be expected to
have a material adverse effect on the condition (financial or otherwise) or on
the earnings, business affairs, properties or assets of the Company, or (ii)
could reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement.
3.4 Authorization. The Company has all requisite corporate
right, power, and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. All corporate action on the
part of the Company, its directors and stockholders necessary for the
authorization, execution, delivery and performance of this Agreement by the
Company, the authorization, sale, issuance and delivery of the Securities and
the performance of the Company's obligations hereunder has been taken. This
Agreement has been duly executed and delivered by the Company and constitutes a
legal, valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and rules of law governing specific
performance, injunctive relief or other equitable remedies, and to limitations
of public policy as they may apply to the indemnification provisions set forth
in this Agreement. Upon their issuance and delivery in accordance with this
Agreement, the Debentures, and the Warrants, as applicable, the Securities will
be validly issued, fully paid and nonassessable and will be free of any liens or
encumbrances; provided, however, that the Securities are subject to restrictions
on transfer under state and/or federal securities laws. The issuance and sale of
the Securities will not give rise to any preemptive right or right of first
refusal or right of participation on behalf of any person.
3.5 No Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default, or give rise to a
right of termination, cancellation or acceleration of any
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<PAGE>
material obligation or to a loss of a material benefit, under, any provision of
the Articles of Incorporation, and any amendments thereto, Bylaws, Stockholders
Agreements and any amendments thereto of the Company or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company, its properties or assets and which would
have a material adverse effect on the Company's business and financial
condition.
3.6 No Undisclosed Liabilities or Events. The Company has no
liabilities or obligations, other than those disclosed in the Reports, this
Agreement or those incurred in the ordinary course of the Company's business
since February 28, 1998, which individually or in the aggregate, do not or would
not have a material adverse effect on the properties, business, condition
(financial or otherwise), operations or prospects of the Company. To the
knowledge of the Company, no event or circumstances has occurred or exists with
respect to the Company or its properties, business, condition (financial or
otherwise), operations or prospects, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed.
3.7 No Default. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it is or its property
is bound, and neither the execution, nor the delivery by the Company, nor the
performance by the Company of its obligations under this Agreement or the
Exhibits annexed hereto, including the conversion or exercise provision of the
Securities, will conflict with or result in the breach or violation of any of
the terms or provisions of, or constitute a default or result in the creation or
imposition of any lien or charge on any assets or properties of the Company
under, any material indenture, mortgage, deed of trust or other material
agreement applicable to the Company or instrument to which the Company is a
party or by which it is bound or any statute or the Certificate of Incorporation
or by-laws of the Company, or any decree, judgment, order, rule or regulation of
any court or governmental agency or body having jurisdiction over the Company or
its properties, or the Company's listing agreement for its Common Stock (it
being understood that it will be necessary for the Company to file an additional
listing application with the Nasdaq Small Cap Market to list the Common Stock
issuable pursuant to the Convertible Debenture and the Warrants), which would
have a material adverse effect on the business condition (financial or
otherwise), operations, prospects, or properties of the Company.
3.8 Absence of Events of Default. Except as set forth in the
Reports and this Agreement (including all Exhibits annexed hereto), no default,
as defined in the respective agreement to which the Company is a party, and no
event which, with the giving of notice or the passage of time or both, would
become a default, has occurred and is continuing, which would have a material
adverse effect on the Company's business, properties, prospects, condition
(financial or otherwise) or operations.
3.9 Governmental Consent, etc. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is
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<PAGE>
required in connection with the valid execution and delivery of this Agreement
(including all Exhibits annexed hereto), or the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated hereby,
except as may be required by applicable securities laws.
3.10 Intellectual Property Rights. Except as disclosed in the
Reports, the Company has sufficient trademarks, trade names, patent rights,
copyrights and licenses to conduct its business as presently conducted in the
Reports. Except as disclosed in the Reports, to the knowledge of the Company,
neither the Company nor its services is infringing or will infringe any
trademark, trade name, patent right, copyright, license, trade secret or other
similar right of others currently in existence; and there is no claim being made
against the Company regarding any trademark, trade name, patent, copyright,
license, trade secret or other intellectual property right which could have a
material adverse effect on the properties, business, condition (financial or
otherwise), operations or prospects of the Company.
3.11 Material Contracts. Except as set forth in the Reports,
the agreements to which the Company is a party described in the Reports are
valid agreements, in full force and effect, and the Company is not in material
breach or material default under any of such agreements which could have a
material adverse effect on the properties, business, condition (financial or
otherwise), operations or prospects of the Company.
3.12 Litigation. Except as disclosed in the Reports, there is
no action, proceeding or investigation pending, or to the Company's knowledge
threatened, against the Company which might result, either individually or in
the aggregate, in any material adverse effect on the properties, business,
condition (financial or otherwise), operations or prospects of the Company. The
Company is not a party to or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which could have a material adverse effect on the properties,
business, condition (financial or otherwise), operations or prospects of the
Company.
3.13 Title to Assets. Except as set forth in Reports, the
Company has good and marketable title to all properties and material assets
described in the Reports as owned by it, free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest other than such as
are not material to the business of the Company.
3.14 Subsidiaries. Except as disclosed in the Reports, the
Company does not presently own or control, directly or indirectly, any interest
in any other corporation, partnership, association or other business entity.
3.15 Required Governmental Permits. The Company is in
possession of and operating in material compliance with all authorizations,
licenses, certificates, consents, orders and permits from state, federal and
other regulatory authorities which are material to the conduct of its business,
all of which are valid and in full force and effect.
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<PAGE>
3.16 Listing. The Company will maintain the listing of its
Common Stock on the Nasdaq Small Cap Stock Market, the successors thereto, or
other organized United States market or quotation system. The Company has not
received any notice, oral or written, affecting its continued listing, the
Company will take no action outside the ordinary course of business which would
impact its continued listing or eligibility of the Company for such listing. The
Company is in full compliance with the requirements for continued list on the
Small Cap Stock Market.
3.17 Other Outstanding Securities/Financing Restrictions.
Except as disclosed in the Reports, the Company has no outstanding restricted
shares, or shares of Common Stock sold under Regulation S, Regulation D or
outstanding under any other exemption from registration, which are available for
sale as unrestricted ("free trading") stock.
3.18 Registration Alternative. The Company covenants and
agrees that for so long as any of the Common Stock issuable upon conversion of
the Debentures or exercise of the Warrants, remain outstanding and continue to
be "restricted securities" within the meaning of Rule 144 under the Act, the
Company shall cooperate in order to permit resales of the underlying Common
Stock pursuant to Rule 144 under the Act. The Company and the Subscribers shall
provide the Transfer Agent any and all papers necessary to complete the transfer
under Rule 144, including, but not limited to, opinions of counsel to the
Transfer Agent, and the Company shall continue to file all material required to
be filed pursuant to Sections 13(a) or 15(d) of the 1934 Act.
3.19 Capitalization. The authorized capital stock of the
Company consists of 40,000,000 shares of Common Stock, $0.003 par value per
share, of which 15,336,328 are outstanding. There are no shares of Preferred
Stock authorized. All issued and outstanding shares of Common Stock have been
duly authorized and validly issued and, except for 91,667 of 150,000 shares of
Common Stock issued for services to be rendered, are fully paid and
nonassessable.
3.20 Dilution. The Company is aware and acknowledges that
conversion of the Debentures, and/or exercise of the Warrant, would cause
dilution to existing stockholders and could significantly increase the
outstanding number of shares of Common Stock.
Section 4. Further Representations and Warranties of the
Company. For so long as any Securities held by any of the Subscribers remain
outstanding, the Company acknowledges, represents, warrants and agrees as
follows:
(i) It will reserve from its authorized but unissued
shares of Common Stock a sufficient number of shares of Common Stock to
permit the conversion in full of all of the outstanding Securities.
(ii) It will permit the Subscribers to exercise their
right to convert the Debentures and/or exercise the Warrants by
telecopying an executed and completed Notice of Conversion and/or
Notice of Exercise to the Company and delivering the
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original Notice of Conversion and/or original Notice of Exercise and
the certificate representing the Debenture and/or the original Warrant
to the Company by express courier. Each business date on which a Notice
of Conversion and/or Notice of Exercise is telecopied to and received
by the Company in accordance with the provisions hereof shall be deemed
a "Conversion Date" and/or "Exercise Date". The Company will transmit
the certificates representing shares of Common Stock issuable upon
conversion of any Debenture and/or exercise of any Warrants (together
with the certificates representing the Debenture not so converted
and/or Warrants not so exercised) to the Subscriber via express
courier, by electronic transfer or otherwise, within five (5) business
days after the Conversion Date and/or Exercise Date if the Company has
received the original Notice of Conversion and Debenture certificate
being so converted and/or the original Notice of Exercise and Warrant
being exercised by the second business day after the Conversion Date or
Exercise Date (as applicable). In addition to any other remedies which
may be available to the Subscribers, in the event that the Company
fails to effect delivery of such shares of Common Stock within such
five (5) business day period, the Subscribers will be entitled to
revoke the relevant Notice of Conversion and/or Notice of Exercise by
delivering a notice to such effect to the Company whereupon the Company
and the Subscribers shall each be restored to their respective
positions immediately prior to delivery of such Notice of Conversion
and/or Notice of Exercise. The Notice of Conversion and Debenture
and/or the Notice of Exercise and Warrant representing the portion of
the Debenture converted and/or Warrant exercised shall be delivered as
follows:
To the Company:
ConSyGen, Inc.
10201 South 51st Street, Suite 140
Phoenix, Arizona 85044
Fax: (602) 496-9889
Attn: Rajesh Kapur, Chief Financial Officer
with a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Fax: (617) 856-8201
Attn: John G. Nossiff, Jr., Esq.
In the event that the Common Stock is not delivered by the
Company (or its transfer agent) within five (5) business days after the
Conversion Date and/or Exercise Date, and the Company has received the original
Notice of Conversion and Debenture, the Company shall pay to the Subscriber(s)
(or Placement Agent), in immediately available funds, upon demand, as liquidated
damages for such failure and not as a penalty, for each $100,000 of Debenture
sought to be converted, $50 for each of the first five (5) days and $100 per day
thereafter that the
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Conversion Shares are not delivered, and for each thousand (1,000) shares of
Common Stock sought to be exercised under the Warrant, $7.50 for each of the
first ten (10) days and $15.00 per day thereafter that the shares of Common
Stock underlying the Warrant are not delivered, which liquidated damages shall
run from the sixth business day after the Conversion Date and/or Exercise Date.
Any and all payments required pursuant to this paragraph shall be payable only
in cash.
Section 5. Opinion of Counsel. Each of the Subscribers shall,
upon the Closing, receive an opinion from counsel to the Company as set forth in
Exhibit E.
Section 6. Opinion of Counsel Upon Conversion/Transfer. The
Company will obtain for each Subscriber, at the Company's expense, any and all
opinions of counsel which may be reasonably required in order to permit issuance
(and transfer) of the shares upon conversion of the Debenture, subject only to
receipt of a Notice of Conversion in the form of Exhibit F and receipt by
counsel of such representations, warranties, and documents as are determined by
such counsel to be necessary to comply with applicable securities laws, duly
executed by the Subscriber which shall be satisfactory to the Transfer Agent,
directing the Transfer Agent to remove the legend from the Common Stock
certificate in connection with a sale of such Common Stock, if the Registration
Statement has been declared effective by the SEC or another exemption is
available for resale.
Section 7. Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the SEC which may at any time
permit the sale of the Securities to the public without registration (the
"Benefit"), the Company agrees, for so long as the Securities are held by the
Subscribers, to take such action as is necessary to:
(i) make and keep public information available, as
those terms are understood and defined in Rule 144 under the Act, at
all times after the effective date on which the Company becomes subject
to the reporting requirements of the Act or the 1934 Act;
(ii) file with the SEC in a timely manner all reports
and other documents required of the Company under the Act and the 1934
Act;
(iii) furnish to each Subscriber forthwith, upon
request, a written statement by the Company as to its compliance with
the reporting requirements of said Rule 144, and of the Act and the
1934 Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the
Company as each Subscriber may reasonably request in availing itself of
any rule or regulation of the SEC allowing any Subscriber to sell any
such Securities without registration.
Section 8. Representations and Warranties of the Company and
Subscribers. Each of the Subscribers, and the Company represent, warrant,
covenant, and agree to the other the following with respect to itself:
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8.1 Subscription Agreement. The Subscription Agreement has
been duly authorized, validly executed and delivered on behalf of the Company
and each of the Subscribers, and is a valid and binding agreement, enforceable
in accordance with its terms, subject to general principles of equity and to
bankruptcy or other laws affecting the enforcement of creditors' rights
generally.
8.2 No-Conflict. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default (with or without notice
or lapse of time, or both), or give rise to a right of termination, cancellation
or acceleration of any obligation or to a loss of a material benefit, under, any
provision of the Certificate of Incorporation, and any amendments thereto,
bylaws and any amendments thereto of any Subscriber or any material mortgage,
indenture, lease or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree statute, law, ordinance, rule or
regulation applicable to any Subscriber, or their respective properties or
assets.
8.3 Approvals. Neither the Company, nor any Subscriber, is
aware of any authorization, approval or consent of any governmental body which
is legally required for the issuance and sale of the Securities.
8.4 Indemnification. The Company and each of the Subscribers
agrees to indemnify the other, and to hold the other harmless, from and against
any and all losses, damages, liabilities, costs and expenses (including
reasonable attorneys' fees) which the other may sustain or incur in connection
with the breach by the indemnifying party of any representation, warranty or
covenant made by it in this Agreement.
8.5 Transfer Restrictions/Conversion Holding Period. Refer to
the Debenture annexed hereto as Exhibit A.
8.6 Restrictions on Future Financings. The Company agrees that
it will not, without first offering the Investors the right to participate,
enter into any subsequent or further offer or sale of Common Stock, or any
securities convertible into shares of Common Stock, with any third-party until
the date which is one hundred eighty (180) days after the effective date of the
registration statement. This provision shall not apply to: (a) the issuance of
securities (other than for cash) in connection with a merger, consolidation,
sale of assets, or other disposition, or (b) the exchange of capital stock for
assets, stock or joint venture interest, (c) the issuance of securities upon
exercise of options or warrants, or (d) an offering of Common Stock at or above
the then current market price; provided, however, that any registration rights
granted in connection with such offering, shall not require the filing of a
registration statement in respect of such stock prior to one hundred eighty
(180) days after the effective date of the Registration Statement.
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Section 9. Restrictions on Share Issuances.
9.1 Restrictions on Conversion of Debenture. Each Subscriber
or any subsequent holder of the Debenture (the "Holder") shall be prohibited
from converting any portion of the Debenture which would result in any
Subscriber or Holder being deemed the beneficial owner, in accordance with the
provisions of Rule 13d-3 of the 1934 Act, as amended, of 4.99% or more of the
then issued and outstanding Common Stock of the Company.
9.2 Limitation on Share Issuance. Notwithstanding anything to
the contrary contained herein or in the Debentures or the Warrants (including
the Warrants issued to the finders), the number of shares of Common Stock of the
Company issuable pursuant to the Debentures and the Warrants (including the
finder's Warrants) shall not exceed 3,051,929 shares (being 19.9% of the
15,336,328 shares of Common Stock issued and outstanding on the date hereof). In
the event the number of shares of Common Stock of the Company issuable pursuant
to the Debentures and the Warrants (including the finder's warrants) exceed
2,300,450 shares (being 15% of the 15,336,328 shares of Common Stock issued and
outstanding on the date hereof), the Company agrees that it shall immediately
call a stockholders meeting for the purpose of approving below market price
issuances of Common Stock to the Subscribers in excess of 3,051,929 shares. In
the event that the aforementioned proposal is not ratified by the stockholders
and the number of shares issuable under the Debentures and Warrants (including
the finder's Warrants) exceeds 3,051,929, the Company will seek a waiver from
the Nasdaq Stock Market to permit such issuances. If the Company is unable to
obtain the waiver within twenty (20) days of applying therefor, the Company
will, at its option, either (i) delist the Common Stock from the Nasdaq Stock
Market and include the Common Stock for quotation on the OTC Bulletin Board or
(ii) pay to the Subscribers the "Economic Benefit" of that number of shares of
Common Stock that would have been issuable to the Subscribers above 3,051,929
shares. The "Economic Benefit" is defined as the number of shares of Common
Stock issuable to the Subscribers pursuant to the Warrants and Debentures in
excess of 3,051,929, multiplied by the average closing Bid Price for the five
trading days preceding the tenth (10th) trading day after the aforementioned
stockholder meeting. The "Economic Benefit" will be paid within thirty (30) days
after such tenth (10th) trading day.
Section 10. Mandatory Conversion. In the event that -this
Debenture has not been converted by the Maturity Date, this Debenture shall
automatically be converted as if the Purchaser voluntarily elected such
conversion in accordance with the procedure, terms and conditions as set forth
in this agreement.
Section 11. Registration or Exemption Requirements. Each of
the Subscribers acknowledges and understands that the Securities may not be
resold or otherwise transferred except in a transaction registered under the Act
and any applicable state securities laws or unless an exemption from such
registration is available. Each of the Subscribers understands that the
Securities will be imprinted with a legend that prohibits the transfer of the
Securities unless (i) they are registered under applicable securities laws or
such registration is not required, (ii) if the transfer is pursuant to an
exemption from registration, an opinion of counsel reasonably satisfactory to
the Company is obtained to the effect that the transaction is so exempt.
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Section 12. Legend. The certificates representing the
Securities shall be subject to a legend restricting transfer under the Act, such
legend to be substantially as follows:
"THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"). SUCH SECURITIES MAY NOT BE OFFERED OR SOLD OR TRANSFERRED IN
THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID
ACT."
The certificates representing these Securities, and each
certificate issued in transfer thereof, will also bear any legend required under
any applicable state securities law.
Section 13. Stock Delivery Instructions. The Debenture
Certificates shall be delivered to each of the Subscribers on a delivery versus
payment basis as set forth in the Escrow Agreement.
Section 14. Closing Date. The date the Escrow Agent (i)
receives the Securities and the Purchase Price, and (ii) the conditions set
forth in Sections 15 and 16, and the terms and conditions of the Escrow
Agreement (Exhibit C) herein are satisfied or waived, shall be the Closing,
which date shall be no later than May 29, 1998, unless the parties mutually
agree to extend such date (the "Closing Date").
Section 15. Conditions to the Company's Obligation to Sell.
Each of the Subscribers understands that the Company's obligation to sell the
Debentures and Warrants is conditioned upon:
(i) The receipt and acceptance by the Company of this
Subscription Agreement and all Exhibits duly executed by all other
parties thereto;
(ii) Delivery into escrow by each of the Subscribers
of good cleared funds as payment in full for the purchase of the
Securities;
(iii) All representations and warranties of each of
the Subscribers contained herein shall remain true and correct as of
the Closing Date; and
(iv) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Debentures and Warrants, or shall have the availability of exemptions
therefrom. At the Closing Date, the sale and issuance of the
Debentures, Warrants, and the proposed issuance of the Common Stock
underlying the Debentures and Warrants shall be legally permitted by
all laws and regulations to which each of the Subscribers and the
Company are subject.
Section 16. Conditions to Subscriber's Obligation to Purchase.
The Company understands that each of the Subscribers obligation to purchase the
Debentures, and Warrants is conditioned upon:
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(i) Acceptance by the Company of each of the
Subscriber's Subscription Agreement in the form hereof and due
execution by all parties of the Exhibits hereto;
(ii) Delivery into escrow of the original Securities
as described herein:
(iii) All representations and warranties of the
Company contained herein shall remain true and correct as of the
Closing Date;
(iv) Receipt of opinion of counsel substantially in
the form of Exhibit E annexed hereto; and
(v) The Company shall have obtained all permits and
qualifications required by any state for the offer and sale of the
Debentures, and Warrants, or shall have the availability of exemptions
therefrom. At the Closing Date, the sale and issuance of the Debentures
and Warrants shall be legally permitted by all laws and regulations to
which the Company and each of the Subscribers are subject.
Section 17. Miscellaneous.
17.1 Governing Law/Jurisdiction. This Agreement will be
construed and enforced in accordance with and governed by the laws of the State
of New York, except for matters arising under the Act, without reference to
principles of conflicts of law. Each of the parties consents to the jurisdiction
of the US District Court for the Southern District of the State of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens , to the bringing of any such proceeding in such
jurisdiction. Each party hereby agrees that if another party to this Agreement
obtains a judgment against it in such a proceeding, the party which obtained
such judgment may enforce same by summary judgment in the courts of any state or
country having jurisdiction over the party against whom such judgment was
obtained, and each party hereby waives any defenses available to it under local
law and agrees to the enforcement of such a judgment. Each party to this
Agreement irrevocably consents to the service of process in any such proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to such party at its address set forth herein. Nothing herein shall
affect the right of any party to serve process in any other manner permitted by
law.
17.2 Confidentiality. The Company and each of the Subscribers
agrees to keep confidential and not to disclose to or use for the benefit of any
third party the terms of this Agreement (including the names of the Subscribers)
or any other information which at any time is communicated by the other party as
being confidential without the prior written approval of the other party;
provided, however, that this provision shall not apply to information which, at
the time of disclosure, is already part of the public domain (except by breach
of this Agreement) and information which is required to be disclosed by law. If
for any reason the transactions contemplated by this Agreement are not
consummated, each of the parties hereto shall keep
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<PAGE>
confidential any information obtained from any other party, including the names
of the Subscribers (except information publicly available or in such party's
domain prior to the date hereof, and except as required by court order) and
shall promptly return to the other parties all schedules, documents,
instruments, work papers or other written information, without retaining copies
thereof, previously furnished by it as a result of this Agreement or in
connection herewith.
17.3 Facsimile/Counterparts/Entire Agreement. Except as
otherwise stated herein, in lieu of the original, a facsimile transmission or
copy of the original shall be as effective and enforceable as the original. This
Agreement may be executed in counterparts which shall be considered an original
document and which together shall be considered a complete document. This
Agreement and Exhibits hereto constitute the entire agreement between the
Subscribers and the Company with respect to the subject matter hereof. This
Agreement may be amended only by a writing executed by all parties.
17.4 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to any
party.
17.5 Reliance by Company. Each of the Subscribers represents
to the Company that the representations and warranties of each Subscriber
contained herein are complete and accurate and may be relied upon by the Company
in determining the availability of an exemption from registration under federal
and state securities laws in connection with a private offering of securities.
17.6 Legal Fees and Expenses. Each of the parties shall pay
its own fees and expenses (including the fees of any accountants, appraisers or
others engaged by such party) in connection with this Agreement and the
transactions contemplated hereby, except that the Company agrees to pay on the
Closing Date, out of the Purchase Price, fees, in cash, to the finders (pursuant
to that certain letter agreement between the Company and such persons dated May
19, 1998), of eight (8%) percent of the total dollars funded to the Company
pursuant to this Agreement, and $15,000 to Goldstein, Goldstein, & Reis, LLP for
legal and escrow fees, but only if the $3,500,000 Convertible Debenture purchase
is consummated.
17.7 Authorization. Each of the parties hereto represents that
the individual executing this Agreement on its behalf has been duly and
appropriately authorized to execute the Agreement.
17.8 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written
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<PAGE>
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received),
(b) on the second business day following the date of mailing by reputable
courier service, fully prepaid, addressed to such address, or upon actual,
receipt of such mailing, whichever shall first occur or (c) on the fifth
business day following date of mailing by registered or certified mail, return
receipt requested, postage prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
(i) If to the Company:
ConSyGen, Inc.
10201 South 51st Street, Suite 140
Phoenix, Arizona
Attn: Ronald I. Bishop, President
Telephone: (602) 496-4545
Facsimile: (602) 496-9889
With a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: John G. Nossiff, Jr., Esq.
Telephone: (617) 856-8200
Facsimile: (617) 856-8201
(ii) If to the Subscribers, at the addresses and numbers
listed on Schedule A annexed hereto.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
[Remainder of Page Intentionally Left Blank]
[Signature Page Follows]
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IN WITNESS WHEREOF, this 6% Convertible Denbenture Subscription
Agreement was duly executed on the date first written below.
Agreed to and accepted on
This ____ day of May 1998
CONSYGEN, INC.
By __________________________
Name: Ronald I. Bishop
Title: President DOMINION CAPITAL FUND, LTD.
By ________________________________
Name:
Title:
Executed this ____ day of May, 1998
CANADIAN ADVANTAGE LIMITED PARTNERSHIP
By ________________________________
Name:
Title:
Executed this ____ day of May, 1998
SOVEREIGN PARTNERS LIMITED PARTNERSHIP
By ________________________________
Name:
Title:
Executed this ____ day of May, 1998
<PAGE>
Exhibit 4. 3
EXHIBIT A
No. $ USD
----------
CONSYGEN, INC.
Convertible Debenture due May 29, 2003
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY OTHER APPLICABLE STATE SECURITIES LAWS AND
HAS BEEN ISSUED IN RELIANCE UPON REGULATION D PROMULGATED UNDER THE SECURITIES
ACT AND AN EXEMPTION UNDER APPLICABLE STATE SECURITIES LAWS. THIS DEBENTURE
SHALL NOT CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE
DEBENTURE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL.
THIS DEBENTURE MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT AND UNDER APPLICABLE
STATE SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION
UNDER THE PROVISIONS OF THE 1933 ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION FROM THEIR COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF THE SECURITIES.
THIS DEBENTURE is one of a duly authorized issue of Debentures
of ConSyGen, Inc., a corporation duly organized and existing under the laws of
the State of Texas (the "ISSUER"), issued on May 29, 1998 (the "Issuance Date"),
and designated as its Convertible Debenture due May 29, 2003, in an aggregate
face amount not exceeding Three Million Five Hundred Thousand (USD $3,500,000)
Dollars, issuable in minimum denominations of Two Hundred Fifty Thousand
($250,000) Dollars par value face amounts.
This Debenture has been issued under the terms and provisions
of the 6% Convertible Debenture Subscription Agreement dated as of May 29, 1998
between the ISSUER and HOLDER (the "Agreement") and shall be subject to all of
the terms and conditions and entitled to all of the benefits thereof.
FOR VALUE RECEIVED, the ISSUER promises to pay to the registered holder
hereof or its registered assigns, if any (the "HOLDER"), the principal sum of
Three Million Five Hundred Thousand Dollars (USD $3,500,000), on May 29, 2003
(the "Maturity Date"), in Shares of Common Stock or in cash (in the event of an
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"Event of Default") and to pay interest, in each case as outlined below, at the
rate of six (6%) percent per annum on the principal sum from time to time
outstanding under this Debenture. Accrual of interest shall commence on the
first day after the date hereof. Interest shall be payable by the ISSUER, at its
option, in cash or in the number of freely tradable shares of Common Stock (at a
price per share equal to ninety (90% percent of the average closing bid price of
the Common Stock during the five (5) trading day immediately preceding the
interest payment date) quarterly in arrears commencing August 31, 1998 or upon
conversion by the Holder with respect to accrued, but unpaid, interest on the
amount converted. The interest so payable will be paid to the person in whose
name this Debenture (or one or more predecessor Debentures) is registered on the
records of the ISSUER regarding registration and transfers of the Debenture (the
"Debenture Register"), provided, however, that the ISSUER'S obligation to a
transferee of this Debenture arises only if such transfer, sale or other
disposition is made in accordance with the terms and conditions contained in the
Agreement. The principal of this Debenture is payable as provided below in
shares of Common Stock at any time prior to the Maturity Date upon the HOLDER
exercising it conversion rights set forth below. In the event this Debenture is
outstanding on the Maturity Date it shall automatically be converted into shares
of Common Stock as if the HOLDER voluntarily elected such conversion in
accordance with the procedures, terms and conditions set forth in this
Debenture. Accordingly, the principal amount of this Debenture is payable in
cash only upon an Event of Default (as defined below). Principal and Interest
are payable at the address last appearing on the Debenture Register as
designated in writing by the HOLDER hereof from time to time. The ISSUER will
pay all accrued and unpaid interest due upon this Debenture on the Maturity Date
in accordance herewith, less any amounts required by law to be deducted or
withheld, to the HOLDER at the last address on the Debenture Register.
The Debenture is subject to the following additional provisions:
1. The Debenture is exchangeable for like Debentures in equal
aggregate principal amount of authorized denominations, as requested by the
HOLDER surrendering the same. No service charge will be made for such
registration or transfer or exchange, although the HOLDER shall be responsible
for their own expenses associated with complying with the restrictions on
transfer of the Debenture in the Agreement.
2. The ISSUER shall be entitled to withhold from all payments
under this Debenture any amounts required to be withheld under the applicable
provisions of the U.S Internal Revenue Code of 1986, as amended, or other
applicable laws at the time of such payments.
3. This Debenture has been issued subject to investment
representations to the original HOLDER hereof and may be transferred or
exchanged only in compliance with the 1933 Act and applicable state securities
laws and in compliance with the restrictions on transfer provided in the
Agreement. Prior to the due presentment for such transfer of this Debenture, the
ISSUER and any agent of the ISSUER may treat the person in whose name this
Debenture is duly registered on the Debenture Register as the owner hereof for
the purpose of receiving payment as herein provided and all other purposes,
whether or not this Debenture is overdue, and neither the ISSUER nor any such
agent shall be affected by notice to the contrary. The transferee shall be
bound, as the original HOLDER by the same representations and terms described
herein and under the Agreement.
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4. The HOLDER is entitled, at its option, upon the earlier of
(i) one hundred twenty (120) days from the Issuance Date, or (ii) upon the
effectiveness of a Registration Statement (pursuant to the terms of the
Agreement and the Registration Rights Agreement), to convert this Debenture, in
whole or in part, in accordance with the following terms and conditions:
(a) The HOLDER may exercise its right to convert the
Debenture by telecopying an executed and completed notice of conversion (the
"Notice of Conversion") to the ISSUER and delivering the original Notice of
Conversion and the original Debenture to the ISSUER by express courier. Each
business date on which a Notice of Conversion is telecopied to and received by
the ISSUER in accordance with the provisions hereof shall be deemed a
"Conversion Date". The ISSUER will transmit the certificates representing shares
of Common Stock issuable upon conversion of the Debenture (together with the
certificates representing the Debenture not so converted) to the HOLDER via
express courier, by electronic transfer or otherwise within five (5) business
days after the Conversion Date if the ISSUER has received the original Notice of
Conversion and Debenture being so converted by such date. In addition to any
other remedies which may be available to the HOLDER, in the event that the
ISSUER fails to effect delivery of such shares of Common Stock within five (5)
such business day period, the HOLDER will be entitled to revoke the Notice of
Conversion by delivering a notice to such effect to the ISSUER whereupon the
ISSUER and the HOLDER shall each be restored to their respective positions
immediately prior to delivery of the Notice of Conversion. The Notice of
Conversion and Debenture representing the portion of the Debenture converted
shall be delivered as follows:
To the ISSUER:
ConSyGen, Inc.
10201 South 51st Street, Suite 140
Phoenix, Arizona 85044
Attn: Rajesh Kapur, Chief Financial Officer
Facsimile: (602) 496-4545
Telephone: (602) 496-9889
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With a copy to:
Brown, Rudnick, Freed & Gesmer
One Financial Center
Boston, MA 02111
Attn: John G. Nossiff, Jr., Esq.
Facsimile: (617) 856-8201
Telephone: (617) 856-8200
In the event that the Common Stock issuable upon conversion of
the Debenture is not delivered within five (5) business days of receipt by the
ISSUER of a valid Notice of Conversion and the Debenture to be converted, the
ISSUER shall pay to the HOLDER, in immediately available funds, upon demand, as
liquidated damages for such failure and not as a penalty, for each $100,000
principal amount of Debenture sought to be converted, $50 for each of the first
five (5) days and $100 per day thereafter that the shares of Common Stock are
not delivered, which liquidated damages shall run from the sixth business day
after the Conversion Date up until the time that either the Conversion Notice is
revoked or the Common Stock is delivered, at which time such liquidated damages
shall cease. Any and all payments required pursuant to this paragraph shall be
payable only in cash immediately.
(b) Each Debenture shall be convertible, at the sole option of
the HOLDER (subject to automatic conversion on the Maturity Date as provided
herein), into that number of shares of fully paid and nonassessable shares of
Common Stock which is to be derived from dividing the Conversion Amount by the
Conversion Price. For purposes of this Debenture, the Conversion Amount shall
mean the principal dollar amount of the Debenture being converted. The
Conversion Price shall be equal to the lesser of: (i) one hundred ten (110%)
percent of the average closing bid price of the Common Stock for the five day
trading period immediately preceding the Issuance Date, or (ii) eighty (80%)
percent of the average closing bid price of the Common Stock for the five day
trading period immediately preceding the Conversion Date. The closing bid price
shall be deemed to be the reported last bid price regular way as reported by
Bloomberg LP or, if unavailable, on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, or if the Common
Stock is not listed or admitted to trading on any national securities exchange,
the closing bid price as reported by Nasdaq or such other system then in use,
or, if the Common Stock is not quoted by any such organization, the closing bid
price in the over-the-counter market as furnished by the principal national
securities exchange on which the Common Stock is traded.
(c) The number of shares of Common Stock issuable upon the
conversion of the Debenture and the Conversion Price shall be subject to
adjustment as follows:
(i) In case the ISSUER shall (A) pay a dividend on
Common Stock in Common Stock or securities convertible into, exchangeable for or
otherwise entitling a holder thereof to receive Common Stock, (B) declare a
dividend payable in cash on its Common Stock and at substantially the same time
offer its shareholder a right to purchase new Common Stock (or securities
convertible into, exchangeable for or otherwise entitling a holder thereof to
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receive Common Stock) from proceeds of such dividend (all Common Stock so issued
shall be deemed to have been issued as a stock dividend), (C) subdivide its
outstanding shares of Common Stock into a greater number of shares of Common
Stock, (D) combine its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, or (E) issue by reclassification of its Common Stock
any shares of Common Stock of the ISSUER, the number of shares of Common Stock
issuable upon conversion of the Debenture immediately prior thereto shall be
adjusted so that the holders of the Debenture shall be entitled to receive after
the happening of any of the events described above that number and kind of
shares as the holders would have received had such Debenture been converted
immediately prior to the happening of such event or any record date with respect
thereto. Any adjustment made pursuant to this subdivision shall become effective
immediately after the close of business on the record date in the case of a
stock dividend and shall become effective immediately after the close of
business on the record date in the case of a stock split, subdivision,
combination or reclassification.
(ii) Any adjustment in the numbers of shares of
Common Stock issuable hereunder otherwise required to be made by this paragraph
4(c) will not have to be made if such adjustment would not require an increase
or decrease in one (1%) percent or more in the number of shares of Common Stock
issuable upon conversion of the Debenture.
(iii) Whenever the number of shares of Common Stock
issuable upon the conversion of the Debenture is adjusted, as herein provided,
the Conversion Price shall be adjusted (to the nearest cent) by multiplying such
Conversion Price immediately prior to such adjustment by a fraction of which the
numerator shall be the number of shares of Common Stock issuable upon the
conversion of this Debenture immediately prior to such adjustment, and of which
the denominator shall be the number of shares of Common Stock issuable
immediately thereafter.
(d) In the case of any (i) consolidation or merger of the
ISSUER into any entity (other than a consolidation or merger that does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock of the ISSUER), (ii) sale, transfer, lease or
conveyance of all or substantially all of the assets of the ISSUER as an
entirety or substantially as an entirety, or (iii) reclassification, capital
reorganization or change of the Common Stock (other than solely a change in par
value, or from par value to no par value), in each case as a result of which
shares of Common Stock shall be converted into the right to receive stock,
securities or other property (including cash or any combination thereof), each
holder of a Debenture then outstanding shall have the right thereafter to
convert such share only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale, transfer, capital
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reorganization or reclassification by a holder of the number of shares of Common
Stock of the ISSUER into which such Debenture would have been converted
immediately prior to such consolidation, merger, sale, transfer, capital
reorganization or reclassification, assuming such holder of Common Stock of the
ISSUER (A) is not an entity with which the ISSUER consolidated or into which
such sale or transfer was made, as the case may be ("constituent entity"), or an
affiliate of the constituent entity, and (B) failed to exercise his or her
rights of election, if any, as to the kind or amount of securities, cash and
other property receivable upon such consolidation, merger, sale or transfer
(provided that if the kind or amount of securities, cash or other property
receivable upon such consolidation, merger, sale or transfer is not the same for
each share of Common Stock of the ISSUER held immediately prior to such
consolidation, merger, sale or transfer by other than a constituent entity or an
affiliate thereof and in respect of which the ISSUER merged into the ISSUER or
to which such rights or election shall not have been exercised ("non-electing
share"), then for the purpose of this Section (4)(d) the kind and amount of
securities, cash or other property receivable upon such consolidation, merger,
sale or transfer by each non-electing share shall be deemed to be the kind and
amount so receivable per share by a majority of the non-electing shares). If
necessary, appropriate adjustment shall be made in the application of the
provision set forth herein with respect to the rights and interest thereafter of
the HOLDERS, to the end that the provisions set forth herein shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock or other securities or property thereafter deliverable on
the conversion of the Debenture. The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers, capital reorganizations
and reclassifications. The ISSUER shall not effect any such consolidation,
merger, sale or transfer unless prior to or simultaneously with the consummation
thereof the successor ISSUER or entity (if other than the ISSUER) resulting from
such consolidation, merger, sale or transfer shall assume, by written
instrument, the obligation to deliver to the HOLDER such shares of Common Stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to receive under this paragraph.
(e) The ISSUER will not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the ISSUER, but will
at all times in good faith assist in the carrying out of all the provisions of
this paragraph and in taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the HOLDERS against
impairment.
(f) After the Common Stock is registered for resale by the
Company, the HOLDER agrees to restrict its selling of shares of Common Stock
during any calendar month to the greater of: (i) one quarter (1/4) of the number
of shares of Common Stock issuable to the HOLDER hereunder, or (ii) fifteen
(15%) percent of the trading volume of the Common Stock during the twenty (20)
trading days immediately preceding the commencement of such calendar month.
5. No provision of this Debenture shall alter or impair the
obligation of the ISSUER, which is absolute and unconditional, upon an Event of
Default (as defined below), to pay the principal of, and interest on this
Debenture at the lace, time, and rate and in the coin or currency herein
prescribed.
6. The ISSUER hereby expressly waives demand and presentment
for payment, notice on nonpayment, protest, notice of protest, notice of
dishonor, notice of acceleration or intent to accelerate, and diligence in
taking any action to collect amounts called for hereunder and shall be directly
and primarily liable for the payment of all sums owing and to be owing hereon,
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regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
7. If one or more of the following described "Events of
Default" shall occur,
a. A trustee, liquidator or receiver shall be appointed
for the ISSUER or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
b. Any governmental agency or any court of competent
jurisdiction at the instance of any governmental agency shall assume custody or
control of the whole or any substantial portion of the properties or assets of
the ISSUER and shall not be dismissed within sixty (60) calendar days
thereafter; or
c. Bankruptcy reorganization, insolvency or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the ISSUER and, if
instituted against the ISSUER, ISSUER shall by any action or answer approve of,
consent to or acquiesce in any such proceedings or admit the material
allegations of, or default in answering a petition filed in any such proceeding
or such proceedings shall not be dismissed within sixty (60) days thereafter;
d. The Common Stock is delisted from trading on the
NASDAQ Small Cap Stock Market and the OTC Bulletin Board;
e. The Issuer shall fail to pay the amount of the
"Economic Benefit" (as defined in Section 9.2 of the Convertible Debenture
Subscription Agreement) when due thereunder; or
f. The Issuer shall have failed to pay interest when
due hereunder and such failure shall have continued uncured for a period of
fifteen (15) days following the Company's receipt of notice of such default from
the Holder.
Then, or at any time thereafter, and in each and every such
case, unless such Event of Default shall have been waived in writing by the
HOLDER (which waiver shall not be deemed to be a waiver of any subsequent
default) at the option of the HOLDER and in the HOLDER'S sole discretion, the
HOLDER may consider this Debenture immediately due and payable, without
presentment, demand protest or notice of any kind, all of which are hereby
expressly waived, and HOLDER may immediately, and without expiration of any
period of grace, enforce any and all of the HOLDER'S rights and remedies
provided herein or any other rights or remedies afforded by law. It is agreed
that in the event of such action, such HOLDER shall be entitled to receive all
reasonable fees, costs and expenses incurred in connection with enforcing the
rights granted hereunder, including without limitation such reasonable fees and
expenses of attorneys (if litigation is commenced).
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8. In case any provision of this Debenture is held by a court
of compete jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision sh be adjusted rather than voided, if possible, so
that it is enforceable to the maximum exte possible, and the validity and
enforceability of the remaining provisions of this Debenture w not in any way be
affected or impaired thereby.
9. In addition to the terms of the Registration Rights
Agreement of even d herewith, the HOLDER shall have the right to include all of
the shares of Common Stock underlying this Debenture (the "Registrable
Securities") as part of any registration of securities filed by the ISSUER
(other than in connection with a transaction contemplated by Rule 145(
promulgated under the Act or pursuant to Form S-8) and must be notified in
writing of such filing; provided, however, that the HOLDER agrees it shall not
have any piggy-back registration rights pursuant to this Debenture if the shares
of Common Stock underlying this Debenture in be sold in the United States
pursuant to the provisions of Rule 144. HOLDER shall have five (5) business days
to notify the ISSUER in writing as to whether the ISSUER is to include HOLDER or
not include HOLDER as part of the registration; provided, however, that if an
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be include in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the HOLDER,
and all other selling stockholder shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by th
eunderwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering pursuant
to the foregoing provisions of this Section (an all other Registrable Securities
held by the selling stockholders) shall be withheld from the market by the
HOLDERS thereof for a period, not to exceed one hundred eighty (180) day which
the underwriter may reasonably determine is necessary in order to effect such
underwritten offering. The ISSUER shall have the right to terminate or withdraw
any registration initiated by it under this Agreement prior to the effectiveness
of such registration whether or not an Debenture holder elected to include
securities in such registration. All registration expense incurred by the ISSUER
in complying with this Agreement shall be paid by the ISSUER exclusive of
underwriting discounts, commissions and legal fees and expenses for counsel to
the HOLDERS of this Debenture.
10. This Debenture and the Agreement (along with all exhibits
attache thereto) constitute the full and entire understanding and agreement
between the ISSUER an HOLDER with respect hereto. Neither this Debenture nor any
terms hereof may be amended waived, discharged or terminated other than by a
written instrument signed by the ISSUER an the HOLDER. Any capitalized terms
shall have the same meaning as given in the Agreement. In the event of any
inconsistencies between this Debenture and the Agreement, the Agreement shall
control.
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11. This Debenture shall be governed by and construed in
accordance with th laws of the State of New York.
12. The convertibility of the Debenture shall be restricted
such that that portion of the Debenture which, if otherwise converted, would
result in HOLDER being deemed the beneficial owner, in accordance with the
provisions of Rule 13d-3 of the 1934 Act, of 4.99% or more of the then issued
and outstanding Common Stock, shall not be convertible. If, in accordance with
the foregoing sentence, any portion of the Debenture remains unconvertible on
the Maturity Date, the ISSUER shall have no further obligation therefor.
13. This Debenture, together with all documents referenced
herein, embody the entire agreement and understanding between the parties hereto
with respect to the subject matter hereof and supersedes all prior oral or
written agreements and understandings relating to the subject matter hereof. No
statement, representation, warranty, covenant or agreement of any kind not
expressly set forth in this Debenture or the Agreement shall affect, or be used
to interpret, change or restrict, the express terms and provisions of this
Debenture.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the ISSUER has caused this Debenture to be
duly executed by an officer thereunto duly authorized.
CONSYGEN, INC.
By
----------------------------
Name: Ronald I. Bishop
Title: President
Date: May , 1998
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Exhibit 4.3
EXHIBIT B
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 193-1, AS AMENDED (THE "SECURITIES ACT")
OR ANY OTHER APPLICABLE STATE SECURITIES LAWS AND HAS BEEN ISSUED IN RELIANCE
UPON REGULATION D PROMULGATED UNDER THE SECURITIES ACT. THIS WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE WARRANT IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
No.
COMMON STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
------
CONSYGEN, INC.
THIS CERTIFIES that, for value received, _____________________
(the "Investor"), is entitled, upon the terms and subject to the conditions
hereinafter set forth, from May 29, 1998 (the "Issuance Date"), until on or
prior to May 29, 2003 (the "Termination Date") but not thereafter, to subscribe
for and purchase from CONSYGEN, INC., a corporation incorporated in the State of
Texas (the "Company"),________________________ (_______) shares (the "Warrant
Shares") of Common Stock, par value US $0.003 per share of the Company (the
"Common Stock"). The purchase price of one share of Common Stock (the "Exercise
Price") under this Warrant shall be equal to one hundred ten (110%) percent of
the average closing bid prices of the Common Stock for the five trading days
immediately preceding the Closing Date (defined in the 6% Convertible Debenture
Subscription Agreement between the Company and the Investors dated on or about
May 29, 1998) (the "Agreement"). The Exercise Price and the number of shares for
which the Warrant is exercisable shall be subject to adjustment as provided
herein. This Warrant is being issued in connection with the Agreement, and is
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subject to its terms and conditions. In the event of any conflict between the
terms of this Warrant and the Agreement, the Agreement shall control.
1. Title of Warrant. Prior to the expiration hereof and
subject to compliance with applicable laws, this Warrant and all rights
hereunder are transferable, in whole or in part, at the office or agency of the
Company by the holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with the Assignment Form annexed hereto
properly endorsed and receipt by the Company of an opinion of counsel to the
Company as to compliance with applicable securities laws.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock which may be issued upon the exercise of rights
represented by this Warrant will, when issued and paid for in accordance with
the terms and conditions of this Warrant, be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes, liens and charges in
respect of the issue thereof (other than taxes in respect of any transfer
occurring contemporaneously with such issue),
3. Exercise of Warrant. Except as provided in Section 4 below,
exercise of the purchase rights represented by this Warrant may be made as
follows: (a) the holder may exercise its rights to purchase one third of the
Warrant Shares issuable hereunder at any time after the Issuance Date, (b) the
holder may exercise its rights to purchase another one third of the Warrant
Shares issuable hereunder at any time after November 29, 1998, and (c) the
holder may exercise its rights to purchase the remaining Warrant Shares issuable
hereunder at any time after May 29, 1999. These purchase rights are exercisable
by the holder hereof as set forth above before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in this Warrant, by the surrender of, this Warrant and the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased; whereupon the holder of this Warrant shall be entitled
to receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within five (5) business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied by
the number of Warrant Shares.
4. No Fractional Shares or Scrip/ Restrictions on Exercise. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.
5. Charges, Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
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directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof, and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, an opinion of counsel to
the Company, as to compliance with applicable securities laws, and the payment
of a sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its
shareholder books or records in any manner which prevents the timely exercise of
this Warrant for a period of time in excess of five (5) trading days per year.
7. No Rights as Shareholder until Exercise. This Warrant does
not entitle the holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company),
subject to receipt of an opinion of counsel to the Company, as to compliance
with applicable securities laws.
9. Loss, Theft, Destruction or Mutilation of Warrant. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant certificate or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of such
Warrant or stock certificate, if mutilated, the Company will make and deliver a
new Warrant or stock certificate of like tenor and dated as of such
cancellation, in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays, etc. If the last or
appointed day for the taking of any action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. Effect of Certain Events. If at any time the Company
proposes (i) to sell or otherwise convey all or substantially all of its assets
or (ii) to effect a transaction (by merger or otherwise) in which more than 50%
of the voting power of the Company is disposed of (collectively, a "Sale or
Merger Transaction"), in which the consideration to be received by the Company
or its shareholders consists solely of cash, or (c) in case the Company shall at
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any time effect a sale or merger transaction in which the consideration to be
received by the Company or its shareholders consists in part of consideration
other than cash, the holder of this Warrant shall have the right thereafter to
purchase, by exercise of this Warrant and payment of the aggregate Exercise
Price in effect immediately prior to such action, the kind and amount of shares
and other securities and property which it would have owned or have been
entitled to receive after the happening of such transaction had this Warrant
been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be
included in Registration Statement to be filed by the Company pursuant to the
Agreement.
12. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto shall
be adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
13. [Reserved]
14. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such adjustment,
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<PAGE>
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made. Such notice, in
absence of manifest error, shall be conclusive evidence of the correctness of
such adjustment.
15. Authorized Shares. The Company covenants that during the
period the Warrant is outstanding, it will reserve from its authorized and
unissued Common Stock sufficient number of shares to provide for the issuance of
the Warrant Shares upon the exercise of any purchase rights under this Warrant.
The Company further covenants that its issuance this Warrant shall constitute
full authority to its officers who are charged with the duty executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued provided herein without violation of any applicable
law or regulation, or of any requirements the NASDAQ Small Cap Stock Market or
any domestic securities exchange upon which the Common Stock may be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the right
to include all Warrant Shares as part of any registration of securities filed by
the Company (other than in connection with transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8) and must be notified
in writing of such filing; provided, however, that the holder of this Warrant
agrees it shall not have any piggy-back registration rights pursuant to this
Warrant if the Warrant Shares may be sold in the United States pursuant to the
provisions of Rule 144. The Holder shall have five (5) business days to notify
the Company in writing as to whether the Company is to include Holder or not
include Holder as part of the registration; provided, however, that if an
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holder,
and all other selling stockholder shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering pursuant
to the foregoing provisions of this Section (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the Holders thereof for a period, not to exceed one hundred eighty (180)
days, which the underwriter may reasonably determine is necessary in order to
effect such underwritten offering. The Company shall have the right to terminate
or withdraw any registration initiated by it under this Agreement prior to the
effectiveness of such registration, whether or not any Warrant holder elected to
include securities in such registration. All registration expenses incurred by
the Company in complying with this Warrant shall be paid by the Company,
exclusive of underwriting discounts, commissions and legal fees and expenses for
counsel to the holders of the Warrants.
5
<PAGE>
17. Miscellaneous.
(a) Issue Date; Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws of New York without regard to its conflict
of law, principles or rules, and be subject to arbitration pursuant to the terms
set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered, or
if no exemption from registration exists, will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing the
Warrant Shares (if not registered, or if no exemption from registration exists)
issued to the Holder upon exercise will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE N BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED,
HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY OTHER
APPLICABLE SECURITIES LAWS OR PURSUANT TO A TRANSACTION THAT IS EXEMPT
FROM, OR NOT SUBJECT TO, SUCH REGISTRATION."
(c) Modification and Waiver. This Warrant and any provisions
hereof may changed, waived, discharged or terminated only by an instrument in
writing signed by the pa against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May , 1998
CONSYGEN, INC.
-------------------------------
By: Ronald I. Bishop, President
7
<PAGE>
NOTICE OF EXERCISE
To: CONSYGEN, INC.
(1) The undersigned hereby elects to purchase _________shares
of Common Stock, par value $.003 per share (the "Common Stock") of CONSYGEN,
INC., pursuant to the terms of the attached Warrant, and tenders herewith
payment of the exercise price in full, together with all applicable transfer
taxes, if any.
(2) Please issue a certificate or certificates representing
said shares of Common Stock in the name of the undersigned or in such other name
as is specified below:
-------------------------------
(Name)
-------------------------------
(Address)
Dated:
-------------------------------
Signature
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights
evidenced thereby are hereby assigned to:
- --------------------------------------------------- whose address is
- ---------------------------------------------------.
- ---------------------------------------------------
Dated:
-----------------------
Holder's Signature
--------------------------
Holder's Address
--------------------------
Signature Guaranteed:
-----------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the fact of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of the 29th day
of May, 1998, among the entities listed on Schedule A (collectively referred to
as the "Holders"), and CONSYGEN, INC., a corporation incorporated under the laws
of the state of Texas, and having its principal place of business at 10201 South
51"" Street, Suite 140, Phoenix, Arizona, 85044 (the "Company").
WHEREAS, the Investors are purchasing from the Company,
pursuant to a 6% Convertible Debenture Subscription Agreement dated the date
hereof (the "Subscription Agreement"), an aggregate of Three Million Five
Hundred Thousand ($3,500,000) Dollars principal amount of the Company's
Convertible Debenture, and a Warrant to purchase one hundred five thousand
(105,000) shares of the Company's Common Stock; and
WHEREAS, the Company desires to grant to the Holders the
registration rights set forth herein with respect to the shares underlying the
Convertible Debenture and Warrant Shares (collectively hereinafter referred to
as the "Stock" or "Securities" of the Company).
NOW, THEREFORE, the parties hereto mutually agree as follows:
Section 1. Registrable Securities. As used herein, the term
"Registrable Security means the Securities; provided, however, that with respect
to any particular Registrable Security, such security shall cease to be a
Registrable Security when, as of the date of determination, (1) it has been
registered under the Securities Act of 1933, as amended (the "1933 Act"), (ii)
registration under the 1933 Act is no longer required for the immediate public
distribution of such security as a result of the provisions of Rule 144
promulgated under the 1933 Act, or (iii) it has ceased to be outstanding. The
term "Registrable Securities" means any and/or all of the securities falling
within the foregoing definition of a "Registrable Security." In the event of any
merger, reorganization, consolidation, recapitalization or other change in
corporate structure affecting the Common Stock, such adjustment shall be made in
the definition of "Registrable Security" as is appropriate in order to prevent
any dilution or enlargement of the rights granted pursuant to this Section 1.
Section 2. Restrictions on Transfer. The Holders acknowledge
and understand that prior to the registration of the Securities as provided
herein, the Securities are "restricted securities" as defined in Rule 144
promulgated under the Act. The Holders understand that no disposition or
transfer of the Securities may be made by the Holders in the absence of (i) an
opinion of counsel to the Company that such transfer may be made without
registration under the 1933 Act or (ii) such registration.
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<PAGE>
Section 3. Registration Rights.
(a) The Company agrees that it will use its best
efforts to prepare and file with the Securities and Exchange Commission
("Commission"), within forty five (45) days after the Subscription Date, a
registration statement under the 1933 Act (the "Registration Statement"), at the
sole expense of the Company (except as provided in Section 3(c) hereof), in
respect of all holders of Registrable Securities, so as to permit a registered
issuance of the Registrable Securities under the Act. The Company shall use its
best efforts to cause the Registration Statement to become effective within one
hundred twenty (120) days from the Closing Date. The number of shares designated
in the Registration Statement to be registered shall be two hundred (200%)
percent (or such higher number as the Company determines) of the number of
Securities that would be required if all the Registrable Securities were issued
on the day before the filing of the Registration Statement.
(b) The Company will maintain the effectiveness of
the Registration Statement or post- effective amendment filed under this Section
3 hereof current under the 1933 Act until the earlier of (i) the date that all
of the Registrable Securities have been sold pursuant to the Registration
Statement, (ii) the date the holders thereof receive an opinion of counsel that
all of the Registrable Securities may be sold under the provisions of Rule 144,
or (iii) five years after the Subscription Date.
(c) All fees, disbursements and out-of-pocket
expenses and costs incurred by the Company in connection with the preparation
and filing of the Registration Statement under subparagraph 3(a) and in
complying with applicable securities and Blue Sky laws (including, without
limitation, all attorneys' fees) shall be borne by the Company. The Holder shall
bear the cost of underwriting discounts and commissions, if any, applicable to
the Registrable Securities being registered and the fees and expenses of its
counsel. The Company shall qualify any of the securities for sale in such states
as such Holder reasonably designates and shall furnish indemnification in the
manner provided in Section 6 hereof. However, the Company shall not be required
to qualify any of the securities for sale in any state which will require an
escrow or other restriction relating to the Company and/or the sellers. The
Company at its expense will supply the Holder with copies of the Registration
Statement and the prospectus or offering circular included therein and other
related documents in such quantities as may be reasonably requested by the
Holders.
(d) The Company shall not be required by this Section
3 to include a Holder's Registrable Securities in any Registration Statement
which is to be filed if, in the opinion of counsel for both the Holders and the
Company (or, should they not agree, in the opinion of another counsel
experienced in securities law matters acceptable to counsel for the Holders and
the Company) the proposed offering or other transfer as to which such
registration is requested is exempt from applicable federal and state securities
laws and would result in all transferees obtaining securities which are not
"restricted securities," as defined in Rule 144 under the 1933 Act.
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<PAGE>
(e) In the event the Registration Statement to be
filed by the Company pursuant to Section 3(a) above is not filed with the
Commission within forty five (45) days from the Subscription Date and/or the
Registration Statement is not declared effective by the Commission within one
hundred twenty (120) days from the Subscription Date, then the Company will pay
Holder (pro rated on a daily basis), as liquidated damages for such failure and
not as a penalty, one (1%) percent of the Purchase Price of the then outstanding
Securities for the first thirty (30) day period that such filing and/or
effectiveness is delayed, and two (2%) percent of the Purchase Price of the then
outstanding Securities for every thirty (30) days thereafter until the
Registration Statement has been filed and/or declared effective. Such payment of
the liquidated damages shall be made to the Holders one half in shares of Common
Stock (upon the same conversion terms contained in the Convertible Debenture),
and one half in cash, immediately upon demand, provided, however, that the
payment of such liquidated damages shall not relieve the Company from its
obligations to register the Securities pursuant to this Section. The
aforementioned liquidated damages shall cease to accrue one year after the
Subscription Date on the condition that the Holders may rely on Rule 144 for the
resale of all of the Securities then held by the Holders.
If the Company does not remit the damages to the
Holders as set forth above, the Company will pay the Holders' reasonable costs
of collection, including attorneys fees, in addition to the liquidated damages.
The registration of the Securities pursuant to this provision shall not affect
or limit Holders' other rights or remedies as set forth in this Agreement.
(f) No provision contained herein shall preclude the
Company from selling securities pursuant to any Registration Statement in which
it is required to include Registrable Securities pursuant to this Section 3.
(g) If at any time or from time to time after the
effective date of the Registration Statement, the Company notifies the Holders
in writing of the existence of a Potential Material Event (as defined in Section
3(h) below), the Holders shall not offer or sell any Registrable Securities or
engage in any other transaction involving or relating to Registrable Securities,
from the time of the giving of notice with respect to a Potential Material Event
until such Holder receives written notice from the Company that such Potential
Material Event either has been disclosed to the public or no longer constitutes
a Potential Material Event; provided, however, that the Company may not so
suspend the right to such holders of Securities for more than four (4) twenty
(20) day periods in the aggregate during any twelve month period, during the
periods the Registration Statement is required to be in effect. If a Potential
Material Event shall occur prior to the date the Registration Statement is
filed, then the Company's obligation to file the Registration Statement shall be
delayed without penalty for not more than twenty (20) days. The Company must
give each Holder notice in writing at least two (2) business days prior to the
first day of the blackout period.
(h) "Potential Material Event" means any of the
following: (a) the possession by the Company of material information not ripe
for disclosure in a registration statement; (b) any material engagement or
activity by the Company which would be adversely
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<PAGE>
affected by disclosure in a registration statement at such time; or (c) the
Registration Statement would be materially misleading absent the inclusion of
such information.
Section 4. Cooperation with Company. Holders will cooperate
with the Company in all respects in connection with this Agreement, including
timely supplying all information reasonably requested by the Company and
executing and returning all documents reasonably requested in connection with
the registration and sale of the Registrable Securities.
Section 5. Registration Procedures. If and whenever the
Company is required by any of the provisions of this Agreement to effect the
registration of any of the Registrable Securities under the Act, the Company
shall (except as otherwise provided in this Agreement), as expeditiously as
possible:
(a) prepare and file with the Commission such
amendments and supplements to the Registration Statement and the prospectus used
in connection therewith as may be necessary to keep such registration statement
effective and to comply with the provisions of the Act with respect to the sale
or other disposition of all securities covered by such registration statement
whenever the Holder of such securities shall desire to sell or otherwise dispose
of the same (including prospectus supplements with respect to the sales of
securities from time to time in connection with a registration statement
pursuant to Rule 415 promulgated under the Act);
(b) furnish to each Holder such numbers of copies of
a summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the Act, and such other documents as Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities owned by such Holder;
(c) register and qualify the securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request (subject to the
limitations set forth in Section 3(d) above), and do any and all other acts and
things which may be necessary or advisable to enable each Holder to consummate
the public sale or other disposition in such jurisdiction of the securities
owned by such Holder, except that the Company shall not for any such purpose be
required to qualify to do business as a Foreign corporation in any jurisdiction
wherein it is not so qualified or to file therein any general consent to service
of process;
(d) list such securities on the Nasdaq Small Cap
Stock Market or other national securities exchange on which any securities of
the Company are then listed, if the listing of such securities is then permitted
under the rules of such exchange or Nasdaq;
(e) notify each Holder of Registrable Securities
covered by the Registration Statement, at any time when a prospectus relating
thereto covered by the Registration Statement is required to be delivered under
the Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in the Registration
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<PAGE>
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
Section 6. Indemnification.
(a) The Company agrees to indemnify and hold harmless
the Holders, and each officer, director or person, if any, who controls each
Holder within the meaning of the 1933 Act ("Distributing Holder") against any
losses, claims, damages or liabilities, joint or several (which shall, for all
purposes of this Agreement, include, but not be limited to, all costs of defense
and investigation and all attorneys' fees), to which the Distributing Holder may
become subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, or any related preliminary prospectus,
final prospectus, offering circular, notification or amendment or supplement
thereto, or arise out of or are based upon 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; provided, however, that the Company (i)
will not be liable in any such case 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 the
Registration Statement, preliminary prospectus, final prospectus, offering
circular, notification or amendment or supplement thereto in reliance upon, and
in conformity with, written information furnished to the Company by the
Distributing Holder, specifically for use in the preparation thereof, or (ii)
will not pay any amounts paid in settlement of any loss, claim, damage or
liability if such settlement is effected without the consent of the Company,
which consent shall not be unreasonably withheld. This Section 6(a) shall not
inure to the benefit of any Distributing Holder with respect to any person
asserting such loss, claim, damage or liability who purchased the Registrable
Securities which are the subject thereof if the Distributing Holder failed to
send or give (in violation of the 1933 Act or the rules and regulations
promulgated thereunder) a copy of the prospectus contained in such Registration
Statement to such person at or prior to the written confirmation of such person
of the sale of such Registrable Securities, where the Distributing Holder was
obligated to do so under the 1933 Act or the rules and regulations promulgated
thereunder. This indemnity provision will be in addition to any liability which
the Company may otherwise have.
(b) Each Distributing Holder agrees that it will
indemnify and hold harmless the Company, and each officer, director, or person,
if any, who controls the Company within the meaning of the 1933 Act, against any
losses, claims, damages or liabilities (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees) to which the Company or any such officer,
director or controlling person may become subject under the 1933 Act or
otherwise, insofar as such losses claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
or any related preliminary prospectus, final prospectus, offering circular,
notification or amendment or supplement thereto, or arise out of or are based
upon the omission or the
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<PAGE>
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, preliminary
prospectus, final prospectus, offering circular, notification or amendment or
supplement thereto in reliance upon, and in conformity with, written information
furnished to the Company by such Distributing Holder, specifically for use in
the preparation thereof. This indemnity provision will be in addition to any
liability which the Distributing Holder may otherwise have.
(c) Promptly after receipt by an indemnified party
under this Section 6 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 6, notify the indemnifying party of the
commencement thereof, but the omission so to notify the indemnifying party will
not relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than as to the particular item as to which
indemnification is then being sought solely pursuant to this Section 6. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
any other indemnifying party similarly notified, assume the defense thereof,
subject to the provisions herein stated and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified party
under this Section 6 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation, unless the indemnifying party shall not
pursue the action to its final conclusion. The indemnified party shall have the
right to employ separate counsel in any such action and to participate in the
defense thereof, but the fees and expenses of such counsel shall not be at the
expense of the indemnifying party if the indemnifying party has assumed the
defense of the action with counsel reasonably satisfactory to the indemnified
party; provided that if the indemnified party is the Distributing Holder, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party, or (ii) the named parties to any such action
(including any impleaded parties) include both the Distributing Holder and the
indemnifying party and the Distributing Holder shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the Distributing Holder (in which case the indemnifying
party shall not have the right to assume the defense of such action on behalf of
the Distributing Holder, it being understood, however, that the indemnifying
party shall, in connection with any one such action or separate but
substantially similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances, be liable only for the reasonable
fees and expenses of one separate firm of attorneys for the Distributing Holder,
which firm shall be designated in writing by the Distributing Holder). No
settlement of any action against an indemnified party shall be made without the
prior written consent of the indemnified party, which consent shall not be
unreasonably withheld.
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<PAGE>
Section 7. Contribution. In order to provide for just and
equitable contribution under the 1933 Act in any case in which (i) the
indemnified party makes a claim for indemnification pursuant to Section 6 hereof
but is judicially determined (by the entry of a final judgment or decree by a
court of competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal), that such indemnification may not be
enforced in such case notwithstanding the fact that the express provisions of
Section 6 hereof provide for indemnification in such case, or (ii) contribution
under the 1933 Act may be required on the part of any indemnified party, then
the Company and the applicable Distributing Holder shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorneys' fees), in either
such case (after contribution from others) on the basis of relative fault as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the applicable Distributing Holder on the other hand, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and the Distributing Holder
agree that it would not be just and equitable if contribution pursuant to this
Section 7 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Section 7. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to above in this Section 7 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. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation,
Section 8. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(i]) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received), (b) on the second business day following the date of mailing by
reputable courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur, or (c) on the fifth
business day following the date of mailing by certified or registered mail,
return receipt requested, postage prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
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<PAGE>
If to ConSyGen, Inc.
ConSyGen, Inc.
10201 South 51st Street, Suite 140
Phoenix, Arizona 85044
Attn: Ronald I. Bishop
Facsimile: (602) 496-4545
Telephone: (602) 496-9889
With a copy to:
Brown, Rudnick, Agreed & Gesmer
One Financial Center
Boston, MA 02111
Attn: John G. Nossiff, Jr., Esq.
Facsimile: (617) 856-8201
Telephone: (617) 856-8200
If to the Holders at the addresses set forth on Schedule A attached
hereto.
Any party hereto may from time to time change its address or facsimile
number for notices under this Section by giving at least ten (10) days' prior
written notice of such changed address or facsimile number to the other party
hereto.
Section 9. Assignment. This Agreement is binding upon and
inures to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns. The rights granted the Holders under this
Agreement shall not be assigned without the written consent of the Company,
which consent shall not be unnecessarily withheld. In the event of a transfer of
the rights granted under this Agreement, the Holder agrees that the Company may
require that the transferee comply with reasonable conditions as determined in
the discretion of the Company.
Section 10. Counterparts; Facsimile; Amendments. This
Agreement may be executed in multiple counterparts, each of which may be
executed by less than all of the parties and shall be deemed to be an original
instrument which shall be enforceable against the parties actually executing
such counterparts and all of which together shall constitute one and the same
instrument. Except as otherwise stated herein, in lieu of the original
documents, a facsimile transmission or copy of the original documents shall be
as effective and enforceable as the original. This Agreement may be amended only
by a writing executed by all parties.
Section 11. Termination of Registration Rights. The rights
granted pursuant to this Agreement shall terminate as to each Holder (and
permitted transferees or assignees) upon the occurrence of any of the following:
(a) all Holder's Securities subject to this Agreement
have been registered;
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<PAGE>
(b) all of such Holder's Securities subject to this
Agreement may be sold without such registration pursuant to Rule 144 promulgated
by the SEC pursuant to the Securities Act;
(c) all of such Holder's Securities subject to this
Agreement can be sold pursuant to Rule 144(k).
Section 12. Headings. The headings in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 13. Governing Law: Venue, Jurisdiction. This Agreement
will be construed and enforced in accordance with and governed by the laws of
the State of New York, except for matters arising under the Act, without
reference to principles of conflicts of law. Each of the parties consents to the
jurisdiction of the U.S. District Court sitting in the Southern District of the
State of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdiction. Each party hereby agrees that if another
party to this Agreement obtains a judgment against it in such a proceeding, the
party which obtained such judgment may enforce same by summary judgment in the
courts of any country having jurisdiction over the party against whom such
judgment was obtained, and each party hereby waives any defenses available to it
under local law and agrees to the enforcement of such a judgment. Each party to
this Agreement irrevocably consents to the service of process in any such
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to such party at its address set forth herein. Nothing herein
shall affect the right of any party to serve process in any other manner
permitted by law.
Section 14. Severability. If any provision of this Agreement
shall for any reason be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provision hereof and this Agreement
shall be construed as if such invalid or unenforceable provision had never been
contained herein.
Section 15. Capitalized Terms. All capitalized terms not
otherwise defined herein shall have the meaning assigned to them in the 6%
Convertible Debenture Subscription Agreement.
Section 16. Entire Agreement. This Agreement, together with
all documents referenced herein, embody the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof and
supersedes all prior oral or written agreements and understandings relating to
the subject matter hereof. No statement, representation, warranty, covenant or
agreement of any kind not expressly set forth in this Agreement shall affect, or
be used to interpret, change or restrict, the express terms and provisions of
this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Registration Rights Agreement to be duly executed, on the day and year first
above written.
CONSYGEN, INC.
By:_____________________________________
Ronald I. Bishop, President
By _____________________________________
By _____________________________________
By _____________________________________
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EXHIBIT 4.4
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"')
OR ANY OTHER APPLICABLE STATE SECURITIES LAWS AND HAS BEEN ISSUED IN RELIANCE
UPON REGULATION D PROMULGATED UNDER THE SECURITIES ACT. THIS WARRANT SHALL NOT
CONSTITUTE AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE WARRANT IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL.
THIS WARRANT AND THE SHARES OF STOCK ISSUABLE UPON EXERCISE HEREOF MAY NOT BE
SOLD, PLEDGED, TRANSFERRED OR ASSIGNED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE
SECURITIES LAWS, OR IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE
PROVISIONS OF THE SECURITIES ACT AND UNDER PROVISIONS OF APPLICABLE STATE
SECURITIES LAWS; AND IN THE CASE OF AN EXEMPTION, ONLY IF THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL THAT SUCH TRANSACTION DOES NOT REQUIRE
REGISTRATION OF THE WARRANT, WHICH OPINION AND WHICH COUNSEL SHALL BE
SATISFACTORY TO THE COMPANY IN ITS SOLE DISCRETION.
No. A4
COMMON STOCK PURCHASE WARRANT
To Purchase Shares of Common Stock of
CONSYGEN, INC.
THIS CERTIFIES that, for value received , (the "Investor"), is
entitled, upon the terms and subject to the conditions hereinafter set forth,
from May 29, 1998 (the "Issuance Date"), until on or prior to May 29, 2003 (the
"Termination Date") but not thereafter, to subscribe for and purchase from
CONSYGEN, INC., a corporation incorporated in the State of Texas (the
"Company"), Five Thousand (5,000) shares (the "Warrant Shares") of Common Stock,
par value US $0.003 per share of the Company (the "Common Stock"). The purchase
price of one share of Common Stock (the "Exercise Price") under this Warrant
shall be equal to one hundred ten (110%) percent of the average closing bid
prices of the Common Stock for the five trading days immediately preceding the
Closing Date (defined in the 6% Convertible Debenture Subscription Agreement
between the Company and the Investors dated on or about May 29, 1998) (the
"Agreement"). The Exercise Price and the number of shares for which the Warrant
is exercisable shall be subject to adjustment as provided herein. This Warrant
is being issued in connection with the Agreement and is subject to its terms and
conditions. In the event of any conflict between the terms of this Warrant and
the Agreement, the Agreement shall control.
1 Title of Warrant. Prior to the expiration hereof and subject
to compliance with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company by the
holder hereof in person or by duly authorized attorney, upon surrender of this
Warrant together with the Assignment Form annexed hereto properly endorsed and
receipt by the Company of an opinion of counsel to the Company as to compliance
with applicable securities laws.
2. Authorization of Shares. The Company covenants that all
shares of Common Stock may be issued upon the exercise of rights represented by
this Warrant will, when issued and paid for in accordance with the terms and
conditions of this Warrant, be duly authorized, validly issued, fully paid and
nonassessable and free from all taxes, liens and charges in respect of the issue
thereof (other than taxes in respect of any transfer occurring contemporaneously
with such issue).
-1-
<PAGE>
3. Exercise of Warrant. Except as provided in Section 4 below,
exercise of the purchase rights represented by this Warrant may be made as
follows: (a) the holder may exercise its rights to purchase one third of the
Warrant Shares issuable hereunder at any time after the Issuance Date, (b) the
holder may exercise its rights to purchase another one third of the Warrant
Shares issuable hereunder at any time after November 29, 1998, and (c) the
holder may exercise its rights to purchase the remaining Warrant Shares issuable
hereunder at any time after May 29, 1999. These purchase rights are exercisable
by the holder hereof as set forth above before the close of business on the
Termination Date, or such earlier date on which this Warrant may terminate as
provided in this Warrant, by the surrender of this Warrant and the Notice of
Exercise Form annexed hereto duly executed, at the office of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof at the address of such holder appearing
on the books of the Company) and upon payment of the Exercise Price of the
shares thereby purchased; whereupon the holder of this Warrant shall be entitled
to receive a certificate for the number of shares of Common Stock so purchased.
Certificates for shares purchased hereunder shall be delivered to the holder
hereof within five (5) business days after the date on which this Warrant shall
have been exercised as aforesaid. Payment of the Exercise Price of the shares
may be by certified check or cashier's check or by wire transfer to an account
designated by the Company in an amount equal to the Exercise Price multiplied by
the number of Warrant Shares.
4. No Fractional Shares or Scrip/ Restrictions on Exercise. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of this Warrant.
5. Charges. Taxes and Expenses. Issuance of certificates for
shares of Common Stock upon the exercise of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be issued in
the name of the holder of this Warrant or in such name or names as may be
directed by the holder of this Warrant; provided, however, that in the event
certificates for shares of Common Stock are to be issued in a name other than
the name of the holder of this Warrant, this Warrant when surrendered for
exercise shall be accompanied by the Assignment Form attached hereto duly
executed by the holder hereof; and provided further, that upon any transfer
involved in the issuance or delivery of any certificates for shares of Common
Stock, the Company may require, as a condition thereto, an opinion of counsel to
the Company, as to compliance with applicable securities laws, and the payment
of a sum sufficient to reimburse it for any transfer tax incidental thereto.
6. Closing of Books. The Company will not close its
shareholder books or records in any manner which prevents the timely exercise of
this Warrant for a period of time in excess of five (5) trading days per year.
7. No Rights as Shareholder until Exercise. This Warrant does
not entitle the Holder hereof to any voting rights or other rights as a
shareholder of the Company prior to the exercise thereof. Upon the surrender of
this Warrant and the payment of the aggregate Exercise Price, the Warrant Shares
so purchased shall be and be deemed to be issued to such holder as the record
owner of such shares as of the close of business on the later of the date of
such surrender or payment.
8. Assignment and Transfer of Warrant. This Warrant may be
assigned by the surrender of this Warrant and the Assignment Form annexed hereto
duly executed at the office of the Company (or such other office or agency of
the Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company),
subject to receipt of an opinion of counsel to the Company, as to compliance
with applicable securities laws.
9. Loss, Theft, Destruction or Mutilation of Warrant. The
Company represents and warrants that upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant certificate or any stock certificate relating to the Warrant
Shares, and in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and upon surrender and cancellation of such
-2-
<PAGE>
Warrant or stock certificate, if mutilated, the Company will make and deliver a
new Warrant or stock certificate like tenor and dated as of such cancellation,
in lieu of such Warrant or stock certificate.
10. Saturdays, Sundays, Holidays. etc. If the last or
appointed day for the taking of an action or the expiration of any right
required or granted herein shall be a Saturday, Sunday or a legal holiday, then
such action may be taken or such right may be exercised on the next succeeding
day not a legal holiday.
11. Effect of Certain Events. If at any time the Company
proposes (i) to sell or otherwise convey all or substantially all of its assets
or (ii) to effect a transaction (by merger or otherwise) in which more than 50%
of the voting power of the Company is disposed of (collectively, a "Sale or
Merger Transaction"), in which the consideration to be received by the Company
or its shareholders consists solely of cash, or (iii) in case the Company shall
at any time effect a sale or merger transaction in which the consideration to be
received by the Company or its shareholders consists in part of consideration
other than cash, the holder of this Warrant shall have the right thereafter to
purchase, by exercise of this Warrant and payment of the aggregate Exercise
Price in effect immediately prior to such action, the kind and amount of shares
and other securities and property which it would have owned or have been
entitled to receive after the happening of such transaction had this Warrant
been exercised immediately prior thereto.
(c) The Company agrees that the Warrant Shares shall be
included in the Registration Statement to be filed by the Company pursuant to
the Agreement.
12. Adjustments of Exercise Price and Number of Warrant
Shares. The number and kind of securities purchasable upon the exercise of this
Warrant and the Exercise Price shall be subject to adjustment from time to time
upon the happening of any of the following.
In case the Company shall (i) declare or pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock to
holders of its outstanding Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock or (iv) issue any shares of its capital
stock in a reclassification of the Common Stock, then the number of Warrant
Shares purchasable upon exercise of this Warrant immediately prior thereto shall
be adjusted so that the holder of this Warrant shall be entitled to receive the
kind and number of Warrant Shares or other securities of the Company which he
would have owned or have been entitled to receive had such Warrant been
exercised in advance thereof. Upon each such adjustment of the kind and number
of Warrant Shares or other securities of the Company which are purchasable
hereunder, the holder of this Warrant shall thereafter be entitled to purchase
the number of Warrant Shares or other securities resulting from such adjustment
at an Exercise Price per such Warrant Share or other security obtained by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares purchasable pursuant hereto immediately prior to
such adjustment and dividing by the number of Warrant Shares or other securities
of the Company resulting from such adjustment. An adjustment made pursuant to
this paragraph shall become effective immediately after the effective date of
such event retroactive to the record date, if any, for such event.
13. (Reserved]
14. Notice of Adjustment. Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon the
exercise of this Warrant or the Exercise Price is adjusted, as herein provided,
the Company shall promptly mail by registered or certified mail, return receipt
requested, to the holder of this Warrant notice of such adjustment or
adjustments setting forth the number of Warrant Shares (and other securities or
property) purchasable upon the exercise of this Warrant and the Exercise Price
of such Warrant Shares (and other securities or property) after such adjustment,
setting forth a brief statement of the facts requiring such adjustment and
setting forth the computation by which such adjustment was made. Such notice, in
absence of manifest error, shall be conclusive evidence of the correctness of
such adjustment.
-3-
<PAGE>
15. Authorized Shares. The Company covenants that during the
period the Warrant outstanding, it will reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of the
Warrant Shares upon the exercise of any purchase rights under this Warrant. The
Company further covenants that its issuance of this Warrant shall constitute
full authority to its officers who are charged wit the duty of executing stock
certificates to execute and issue the necessary certificates for the Warrant
Shares upon the exercise of the purchase rights under this Warrant. The Company
will take all such reasonable action as may be necessary to assure that such
Warrant Shares may be issued as provided herein without violation of any
applicable law or regulation, or of any requirements of the Nasdaq Small Cap
Stock Market or any domestic securities exchange upon which the Common Stock may
be listed.
16. "Piggy-Back" Registration. In addition to the terms of the
Registration Rights Agreement, the Holders of this Warrant shall have the right
to include all Warrant Shares as part of any registration of securities filed by
the Company (other than in connection with a transaction contemplated by Rule
145(a) promulgated under the Act or pursuant to Form S-8) and must be notified
in writing of such filing; provided, however, that the holder of this Warrant
agrees it shall not have any piggy-back registration rights pursuant to this
Warrant if the Warrant Shares may be sold in the United States pursuant to the
provisions of Rule 144. The Holder shall have five (5) business days to notify
the Company in writing as to whether the Company is to include Holder or not
include Holder as part of the registration; provided, however, that if any
registration pursuant to this Section shall be underwritten, in whole or in
part, the Company may require that the Registrable Securities requested for
inclusion pursuant to this Section be included in the underwriting on the same
terms and conditions as the securities otherwise being sold through the
underwriters. If in the good faith judgment of the underwriter evidenced in
writing of such offering only a limited number of Registrable Securities should
be included in such offering, or no such shares should be included, the Holder,
and all other selling stockholders, shall be limited to registering such
proportion of their respective shares as shall equal the proportion that the
number of shares of selling stockholders permitted to be registered by the
underwriter in such offering bears to the total number of all shares then held
by all selling stockholders desiring to participate in such offering. Those
Registrable Securities which are excluded from an underwritten offering pursuant
to the foregoing provisions of this Section (and all other Registrable
Securities held by the selling stockholders) shall be withheld from the market
by the Holders thereof for a period not to exceed one hundred eighty (180) days,
which the underwriter may reasonably determine is necessary in order to effect
such underwritten offering. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Agreement prior to the
effectiveness of such registration whether or not any Warrant holder elected to
include securities in such registration. All registration expenses incurred by
the Company in complying with this Warrant shall be paid by the Company,
exclusive of underwriting discounts, commissions and legal fees and expenses for
counsel to the holders of the Warrants.
17. Miscellaneous.
(a) Issue Date: Jurisdiction. The provisions of this Warrant
shall be construed and shall be given effect in all respects as if it had been
issued and delivered by the Company on the date hereof. This Warrant shall be
binding upon any successors or assigns of the Company. This Warrant shall
constitute a contract under the laws of New York without regard to its conflict
of law, principles or rules, and be subject to arbitration pursuant to the terms
set forth in the Agreement.
(b) Restrictions. The holder hereof acknowledges that the
Warrant Shares acquired upon the exercise of this Warrant, if not registered, or
if no exemption from registration exists, will have restrictions upon resale
imposed by state and federal securities laws. Each certificate representing the
Warrant Shares (if not registered, or if no exemption from registration exists)
issued to the Holder upon exercise will bear the following legend:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE
BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROM THE
-4-
<PAGE>
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND ANY OTHER APPLICABLE SECURITIES LAWS OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION."
(c) Modification and Waiver. This Warrant and any provisions
hereof may be changed, waived, discharged or terminated only by an instrument in
writing signed by the party against which enforcement of the same is sought.
(d) Notices. Any notice, request or other document required or
permitted to be given or delivered to the holders hereof by the Company shall be
delivered or shall be sent by certified or registered mail, postage prepaid, to
each such holder at its address as shown on the books of the Company or to the
Company at the address set forth in the Agreement.
[remainder of page intentionally left blank]
-5-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
executed by its officer thereunto duly authorized.
Dated: May 29, 1998
CONSYGEN, INC.
_______________________________
By: Ronald I. Bishop, President
[LETTERHEAD OF CONSYGEN, INC.]
Exhibit .4.12
AGREEMENT
This is an agreement between Tom S. Dreaper and ConSyGen, Inc., relating to the
employment of Tom Dreaper to be the new President and Chief Executive Officer of
ConSyGen, Inc. The parties agree as follows:
1. The salary for this position for Tom S. Dreaper is One Hundred and
Twenty Thousand Dollars ($120,000) per year, payable in equal payments
on the 15th and 30th of each month.
2. Tom Dreaper is to receive a One Million (1,000,000) share stock option
of ConSyGen, Inc. stock based on the closing ConSyGen, Inc. stock
price on July 9, 1998 which will vest (when the ConSyGen, Inc. stock
price closes at five dollars ($5.00) or higher) for the amount of five
hundred thousand (500,000) shares of ConSyGen, Inc. stock, and the
remaining amount of five hundred thousand (500,000) shares of
ConSyGen, Inc., stock which will vest when the ConSyGen, Inc. stock
price closes at ten dollars ($10.00) per share or higher. Tom Dreaper
can exercise his right to purchase the vested stock anytime for 10
years from July 17, 1998. ConSyGen, Inc. and Tom Dreaper agree that
they will both negotiate in good faith future stock option incentives
for Tom Dreaper based on his performance as President and CEO of
ConSyGen, Inc.
3. The parties further agree that ConSyGen, Inc will pay the closing and
relocation (moving) costs for Tom Dreaper when he is able to sell his
Las Vegas home which presently contains all his furniture.
4. ConSyGen, Inc. will rent or lease in its name and will also pay in the
name of ConSyGen, Inc. the costs for the housing and utilities of Tom
Dreaper in a two bedroom condo, town house or apartment in the greater
Phoenix area to be at a reasonable cost for a furnished place to be
selected by Tom Dreaper.
5. ConSyGen, Inc. will provide Tom Dreaper with its executive corporate
medical insurance and benefits package if it is different than the
standard corporate medical insurance and benefits package available to
other ConSyGen, Inc. employees. Tom Dreaper will be given the standard
corporate medical insurance and benefits package if it is the only one
available.
<PAGE>
6. ConSyGen, Inc. agrees to pay the round trip airfare costs and ground
transportation costs to permit Tom Dreaper to visit his home every
other weekend in Las Vegas until the sale of his home which he will
endeavor to do as soon as possible at a fair market price.
7. Tom Dreaper will be elected or appointed to be on the Board of
Directions of ConSyGen, Inc. as soon as possible after he arrives for
work at ConSyGen, Inc.
8. The spirit and intent of this agreement in the event of any possible
dispute is to be resolvedf by Mark Weiss.
9. Tom Dreaper will to begin his employment at ConSyGen, Inc. as
President and CEO on Friday July 17, 1998.
10. If the agreement needs to be approved by the ConSyGen, Inc. Board of
Directors, the ConSyGen, Inc. Board of Directors will approve it prior
to the arrival of Tom Dreaper at ConSyGen, Inc.
----------------- -----------------
Tom Dreaper Robert Stewart
Chairman of the
Board of Directors
of ConSyGen Inc.,
and also Acting
President and CEO
of ConSyGen, Inc.
----------------- -----------------
Date Date
2
EXHIBIT 21
Subsidiaries of the Registrant
Subsidiary Jurisdiction of Incorporation
---------- -----------------------------
ConSyGen, Inc. Arizona
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 5-MOS
<FISCAL-YEAR-END> MAY-31-1998 MAY-31-1997
<PERIOD-START> JUN-01-1997 JAN-01-1997
<PERIOD-END> MAY-31-1998 MAY-31-1997
<EXCHANGE-RATE> 1 1
<CASH> 4,991,434 21,483
<SECURITIES> 0 0
<RECEIVABLES> 338192 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 5,439,362 73,044
<PP&E> 1,397,651 184094
<DEPRECIATION> 189,809 112,063
<TOTAL-ASSETS> 6,904,102 210,779
<CURRENT-LIABILITIES> 399,997 930,287
<BONDS> 0 0
0 0
0 0
<COMMON> 46,223 41,389
<OTHER-SE> 2,957,882 <F1> 1,760,897 <F1>
<TOTAL-LIABILITY-AND-EQUITY> 6,904,102 210,779
<SALES> 814,835 20,000
<TOTAL-REVENUES> 953,816 20,000
<CGS> 353,076 0
<TOTAL-COSTS> 353,076 0
<OTHER-EXPENSES> 3,515,300 1,611,406
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (164,504) 56,348
<INCOME-PRETAX> (3,079,064) (1,647,754)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (3,079,064) (1,647,754)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,079,064) (1,647,754)
<EPS-PRIMARY> (0.21) (0.12)
<EPS-DILUTED> 0 0
<FN>
<F1>OTHER SE CONSISTS OF:
ADDITIONAL Paid -in-Capital 25,306,532 17,108,689
Accumulated Deficit (21,948,650) (18,869,586)
Treasury stock,
at cost (400,000)
========== ==========
2,957,882 (1,760,897)
========== ==========
</FN>
</TABLE>
