<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: June 30, 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 1-11352
DynaGen, Inc.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 04-3029787
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
840 Memorial Drive
Cambridge, MA 02139
----------------------------------------------------------
(Address of principal executive offices, including zip code)
(617) 491-2527
--------------------------------------------------
(Registrant's telephone number, including area code)
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
As of August 8, 1998, there were outstanding 22,527,583 shares of common stock,
$.01 par value per share.
<PAGE> 2
TABLE OF CONTENTS
Facing Page 1
Table of Contents 2
Special Considerations 3
PART I. FINANCIAL INFORMATION (*)
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 6
Condensed Consolidated Statements of Loss 8
Condensed Consolidated Statements of Changes
in Stockholders' Equity 10
Condensed Consolidated Statements of
Cash Flows 11
Notes to Unaudited Condensed Consolidated
Financial Statements 13
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 19
PART II. OTHER INFORMATION
Item 2. Changes in Securities 26
Item 3. Defaults 27
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
SIGNATURES 30
(*) The financial information at December 31, 1997 has been derived from
the audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.
2
<PAGE> 3
SPECIAL CONSIDERATIONS
During the six months ended June 30, 1998, DynaGen, Inc. (DynaGen or
the Company) experienced continued losses from operations and substantial and
continuing dilution to existing stockholders due to the below market conversion
features of convertible securities sold by the Company. The following special
considerations should be carefully noted by the reader:
FINANCIAL CONDITION OF THE COMPANY
For the three months ended June 30, 1998, the Company incurred net
losses of approximately $2,195,259. As of June 30, 1998, the Company had
approximately $230,488 in cash and cash equivalents and a net worth of
$4,168,668. The Company's current liabilities, as of such date, aggregated
$21,785,395. The Company expects its operating cash needs for the next twelve
months to be approximately $6,000,000. The Company does not presently have
adequate cash from operations to meet these needs. In order to meet its needs
for cash to fund its operations, the Company must obtain additional financing
and renegotiate the terms of its current arrangements with creditors. The
Company is presently in default under a number of its arrangements, agreements
and instruments with creditors, with the result that the Company's obligations
under such agreements and instruments may be accelerated. If the Company is
unable to obtain significant additional financing or to renegotiate its
arrangements with existing creditors, it may be obliged to seek protection from
its creditors under the bankruptcy laws. See "Management's Discussion and
Analysis - Liquidity and Capital Resources"; the financial statements and notes
thereto included as part of this Report.
COMPANY'S ABILITY TO CONTINUE AS A GOING CONCERN
The Company's independent auditors have issued an opinion on the
financial statements of the Company, as of December 31, 1997 and for the year
then ended, which includes an explanatory paragraph expressing substantial doubt
about the Company's ability to continue as a going concern. Among the reasons
cited by the independent auditors as raising substantial doubt as to the
Company's ability to continue as a going concern are the following: the Company
has incurred recurring losses from operations resulting in an accumulated
deficit and a working capital deficiency. In addition, the Company has debt
obligations which are in default, and a liability of approximately $4,200,000 to
the selling stockholders of Superior Pharmaceutical Company (Superior), due in
September 1998. The ability of the Company to use cash generated by its
subsidiaries, Superior and Generic Distributors, Incorporated (GDI), is
restricted under the terms of the subsidiaries' loan agreements. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. If the Company is unable to secure significant additional
financing or to renegotiate its agreements with its existing creditors, it may
be obliged to seek protection from its creditors under the bankruptcy laws. See
"Management's Discussion and Analysis - Liquidity and Capital Resources"; the
financial statements and notes thereto included as part of this Report.
COMPANY'S COMMON STOCK MAY BE DELISTED FROM NASDAQ STOCK MARKET
On February 26, 1998, the Company received a notice from the Nasdaq
Stock Market, Inc. (Nasdaq) that it does not meet the applicable listing
requirements and that the Company's Common
3
<PAGE> 4
Stock is therefore subject to delisting. The Company has contested the delisting
of its securities in accordance with Nasdaq's procedures.
On March 11, 1998, the Company responded to Nasdaq explaining the
reasons that the Company believes led to its non-compliance with the listing
requirements and steps that the Company intended to take in order to achieve
compliance. The Company received a response from Nasdaq dated June 17, 1998,
rejecting its written response as the basis for continued listing and informing
the Company that the Company could request an oral hearing. Accordingly, the
Company has requested an oral hearing which is scheduled for August 14, 1998.
The Company does not meet the Nasdaq listing requirements. Although
Nasdaq has the discretion to grant exceptions to the listing requirements, there
is no assurance that it will do so in the Company's case. The Company
anticipates that, if its Common Stock is delisted from the Nasdaq SmallCap
Market, it will continue to trade on the Boston Stock Exchange and may also be
quoted on the OTC Bulletin Board. However, delisting of the Company's Common
Stock from the Nasdaq SmallCap Market could have a material adverse effect on
the liquidity of the Common Stock and on the Company's ability to raise capital
necessary for the Company's continued operations.
CONTINGENT OBLIGATIONS WITH RESPECT TO SUPERIOR ACQUISITION
The Company used a combination of cash, a note and 166,667 shares of
Common Stock (after giving effect to a one-for-ten reverse split of the common
stock outstanding) to acquire Superior in June 1997. The Agreement and Plan of
Merger for the Superior acquisition provided that the Company would also be
obligated to issue to the former stockholders of Superior up to an additional
1,666,667 shares of Common Stock if on June 18, 1998 the Common Stock had not
had an average closing bid price of at least $30.00 per share for the 10
previous trading days. The merger agreement provided further that any difference
between the value of the stock issued and the $5,000,000 guaranteed value was to
be paid in cash. The Common Stock traded at approximately $0.50 per share as of
June 18, 1998, and the Company therefore became obligated to pay approximately
$4,000,000 in cash to the former stockholders of Superior.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the selling shareholders of Superior which provides for an
overall reduction in purchase price of $4,900,000 through waiver of any
additional stock or cash payment. This agreement also provides for, and is
contingent upon, payment by DynaGen of $4,200,000, which represents the
remaining amount due on the original selling shareholder notes, by September 30,
1998. There can be no assurance that the Company will be able to obtain
financing to meet the obligations to pay the selling shareholders. The Company's
inability to meet any such obligation or other fixed or contingent obligations
of the Company as they become due could have a material adverse effect on the
Company's ability to continue its operations.
VOLATILITY OF STOCK PRICE
The market for securities of technology companies, including those of
the Company, has been highly volatile. The market price of the Company's Common
Stock has fluctuated between $70.00 and $1.30 from January 1, 1993 to December
31, 1997 and was approximately $0.46 on August 4, 1998, and it is likely that
the price of the Common Stock will continue to fluctuate widely in the future.
Announcements of technical innovations, new commercial products, results of
clinical trials, regulatory approvals, patent or proprietary rights or other
developments by the Company or its competitors could have a significant impact
on the Company's business and the market price of the Common Stock.
ADVERSE CONSEQUENCES ASSOCIATED WITH THE OBLIGATION TO ISSUE SUBSTANTIAL SHARES
OF COMMON
4
<PAGE> 5
STOCK UPON CONVERSION OF CONVERTIBLE SECURITIES
The Company is obligated to issue a substantial number of shares of
Common Stock upon the conversion or exercise of its outstanding warrants,
rights, convertible preferred stock and a convertible note. The price which the
Company may receive for the Common Stock issuable upon exercise of such options
and warrants will, in all likelihood, be less than the market price of the
Common Stock at the time of such exercise. Consequently, for the life of such
options and warrants the holders thereof may have been given, at nominal cost,
the opportunity to profit from a rise in the market price of the Common Stock.
The exercise of all of the aforementioned securities may also adversely
affect the terms under which the Company could obtain additional equity capital.
In all likelihood, the Company would be able to obtain additional equity capital
on terms more favorable to the Company at the time the holders of such
securities choose to exercise them. In addition, should a significant number of
these securities be exercised, the resulting increase in the amount of the
Common Stock in the public market could have a substantial dilutive effect on
the Company's outstanding Common Stock.
5
<PAGE> 6
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 230,488 $ 697,045
Accounts receivable, net of
allowance for doubtful accounts
of $100,536 and $43,118 3,602,971 3,152,779
Rebates 694,333 713,976
Inventory (Note 3) 7,411,686 9,111,324
Notes receivable 110,000 110,000
Prepaid expenses and other
current assets 107,760 147,972
----------- -----------
Total current assets 12,157,238 13,933,096
----------- -----------
Property and equipment, net 1,972,631 1,772,878
----------- -----------
Other assets:
Customer lists, net of accumulated
amortization of $2,771,013 and
$1,361,200 (Note 2) 11,570,192 12,250,800
Goodwill, net of accumulated
amortization of $35,658 and
$22,751 (Note 2) 350,560 363,468
Patents and trademarks, net of
accumulated amortization of
$102,930 and $89,164 293,778 345,381
Deferred debt financing costs,
net of accumulated amortization 361,429 359,621
Deposits and other assets 379,440 322,870
----------- -----------
Total other assets 12,955,399 13,642,140
----------- -----------
$27,085,268 $29,348,114
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE> 7
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Current liabilities:
Bank overdraft $ -0- $ 142,616
Notes payable (Note 4) 8,958,807 8,348,333
Loan payable - bank 4,883,423 6,584,710
Accounts payable 3,612,365 6,390,421
Accrued payroll and
payroll taxes 247,800 95,312
Acquisition obligation (Note 2) 4,083,000 4,083,000
------------ ------------
Total current liabilities 21,785,395 25,644,392
Warrant put liability 802,705 750,594
Long term debt 328,500 328,500
------------ ------------
Total liabilities 22,916,600 26,723,486
------------ ------------
Stockholders' equity (Notes 1 and 2):
Preferred stock, $.01 par value,
10,000,000 shares authorized,
56,012 and 63,522 shares of
Series A through H outstanding
(liquidation value $5,601,271 and
$6,348,417 respectively) 560 635
Common stock, $.01 par value,
75,000,000 shares authorized,
22,527,583 and 4,315,137 shares
issued and outstanding
respectively 225,276 43,151
Additional paid-in capital 44,373,894 39,137,311
Accumulated deficit (40,431,062) (36,556,469)
------------ ------------
Total stockholders' equity 4,168,668 2,624,628
------------ ------------
$ 27,085,268 $ 29,348,114
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
7
<PAGE> 8
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
June 30, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Product sales $ 6,429,839 $ 1,229,846
Fees and Royalties 323 50,426
------------ -----------
Total revenues 6,430,162 1,280,272
------------ -----------
Costs and expenses:
Cost of sales 5,509,938 1,754,509
Research and development 93,670 1,159,267
Selling, general and
administrative 2,763,864 1,066,743
------------ -----------
Total costs and expenses 8,367,472 3,980,519
------------ -----------
Operating loss (1,937,310) (2,700,247)
------------ -----------
Other income (expense):
Investment income, net 101,604 16,704
Interest expense (330,795) (102,947)
Warrant put expense (26,492) --
Amortization of debt
financing costs (2,266) (9,186)
------------ -----------
Other income, net (257,949) (95,429)
------------ -----------
Net loss (2,195,259) (2,795,676)
Less, returns to preferred
stockholders:
Beneficial conversion
feature 275,042 203,000
Dividends paid and
accrued 35,425 21,000
------------ -----------
Net loss applicable to
common stock $ (2,505,726) $(3,019,676)
============ ===========
Net loss per share - basic $ (0.13) $ (0.99)
============ ===========
Weighted average shares outstanding
18,935,650 3,041,151
============ ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE> 9
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
June 30, June 30,
1998 1997
------------ -----------
<S> <C> <C>
Revenues:
Product sales $ 13,391,422 $1,783,857
Fees and Royalties 365 50,658
------------ -----------
Total revenues 13,391,787 1,834,515
------------ -----------
Costs and expenses:
Cost of sales 11,068,500 2,707,667
Research and development 320,287 1,646,679
Selling, general and
administrative 5,231,053 2,248,649
------------ -----------
Total costs and expenses 16,619,840 6,602,995
------------ -----------
Operating loss (3,228,053) (4,768,480)
------------ -----------
Other income (expense):
Investment income, net 154,611 109,035
Interest expense (679,749) (116,487)
Warrant put expense (52,111) --
Amortization of debt
financing costs (69,291) (18,372)
------------ -----------
Other income, net (646,540) (25,824)
------------ -----------
Net loss (3,874,593) (4,794,304)
Less, returns to preferred stockholders:
Beneficial conversion feature 325,042 1,432,000
Dividends paid and accrued 97,649 94,000
------------ -----------
Net loss applicable to Common stock $ (4,297,284) $(6,320,304)
============ ===========
Net loss per share - basic $ (0.33) $ (2.09)
============ ===========
Weighted average shares outstanding
13,219,985 3,019,571
============ ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
9
<PAGE> 10
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED COMPREHENSIVE
INCOME SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT INCOME
------------- ----------- -------- -------- --------- ------------ ------------ ------------
Balance at
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996 2,910,623 $ 29,106 -- $ -- $ 29,338,794 $(24,315,191) $ 1,307
Shares issued in private
placements 37,500 375 48,500 485 4,322,357 -- --
Stock issued for
Superior acquisition 166,667 1,667 -- -- 4,998,333 -- --
Exercise of stock options 150 2 -- -- 1,123 -- --
Issuance of common stock
purchase warrants -- -- -- -- 450 -- --
Stock options issued for
services -- -- -- -- 156,918 -- --
Stock issued for interest
obligation 2,515 25 -- -- 38,413 -- --
Conversion of note payable 98,959 990 -- -- 984,775 -- --
Net loss $(4,794,304) -- -- -- -- -- (4,794,304) --
Decrease in unrealized
gain on investment
securities (1,307) -- -- -- -- -- -- (1,307)
---------- ----------- -------- -------- --------- ------------ ------------ ---------
($4,795,611)
==========
Balance at June 30, 1997 3,216,414 $ 32,165 48,500 485 $ 39,841,163 $(29,109,495) $ --
=========== ======== ======== ========= ============ ============ =========
Balance at
December 31, 1997 4,315,137 $ 43,151 63,522 $ 635 $ 39,137,311 $(36,556,469) --
Stock issued for GDI
acquisition -- -- 12,000 120 1,199,880 -- --
Shares issued in private
placements -- -- 29,250 293 2,776,739 -- --
Stock issued for services 1,165,175 11,651 -- -- 511,063 -- --
Delayed registration
penalty -- -- -- -- (175,000) -- --
Conversion of note payable 1,798,526 17,986 -- -- 412,014 -- --
Conversion of family loans 1,560,000 15,600 -- -- 179,400 -- --
Conversion of preferred
stock 13,688,745 136,888 (48,760) (488) (136,400) -- --
Adjustment due to change in
ownership of former subsidiary 468,888
Net loss 3,874,593 -- -- -- -- -- (3,874,593) --
---------- ----------- -------- -------- --------- ------------ ------------ ---------
3,874,593
==========
Balance at June 30, 1998 22,527,583 $225,276 56,012 $ 560 $ 44,373,894 ($40,431,062) $ --
=========== ======== ======== ========= ============ ============ =========
</TABLE>
<TABLE>
<CAPTION>
TOTAL
------------
Balance at
<S> <C>
December 31, 1996 $ 5,054,016
Shares issued in private
placements 4,323,217
Stock issued for
Superior acquisition 5,000,000
Exercise of stock options 1,125
Issuance of common stock
purchase warrants 450
Stock options issued for
services 156,918
Stock issued for interest
obligation 38,438
Conversion of note payable 985,765
Net loss $ (4,794,304)
Decrease in unrealized
gain on investment
securities (1,307)
------------
Balance at June 30, 1997 $ 10,764,318
============
Balance at
December 31, 1997
$ 2,624,628
Stock issued for GDI
acquisition 1,200,000
Shares issued in private
placements 2,777,032
Stock issued for services 522,714
Delayed registration
penalty (175,000)
Conversion of note payable 430,000
Conversion of family loans 195,000
Conversion of preferred
stock --
Adjustment due to change in
ownership of former
subsidiary 468,888
Net loss (3,874,593)
------------
Balance at June 30, 1998 $ 4,168,668
============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
10
<PAGE> 11
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,874,593) $(4,794,304)
Adjustments to reconcile
net loss to net cash used for
operating activities:
Stock options issued
for services 522,714 156,918
Depreciation and amortization 1,684,434 134,477
Amortization and accretion
of (discounts) premiums on
investment securities -- (10,154)
Stock issued for
interest obligation -- 38,438
(Increase) decrease in operating
assets:
Accounts receivable 287,062 (142,722)
Rebates 19,643 --
Inventory 2,751,422 (1,033,686)
Prepaid expenses and
other current assets 50,604 37,147
Deposits and other assets (71,092) --
Increase (decrease) in operating liabilities:
Accounts payable and
accrued expenses (2,949,566) 3,008,065
----------- -----------
Net cash used for
operating activities (1,579,372) (2,605,821)
----------- -----------
Cash flows from investing activities:
Acquisition of Superior -- (6,250,000)
Acquisition of GDI (756,406) --
Purchase of investment securities (1,186,455)
Proceeds from sales and maturities
of investment securities -- 4,200,000
Decrease in deposits -- (200,000)
Purchase of property and equipment (297,242) (586,906)
Increase in deferred financing
and acquisition costs (50,000) --
----------- -----------
Net cash provided (used) by
investing activities (1,103,648) (2,849,549)
----------- -----------
</TABLE>
(Continued)
See accompanying notes to unaudited consolidated financial statements.
11
<PAGE> 12
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from issuance of
common stock and warrants $ -- $ 854,250
Net proceeds from preferred stock -- 4,847,750
Net proceeds from private
stock placements 2,777,032
Net proceeds from debt placements 500,000
Proceeds from bank loan 1,200,000 2,696,898
Net repayments of loan payable-bank (1,701,287) (1,594,108)
Repayment of Superior note payable (416,666) --
Increase in deferred financing
costs -- (328,123)
Decrease in bank overdraft (142,616) --
----------- -----------
Net cash provided by
financing activities 2,216,463 6,476,667
----------- -----------
Net change in cash and cash equivalents (466,557) (7,378,703)
Cash and cash equivalents,
beginning of period 697,045 2,112,300
----------- -----------
Cash and cash equivalents,
end of period $ 230,488 $ 576,881
=========== ===========
Supplemental cash flow information:
Common stock issued for
convertible note payable $ 450,000 $ 1,065,000
Debt issued for delayed registration
penalty 262,500 --
Interest paid 498,737 --
Schedule of non-cash investing and financing
activities:
On June 18, 1997, the Company purchased all of the
common stock of Superior Pharmaceutical Company, Inc.
for $16,250,000. In connection with the acquisition,
non cash financing activities, liabilities assumed and
goodwill were as follows:
Fair value of assets acquired -- $10,913,834
Cash paid for common stock -- (6,250,000)
Fair value of common stock issued -- (5,000,000)
Note payable issued -- (5,000,000)
Liabilities assumed -- (8,263,477)
-----------
Goodwill (exclusive of other acquisition
costs of ($694,890) $13,599,643
===========
March 2, 1998, the Company purchased the net assets of GDLP
for $2,350,000. In connection with the acquisition,
non cash financing activities, liabilities assumed and
customer lists were as follows: fair value of assets
acquired $ 2,375,274 --
Cash paid (1,200,000) --
Preferred stock issued (1,150,000) --
Liabilities assumed (658,274) --
----------
Customer lists (exclusive of other acquisition costs of
$96,628) $ 633,000 --
==========
Note payable
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
12
<PAGE> 13
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998
-------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of DynaGen,
Inc. (the Company) and its wholly-owned subsidiaries, Able Laboratories, Inc.
(Able), which is engaged in the manufacture of generic pharmaceuticals, Superior
Pharmaceutical Company (Superior) and Generic Distributors Incorporated (GDI),
which are engaged in the distribution of generic pharmaceuticals, and Apex
Pharmaceuticals, Inc., which is developing therapeutic products. The
consolidated financial statements no longer include the accounts of BioTrack for
the reason described below. The accompanying unaudited consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles for interim financial information and in
accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statement
presentation. All significant intercompany balances and transactions have been
eliminated in consolidation. In March 1998, the Company acquired Generic
Distributors Limited Partnership which is engaged in the distribution of generic
pharmaceuticals. (See Note 2.)
During the first and second quarter of 1998, the Company sold 300,000
shares of its BioTrack subsidiary's common stock, recognizing a gain of
$150,000, which is included in investment income. In addition, during this same
period, BioTrack sold shares of its common stock directly to outside investors.
Also, BioTrack redeemed 3,930,000 shares of its common stock held by the Company
for a $1,000,000 promissory note. This note has not been recognized in the
accompanying financial statements because of the uncertainty and risks inherent
in technology start-up companies. As a result of the ownership changes in
BioTrack described above, the Company adjusted its investment in BioTrack by
approximately $469,000 which was added to additional paid-in capital. The
Company's ownership interest in BioTrack at June 30, 1998 was approximately 29%.
Accordingly, BioTrack's financial statements are not included in the
accompanying consolidated financial statements. The Company's remaining
investment is carried on the equity basis of accounting.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
The financial information included in this report has been prepared in
conformity with the accounting policies reflected in the financial statements
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission.
REVERSE STOCK SPLIT
On March 4, 1998 the Company's Stockholders approved a 1 for 10 reverse
stock split of the common shares. All common stock information presented herein
has been retroactively adjusted to reflect the reverse stock split.
USE OF ESTIMATES
In preparing consolidated financial statements in conformity with
generally accepted accounting principles, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and reported amounts of revenues and
expenses during the reporting period. Material estimates that are particularly
13
<PAGE> 14
susceptible to significant change in the near term relate to the carrying values
of rebates receivable and intangible assets, the valuation of equity instruments
issued by the Company and the amount of obligations due as a result of defaults
on certain debt obligations. Actual results could differ from those estimates.
REBATES
Rebates represent incentives provided by pharmaceutical suppliers to
the distributors based on purchases. Management has estimated its rebates based
upon agreements and purchases during the year. Actual rebates could be different
due to market volatility and whether the Company continues to use these
suppliers.
INVENTORY
Inventory is valued at the lower of average cost or market on a
first-in first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense is
provided over the estimated useful lives of the assets using the straight-line
method. Leasehold improvements are amortized on the straight-line method over
the shorter of the estimated useful life of the asset or the life of the related
lease term.
CUSTOMER LISTS AND GOODWILL
Customer lists and goodwill are being amortized over estimated lives of
five and fifteen years, respectively. (See Note 2.)
REVENUE RECOGNITION
Revenues from product sales are recognized when products are
shipped. Revenues from license fees and royalties are recognized as the terms of
the agreements are met.
EARNINGS PER SHARE
In February 1997, FASB issued SFAS No. 128, Earnings per Share which
requires that earnings per share be calculated on a basic and a dilutive
basis. Basic earnings per share represents income available to common stock
divided by the weighted-average number of common shares outstanding during the
period. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed
conversion. The Statement is effective for interim and annual periods ending
after December 15, 1997, and requires the restatement of all prior-period
earnings per share data presented. Accordingly, the Company has restated all
earnings per share data presented herein.
14
<PAGE> 15
For the three and six months ended June 30, 1998 and 1997 options,
warrants and put warrants, were anti-dilutive and excluded from the diluted
earnings per share computations.
The loss applicable to common stockholders has been increased by the
stated dividends on the convertible preferred stock and the amortization of
discounts on the convertible preferred stock due to the beneficial conversion
feature. Shares of common stock contingently issuable to the former stockholders
of Superior have not been included in diluted EPS because to do so would have
been anti-dilutive.
COMPREHENSIVE INCOME
In June 1997, FASB issued SFAS No. 130, Reporting Comprehensive Income,
effective for fiscal years beginning after December 15, 1997. Accounting
principles generally require that recognized revenue, expenses, gains and losses
be included in net income. Certain FASB statements, however, require entities to
report specific changes in assets and liabilities, such as unrealized gains and
losses on available-for-sale securities, as a separate component of the equity
section of the balance sheet. Such items, along with net income, are components
of comprehensive income. SFAS No. 130 requires that all items of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. Additionally, SFAS No. 130 requires
that the accumulated balance of other comprehensive income be displayed
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. The Company adopted these disclosure requirements
in the first quarter of 1998 and has presented comparative disclosure for the
quarter ended March 31, 1997. There is no other comprehensive income in the
quarter ended June 30, 1998.
2. BUSINESS ACQUISITIONS
SUPERIOR PHARMACEUTICAL COMPANY
On June 18, 1997, the Company acquired all of the outstanding stock of
Superior Pharmaceutical Company (Superior), a distributor of generic
pharmaceutical products. The Company paid the shareholders of Superior
$6,250,000 in cash, $5,000,000 in three-year secured promissory notes and
166,667 shares of the Company's Common Stock with a guaranteed value of
$5,000,000. The secured promissory notes were subsequently reduced by $400,000
due to a deficiency in the required net worth of Superior as of the acquisition
date. DynaGen is obligated to issue to the shareholders up to an additional
1,666,667 shares of its common stock after twelve months if its common stock is
not trading at an average of at least $30.00 per share for 10 consecutive
trading days. The merger agreement provides further that DynaGen shall pay to
the former Superior stockholders the difference between $5,000,000 and the
current aggregate market value of the shares issued to the former Superior
stockholders. DynaGen is obligated to register the shares within eleven months
after the closing of the acquisition. The Company recorded a $4,083,000
acquisition obligation at December 31, 1997 based on the difference between the
current estimated fair value of the 1,833,334 shares of common stock issued and
issuable and the guaranteed value of $5,000,000. The former shareholders of
Superior, who remain as senior management at Superior, may also receive certain
incentive payments based on Superior's performance during the three years
following the closing of the acquisition. Any such payments will be charged to
expense when incurred. DynaGen contributed $1,750,000 in additional capital to
Superior immediately following the closing.
On July 31, 1998, the Company signed a contingent settlement agreement
with the selling shareholders of Superior which provides for an overall
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<PAGE> 16
reduction in purchase price of $4,900,000 through waiver of any additional stock
or cash payment. The agreement also provides for, and is contingent upon, a
payment of $4,200,000, which represents the remaining amount due on the original
selling shareholder notes by September 30, 1998.
The Superior acquisition has been accounted for as a purchase. The
results of operations of Superior have been included in the Company's
consolidated financial statements since the date of acquisition. The purchase
price allocation was based on the estimated fair values at the date of
acquisition. The Company allocated $13,612,000 of the purchase price to customer
lists based on an independent appraisal, which is being amortized on a
straight-line basis over five years. Amortization of customer lists amounted to
$1,361,200 for the six months ended June 30, 1998. In addition, the Company
recorded goodwill of $386,219, which is being amortized on a straight-line basis
over 15 years. Amortization expense for the six months ended June 30, 1998 was
$12,908.
GENERIC DISTRIBUTORS, INC.
On March 2, 1998 the Company, through its subsidiary, Generic
Distributors, Incorporated (GDI), completed the acquisition of substantially all
of the assets and liabilities of Generic Distributors Limited Partnership
(GDLP), of Monroe, LA. In connection with the acquisition, the Company paid the
limited partnership $1,200,000 in cash, and $1,050,000 in Series E Convertible
Preferred Shares and 1,500 shares of Series F Convertible Preferred Stock valued
at $100,000, for a total purchase price of $2,350,000. The Series E Preferred
Shares are convertible beginning 12 months from the closing into the Company's
common shares at the then prevailing market prices. The Series F Preferred Stock
is convertible into $100,000 in value of the Company's Common Stock commencing
120 days after the closing. In connection with the transaction, GDI received
$1,200,000 in a five-year term loan from Fleet Bank. The loan carries interest
of LIBOR plus 3%, is payable in quarterly installments of principal and interest
and matures on April 26, 2003. Fleet Bank also established a revolving line of
credit for general working capital in the amount of $300,000. The line bears
interest at LIBOR plus 2-1/2%. The loans are secured by all of the assets of GDI
and the Company's subsidiary, Able Laboratories, Inc., and a pledge of all of
the common stock of GDI, and are guaranteed by the Company. In addition, the
Company entered into employment and consulting agreements with the sellers which
provide, among other things, for annual compensation and a signing bonus of
1,500 shares of Series F Preferred Stock, convertible into $100,000 of the
Company's Common Stock commencing 120 days after the closing.
The GDI acquisition has been accounted for as a purchase. The results
of operations of GDI have been included in the Company's consolidated financial
statements since the date of acquisition. The purchase price allocation was
based on the estimated fair values at the date of acquisition. The Company
allocated $729,618 of the purchase price to customer lists, based on an
independent appraisal, which is being amortized on a straight line basis over
five years. Amortization of customer lists amounted to $48,613 for the six
months ended June 30, 1998.
Unaudited pro forma consolidated operating results for the Company,
assuming the acquisitions of Superior and GDI had been made as of the beginning
of the most recent fiscal year for each of the periods presented, are as
follows:
16
<PAGE> 17
<TABLE>
<CAPTION>
Six months ended
----------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $ 14,572,510 $ 17,105,176
Net loss (4,288,211) (5,753,710)
Net loss per share (0.32) (1.91)
</TABLE>
<TABLE>
<CAPTION>
Three months ended
------------------
June 30, 1998 June 30, 1997
------------- -------------
<S> <C> <C>
Revenues $ 6,430,162 $ 7,707,558
Net loss (2,506,597) (3,948,290)
Net loss per share (0.13) (1.30)
</TABLE>
The unaudited pro forma information is not necessarily indicative
either of the actual results of operations that would have occurred had the
purchases been made as of the beginning of each of the fiscal periods presented
or of future results of operations of the combined companies.
17
<PAGE> 18
3. INVENTORY
Inventory consists of the following:
<TABLE>
<CAPTION>
June 30,
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Raw materials $ 340,945 $ 311,166
Work-in-progress 180,717 136,240
Finished goods 6,890,024 8,663,918
---------- ----------
$7,411,686 $9,111,324
========== ==========
</TABLE>
4. DEBT
Notes payable consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -----------
<S> <C> <C>
Convertible note payable $ 535,000 $ 535,000
Bridge loans 500,000 630,000
Notes payable - Superior
acquisition 3,766,667 4,183,333
Secured debt - Fleet Bank 1,157,140 --
Senior subordinated debt 3,000,000 3,000,000
---------- ----------
$8,958,807 $8,348,333
========== ==========
</TABLE>
5. SUBSEQUENT EVENTS
In July 1998, the Company, through its Able Laboratories, Inc.
subsidiary (Able), entered into a short-term financing agreement with Porter
Capital (Porter) whereby Able will finance its outstanding accounts receivable
through Porter. Porter will advance funds equal to 70% of invoice value upon
receipt of invoices from Able. Upon payment in full from Able's customers,
Porter will remit the balance due Able less Porter's net charge of 2% per 30
days outstanding. Porter has the right to reject any or all accounts receivable
tendered from Able. No assurance can be given that Porter will accept any or all
of Able's outstanding accounts receivable. The term of this agreement is six
months.
On July 25, 1998, the Company issued 4,750 shares of its Series H
Convertible Preferred Stock to an unaffiliated investor. The aggregate purchase
price was $475,000. Under the terms of the purchase agreement, the Series H
Stock is convertible beginning 90 days after issuance into shares of Common
Stock at a price of 80% of the trading price of the Common Stock for the five
trading days preceding conversion.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the selling shareholders of Superior which provides for an
overall reduction in purchase price of $4,900,000 through waiver of any
additional stock or cash payment. This agreement also provides for, and is
contingent upon, a payment by DynaGen of $4,200,000, which represents the
remaining amount due on the original selling shareholder notes, by September 30,
1998. There can be no assurance that the Company will be able to obtain
financing to meet the obligations to pay the selling shareholders. The Company's
inability to meet any such obligation or other fixed or contingent obligations
of the Company as they become due could have a material adverse effect on the
Company's ability to continue its operations.
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<PAGE> 19
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
NOTE ON FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains safe
harbor provisions regarding forward-looking statements. Except for historical
information contained herein, the matters discussed below contain potential
risks and uncertainties, including, without limitation, risks related to the
Company's ability to successfully develop, test, produce and market its proposed
products; obtain governmental approvals in a timely manner; identify and attract
marketing partners to help commercialize the Company's products; attract and
retain key employees; obtain meaningful patent protection or otherwise over the
Company's proprietary technology; protect itself from product liability risks or
limitations imposed due to potential health care reform; raise capital for
future operations and commercialization of its products; integrate the products
and personnel the Company acquired in the acquisition of Able Laboratories, Inc.
(Able), Superior and GDI, and successfully respond to technological changes in
the marketplace. Specifically, regulatory approvals of the Company's products
are subject to factors beyond the Company's control, and there can be no
assurance that such approvals will not be delayed or ultimately denied. The
Company will need to attract marketing partners in order to exploit its
products, and there can be no assurance that the Company will be successful in
attracting such partners. Additional information on potential factors which
could affect the Company's financial results are included in the Company's
public filings with the Securities and Exchange Commission, including without
limitation its Form 10-K for the period ended December 31, 1997.
The information set forth below should be read in connection with the
financial statements and notes thereto, as well as other information contained
in this Report which could have a material adverse effect on the Company's
financial condition and results of operations. The reader's attention is
directed, in particular, to the matters described under the headings Special
Considerations and Liquidity and Capital Resources contained elsewhere in this
Report.
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<PAGE> 20
OVERVIEW
The Company develops and markets generic and specialty products. The
Company has changed its focus from development and licensing to building a
business focused on the manufacture and distribution of generic drug products
and specialty pharmaceuticals. The Company is implementing this strategy through
the acquisition of businesses, technologies and products as well as through
internal product development. In August 1996, the Company acquired the tablet
business of Able Laboratories, Inc. (Able), a generic pharmaceutical product
subsidiary of Alpharma, Inc. In addition, in June 1997 the Company has purchased
all of the outstanding shares of Superior Pharmaceutical Company (Superior), a
distributor of generic pharmaceuticals. In March 1998, the Company, through its
wholly-owned subsidiary, Generic Distributors Incorporated (GDI), completed the
acquisition of Generic Distributors Limited Partnership (GDLP).
The Company has financed its operations primarily through the proceeds
from its public and private stock offerings, convertible notes, bank debt and
other loans and limited revenues from product sales and technology license fees
and royalties. Management anticipates that revenues from product sales will not
be sufficient to fund its current operations or produce an operating profit
until such time as the Company is able to develop additional products, obtain
the necessary FDA approvals and establish acceptance of its products in their
respective markets and expand its distribution channels. The Company has
incurred losses since inception and expects to incur additional losses until
such time as it is able to successfully develop, manufacture, and sell or
license its existing and proposed products and technologies.
RESULTS OF OPERATIONS
Three-Month Period Ended June 30, 1998
Revenues for the three month period ended June 30, 1998 were $6,430,162
versus $1,280,272 for the period ended June 30, 1997. The increase of $5,149,890
is primarily the result of product sales by the Company's wholly-owned generic
pharmaceutical subsidiaries, Able (acquired in August 1996), Superior (acquired
in June 1997) and GDI (acquired in March 1998).
Cost of product sales was $5,509,938, or 86% of product sales for the
three-month period ended June 30, 1998 compared to $1,754,509, or 143% of
product sales for the three month period ended June 30, 1997. The decrease in
cost percentage was due to higher sales resulting in higher absorption of
manufacturing overhead.
Research and development expenses for the three month period ended June
30, 1998 were $93,670 versus $1,159,267 for the three month period ended June
30, 1997. 1997 R&D expenses were primarily the result of the NicErase(R)-SL
Phase 3 clinical trials, now completed, and the NicErase(R)-SL development
program which has been discontinued. The Company is currently
20
<PAGE> 21
developing several generic versions of branded pharmaceuticals to support its
generic drug business.
Selling, general and administrative expenses for the three month period
ended June 30, 1998 were $2,763,864 versus $1,066,743 for the three months ended
June 30, 1997. The increase was primarily due to the Company's acquisitions of
Superior and GDI.
Investment income was $101,604 for the three months ended June 30, 1998
as compared to $16,704 for the three month period ended June 30, 1997, due to
sale of equity position in subsidiary. Interest and financing expenses of
$359,553 for the three month period ended June 30, 1998, compared to $112,133
for the three month period ended June 30, 1997, relate primarily to private
placements of equity as well as private debt financing for the Superior and GDI
acquisitions.
Six-Month Period Ended June 30, 1998
Revenues for the six month period ended June 30, 1998 were $13,391,787
versus $1,834,515 for the period ended June 30, 1997. The increase of
$11,557,272 is primarily the result of product sales by the Company's
wholly-owned generic pharmaceutical subsidiaries, Superior (acquired in June
1997) and GDI (acquired in March 1998).
Cost of product sales was $11,068,500, or 83% of product sales for the
six-month period ended June 30, 1998 compared to $2,707,667, or 152% of product
sales for the six-month period ended June 30, 1997. The percent reduction in
cost of product sales is due to higher capacity utilization at Able which offset
the fixed manufacturing costs at Able's manufacturing facility.
Research and development expenses for the six month period ended June
30, 1998 were $320,287 versus $1,646,679 for the six-month period ended June 30,
1997. 1997 R&D expenses were primarily the result of the NicErase(R)-SL Phase 3
clinical trials and the NicErase(R)-SL development program which
has been discontinued. The Company is currently developing several generic
versions of branded pharmaceuticals to support its generic drug business.
Selling, general and administrative expenses for the six month period
ended June 30, 1998 were $5,231,053 versus $2,248,649 for the six months ended
June 30, 1997. The $2,982,404 increase in expenses was primarily due to
acquisition of Superior and GDI.
Investment income was $154,611 for the six months ended June 30, 1998
as compared to $109,035 for the six month period ended June 30, 1997, as the
Company had less funds available for investment. Interest and financing expenses
of $801,151 for the six month period ended June 30, 1998, compared to $134,859
for the six month period ended June 30, 1997, relate primarily to private
placements of equity as well as private debt financing for the Superior and GDI
acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
21
<PAGE> 22
As of June 30, 1998, the Company had a working capital deficit of
$9,628,157, compared to working capital deficit of $11,711,296 at December 31,
1997. Cash was $230,488 at June 30, 1998 compared to $697,045 at December 31,
1997. Working capital was used primarily to fund the Company's operating losses,
including operating losses of its Able subsidiary, and research and development
costs of approximately $320,000. The Company expects its cash needs for the next
12 months to be approximately $6,000,000. The Company intends to generate the
needed cash through additional financing activities. If the Company is not able
to raise the needed financing, it may need to seek the protection of the
bankruptcy courts. See "Special Considerations - Financial Condition of the
Company."
In June 1997, the Company completed the acquisition of Superior
Pharmaceutical Company, of Cincinnati, Ohio, for a purchase price of $16.25
million in cash, notes and stock. The Company guaranteed that the selling
shareholders would receive at least $5,000,000 in the stock value as of June
1998. The agreement provided that the Company make up any shortfall in this
guaranteed stock value through the issuance of additional stock and cash. See
"Special Considerations - Contingent Obligation with Respect to Superior
Acquisition. "The Company financed this acquisition by issuing Series A and
Series B Preferred Shares for proceeds of $6,100,000 and subordinated debt of
$3,000,000 obtained from two institutional lenders. The Company also invested
$1,750,000 in Superior towards working capital as required by the secured
lender. Superior has a $9,000,000 secured revolving facility through Huntington
National Bank, of Cincinnati, Ohio.
Subsequent to the acquisition of Superior in June 1997, Superior
experienced the loss of key personnel, declining revenues, erosion of margins
and an overall decline in its business. These factors have resulted in the
Company not meeting certain loan covenants stipulated by the secured and
subordinated lenders. As a result, the secured lender has agreed to extend the
credit line and upon review of the Company's performance may consider further
extension. The Company obtained a waiver and extension of the third and fourth
quarterly payments of $515,625 each to the selling shareholders which were due
on March 31, 1998 and June 30, 1998 respectively. The Huntington Bank agreement
provides that the selling shareholders of Superior may draw this payment out of
its operating cash flows provided that Superior and DynaGen meet the loan
covenants. The Company has also received an extension on the payment of the
$535,000 convertible note payable which matured on February 7, 1998.
On July 31, 1998, the Company entered into a contingent settlement
agreement with the selling shareholders of Superior which provides for an
overall reduction in purchase price of $4,900,000 through waiver of any
additional stock or cash payment. The agreement also provides for, and is
contingent upon, a payment of $4,200,000, which represents the remaining amount
due on the original selling shareholder notes, by September 30, 1998. There can
be no assurance that the Company will be able to obtain financing to meet the
obligations to pay the selling shareholders. See "Special Considerations -
Contingent Obligation with Respect to Superior Acquisition."
The Company continues to operate its Able Laboratories, Inc.
manufacturing facility for manufacture and distribution of generic drugs. In
March 1997, the Company entered into an
22
<PAGE> 23
agreement with Kali Laboratories for development and clinical testing of certain
prescription pharmaceuticals. Under this agreement, Kali would be reimbursed for
its development efforts on a milestone basis and receive royalties from the sale
of the products. Able has a working capital deficit and management expects Able
will require approximately $4,000,000 in the next 12 months to continue
operations. No assurance can be given that such financing will be available upon
reasonable terms. If the Company cannot obtain sufficient financing or otherwise
meet Able's requirements, the Company may be required to close that operation or
seek protection of the bankruptcy courts.
The Company's private placement of Series A and Series B Preferred
Stock allowed investors to convert into shares of common stock at a floating
discount to the market of approximately 25%. The stock price was depressed due
to below-market conversions and selling of common shares by the holders of
Series A and Series B Preferred Stock. This investment, along with the
outlicensing of the Company's lead product, NicErase(R)-SL, and continued losses
at both DynaGen and Able, resulted in a severe negative impact on the Company's
stock price. As a result, the Company reached its limit of 75,000,000 authorized
shares. On March 4, 1998, the Company held a special meeting of stockholders and
approved a one for ten reverse split of its outstanding shares. As a result, at
the effective date of the reverse split, March 10, 1998, 75,000,000 shares of
common stock, $0.01 par value per share, were authorized, and approximately
7,500,000 were issued and outstanding. As of June 30, 1998, there were
22,527,583 shares of Common Stock outstanding. This increase is primarily due to
conversions of preferred stock.
Management has initiated intensive reviews of its operations and is
implementing plans to cure defaults, raise additional equity, and improve the
liquidity and cash resources for general working capital purposes. Specifically,
at the corporate level, the Company has discontinued all R&D activity either
through terminating the programs or outlicensing the products to other
companies. The Company's lead product to date, NicErase(R)-SL, has been licensed
to Nastech Pharmaceutical, of Hauppauge, NY. The Company has reduced its
workforce by approximately 40 employees through termination and attrition. The
Company has sublet approximately 4,000 square feet of its Cambridge, MA
headquarters and is also negotiating to sublease all or part of the remaining
space in that facility to further reduce its overhead expenses. In 1998,
management expects to maintain a staff of approximately seven full-time and four
part-time employees to manage the corporate functions of the Company. Management
is also actively reviewing every cost center for further cost reductions.
In November 1997, the Company initiated similar measures at its Able
manufacturing facility. The Company has reduced Able's workforce by 50 percent
through terminations and attrition. Management has actively initiated programs
to increase sales of Able's products to existing customers and is seeking to
bring back customers Able has lost over the past two years. The Company is also
renegotiating its development agreement with Kali Laboratories to minimize
further cash outlays for product development. The Company has also received
offers from a service contractor for clinical testing in return for deferred
compensation, warrants and royalty payments on new products. The Company has
also initiated a modest internal R&D program at Able to develop prescription
drugs which do not require FDA approval. These grandfathered products are
expected to generate revenues by March 1999.
Management, in conjunction with key personnel at Superior, has
implemented a program to reverse the decline in the general business of
Superior. Specific actions taken at Superior
23
<PAGE> 24
include recruitment of key personnel, review of the product line, reduction in
the selling, general and administrative expenses and an aggressive program to
seek competitive business in both the government and corporate sectors. Superior
is also negotiating supply agreements with its primary vendors to obtain more
favorable terms, which would improve the gross margins and make Superior more
competitive in the marketplace.
To date, the Company has met substantially all of its requirements for
capital through the sale of its securities. The negative impact of the events in
1997 has severely limited the Company's ability to raise further capital in a
conventional sale of its securities. The Company plans to raise capital in order
to finance the working capital requirements. There can be no assurance that the
Company will be able to secure additional financing or that such financing will
be available on favorable terms. Between April 30, 1998 and July 25, 1998, the
Company raised $2,000,000 through the sale of Convertible Preferred Stock and
$450,000 in Limited Recourse Notes.
Management believes that such financing will create additional common
shares in the market and could result in further depression of the stock price,
making it even more difficult to raise capital. Therefore, the Company intends
to seek financing primarily from sources who will be long-term investors. In
view of the Company's current stock price and its financial condition, it is
exceedingly difficult to find such investors. However, the Company has had
limited and preliminary discussions with investors and believes that additional
financing could become available over the next several weeks. The Company plans
to use the interim financing for general working capital, partial payment to the
creditors and the limited internal R&D program at Able. If the Company cannot
raise such financing, it may be forced to seek the protection of the bankruptcy
courts. See "Special Considerations."
The Company is also pursuing additional sources of capital for the
long-term needs of the Company. The Company has engaged an investment banking
firm to seek conventional investments. There is no assurance that such financing
will be available, and if available will be on terms favorable to the Company.
Furthermore, management has evaluated proposals which may include raising
additional capital through the sale of registered securities. The Company has
filed a registration statement on Form S-3 for the sale of Series C and Series D
Convertible Preferred Stock. The registration statement has not been declared
effective. The Company expected to raise substantial additional capital through
this arrangement. If the Company cannot raise such financing, it may be forced
to seek the protection of the bankruptcy courts. See "Special Considerations."
The Company has also been working with its trade creditors to reduce
its obligations. A substantial majority of the creditors have accepted the
Company's payments plans, which include periodic payments, discounts of amounts
outstanding and acceptance of Company shares.
YEAR 2000
Computer systems and software products that were designed to accept
entries of only two digits in the "year" date code field may be unable to
properly process date information beyond the year 1999. The Company does not
believe that any material year 2000 issues exist with software contained within
its product manufacturing or distribution processes. The Company is in the
process
24
<PAGE> 25
of working with suppliers and other third parties upon which it is dependent to
determine the extent of their Year 2000 compliance. Although the Company's
assessment of its Year 2000 readiness is not complete, based on its
investigation to date the Company does not expect the total cost of Year 2000
compliance to have a material adverse effect on the Company's business, results
of operations or financial condition. There can be no assurance, however, that
the Company's Year 2000 compliance program will be implemented successfully or
on a timely basis, or that systems operated by third parties with which the
Company's systems interface will be Year 2000 compliant. Inability of the
Company to correct any Year 2000 problems affecting its products, its internal
systems or its communications with third parties could have a material adverse
effect on the Company's business, results of operations and financial condition.
MANAGEMENT PLANS
The following represents management's plans to improve the financial
condition of the Company including curing defaults and obtaining waivers
wherever applicable. These plans are targeted to the specific areas listed
below. The Company can give no assurance that the plans of management discussed
in the subsequent paragraphs will be successfully implemented. Furthermore,
there can be no assurance that even if successfully implemented such plans will
improve the company's results of operations or prospects.
Sirrom and Odyssey - The Company continues to make monthly interest
payments on its obligations to Sirrom and Odyssey. The defaults under the loan
agreements include the late filing of the Form 10-K and certain other financial
covenants.
Management plans to improve upon its filing requirements by dedicating
additional personnel to meet the reporting requirements. The Company has had
preliminary discussions with Sirrom and Odyssey regarding the overall decline in
Company's stock price and the effect on their warrants. Management intends to
discuss and negotiate with its lenders opportunities for participation in the
Company's overall plan which could restore the economic benefits and obtain
continued cooperation of Sirrom and Odyssey.
Superior Pharmaceutical Company - On July 31, 1998, the Company
entered into a contingent settlement agreement with the selling shareholders of
Superior which provides for an overall reduction in purchase price of
approximately $4,900,000 through waiver of any additional stock or cash payment.
The agreement also provides for, and is contingent upon, a payment of
approximately $4,200,000, which represents the remaining amount due on the
original selling shareholder notes, by September 30, 1998. There can be no
assurance that the Company will be able to obtain financing to meet the
obligations to pay the selling shareholders.
The Huntington National Bank - The Company is in discussions with
investment bankers to raise additional equity for its ongoing operations. The
net worth of the Company is greater than $4,000,000 as required in the loan
agreement with the bank. The bank considers subordinated debt, selling
stockholder debt and the equity line available to the Company under its Series D
preferred shares as equity capital and therefore applicable towards the net
worth calculations. Assuming that the
25
<PAGE> 26
bank continues to allow for this calculation and that the Company is successful
in obtaining additional financing, the net worth will be higher.
SUSPENSION OF CONVERSION OF SERIES A AND B PREFERRED STOCK
On April 24, 1998, the Company suspended conversions of its Series A
and B Preferred Stock into the Company's Common Stock. The purpose of this
suspension is to give the Company time to coordinate its efforts to negotiate
orderly settlements of these outstanding convertible securities. To date,
$4,800,000 out of $5,000,000 of Series A and $500,000 out of $1,250,000 of
Series B Preferred Stock has been converted.
The Company can give no assurance that the plans of management
discussed in the foregoing paragraphs will be successfully
implemented. Furthermore, there can be no assurance that even if successfully
implemented such plans will improve the company's results of operations or
prospects.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds.
c. Sales of Unregistered Securities
In the three months ended June 30, 1998, the Company engaged in the
following transactions:
On April 30, 1998 and May 13, 1998, the Company issued notes in the
aggregate amount of $450,000 to an unaffiliated investor. As amended by a letter
agreement dated June 25, 1998, the notes are convertible into common stock of
the Company at a discount to the market price of the common stock over the 5
days preceeding the conversion.
On April 3, 1998, the company sold $500,000 of its Series D Convertible
Preferred Stock to an unaffiliated investor. The company also issued an 8%
debenture in the principal amount of $87,500 to the investor.
Between June 1, 1998 and June 30, 1998, the Company sold 14,250 shares
of its Series H Convertible Preferred Stock to unaffiliated investors.
On April 30, 1998, the Company issued a warrant to purchase 2,500,000
shares of common stock at an exercise price of $.50 per share to an investment
banker. The warrant was issued in consideration of the execution of an agreement
for investment banking services.
On June 30, 1998, the Company issued to an investment banker a warrant
to purchase 350,000 shares of the Company's Common Stock in consideration of the
execution of an agreement for investment banking services. The warrant is
exercisable at a purchase price of $.01 per share.
On April 1, 1998, the Company issued to an investment banker a warrant
to purchase
26
<PAGE> 27
200,000 shares of the Company's Common Stock in consideration of the execution
of an investment banking services agreement. The warrant is exercisable at a
purchase price of $0.125 per share and provides that if the investment banking
services agreement is extended past the original term, it will become
exercisable for an additional 200,000 shares.
On April 1, 1998, the Company issued to an investment banker a warrant
to purchase 250,000 shares of the Company's Common Stock in consideration of the
execution of an investment banking services agreement. The warrant is
exercisable at a purchase price of $0.125 per share.
On April 29, 1998, the Company's board of directors authorized the
issuance of an aggregate of 1,893,333 shares of Common Stock to various
individuals in consideration for the forgiveness of personal loans made to the
Company.
The foregoing transactions were effected by the Company in reliance
upon the exemption from registration under the Securities Act provided by
Section 4(2) thereof.
Item 3. Defaults On Senior Securities.
The Company has incurred recurring losses from operations resulting in
an accumulated deficit of $40,431,062 and a working capital deficiency of
$9,628,157 at June 30, 1998. In addition, the Company is in default with respect
to certain covenants in its debt agreements and obligated to make payments as
follows:
Sirrom Capital Corporation (Sirrom) and Odyssey Investment Partners,
L.P. (Odyssey) - The Company issued secured promissory notes in the aggregate
principal amount of $3,000,000 on June 18, 1997 and were due June 17, 2002. In
addition, the Company issued stock warrants to purchase in the aggregate 400,000
shares of the Company's common stock and granted Sirrom and Odyssey the right to
sell to the Company the warrants (put warrants) under a put and substitution
agreement. At the time of issuance, $702,000 of the proceeds was allocated to
the put warrants, resulting in a discount on the promissory notes.
The discount on the notes was being amortized to expense over the term
of the promissory notes. The Company is in default of certain covenants in the
loan agreement and has not obtained a waiver of the defaults from the lender.
Accordingly, the total principal amount of the loan, $3,000,000, has been
classified as a current liability and the unamortized discount on the loan was
charged to expense at December 31, 1997.
Superior Pharmaceutical Company - The Company acquired Superior on June
18, 1997 for $16,250,000. The purchase price was paid as follows:$6,250,000 in
cash, $5,000,000 of 9.5% secured promissory notes to the former Superior
stockholders due in quarterly installments through June 30, 2000 and common
stock of the Company with a guaranteed value of $5,000,000.
Quarterly payments on the secured promissory notes were due on March
31, 1998 and June 30, 1998 and the Company received a waiver and extension from
the former stockholders of Superior. The total unpaid amount of the secured
promissory notes $3,766,667 has been classified
27
<PAGE> 28
as a current liability.
The Company issued 166,667 shares of common stock to the former
Superior stockholders on the closing date. The Agreement and plan of merger with
the Superior stockholders provided that at the first anniversary of the closing,
June 18, 1998, the Superior stockholders would receive an additional 1,666, 667
shares of common stock, if the Company's stock price was not equal to or greater
than $30.0. Any difference between the value of the stock received and the
$5,000,000 guaranteed value is to be paid in cash. The common stock price did
not reach the specified level of $30.0 by June 18, 1998. Accordingly, the
Company accrued a current liability to the former Superior stockholders in the
amount of $4,083,000 and reduced the amount originally added to additional
paid-in capital at the time of acquisition.
On July 31, 1998, the Company signed a Contingent Settlement Agreement
with the selling shareholders of Superior which provides for an overall
reduction in purchase price of $4,900,000 through waiver of any additional stock
or cash payment. The Agreement also provides for a payment of $4,200,000, which
represents the remaining amount due on the original selling shareholder notes by
September 30, 1998. There can be no assurance that the Company will be able to
obtain financing to meet the obligations to pay the selling shareholders.
Item 5. Other Information
Under rules recently adopted by the Securities and Exchange Commission,
proxies solicited by management in connection with the Company's 1998 annual
meeting of stockholders may confer discretionary authority to vote on any
shareholder proposal of which the Company did not have notice by a reasonable
time before the Company mails its proxy materials for such annual meeting.
Item 6. Exhibits and Reports on Form 8-K
(a)List of Exhibits:
The following exhibits, required by Item 601 of Regulation S-K, are filed as
part of this Quarterly Report on Form 10-Q. Exhibit numbers, where applicable,
in the left column correspond to those of Item 601 of Regulation S-K.
Exhibit
No. Description of Exhibit
- ------- ----------------------
4a Certificate of Designations, Preferences and Rights of Series H
Preferred Stock
4b Warrant to Purchase 2,500,000 shares of Common Stock, dated April 30,
1998
4c Warrant to Purchase 350,000 shares of Common Stock, dated June 30, 1998
4d Warrant to Purchase up to 400,000 shares of Common Stock, dated April
1, 1998
4e Warrant to Purchase 250,000 shares of Common Stock, dated April 1, 1998
4f $250,000 Note dated April 30, 1998
4g $200,000 Note dated May 13, 1998
28
<PAGE> 29
4h Letter Agreement dated June 25, 1998 amending terms of Notes
4i Form of Subscription Agreement for Series H Convertible Preferred Stock
10a Commercial Financing Agreement between the Company and Porter Capital
Corporation
27 Financial Data Schedules (filed in electronic form only)
(b) Reports on Form 8-K:
None.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements 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.
DYNAGEN, INC.
By: /s/ Indu A. Muni
----------------------------------
Indu A. Muni, Ph.D.
President, Chief Executive Officer, and Treasurer (Principal
Executive, Financial, and Accounting Officer)
Date: August 14, 1998
30
<PAGE> 31
Exhibit Index
Exhibit
No. Description of Exhibit
- -------- ----------------------
4a Certificate of Designations, Preferences and Rights of Series H
Preferred Stock
4b Warrant to Purchase 2,500,000 shares of Common Stock, dated April 30,
1998
4c Warrant to Purchase 350,000 shares of Common Stock, dated June 30, 1998
4d Warrant to Purchase up to 400,000 shares of Common Stock, dated April
1, 1998
4e Warrant to Purchase 250,000 shares of Common Stock, dated April 1, 1998
4f $250,000 Note dated April 30, 1998
4g $200,000 Note dated May 13, 1998
4h Letter Agreement dated June 25, 1998 amending terms of Notes
4i Form of Subscription Agreement for Series H Convertible Preferred Stock
10a Commercial Financing Agreement between the Company and Porter Capital
Corporation
27 Financial Data Schedules (filed in electronic form only)
31
<PAGE> 1
Exhibit 4a
DYNAGEN, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES H PREFERRED STOCK
The undersigned officer of DynaGen, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred by the Certificate of
Incorporation, as amended to date, and pursuant to the provisions of Section 151
of the General Corporation Law of the State of Delaware, the Board of Directors
of DynaGen, Inc., on April 30, 1998 adopted a resolution providing for certain
powers, designations, preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions thereof, of certain
shares of Series H Preferred Stock, $.01 par value, of the Corporation, which
resolution is as follows:
RESOLVED: That, pursuant to the authority vested in the Board of
Directors of the Corporation and in accordance with the General Corporation Law
of the State of Delaware and the provisions of the Corporation's Certificate of
Incorporation, a series of 20,000 shares of the class of authorized Preferred
Stock, par value $.01 per share, of the Corporation is hereby created as the
Series H Preferred Stock, and that the designation and number of shares thereof
and the voting powers, preferences and relative, participating, option and other
special rights of the shares of such series, and the qualifications, limitations
and restrictions thereof, are as set forth on Exhibit A attached hereto.
EXECUTED as of this 20th day of May, 1998.
DYNAGEN, INC.
By: /s/ Dhananjay Wadekar
---------------------
Dhananjay G. Wadekar
Executive Vice President
<PAGE> 2
EXHIBIT A
A. DESCRIPTION AND DESIGNATION OF SERIES H PREFERRED STOCK
1. DESIGNATION AND DEFINITIONS.
(a) DESIGNATION. A total of 20,000 shares of the Corporation's
previously undesignated Preferred Stock, $.01 par value, shall be designated as
the "Series H. Preferred Stock." The original issue price per share of the
Series H Preferred Stock shall be $100 (the "ORIGINAL ISSUE PRICE").
(b) CERTAIN DEFINITIONS. As used herein, the following terms,
unless the context otherwise requires, have the following respective meanings:
(i) "AVERAGE QUOTED PRICE" means the average of the
closing bid price of the Common Stock of the Corporation as reported by the
Nasdaq SmallCap Market or Nasdaq National Market or if the Corporation's Common
Stock is no longer traded on a Nasdaq market, such other exchange on which the
Corporation's Common Stock is then traded, for the five (5)Trading Days
immediately preceding any holder's Conversion Date, the Mandatory Redemption
Date or the date of the consummation or closing of a Fundamental Change, as a
the case may be.
(ii) "COMMON STOCK" means the common stock, par
value $.01 per share, of the Corporation.
(iii) "CONVERSION DATE" means (a) three days after
each date on which the Corporation receives by telecopy written notice in
accordance with Section 5(g) hereof from a holder of Series H Preferred Stock
that such holder elects to convert shares of its Series H Preferred Stock or (b)
the Second Anniversary of the date hereof (in the case of a Mandatory
Conversion).
(iv) "CONVERSION PRICE" means 67% of the Average
Quoted Price.
(v) "FUNDAMENTAL CHANGE" means: (i) any sale,
lease, exchange or other transfer of all or substantially all of the assets of
the Corporation; or (ii) any merger or consolidation to which the Corporation is
a party. Notwithstanding the foregoing, the following shall not be a Fundamental
Change: A merger of consolidation (a) to which the Corporation is a party; (b)
in which it is the surviving corporation and there is no resulting
reclassification of the outstanding Common Stock; and (c) after giving effect to
which, persons who were, immediately before the consummation or closing of such
merger or consolidation, holders of outstanding Common Stock will be the direct
or indirect owners of securities of the Corporation possessing, on a fully
diluted basis, at least fifty-one percent (51%) of the voting power of all
voting securities of the Corporation (excluding, for purposes of such
computation, any such person who also is a party to such merger or
consolidation).
<PAGE> 3
(vi) "ISSUE DATE" means, with respect to each share
of Series H Preferred Stock held by any holder, the date on which the
Corporation originally issued such share to such holder (regardless of the
number of times transfer of such share is made on the stock transfer books
maintained by or for the Corporation, and regardless of the number of
certificates which may be issued to evidence such share, and irrespective of any
subsequent transfer or other disposition of such share to any other holder).
(vii) "TRADING DAY" means a day on which the
principal national securities exchange on which the Common Stock is listed or
admitted to trading is open for the transaction of business; or, if the Common
Stock is not listed or admitted to trading on any national securities exchange
but is listed on the Nasdaq system (or such other trading system then in use by
the National Association of Securities Dealers, Inc.), a day on which such
system is open for the transaction of business; or, if the foregoing does not
apply, any Business Day.
2. DIVIDENDS. Except as expressly provided herein the holders of
shares of Series H Preferred Stock shall not be entitled to dividends.
(a) DECLARED DIVIDENDS ON COMMON STOCK. If the Board of
Directors shall declare a cash dividend payable upon the then outstanding shares
of Common Stock (other than a stock dividend on the Common Stock distributed
solely in the form of additional shares of Common Stock), the holders of the
Series H Preferred Stock shall be entitled to the amount of dividends on the
Series H Preferred Stock as would be declared payable on the largest number of
whole shares of Common Stock into which the shares of Series H Preferred Stock
held by each holder thereof could be converted pursuant to the provisions of
Section 5 hereof, such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend. Such
determination of "whole shares" shall be based upon the aggregate number of
shares of Series H Preferred Stock held by each holder, and not upon each share
of Series H Preferred Stock so held by the holder.
(b) DIVIDENDS ON OTHER SECURITIES. The Board of Directors may
declare and the Corporation may pay or set apart for payment, or cause the
accrual of, stated or cumulative dividends and other distributions on any other
series of preferred stock, and may purchase or otherwise redeem any of the same
(or any warrants, rights, options or other securities exercisable therefor or
convertible or exchangeable therein), and the holders of Series H Preferred
Stock shall not be entitled to share therein.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In
the event of any liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary, or in the event of its insolvency, before any
distribution or payment is made to any holders of Common Stock or any other
class or series of capital stock of the Corporation designated to be junior to
the Series H Preferred Stock, and subject to the liquidation rights and
preferences of any class or series of Preferred Stock designated by the Board of
Directors in the future to be senior
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<PAGE> 4
to or on a parity with the Series H Preferred Stock with respect to liquidation
preferences, the holder of each share of Series H Preferred Stock shall be
entitled to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings, an amount equal to the
Original Issue Price per share of Series H Preferred Stock held by any holder,
plus the Preferred Dividend accruing to the Series H Preferred Stock pursuant to
Section 2 above (the "LIQUIDATION VALUE"). For purposes hereof, the Series H
Preferred Stock shall rank on liquidation junior to the Series A Preferred
Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D
Preferred Stock, the Series E Preferred Stock, the Series F Preferred Stock and
the Series G Preferred Stock.
If, upon liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its stockholders shall
be insufficient to pay the holders of the Series H Preferred Stock the full
amount to which they otherwise would be entitled, the holders of Series H
Preferred Stock shall share ratably in any distribution of available assets pro
rata in proportion to the respective liquidation preference amounts which would
otherwise be payable upon liquidation with respect to the outstanding shares of
the Series H Preferred Stock if all liquidation preference amounts with respect
to such shares were paid in full, based upon the aggregate Liquidation Value
payable upon all shares of Series H Preferred Stock then outstanding.
After such payment shall have been made in full to the holders of the
Series H Preferred Stock, or funds necessary for such payment shall have been
set aside by the Corporation in trust for the account of holders of the Series H
Preferred Stock so as to be available for such payment, the remaining assets
available for distribution shall be distributed ratably among the holders of the
Common Stock and any class or series of capital stock designated to be junior to
the Series H Preferred Stock (if any) in right of payment upon any liquidation,
dissolution or winding up of the Corporation.
The amounts set forth above shall be subject to equitable adjustment by
the Board of Directors whenever there shall occur a stock dividend, stock split,
combination, reorganization, recapitalization, reclassification or other similar
event involving a change in the capital structure of the Series H Preferred
Stock.
(b) DISTRIBUTIONS OTHER THAN CASH. Whenever the
distributions provided for in this Section shall be payable in property other
than cash, the value of such distribution shall be the fair market value of such
property as determined in good faith by the Board of Directors. All
distributions (including distributions other than cash) made hereunder shall be
made pro rata to the holders of Series H Preferred Stock.
(c) EVENTS NOT DEEMED A LIQUIDATION. Neither the merger
or consolidation of the Corporation into or with any other corporation(s), nor
the sale or transfer by the Corporation of all or any part of its assets, nor
the reduction of the capital stock of the Corporation, will be deemed to be a
liquidation, dissolution or winding up of the Corporation under this Section 3.
-3-
<PAGE> 5
4. VOTING POWER.
(a) GENERAL. Except as otherwise required by the General
Corporation Law of the State of Delaware, the Series H Preferred Stock shall not
be entitled to vote on any matter.
(b) AMENDMENTS TO CHARTER. For so long as there are any
shares of Series H Preferred Stock outstanding, the Corporation shall not amend
its Certificate of Incorporation or this Certificate of Designation without the
approval, by vote or written consent, of the holders of at least a majority of
the then outstanding shares of Series H Preferred Stock, voting together as a
class, each share of Series H Preferred Stock to be entitled to one vote in each
instance, if such amendment would adversely affect the rights of the holders of
Series H Preferred Stock; provided that the creation, or increase in the
authorized number of shares, of any class or series of stock ranking prior to or
on a parity with the Series H Preferred Stock either as to dividends or upon
liquidation shall not be deemed to adversely affect the rights of the holders of
Series H Preferred Stock for purposes of this Section 4(b).
5. CONVERSION RIGHTS,
(a) CONVERSION. Subject to Section 6 and as provided
elsewhere in this Section 5, each holder of Series H Preferred Stock shall have
the right, at such holder's option, to convert at any time after one year from
the date hereof any of the shares of Series H Preferred Stock held by such
holder into such number of fully paid and nonassessable shares of Common Stock
as shall be determined by multiplying the number of shares of Series H Preferred
Stock to be converted by a fraction, the numerator of which is the Original
Issue Price, and the denominator of which is the applicable Conversion Price;
provided that in no event shall any holder of Series H Preferred Stock convert
more than twenty percent (20%) of such holder's shares of Series H Preferred
Stock in any period of seven (7) consecutive days. On the second anniversary of
the date hereof, all outstanding shares of Series H Preferred Stock shall
automatically be converted into such number of fully paid and non-assessable
shares of Common Stock as shall be determined by multiplying the number of
shares of Series H Preferred Stock to be converted by a fraction, the numerator
of which is the Original Issue Price, and the denominator of which is the
applicable Conversion Price.
(b) LIMITATION ON NUMBER OF SHARES. Additionally,
notwithstanding anything set forth in this Section 5 to the contrary, and except
as provided in this Section 5(b), in no event shall any holder of Series H
Preferred Stock, prior to earlier to occur of the delivery of a Mandatory
Redemption Notice or the date of the consummation or closing of a Fundamental
Change, be entitled to convert Series H Preferred Stock into shares of Common
Stock to the extent that such conversions when taken together with all other
conversions of shares of Series H Preferred Stock shall exceed 19.9% of the
issued and outstanding shares of Common Stock of the Corporation on the date
hereof; provided that if such conversions exceed 19.9% the Corporation at its
sole option shall either (i) redeem any shares of Series H Preferred Stock
submitted for conversion in excess of 19.9% for an amount equal to 150% of the
Original Issue Price, (ii) obtain approval of its stockholders for the issuance
of such additional shares of Common Stock or (iii)
-4-
<PAGE> 6
do a combination of any of the foregoing. Notwithstanding the foregoing, upon
the delivery of a Mandatory Redemption Notice or upon the consummation or
closing of a Fundamental Change, all such shares of Series H Preferred Stock
then outstanding shall be converted into Common Stock in accordance with Section
5 or Section 6, as applicable.
(c) DIVIDENDS OTHER THAN COMMON STOCK DIVIDENDS. In the
event the Corporation shall make or issue, or shall fix a record date for the
determination of holders of Common Stock entitled to receive a dividend or other
distribution (other than a distribution in liquidation or other distribution
otherwise provided for herein) with respect to the Common Stock payable in (i)
securities of the Corporation other than shares of Common Stock or (ii) other
assets (excluding cash dividends or distributions), then and in each such event
provision shall be made so that the holders of the Series H Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the number of securities or such other assets
of the Corporation which they would have received had their Series H Preferred
Stock been converted into Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities or such other assets receivable by
them during such period, giving application to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Series H Preferred Stock.
(d) CAPITAL REORGANIZATION OR RECLASSIFICATION. If the
Common Stock issuable upon the conversion of the Series H Preferred Stock shall
be changed into the same or different number of shares of any class or classes
of capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Corporation's capital stock or assets to any other
person), then and in each such event the holders of Series H Preferred Stock
shall have the right thereafter to convert such shares into the kind and amount
of shares of capital stock and other securities and property receivable upon
such reorganization, recapitalization, reclassification or other change by the
holders of the number of shares of Common Stock into which such shares of Series
H Preferred Stock might have been converted immediately prior to such
reorganization, recapitalization, reclassification or change, all subject to
further adjustment as provided herein.
(e) MANDATORY CONVERSION - FUNDAMENTAL CHANGE. If any
Fundamental Change shall occur, then each share of Series H Preferred Stock
outstanding as of the date of the consummation or closing thereof shall be (and
be deemed to have been) converted automatically, without any further action by
the holders thereof, into such number of fully paid and nonassessable shares of
Common Stock as shall be determined by multiplying the number of shares of
Series H Preferred Stock outstanding on the date of such consummation or closing
date by a fraction, the numerator of which is the Original Issue Price, and the
denominator of which is the Conversion Price. Such conversion shall be deemed to
have occurred whether or not the certificates representing such shares are
surrendered to the Corporation or its transfer agent.
The Corporation shall give notice of a proposed or anticipated
Fundamental Change to all holders of the Series H Preferred Stock not later than
thirty (30) days before the expected closing
-5-
<PAGE> 7
or consummation of such Fundamental Change. The Corporation also shall give
prompt notice of the closing or consummation of such Fundamental Change to all
holders of record of the Series H Preferred Stock as of the date of such closing
or consummation. Each holder of Series H Preferred Stock shall thereupon
promptly surrender for conversion, to the Corporation at its principal office or
to any transfer agent for the Series H Preferred Stock or the Common Stock, all
certificates representing all shares of Series H Preferred Stock held by such
holder, accompanied by a written notice specifying the name or names in which
such holder wishes the certificate(s) for shares of Common Stock to be issued.
(f) CERTIFICATE AS TO ADJUSTMENTS; NOTICE BY CORPORATION.
In each case of an adjustment or readjustment of the Original Issue Price, the
Corporation at its expense will furnish each holder of Series H Preferred Stock
so affected with a certificate prepared by an officer of the Corporation,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(g) EXERCISE OF CONVERSION PRIVILEGE. To exercise its
conversion privilege, a holder of Series H Preferred Stock shall give three days
(3) days' prior written notice by telecopy to the Corporation at its principal
office that such holder elects to convert shares of its Series H Preferred Stock
and shall thereafter surrender the original certificate(s) representing the
shares being converted to the Corporation at its principal office together with
an originally executed copy of such notice. Such notice shall also state the
name or names (with its address or addresses, as well as the address(es) for
delivery) in which the certificate(s) for shares of Common Stock issuable upon
such conversion shall be issued. The certificate(s) for the shares of Series H
Preferred Stock surrendered for conversion shall be accompanied by proper
assignment thereof to the Corporation or in blank. As promptly as practicable
after the Corporation receives the original certificate(s) for the shares of
Series H Preferred Stock surrendered for conversion, the proper assignment
thereof to the Corporation or in blank and the original notice of conversion
(collectively, the "ORIGINAL DOCUMENTATION"), but in no event more than three
(3) Trading Days after the Corporation's receipt of the Original Documentation,
the Corporation shall issue and shall deliver to the holder of the shares of
Series H Preferred Stock being converted, at the addresses set forth therefor by
the holder, such certificate(s) as it may request for the number of whole shares
of Common Stock issuable upon the conversion of such shares of Series H
Preferred Stock in accordance with the provisions of this Section 5, and cash,
as provided in Section 5(h), in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been affected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series H Preferred Stock shall cease and the person(s) in whose name(s) any
certificate(s) for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder(s) of record of the shares of Common
Stock represented thereby.
(h) CASH IN LIEU OF FRACTIONAL SHARES. No fractional
shares of Common Stock or scrip representing fractional shares shall be issued
upon the conversion of shares of Series H Preferred Stock. Instead of any
fractional shares of Common Stock that would otherwise be issuable upon
conversion of Series H Preferred Stock, the Corporation shall pay to the holder
of the share of Series H Preferred Stock being converted a cash adjustment in
respect of such
-6-
<PAGE> 8
fractional shares in an amount equal to the same fraction of the market price
per share of the Common Stock (as determined in a reasonable manner prescribed
by the Board of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall be
based upon the aggregate number of shares of Series H Preferred Stock being
converted at any one time by any holder thereof, not upon each share of Series H
Preferred Stock being converted.
(i) PARTIAL CONVERSION. In the event some but not all of
the shares of Series H Preferred Stock represented by a certificate(s)
surrendered by a holder are converted, the Corporation shall execute and deliver
to or on the order of the holder, at the expense of the Corporation, a new
certificate representing the number of shares of Series H Preferred Stock which
were not converted. Such new certificate shall be so delivered on or prior to
the date set forth in Section 5 for the delivery of certificates for shares of
Common Stock.
(j) RESERVATION OF COMMON STOCK. The Corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the conversion of the
shares of the Series H Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series H Preferred Stock (including any shares of
Series H Preferred Stock represented by any warrants, options, subscription or
purchase rights for the Series H Preferred Stock), and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Series H Preferred
Stock (including any shares of Series H Preferred Stock represented by any
warrants, options, subscriptions or purchase rights for the Series H Preferred
Stock), then Corporation shall use all means reasonably available to it, and
promptly take any and all actions as may be necessary, to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
6. REDEMPTION AND REPURCHASE RIGHTS.
(a) REDEMPTION AT OPTION OF CORPORATION. The Corporation
may redeem all or any of the then outstanding shares of Series H Preferred Stock
by notifying the holders of shares of Series H Preferred Stock to be redeemed in
writing prior to the Conversion Date for such shares (the "Mandatory Redemption
Notice") of its election to redeem such shares. The Corporation shall pay in
cash an amount equal to 150% of the Original Issue Price of the shares to be
redeemed within 30 days after the Mandatory Redemption Notice.
Each holder of shares of Series H Preferred Stock being redeemed shall,
promptly after receipt of the Mandatory Redemption Notice surrender for
redemption to the Corporation at its principal office or to any transfer agent
for the Series H Preferred Stock or the Common Stock all certificates
representing all shares of Series H Preferred Stock held by such holder,
accompanied by a written notice specifying the name or names and address or wire
transfer information in which such holder wishes the redemption payment to be
made.
-7-
<PAGE> 9
Effective as of the close of business on the date of the Mandatory
Redemption Notice, each share of Series H Preferred Stock then outstanding shall
be (and be deemed to have been) redeemed automatically, without any further
action by the holders. Such redemption shall be deemed to have occurred whether
or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent and shall cut off and supercede any pending
conversion.
7. NOTICES OF RECORD DATE. In the event of any:
(a) taking by the Corporation of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of capital stock of any
class or any other securities or property, or to receive any other right, or
(b) capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the Corporation,
any merger or consolidation of the Corporation, or any transfer of all or
substantially all of the assets of the Corporation to any other Corporation, or
any other entity or person, or
(c) voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
then and in each such event the Corporation shall telecopy and thereafter mail
or cause to be mailed to each holder of Series H Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a description of such dividend,
distribution or right, (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up is expected to become effective, and
(iii) the time, if any, that is to be fixed, as to when the holders of record of
Common Stock (or other securities) shall be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up. Such notice shall
be telecopied and thereafter mailed by first class mail, postage prepaid, or by
express overnight courier service, at least ten (10) days prior to the date
specified in such notice on which such action is to be taken.
8. GENERAL.
(a) REPLACEMENT OF CERTIFICATES. Upon the Corporation's
receipt, from the holder of any certificate evidencing shares of Series H
Preferred Stock, of evidence reasonably satisfactory to the Corporation (an
affidavit of such holder will be satisfactory) of the ownership and the loss,
theft, destruction or mutilation of such certificate, and in the case of any
such loss, theft or destruction, upon receipt of indemnity reasonably
satisfactory to the Corporation, and in the case of any such mutilation, upon
surrender of such certificate, the Corporation (at its expense) shall execute
and deliver to such holder, in lieu of such certificate, a new certificate that
represents the number of shares represented by, is dated the date of, is issued
in the name of the holder of, and is substantially identical in form of, such
lost, stolen, destroyed or mutilated certificate.
-8-
<PAGE> 10
(b) PAYMENT OF TAXES. The Corporation shall pay all taxes
(other than taxes based upon income) and other governmental charges that may be
imposed in connection with the issuance or delivery of any shares of Common
Stock (or other of the Corporation's securities) that results from the
conversion of shares of Series H Preferred Stock pursuant to this Certificate of
Designations. If the Corporation, pursuant to a notice from a holder of any
shares of Series H Preferred Stock, effects the issuance or delivery of any
shares of Common Stock (or other of the Corporation's securities) in any name(s)
other than such holder's name, then such holder shall deliver to the Corporation
with the aforesaid notice (A) all transfer taxes and other governmental charges
payable upon the issuance or delivery of securities in such other name(s) or (B)
evidence satisfactory to the Corporation that such taxes and charges have been
or shall be paid in full.
(c) STATUS OF REDEEMED OR CONVERTED SHARES. Shares of
Series H Preferred Stock that are redeemed, converted or otherwise acquired by
the Corporation in any manner (including by purchase or exchange) shall be
canceled and upon cancellation (i) shall no longer be deemed to be outstanding,
(ii) shall become authorized but unissued shares of preferred stock undesignated
as to series and (iii) may be reissued as part of another series of preferred
stock.
-9-
<PAGE> 1
Exhibit 4b
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on April 30, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Massachusetts corporation (the "Company"),
hereby certifies that H.J. Meyers & Co., Inc. or its permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing on May 1, 1998 and prior to 5:00 P.M., Eastern Standard Time, on
April 30, 2001, a total of Two Million Five Hundred Thousand (2,500,000) fully
paid and nonassessable shares of the common stock, par value $.01 per share, of
the Company for an aggregate purchase price of $0.50 per share. (Hereinafter,
(i) said common stock, together with any other equity securities which may be
issued by the Company with respect thereto or in substitution therefor, is
referred to as the "Common Stock", (ii) the shares of the Common Stock
purchasable hereunder are referred to as the "Warrant Shares", (iii) the
aggregate purchase price payable hereunder for the Warrant Shares is referred to
as the "Aggregate Warrant Price", (iv) the price payable hereunder for each of
the Warrant Shares is referred to as the "Exercise Price", (v) this Warrant, and
all warrants hereafter issued in exchange or substitution for this Warrant are
referred to as the "Warrant" and (vi) the holder of this Warrant is referred to
as the "Holder".) The Exercise Price is subject to adjustment as hereinafter
provided.
1. Exercise of Warrant.
(a) Exercise. This Warrant may be exercised, in whole at any time
or in part from time to time, commencing on July 1, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on June 30, 2001, by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Subsection 9(a) hereof, together with
proper payment of the Aggregate Warrant Price, or the proportionate part thereof
if this Warrant is exercised in part. Payment for Warrant Shares shall be made
by certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, the Holder
<PAGE> 2
is entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the largest number of
whole shares of the Common Stock to which the Holder shall be entitled if this
Warrant is exercised in whole and (b) deliver the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions of the Warrant. In
lieu of any fractional share of the Common Stock which would otherwise be
issuable in respect to the exercise of the Warrant, the Company at its option
(a) may pay in cash an amount equal to the product of (i) the daily mean average
of the Closing Price of a share of Common Stock on the ten consecutive trading
days before the Conversion Date and (ii) such fraction of a share or (b) may
issue an additional share of Common Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary
contained in Subsection 1(a) hereof, in the case of any exercise on or prior to
June 30, 2001 the Holder may elect to exercise this Warrant in whole or in part
by receiving shares of Common Stock equal to the net issuance value (as
determined below) of this Warrant, or any part hereof, upon surrender of this
Warrant at the principal office of the Company together with notice of such
election (with the form at the end hereof duly executed), in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:
X = Y (A-B)
-------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day
immediately preceding the exercise of this warrant
B = the Exercise Price
2
<PAGE> 3
(c) Certain Adjustments
The Exercise Price and the number of Warrant Shares shall be equitable
adjusted from time to time to account for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events.
As used herein, current fair market value of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
business days consisting of the day as of which the current fair market value of
a share of Common Stock is being determined (or if such day is not a business
day, the business day next preceding such day) and the four consecutive business
days prior to such day. If on the date for which current fair market value is to
be determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, which determination shall be conclusive, unless prior
to such date the Company has become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in which
case the current fair market value of the Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have authorized
and reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
3. Fully Paid Stock: Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issue of any Warrant Share or certificate therefor.
4. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the
3
<PAGE> 4
"Securities Act"), or under any state securities laws and unless so registered
may not be transferred, sold, pledged, hypothecated or otherwise disposed of
unless an exemption from such registration is available. In the event Holder
desires to transfer this Warrant or any of the Warrant Shares issued, the Holder
must give the Company prior written notice of such proposed transfer including
the name and address of the proposed transferee. Such transfer may be made only
either (i) upon publication by the Securities and Exchange Commission (the
"Commission") of a ruling, interpretation, opinion or "no action letter" based
upon facts presented to said Commission, or (ii) upon receipt by the Company of
an opinion of counsel to the Company in either case to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the Warrant or Warrant Shares to be sold or
transferred has been registered under the Securities Act and that there is in
effect a registration statement in which is included a prospectus meeting the
requirements of Subsection 10 (a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Warrant or Warrant Stock to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Securities Act, the Holder will,
if requested by the Company, deliver to the Company (i) an investment covenant
signed by the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee, (iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the Holder
hereby agrees to indemnify and hold harmless the Company, its representatives
and each officer and director thereof from and against any and all loss, damage
or liability (including all attorneys' fees and costs incurred in enforcing this
indemnity provision) due to or arising out of (a) the inaccuracy of any
representation or the breach of any warranty of the Holder contained in, or any
other breach of, this warrant, (b) any transfer of the Warrant or any of the
Warrant Shares in violation of the Securities Act, the Exchange Act or the rules
and regulations promulgated under either of such acts, (c) any transfer of the
Warrant or any of the Warrant Shares not in accordance with this Warrant or (d)
any untrue statement or omission to state any material fact in connection with
the investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant
and the Warrant Shares issued may be transferred by the Holder in whole or in
part at any time or from time to time.
4
<PAGE> 5
Upon surrender of this Warrant to the Company or at the office of its stock
transfer agent, if any, with assignment documentation duly executed and funds
sufficient to pay any transfer tax, and upon compliance with the foregoing
provisions, the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment, and this
Warrant shall promptly be canceled. Any assignment, transfer, pledge,
hypothecation or other disposition of this Warrant attempted contrary to the
provisions of this Warrant, or any levy of execution, attachment or other
process attempted upon the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act, upon exercise of any part
of the Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Massachusetts law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and may
not be sold, offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the provisions of that Act or
an opinion of counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from such
registration."
5. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of an unsecured indemnity from the Holder reasonably satisfactory to the
Company, if lost, stolen or destroyed, and upon surrender and cancellation of
the Warrant, if mutilated, the Company shall execute and deliver to the Holder a
new Warrant of like date, tenor and denomination.
6. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
7. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
certified mail, return receipt requested, addressed to:
(a) the Company at 840 Memorial Drive, Cambridge, MA
02139, or such other address as the Company has designated in writing to the
Holder, with a copy to David A. Broadwin, Foley, Hoag & Eliot LLP, One Post
Office Square, Boston, Massachusetts 021 10, or
5
<PAGE> 6
(b) the Holder at 1395 Mt. Hope Avenue, Rochester, NY ,
or such other address as the Holder has designated in writing to the Company.
Any notice given hereunder shall be effective upon the earlier of (i)
receipt, or (ii) a date three days from the date of posting.
8. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof
9. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of The Commonwealth of Massachusetts
without giving effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, DYNAGEN, INC. has caused this Warrant to be signed
by its President and Chief Executive Officer and its corporate seal to be
hereunto affixed and attested by its Secretary as of the 30th day of April,
1998.
ATTEST: DYNAGEN, INC.
By: /s/ Dhananjay Wadekar
- ---------------------------- ----------------------
[Corporate Seal]
6
<PAGE> 7
SUBSCRIPTION
The undersigned, _______________________________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of ________ shares of the Common Stock of DYNAGEN, INC. covered by said
Warrant, and makes payment therefor in full at the price per share provided by
said Warrant.
Dated:____________________________ Signature:_____________________________
Address:___________________________
___________________________________
___________________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of
DYNAGEN, INC..
Dated:____________________________ Signature:_____________________________
Address:___________________________
___________________________________
___________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase _________ shares of the
Common Stock of DYNAGEN, INC. by the foregoing Warrant, and a proportionate part
of said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint ___________________________________, attorney, to transfer that part
of said Warrant on the books of DYNAGEN, INC.
Dated:____________________________ Signature:____________________________
7
<PAGE> 8
Address:___________________________
___________________________________
___________________________________
NET ISSUANCE ELECTION
The undersigned, _______________________________, pursuant to the
provisions of the foregoing Warrant, hereby tenders the right to purchase _____
shares of the Common Stock of DYNAGEN, INC., and a proportionate part of said
Warrant and the rights evidenced thereby, in exchange for a number of shares of
said Common Stock to be computed in accordance with the provisions of Section 1
(b) of said Warrant.
Dated:____________________________ Signature:____________________________
Address:___________________________
____________________________________
____________________________________
8
<PAGE> 1
Exhibit 4c
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Void after 5:00 p.m. Eastern Standard Time, on June 30, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Massachusetts corporation (the "Company"),
hereby certifies that Michael Vasinkevich, or his permitted assigns, is entitled
to purchase from the Company, at any time or from time to time commencing on
July 1, 1998 and prior to 5:00 P.M., Eastern Standard Time, on June 30, 2001, a
total of Three Hundred Fifty Thousand fully paid and nonassessable shares of the
common stock, par value $.01 per share, of the Company for an aggregate purchase
price of $0.01 per share. (Hereinafter, (i) said common stock, together with any
other equity securities which may be issued by the Company with respect thereto
or in substitution therefor, is referred to as the "Common Stock", (ii) the
shares of the Common Stock purchasable hereunder are referred to as the "Warrant
Shares", (iii) the aggregate purchase price payable hereunder for the Warrant
Shares is referred to as the "Aggregate Warrant Price", (iv) the price payable
hereunder for each of the Warrant Shares is referred to as the "Exercise Price",
(v) this Warrant, and all warrants hereafter issued in exchange or substitution
for this Warrant are referred to as the "Warrant" and (vi) the holder of this
Warrant is referred to as the "Holder".) The Exercise Price is subject to
adjustment as hereinafter provided.
1. Exercise of Warrant.
(a) Exercise. This Warrant may be exercised, in whole at any time
or in part from time to time, commencing on July 1, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on June 30, 2001, by the Holder of this Warrant by the
surrender of this Warrant (with the subscription form at the end hereof duly
executed) at the address set forth in Subsection 9(a) hereof, together with
proper payment of the Aggregate Warrant Price, or the proportionate part thereof
if this Warrant is exercised in part. Payment for Warrant Shares shall be made
by certified or official bank check payable to the order of the Company. If this
Warrant is exercised in part, the Holder
<PAGE> 2
is entitled to receive a new Warrant covering the number of Warrant Shares in
respect of which this Warrant has not been exercised and setting forth the
proportionate part of the Aggregate Warrant Price applicable to such Warrant
Shares. Upon such surrender of this Warrant, the Company will (a) issue a
certificate or certificates in the name of the Holder for the largest number of
whole shares of the Common Stock to which the Holder shall be entitled if this
Warrant is exercised in whole and (b) deliver the proportionate part thereof if
this Warrant is exercised in part, pursuant to the provisions of the Warrant. In
lieu of any fractional share of the Common Stock which would otherwise be
issuable in respect to the exercise of the Warrant, the Company at its option
(a) may pay in cash an amount equal to the product of (i) the daily mean average
of the Closing Price of a share of Common Stock on the ten consecutive trading
days before the Conversion Date and (ii) such fraction of a share or (b) may
issue an additional share of Common Stock.
Upon exercise of the Warrant, the Company shall issue and deliver to
the Holder certificates for the Common Stock issuable upon such exercise within
ten business days after such exercise and the person exercising shall be deemed
to be the holder of record of the Common Stock issuable upon such exercise.
No warrant granted herein shall be exercisable after 5:00 p.m. Eastern
Standard Time on the third anniversary of the date of issuance.
(b) Net Issuance. Notwithstanding anything to the contrary
contained in Subsection 1(a) hereof, in the case of any exercise on or prior to
June 30, 2001 the Holder may elect to exercise this Warrant in whole or in part
by receiving shares of Common Stock equal to the net issuance value (as
determined below) of this Warrant, or any part hereof, upon surrender of this
Warrant at the principal office of the Company together with notice of such
election (with the form at the end hereof duly executed), in which event the
Company shall issue to the Holder a number of shares of Common Stock computed
using the following formula:
X= Y (A-B)
----------
A
Where: X = the number of shares of Common Stock to be issued to the
Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day
immediately preceding the exercise of this warrant
B = the Exercise Price
2
<PAGE> 3
(c) Certain Adjustments
The Exercise Price and the number of Warrant Shares shall be equitable
adjusted from time to time to account for stock splits, stock dividends,
combinations, recapitalizations, reclassifications and similar events.
As used herein, current fair market value of the Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
business days consisting of the day as of which the current fair market value of
a share of Common Stock is being determined (or if such day is not a business
day, the business day next preceding such day) and the four consecutive business
days prior to such day. If on the date for which current fair market value is to
be determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the Company could then obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, which determination shall be conclusive, unless prior
to such date the Company has become subject to a merger, acquisition or other
consolidation pursuant to which the Company is not the surviving party, in which
case the current fair market value of the Common Stock shall be deemed to be the
value received by the holders of the Company's Common Stock for each share
thereof pursuant to the Company's acquisition.
2. Reservation of Warrant Shares. The Company agrees that, prior
to the expiration of this Warrant, the Company will at all times have authorized
and reserved, and will keep available, solely for issuance or delivery upon the
exercise of this Warrant, the number of shares of the Common Stock as from time
to time shall be receivable upon the exercise of this Warrant.
3. Fully Paid Stock: Taxes. The Company agrees that the shares of
the Common Stock represented by each and every certificate for Warrant Shares
delivered on the exercise of this Warrant shall, at the time of such delivery,
be validly issued and outstanding, fully paid and nonassessable, and not subject
to preemptive rights, and the Company will take all such actions as may be
necessary to assure that the par value or stated value, if any, per share of the
Common Stock is at all times equal to or less than the then Exercise Price. The
Company further covenants and agrees that it will pay, when due and payable, any
and all Federal and state stamp, original issue or similar taxes that may be
payable in respect of the issue of any Warrant Share or certificate therefor.
4. Transfer.
(a) Securities Laws. Neither this Warrant nor the Warrant
Shares issuable upon the exercise hereof have been registered under the
Securities Act of 1933, as amended (the
3
<PAGE> 4
"Securities Act"), or under any state securities laws and unless so registered
may not be transferred, sold, pledged, hypothecated or otherwise disposed of
unless an exemption from such registration is available. In the event Holder
desires to transfer this Warrant or any of the Warrant Shares issued, the Holder
must give the Company prior written notice of such proposed transfer including
the name and address of the proposed transferee. Such transfer may be made only
either (i) upon publication by the Securities and Exchange Commission (the
"Commission") of a ruling, interpretation, opinion or "no action letter" based
upon facts presented to said Commission, or (ii) upon receipt by the Company of
an opinion of counsel to the Company in either case to the effect that the
proposed transfer will not violate the provisions of the Securities Act, the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules
and regulations promulgated under either such act, or in the case of clause (ii)
above, to the effect that the Warrant or Warrant Shares to be sold or
transferred has been registered under the Securities Act and that there is in
effect a registration statement in which is included a prospectus meeting the
requirements of Subsection 10 (a) of the Securities Act, which is being or will
be delivered to the purchaser or transferee at or prior to the time of delivery
of the certificates evidencing the Warrant or Warrant Stock to be sold or
transferred.
(b) Conditions to Transfer. Prior to any such proposed
transfer, and as a condition thereto, if such transfer is not made pursuant to
an effective registration statement under the Securities Act, the Holder will,
if requested by the Company, deliver to the Company (i) an investment covenant
signed by the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee, (iii) an agreement by such transferee that the Company may place a
"stop transfer order" with its transfer agent or registrar, and (iv) an
agreement by the transferee to indemnify the Company to the same extent as set
forth in the next succeeding paragraph.
(c) Indemnity. The Holder acknowledges that the Holder
understands the meaning and legal consequences of this Section 6, and the Holder
hereby agrees to indemnify and hold harmless the Company, its representatives
and each officer and director thereof from and against any and all loss, damage
or liability (including all attorneys' fees and costs incurred in enforcing this
indemnity provision) due to or arising out of (a) the inaccuracy of any
representation or the breach of any warranty of the Holder contained in, or any
other breach of, this warrant, (b) any transfer of the Warrant or any of the
Warrant Shares in violation of the Securities Act, the Exchange Act or the rules
and regulations promulgated under either of such acts, (c) any transfer of the
Warrant or any of the Warrant Shares not in accordance with this Warrant or (d)
any untrue statement or omission to state any material fact in connection with
the investment representations or with respect to the facts and representations
supplied by the Holder to counsel to the Company upon which its opinion as to a
proposed transfer shall have been based.
(d) Transfer. Except as restricted hereby, this Warrant
and the Warrant Shares issued may be transferred by the Holder in whole or in
part at any time or from time to time.
4
<PAGE> 5
Upon surrender of this Warrant to the Company or at the office of its stock
transfer agent, if any, with assignment documentation duly executed and funds
sufficient to pay any transfer tax, and upon compliance with the foregoing
provisions, the Company shall, without charge, execute and deliver a new Warrant
in the name of the assignee named in such instrument of assignment, and this
Warrant shall promptly be canceled. Any assignment, transfer, pledge,
hypothecation or other disposition of this Warrant attempted contrary to the
provisions of this Warrant, or any levy of execution, attachment or other
process attempted upon the Warrant, shall be null and void and without effect.
(e) Legend and Stop Transfer Orders. Unless the Warrant
Shares have been registered under the Securities Act, upon exercise of any part
of the Warrant and the issuance of any of the Warrant Shares, the Company shall
instruct its transfer agent to enter stop transfer orders with respect to such
shares, and all certificates representing Warrant Shares shall bear on the face
thereof substantially the following legend, insofar as is consistent with
Massachusetts law:
"The shares of common stock represented by this certificate have not
been registered under the Securities Act of 1933, as amended, and may
not be sold, offered for sale, assigned, transferred or otherwise
disposed of unless registered pursuant to the provisions of that Act or
an opinion of counsel to the Company is obtained stating that such
disposition is in compliance with an available exemption from such
registration."
5. Loss, etc. of Warrant. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant,
and of an unsecured indemnity from the Holder reasonably satisfactory to the
Company, if lost, stolen or destroyed, and upon surrender and cancellation of
the Warrant, if mutilated, the Company shall execute and deliver to the Holder a
new Warrant of like date, tenor and denomination.
6. Warrant Holder Not Shareholder. Except as otherwise provided
herein, this Warrant does not confer upon the Holder any right to vote or to
consent to or receive notice as a shareholder of the Company, as such, in
respect of any matters whatsoever, or any other rights or liabilities as a
shareholder, prior to the exercise hereof.
7. Communication. No notice or other communication under this
Warrant shall be effective unless the same is in writing and is mailed by
certified mail, return receipt requested, addressed to:
(a) the Company at 107 Audubon Road #5, Wakefield,
Massachusetts 01880- 1246, or such other address as the Company has designated
in writing to the Holder, with a copy to David A. Broadwin, Foley, Hoag & Eliot,
One Post Office Square, Boston, Massachusetts 021 10, or
5
<PAGE> 6
(b) the Holder at 292 Fifth Avenue, New York, New York
10001, or such other address as the Holder has designated in writing to the
Company.
Any notice given hereunder shall be effective upon the earlier of (i)
receipt, or (ii) a date three days from the date of posting.
8. Headings. The headings of this Warrant have been inserted as a
matter of convenience and shall not affect the construction hereof
9. Applicable Law. This Warrant shall be governed by and
construed in accordance with the law of the State of Massachusetts without
giving effect to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, DYNAGEN, INC. has caused this Warrant to be signed
by its President and Chief Executive Officer and its corporate seal to be
hereunto affixed and attested by its Secretary this 1st day of July, 1998.
ATTEST: DYNAGEN, INC.
By: /s/ Dhananjay Wadekar
- -------------------------------- -------------------------
[Corporate Seal]
6
<PAGE> 7
SUBSCRIPTION
The undersigned, _______________________________________, pursuant to
the provisions of the foregoing Warrant, hereby agrees to subscribe for the
purchase of ________ shares of the Common Stock of DYNAGEN, INC. covered by said
Warrant, and makes payment therefor in full at the price per share provided by
said Warrant.
Dated:_____________________________ Signature:__________________________
Address:___________________________
___________________________________
___________________________________
ASSIGNMENT
FOR VALUE RECEIVED ___________________________ hereby sells, assigns
and transfers unto ______________________________ the foregoing Warrant and all
rights evidenced thereby, and does irrevocably constitute and appoint
_____________________, attorney, to transfer said Warrant on the books of
DYNAGEN, INC..
Dated:____________________________ Signature:____________________________
Address:___________________________
___________________________________
___________________________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED _________________________ hereby sells, assigns and transfers
unto ___________________________ the right to purchase _________ shares of the
Common Stock of DYNAGEN, INC. by the foregoing Warrant, and a proportionate part
of said Warrant and the rights evidenced hereby, and does irrevocably constitute
and appoint ___________________________________, attorney, to transfer that part
of said Warrant on the books of DYNAGEN, INC.
Dated:____________________________ Signature:____________________________
7
<PAGE> 8
Address:___________________________
___________________________________
___________________________________
NET ISSUANCE ELECTION
The undersigned, _______________________________, pursuant to the
provisions of the foregoing Warrant, hereby tenders the right to purchase _____
shares of the Common Stock of DYNAGEN, INC., and a proportionate part of said
Warrant and the rights evidenced thereby, in exchange for a number of shares of
said Common Stock to be computed in accordance with the provisions of Section 1
(b) of said Warrant.
Dated:____________________________ Signature:_____________________________
Address:___________________________
___________________________________
___________________________________
8
<PAGE> 1
Exhibit 4d
COMMON STOCK PURCHASE WARRANT
Warrant No. _____________ Number of Shares 400,000
DYNAGEN, INC.
Void after January 22, 1999
1. Issuance. This Warrant is issued to LBI Group, Inc., by
DynaGen, Inc. a corporation (hereinafter with its successors
called the "Company").
2. Purchase Price: Number of Shares. Subject to the terms and
conditions hereinafter set forth, the registered holder of this
warrant (the "Holder"), commencing on the date hereof is entitled
upon surrender of this Warrant with the subscription form annexed
hereto duly executed at the office of the Company, 840 Memorial
Drive, Cambridge, MA 02139, or such other office as the Company
shall notify the Holder of in writing, to purchase from the
Company at a price per share (the "Purchase Price") as follows,
fully paid and nonassessable shares of Common Stock, $0.01 par
value, of the Company (the "Common Stock"). Until such time as
this Warrant is exercised in full or expires, the Purchase Price
and the securities issuable upon exercise of this Warrant are
subject to adjustment as hereinafter provided.
The warrant shall vest as follows:
A. Upon the execution of the Investment Banking Agreement, this
warrant is exercisable to purchase 200,000 shares at a price of
$0.125 per share.
B. Upon extension of the subsequent three month periods, an
additional 200,000 shares at a price of $0.125 per share will
be vested.
C. If the Investment Banking Agreement is not extended by the
Company, in its sole discretion, the unvested warrant will be
canceled.
3. Payment of Purchase Price. The Purchase Price shall be paid in
cash or by check.
4. Partial Exercise. This Warrant may be exercised in part, and
the Holder shall be entitled to receive a new warrant, which shall
be dated as of the date of this Warrant, covering the number of
shares in respect of which this Warrant shall not have been
exercised.
5. Issuance Date. The person or persons in whose name or names
any certificate representing shares of Common Stock is issued
hereunder shall be deemed to have become the holder of record of
the shares represented thereby as at the close of
<PAGE> 2
business on the date this Warrant is exercised with respect to
such shares, whether or not the transfer books of the Company
shall be closed.
6. Expiration Date. This Warrant shall expire at the close of
business on January 22, 1999, and shall be void thereafter.
7. Reserved Shares: Valid Issuance. The Company covenants that it
will at all times from and after the date hereof reserve and keep
available such number of its authorized shares of Common Stock
free from all preemptive or similar rights therein, as will be
sufficient to permit the exercise of this Warrant in full. The
Company further covenants that such shares as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be
duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance
thereof.
8. Dividends. If after the date hereof the Company shall
subdivide the Common Stock by split-up or otherwise or combine the
Common Stock or issue additional shares of Common Stock in payment
of a stock dividend on the Common Stock, the number of shares
issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock
dividend, or proportionately decreased in the case of a
combination, and the Purchase Price shall forthwith be
proportionately decreased in the case of a subdivision or stock
dividend, or proportionately increased in the case of a
combination.
9. Mergers and Reclassifications. If after the date hereof there
shall be any reclassification, capital reorganization or change of
the Common Stock (other than a result of a subdivision,
combination or stock dividend provided for in Section 8 hereof),
or any consolidation of the Company with, or merger of the Company
unto, another corporation or other business organization (other
than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any
reclassification or change of the outstanding Common Stock), or
any sale or conveyance to another corporation or other business
organization of all or substantially all of the assets of the
Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance,
lawful provisions shall be made, and duly executed documents
evidencing the same from the Company or its successor shall be
delivered to the Holder, so that the Holder shall thereafter have
the right to purchase, at a total price not to exceed that payable
upon the exercise of this Warrant in full, the kind and amount of
shares of stock and other securities and property receivable upon
such reclassification, reorganization, change, consolidation,
merger, sale or conveyance by a Holder of the number of shares of
Common Stock which might have been purchased by the Holder
immediately prior to such reclassification, reorganization,
change, consolidation, merger, sale or conveyance, and in any such
case appropriate provisions shall be made with respect to the
rights and interest of the Holder to the end that the provisions
hereof (including without limitation provisions for the adjustment
of the
-2-
<PAGE> 3
Purchase Price and the number of shares issuable hereunder) shall
thereafter be applicable in relation to any shares of stock or
other securities and property thereafter deliverable upon exercise
hereof.
10. Fractional Shares. In no event shall any fractional share of
Common Stock be issued upon any exercise of this Warrant. If, upon
exercise of this Warrant as an entirety, the Holder would, except
as provided in this Section 10, be entitled to receive a
fractional share of Common Stock, then the Company shall issue the
next higher number of full shares of Common Stock, issuing a full
share with respect to such fractional share.
11. Certificate of Adjustment. Whenever the Purchase Price is
adjusted, as herein provided, the Company shall promptly deliver
to the Holder a certificate of a firm of independent public
accounts setting forth the Purchase Price after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment.
12. Notice of Record Dates, Etc. In the event of:
(a) any taking by the Company of a record of the holder of any class
of securities or the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock for any class or any other
securities or property, or to receive any other right.
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company, or
sale conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company.
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
of character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is take place, and the time,
if any is to be fixed, as of which the holders of record in respect of such
event are to be determined. Such notice shall be mailed at least 20 days prior
to the date specified in such notice on which any action is to be taken.
13. Amendment. The terms of this Warrant may be amended, modified
or waived only with the written consent of the Company and the
holders of Warrants representing at least two thirds of the number
of shares of Common Stock then issuable upon the exercise of the
Warrants. No such amendment, modification or waiver shall be
effective as to this Warrant unless the terms of such amendment,
modification or waiver shall apply with the same force and effect
to all of the other Warrants then outstanding.
-3-
<PAGE> 4
14. Warrant Register, Transfers, Etc.
A. The Company will maintain a register containing the names and
addresses of the registered holders of the Warrants. The Holder may change its
address as shown on the warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.
B. Subject to compliance with applicable federal and state securities
laws, this Warrant may be transferred by the Holder with respect to any or all
of the shares purchasable hereunder. Upon surrender of this Warrant to the
Company, together with the assignment hereof properly endorsed, for transfer of
this Warrant as an entirety by the Holder, the Company shall issue a new warrant
of the same denomination to the assignee. Upon surrender of this Warrant to the
Company, together with the assignment hereof properly endorsed, by the Holder
for transfer with respect to a portion of the shares of Common Stock
purchasable hereunder, the Company shall issue a new warrant to the assignee,
in such denomination as shall be requested by the Holder hereof, and shall issue
to such Holder a new warrant covering the number of shares in respect of which
this Warrant shall not have been transferred.
C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company,
provided, however, that so long as Richmond Capital is the registered holder of
this Warrant, no indemnity shall be required other than it written agreement to
indemnify the Company against any loss arising from the issuance of such new
warrant.
15. No Impairment. The Company will not, by amendment of its
by-laws or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution,
liquidation, issue or sale of securities or any other voluntary
action avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to
protect the rights of the Holder.
16. Governing Law. The provisions and terms of this Warrant shall
be governed by and construed in accordance with the internal laws
of the Commonwealth of Massachusetts.
-4-
<PAGE> 1
Exhibit 4e
COMMON STOCK PURCHASE WARRANT
Warrant No. _____________ Number of Shares 250,000
DYNAGEN, INC.
Void after January 22, 1999
1. Issuance. This Warrant is issued to USIS International Capital
Corp. by DynaGen, Inc. a corporation (hereinafter with its
successors called the "Company").
2. Purchase Price: Number of Shares. Subject to the terms and
conditions hereinafter set forth, the registered holder of this
warrant (the "Holder"), commencing on the date hereof is entitled
upon surrender of this Warrant with the subscription form annexed
hereto duly executed at the office of the Company, 840 Memorial
Drive, Cambridge, MA 02139, or such other office as the Company
shall notify the Holder of in writing, to purchase from the
Company at a price per share (the "Purchase Price") as follows,
fully paid and nonassessable shares of Common Stock, $0.01 par
value, of the Company (the "Common Stock"). Until such time as
this Warrant is exercised in full or expires, the Purchase Price
and the securities issuable upon exercise of this Warrant are
subject to adjustment as hereinafter provided.
The warrant shall vest as follows:
A. Upon the execution of the Investment Banking Agreement, this
warrant is exercisable to purchase 250,000 shares at a price of
$0.125 per share.
3. Payment of Purchase Price. The Purchase Price shall be paid in
cash or by check.
4. Partial Exercise. This Warrant may be exercised in part, and
the Holder shall be entitled to receive a new warrant, which shall
be dated as of the date of this Warrant, covering the number of
shares in respect of which this Warrant shall not have been
exercised.
5. Net Issuance. The Holder may elect to exercise this Warrant in
whole or in part by receiving shares of Common Stock equal to the
net issuance value (as determined below) of this Warrant, or any
part hereof, upon surrender of this Warrant at the principal
office of the Company together with notice of such election, in
which event the Company shall issue to the Holder a number of
shares of Common Stock computed using the following formula:
<PAGE> 2
X = [Y (A-B)]/A
Where: X = the number of shares of Common Stock to be issued to
the Holder
Y = the number of shares of Common Stock as to which this
Warrant is to be exercised
A = the current fair market value of one share of Common
Stock calculated as of the last trading day
immediately preceding the exercise of this Warrant
B = the Purchase Price
As used herein, current fair market value of Common Stock as of a
specified date shall mean with respect to each share of Common Stock the average
of the closing bid prices of the Common Stock on the principal securities market
on which the Common Stock may at the time be traded over a period of five
Business Days consisting of the day as of which the current fair market value of
a share of Common Stock is being determined (or if such day is not a Business
Day, the Business Day next preceding such day) and the four consecutive Business
Days prior to such day. If on the date for which current fair market value is to
be determined the Common Stock is not eligible for trading on any securities
market, the current fair market value of Common Stock shall be the highest price
per share which the company could then obtain from a willing buyer (not a
current employee or director) for shares of common Stock sold by the Company,
from authorized but unissued shares, as determined in good faith by the Board of
Directors of the Company, unless prior to such date the Company has become
subject to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the current fair market value
of the Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock for each share thereof pursuant to the Company's
acquisition.
6. Issuance Date. The person or persons in whose name or names
any certificate representing shares of Common Stock is issued
hereunder shall be deemed to have become the holder of record of
the shares represented thereby as at the close of business on the
date this Warrant is exercised with respect to such shares,
whether or not the transfer books of the Company shall be closed.
7. Expiration Date. This Warrant shall expire at the close of
business on January 22, 1999, and shall be void thereafter.
8. Reserved Shares: Valid Issuance. The Company covenants that it
will at all times from and after the date hereof reserve and keep
available such number of its authorized shares of Common Stock
free from all preemptive or similar rights therein, as will be
sufficient to permit the exercise of this Warrant in full. The
Company further covenants that such shares as may be issued
pursuant to the exercise of this Warrant will, upon issuance, be
duly and validly issued, fully paid
-2-
<PAGE> 3
and nonassessable and free from all taxes, liens and charges with
respect to the issuance thereof.
9. Dividends. If after the date hereof the Company shall
subdivide the Common Stock by split-up or otherwise or combine the
Common Stock or issue additional shares of Common Stock in payment
of a stock dividend on the Common Stock, the number of shares
issuable on the exercise of this Warrant shall forthwith be
proportionately increased in the case of a subdivision or stock
dividend, or proportionately decreased in the case of a
combination, and the Purchase Price shall forthwith be
proportionately decreased in the case of a subdivision or stock
dividend, or proportionately increased in the case of a
combination.
10. Mergers and Reclassifications. If after the date hereof there
shall be any reclassification, capital reorganization or change of
the Common Stock (other than a result of a subdivision,
combination or stock dividend provided for in Section 8 hereof),
or any consolidation of the Company with, or merger of the Company
unto, another corporation or other business organization (other
than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any
reclassification or change of the outstanding Common Stock), or
any sale or conveyance to another corporation or other business
organization of all or substantially all of the assets of the
Company, then, as a condition of such reclassification,
reorganization, change, consolidation, merger, sale or conveyance,
lawful provisions shall be made, and duly executed documents
evidencing the same from the Company or its successor shall be
delivered to the Holder, so that the Holder shall thereafter have
the right to purchase, at a total price not to exceed that payable
upon the exercise of this Warrant in full, the kind and amount of
shares of stock and other securities and property receivable upon
such reclassification, reorganization, change, consolidation,
merger, sale or conveyance by a Holder of the number of shares of
Common Stock which might have been purchased by the Holder
immediately prior to such reclassification, reorganization,
change, consolidation, merger, sale or conveyance, and in any such
case appropriate provisions shall be made with respect to the
rights and interest of the Holder to the end that the provisions
hereof (including without limitation provisions for the adjustment
of the Purchase Price and the number of shares issuable hereunder)
shall thereafter be applicable in relation to any shares of stock
or other securities and property thereafter deliverable upon
exercise hereof.
11. Fractional Shares. In no event shall any fractional share of
Common Stock be issued upon any exercise of this Warrant. If, upon
exercise of this Warrant as an entirety, the Holder would, except
as provided in this Section 10, be entitled to receive a
fractional share of Common Stock, then the Company shall issue the
next higher number of full shares of Common Stock, issuing a full
share with respect to such fractional share.
-3-
<PAGE> 4
12. Certificate of Adjustment. Whenever the Purchase Price is
adjusted, as herein provided, the Company shall promptly deliver
to the Holder a certificate of a firm of independent public
accounts setting forth the Purchase Price after such adjustment
and setting forth a brief statement of the facts requiring such
adjustment.
13. Notice of Record Dates, Etc. In the event of:
(a) any taking by the Company of a record of the holder of any class
of securities or the purpose of determining the holders thereof who are entitled
to receive any dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock for any class or any other
securities or property, or to receive any other right.
(b) any reclassification of the capital stock of the Company, capital
reorganization of the Company, consolidation or merger involving the Company, or
sale conveyance of all or substantially all of its assets, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company.
then and in each such event the Company will mail or cause to be mailed to the
Holder a notice specifying (i) the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and stating the amount
of character of such dividend, distribution or right, or (ii) the date on which
any such reclassification, reorganization, consolidation, merger, sale or
conveyance, dissolution, liquidation or winding-up is take place, and the time,
if any is to be fixed, as of which the holders of record in respect of such
event are to be determined. Such notice shall be mailed at least 20 days prior
to the date specified in such notice on which any action is to be taken.
14. Amendment. The terms of this Warrant may be amended, modified
or waived only with the written consent of the Company and the
holders of Warrants representing at least two thirds of the number
of shares of Common Stock then issuable upon the exercise of the
Warrants. No such amendment, modification or waiver shall be
effective as to this Warrant unless the terms of such amendment,
modification or waiver shall apply with the same force and effect
to all of the other Warrants then outstanding.
15. Warrant Register, Transfers, Etc.
A. The Company will maintain a register containing the names and
addresses of the registered holders of the Warrants. The Holder may change its
address as shown on the warrant register by written notice to the Company
requesting such change. Any notice or written communication required or
permitted to be given to the Holder may be given by certified mail or delivered
to the Holder at its address as shown on the warrant register.
B. Subject to compliance with applicable federal and state securities
laws, this Warrant may be transferred by the Holder with respect to any or all
of the shares purchasable hereunder.
-4-
<PAGE> 5
Upon surrender of this Warrant to the Company, together with the assignment
hereof properly endorsed, for transfer of this Warrant as an entirety by the
Holder, the Company shall issue a new warrant of the same denomination to the
assignee. Upon surrender of this Warrant to the Company, together with the
assignment hereof properly endorsed, by the Holder for transfer with respect to
a portion of the shares of Common Stock purchasable hereunder, the Company
shall issue a new warrant to the assignee, in such denomination as shall be
requested by the Holder hereof, and shall issue to such Holder a new warrant
covering the number of shares in respect of which this Warrant shall not have
been transferred.
C. In case this Warrant shall be mutilated, lost, stolen or
destroyed, the Company shall issue a new warrant of like tenor and denomination
and deliver the same (i) in exchange and substitution for and upon surrender and
cancellation of any mutilated Warrant, or (ii) in lieu of any Warrant lost,
stolen or destroyed, upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft or destruction of such Warrant (including a
reasonably detailed affidavit with respect to the circumstances of any loss,
theft or destruction) and of indemnity reasonably satisfactory to the Company,
provided, however, that so long as Richmond Capital is the registered holder of
this Warrant, no indemnity shall be required other than it written agreement to
indemnify the Company against any loss arising from the issuance of such new
warrant.
16. No Impairment. The Company will not, by amendment of its
by-laws or through any reclassification, capital reorganization,
consolidation, merger, sale or conveyance of assets, dissolution,
liquidation, issue or sale of securities or any other voluntary
action avoid or seek to avoid the observance or performance of any
of the terms of this Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to
protect the rights of the Holder.
17. Governing Law. The provisions and terms of this Warrant shall
be governed by and construed in accordance with the internal laws
of the Commonwealth of Massachusetts.
-5-
<PAGE> 1
Exhibit 4f
5% SECURED NON-NEGOTIABLE
LIMITED RECOURSE PROMISSORY NOTE
$250,000 Boston, Massachusetts
April 30, 1998
On July 29, 1998 (the "Maturity Date"), for value received, the
undersigned DynaGen, Inc., a Delaware corporation (the "Maker"), promises to pay
to Sovereign Partners, 90 Grove Street, Richfield, Connecticut 06877 (the
"Payee"), the principal sum of Two Hundred Fifty Thousand United States Dollars
($250,000) or the then outstanding principal amount hereof, together with
interest on any and all principal amounts remaining unpaid hereunder from time
to time outstanding from the date hereof until payment in full, such interest to
be payable at such rates and such times as are hereinafter specified. This Note
is a limited recourse note and payment is subject to the provisions of Section 2
hereof.
1. INTEREST AND PRINCIPAL
1.01 Interest. The Maker shall pay interest on the outstanding
principal amount of this Note from the date hereof until such principal amount
is paid in full at the rate of five percent (5%) per annum. Interest payments
shall be made on the maturity date. Any overdue installment of interest or
principal shall bear interest at the rate of Ten percent (10%) per annum.
Interest shall be calculated on the basis of a 365 day year for the actual
number of days elapsed.
1.02 Exchange. The entire outstanding principal together with
interest accrued thereon on the principal amount of this Note may be exchanged
by the Payee for a like face amount of shares of the Maker's Series D Preferred
Stock, $.01 par value per share ("Preferred Stock"), any time after the Maturity
Date.
1.03 Optional Prepayment. This Note may be prepaid in whole or in
part, at any time or from time to time before the Maturity Date, at the option
of the Maker, by paying to the Payee an amount equal to the amount to be prepaid
together a premium (which shall be inclusive of interest) of $25,000 if prepaid
within thirty (30) days after the date hereof or $37,500 if prepaid after 30
days after the date hereof and before 60 days after the date hereof or $50,000
if prepaid after 60 days after the date hereof and before the Maturity Date. In
the event that this Note shall be prepaid in part the premium (which shall be
inclusive of interest) shall be prorated.
1.04 Mandatory Prepayment. This Note shall be prepaid together
with the premiums set forth in Section 1.03 (which shall be inclusive of
interest), to the extent possible, from the
<PAGE> 2
proceeds (net of transaction, legal, accounting and related cost), if any, of
any private placement financing that is closed on or before the Maturity Date.
1.05 Delivery of Payment. All payments made hereunder shall be made
by check mailed first class, postage paid to the Payee at the address set forth
above or to such other address as the Payee may from time to time designate in
writing to the Maker. Such payments shall be accompanied by a notice setting
forth in reasonable detail (a) the amount of interest and principal being paid
and (b) the remaining principal amount. If any payments are required to be made
on a day which is not a Business Day (as hereinafter defined) the date on which
such payment is required to be made shall be extended to, and such payment shall
be required to be made on, the next Business Day. "Business Day" shall mean a
day other than Saturday, Sunday and any day which shall be in the City of
Boston, Massachusetts, a legal holiday or a day on which banking institutions
are authorized by law to close.
2. AGREEMENTS
2.01 Security. Messrs. Dhanajay Wadekar and Indu Muni, stockholders
of the Maker, hereby grant to the Payee a pledge in the following described
property, to wit: 200,000 shares (the "Pledged Shares") of the common stock,
$.01 par value per share, of the Maker.
2.02 Limited Recourse. The Payee hereby agrees that its sole
recourse for Maker's failure to pay this Note shall be to either (i) exchange
this Note for shares of Preferred Stock in accordance with Section 1.02 or (ii)
to foreclose on the Pledged Shares in accordance with Section 2.01.
3. SUBORDINATION
3.01 Subordinated Debt. The indebtedness evidenced by this
instrument ("Subordinated Debt") is subordinate and junior in right of payment,
to the extent and in the manner set forth below, to all Superior Debt (as
defined in SECTION 3.02) of the Maker to the extent provided in this section.
3.02 Superior Debt. For the purpose of these subordination
provisions the term "Superior Debt" shall mean all principal, interest, charges,
expenses, and attorneys' fees arising out of or relating to all indebtedness of
Maker or any subsidiary of Maker owing to any institutional lender including,
without limitation, Fleet Bank, Sirrom Capital Corporation, and The Huntington
National Bank (each, a "Bank") whether outstanding on the date of this Note or
subsequently incurred to renew, extend, modify or otherwise amend the Superior
Debt unless under the instrument evidencing the same or under which the same is
outstanding, it is expressly provided that such indebtedness is junior and
subordinate to other indebtedness and obligations of the Maker (such
indebtedness of the Maker to which this instrument is subordinate and junior
being referred to as "Superior Debt"). The Superior Debt shall continue to be
Superior Debt and entitled to the benefits of these subordination provisions
irrespective of any amendment,
2
<PAGE> 3
modification or waiver of any term of the Superior Debt or extension or renewal
of the Superior Debt.
3.03 Permitted Payments. Maker shall not make any regularly
scheduled payment of accrued interest on any Subordinated Debt unless at the
time of such scheduled interest payment there exists no event of default under
the Superior Debt and so long as such payment would not thereby result in such
an event of default.
3.04 Default on Superior Debt.
(a) In the event the Maker shall default in the payment of any
principal or interest on any Superior Debt when the same becomes due
and payable, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise, then, unless and until such default shall
have been cured or waived or shall have ceased to exist, no direct or
indirect payment (in cash, property or securities or by set-off or
otherwise) shall be made or agreed to be made on account of the
principal or interest on any Subordinated Debt, or as a sinking fund
for the Subordinated Debt, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt.
(b) Upon the happening of an event of default with respect to any
Superior Debt, as defined in the instrument under which the same is
outstanding, which occurs at the maturity of same or which permits a
Bank to accelerate the maturity of the Superior Debt (other than under
circumstances when the terms of SECTION 3.04(a) are applicable), then,
unless and until such event of default shall have been cured or waived
or shall have ceased to exist, no direct or indirect payment (in cash,
property or securities or by set-off or otherwise) shall be made or
agreed to be made on account of the principal of, or premium, if any,
or interest on any Subordinated Debt, or as a sinking fund for the
Subordinated Debt, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt, during
any period:
(i) after written notice of such default shall have been given
to the Maker by any Bank; or
(ii) in which any judicial proceeding shall be pending in
respect of such default and a notice of acceleration of the
maturity of such Superior Debt shall have been transmitted to
the Maker in respect of such default.
3.05 Certain Events of Bankruptcy. In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Maker or to its creditors, as such, or to it property,
3
<PAGE> 4
(b) any proceedings for the liquidation, dissolution or other
winding-up of the Maker, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings.
(c) any assignment by the Maker for the benefit of its creditors,
or
(d) any other marshaling of the assets of the Maker, all Superior
Debt (including any interest on same accruing at the legal rate after
the commencement of any such proceedings and any additional interest
that would have accrued on same but for the commencement of such
proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be
made to Payee on account of any Subordinated Debt. Any payment or
distribution, whether in cash, securities or other property, which
would otherwise (but for these subordination provisions) be payable or
deliverable in respect of this Subordinated Debt shall be paid or
deliverable directly to the Banks (including any interest thereon
accruing at the legal rate after the commencement of any such
proceedings and any additional interest that would have accrued on same
but for the commencement of such proceedings) shall have been paid in
full.
3.06 No Payments. In the event that any Subordinated Debt shall be
declared due and payable as the result of the occurrences of any one or more
defaults in respect of same, under circumstances when the terms of SECTION 3.04
are not applicable, no payment shall be made in respect of any Subordinated Debt
unless and until all Superior Debt shall have been paid in full or such
declaration and its consequences shall have been rescinded and all such defaults
shall have been remedied or waived.
3.07 Payments in Trust. If any payment or distribution, whether in
cash, securities or other property, shall be received by Payee in contravention
of any of the terms of this Note and before all the Superior Debt shall have
been paid in full, such payment or distribution shall be received in trust for
the benefit of, and shall be paid over or delivered and transferred to, the
Banks for application to the payment of all Superior Debt remaining unpaid to
the extent necessary to pay all such Superior Debt in full. In the event of the
failure of Payee to endorse or assign any such payment or distribution, the
Banks are hereby irrevocably authorized to endorse or assign the same.
3.08 Certain Rights of Subordinated Debt. The Banks shall not be
prejudiced in the right to enforce subordination of Subordinated Debt by any act
or failure to act on the part of the Maker. The foregoing provisions as to
subordination are solely for the purpose of defining the relative rights of the
Banks, on the one hand, and the Payee, on the other hand. Nothing contained
herein shall impair, as between the Maker and the Payee, the obligation of the
Maker, which is unconditional and absolute, to pay to the Payee the principal
hereof and interest on this Note as and when the same shall become due and
payable in accordance with the terms of this Note, or prevent the Payee from
exercising all rights, powers and remedies otherwise permitted by applicable law
or under this Note upon a default or Event of Default under this Note, all
4
<PAGE> 5
subject to the rights of the Banks to receive cash, securities or other property
otherwise payable or deliverable to the Banks.
3.09 Future Action. The Payee will take such action (including,
without limitation, the delivery of this instrument to an agent for the Banks or
consent to the filing of a financing statement with respect thereto) as may, in
the opinion of counsel designated by any Bank, be necessary or appropriate to
assure the effectiveness of the subordination effected by these provisions.
4. DEFAULTS AND REMEDIES.
4.01 Events of Default. An "Event of Default" shall occur if:
(a) the Maker defaults in the payment of interest on this
Note when the same becomes due and payable and such Default continues
for a period of 30 days;
(b) the Maker defaults in the payment of principal on
this Note when the same becomes due and payable, at maturity or
otherwise;
(c) the Maker fails to comply with any of the other
agreements contained in this Note, and the Default continues for the
period and after the notice specified below; and
(d) the Maker pursuant to or within the meaning of any
Bankruptcy Law (as defined below):
(i) commences a voluntary case;
(ii) consents to the entry of an order against it
for relief in an involuntary case; or
(iii) makes a general assignment for the benefit
of its creditors; or
(e) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Maker in an
involuntary case;
(ii) appoints a Custodian (as hereinafter defined)
for all or substantially all of the assets of the Company; or
(iii) orders a liquidation of the Company.
5
<PAGE> 6
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law. The term "Custodian" means any receiver, trustee,
assignee, liquidator, or similar official under any Bankruptcy Law.
A default under clause (c) above shall not constitute an Event of
Default until Payee notifies the Maker of the Default and the Maker does not
cure the Default within 60 days of such notice. The notice must specify the
Event of Default, demand that it be remedied, and state that it is a notice of
Event of Default.
4.02 Remedy. If an Event of Default occurs and is continuing, the
sole remedy of the holder of this Note shall be as set forth in SECTION 2.02
hereof.
5. MISCELLANEOUS
The undersigned hereby waives presentment, demand for payment, notice
of dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by the
Payee in respect to the time of payment or any other provision of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
(EXCLUSIVE OF THE LAWS GOVERNING CONFLICTS OF LAWS) OF THE COMMONWEALTH OF
MASSACHUSETTS.
DYNAGEN, INC.
By:/s/ Dhananjay Wadekar
------------------------
Name: Dhananjay Wadekar
Title: Executive Vice President
To acknowledge limited
recourse in accordance with
Sections 2 and 4 of this Note:
SOVEREIGN PARTNERS
By: /s/ Steven Hicks
- --------------------
Name: Steven Hicks
Title: President and General Manager
6
<PAGE> 1
Exhibit 4g
5% SECURED NON-NEGOTIABLE
LIMITED RECOURSE PROMISSORY NOTE
$200,000 Boston, Massachusetts
May 13, 1998
On August 12, 1998 (the "Maturity Date"), for value received, the
undersigned DynaGen, Inc., a Delaware corporation (the "Maker"), promises to pay
to Sovereign Partners, 90 Grove Street, Richfield, Connecticut 06877 (the
"Payee"), the principal sum of Two Hundred Thousand United States Dollars
($200,000) or the then outstanding principal amount hereof, together with
interest on any and all principal amounts remaining unpaid hereunder from time
to time outstanding from the date hereof until payment in full, such interest to
be payable at such rates and such times as are hereinafter specified. This Note
is a limited recourse note and payment is subject to the provisions of Section 2
hereof.
1. INTEREST AND PRINCIPAL
1.01 Interest. The Maker shall pay interest on the outstanding
principal amount of this Note from the date hereof until such principal amount
is paid in full at the rate of five percent (5%) per annum. Interest payments
shall be made on the maturity date. Any overdue installment of interest or
principal shall bear interest at the rate of Ten percent (10%) per annum.
Interest shall be calculated on the basis of a 365 day year for the actual
number of days elapsed.
1.02 Exchange. The entire outstanding principal together with
interest accrued thereon on the principal amount of this Note may be exchanged
by the Payee for a like face amount of shares of the Maker's Series D Preferred
Stock, $.01 par value per share ("Preferred Stock"), any time after the Maturity
Date.
1.03 Optional Prepayment. This Note may be prepaid in whole or in
part, at any time or from time to time before the Maturity Date, at the option
of the Maker, by paying to the Payee an amount equal to the amount to be prepaid
together a premium (which shall be inclusive of interest) of $25,000 if prepaid
within thirty (30) days after the date hereof or $37,500 if prepaid after 30
days after the date hereof and before 60 days after the date hereof or $50,000
if prepaid after 60 days after the date hereof and before the Maturity Date. In
the event that this Note shall be prepaid in part the premium (which shall be
inclusive of interest) shall be prorated.
1.04 Mandatory Prepayment. This Note shall be prepaid together with
the premiums set forth in Section 1.03 (which shall be inclusive of interest),
to the extent possible, from the
<PAGE> 2
proceeds (net of transaction, legal, accounting and related cost), if any, of
any private placement financing that is closed on or before the Maturity Date.
1.05 Delivery of Payment. All payments made hereunder shall be made
by check mailed first class, postage paid to the Payee at the address set forth
above or to such other address as the Payee may from time to time designate in
writing to the Maker. Such payments shall be accompanied by a notice setting
forth in reasonable detail (a) the amount of interest and principal being paid
and (b) the remaining principal amount. If any payments are required to be made
on a day which is not a Business Day (as hereinafter defined) the date on which
such payment is required to be made shall be extended to, and such payment shall
be required to be made on, the next Business Day. "Business Day" shall mean a
day other than Saturday, Sunday and any day which shall be in the City of
Boston, Massachusetts, a legal holiday or a day on which banking institutions
are authorized by law to close.
2. AGREEMENTS
2.01 Security. Messrs. Dhanajay Wadekar and Indu Muni, stockholders
of the Maker, hereby grant to the Payee a pledge in the following described
property, to wit: 200,000 shares (the "Pledged Shares") of the common stock,
$.01 par value per share, of the Maker.
2.02 Limited Recourse. The Payee hereby agrees that its sole
recourse for Maker's failure to pay this Note shall be to either (i) exchange
this Note for shares of Preferred Stock in accordance with Section 1.02 or (ii)
to foreclose on the Pledged Shares in accordance with Section 2.01.
3. SUBORDINATION
3.01 Subordinated Debt. The indebtedness evidenced by this
instrument ("Subordinated Debt") is subordinate and junior in right of payment,
to the extent and in the manner set forth below, to all Superior Debt (as
defined in SECTION 3.02 ) of the Maker to the extent provided in this section.
3.02 Superior Debt. For the purpose of these subordination
provisions the term "Superior Debt" shall mean all principal, interest, charges,
expenses, and attorneys' fees arising out of or relating to all indebtedness of
Maker or any subsidiary of Maker owing to any institutional lender including,
without limitation, Fleet Bank, Sirrom Capital Corporation, and The Huntington
National Bank (each, a "Bank") whether outstanding on the date of this Note or
subsequently incurred to renew, extend, modify or otherwise amend the Superior
Debt unless under the instrument evidencing the same or under which the same is
outstanding, it is expressly provided that such indebtedness is junior and
subordinate to other indebtedness and obligations of the Maker (such
indebtedness of the Maker to which this instrument is subordinate and junior
being referred to as "Superior Debt"). The Superior Debt shall continue to be
Superior Debt and entitled to the benefits of these subordination provisions
irrespective of any amendment,
2
<PAGE> 3
modification or waiver of any term of the Superior Debt or extension or renewal
of the Superior Debt.
3.03 Permitted Payments. Maker shall not make any regularly
scheduled payment of accrued interest on any Subordinated Debt unless at the
time of such scheduled interest payment there exists no event of default under
the Superior Debt and so long as such payment would not thereby result in such
an event of default.
3.04 Default on Superior Debt.
(a) In the event the Maker shall default in the payment of any
principal or interest on any Superior Debt when the same becomes due
and payable, whether at maturity or at a date fixed for prepayment or
by declaration or otherwise, then, unless and until such default shall
have been cured or waived or shall have ceased to exist, no direct or
indirect payment (in cash, property or securities or by set-off or
otherwise) shall be made or agreed to be made on account of the
principal or interest on any Subordinated Debt, or as a sinking fund
for the Subordinated Debt, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt.
(b) Upon the happening of an event of default with respect to any
Superior Debt, as defined in the instrument under which the same is
outstanding, which occurs at the maturity of same or which permits a
Bank to accelerate the maturity of the Superior Debt (other than under
circumstances when the terms of SECTION 3.04(a) are applicable), then,
unless and until such event of default shall have been cured or waived
or shall have ceased to exist, no direct or indirect payment (in cash,
property or securities or by set-off or otherwise) shall be made or
agreed to be made on account of the principal of, or premium, if any,
or interest on any Subordinated Debt, or as a sinking fund for the
Subordinated Debt, or in respect of any redemption, retirement,
purchase or other acquisition of any of the Subordinated Debt, during
any period:
(i) after written notice of such default shall have been
given to the Maker by any Bank; or
(ii) in which any judicial proceeding shall be pending in
respect of such default and a notice of acceleration of the
maturity of such Superior Debt shall have been transmitted to
the Maker in respect of such default.
3.05 Certain Events of Bankruptcy. In the event of:
(a) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding
relating to the Maker or to its creditors, as such, or to it property,
3
<PAGE> 4
(b) any proceedings for the liquidation, dissolution or other
winding-up of the Maker, voluntary or involuntary, whether or not
involving insolvency or bankruptcy proceedings.
(c) any assignment by the Maker for the benefit of its creditors,
or
(d) any other marshaling of the assets of the Maker, all Superior
Debt (including any interest on same accruing at the legal rate after
the commencement of any such proceedings and any additional interest
that would have accrued on same but for the commencement of such
proceedings) shall first be paid in full before any payment or
distribution, whether in cash, securities or other property, shall be
made to Payee on account of any Subordinated Debt. Any payment or
distribution, whether in cash, securities or other property, which
would otherwise (but for these subordination provisions) be payable or
deliverable in respect of this Subordinated Debt shall be paid or
deliverable directly to the Banks (including any interest thereon
accruing at the legal rate after the commencement of any such
proceedings and any additional interest that would have accrued on same
but for the commencement of such proceedings) shall have been paid in
full.
3.06 No Payments. In the event that any Subordinated Debt shall be
declared due and payable as the result of the occurrences of any one or more
defaults in respect of same, under circumstances when the terms of SECTION 3.04
are not applicable, no payment shall be made in respect of any Subordinated Debt
unless and until all Superior Debt shall have been paid in full or such
declaration and its consequences shall have been rescinded and all such defaults
shall have been remedied or waived.
3.07 Payments in Trust. If any payment or distribution, whether in
cash, securities or other property, shall be received by Payee in contravention
of any of the terms of this Note and before all the Superior Debt shall have
been paid in full, such payment or distribution shall be received in trust for
the benefit of, and shall be paid over or delivered and transferred to, the
Banks for application to the payment of all Superior Debt remaining unpaid to
the extent necessary to pay all such Superior Debt in full. In the event of the
failure of Payee to endorse or assign any such payment or distribution, the
Banks are hereby irrevocably authorized to endorse or assign the same.
3.08 Certain Rights of Subordinated Debt. The Banks shall not be
prejudiced in the right to enforce subordination of Subordinated Debt by any act
or failure to act on the part of the Maker. The foregoing provisions as to
subordination are solely for the purpose of defining the relative rights of the
Banks, on the one hand, and the Payee, on the other hand. Nothing contained
herein shall impair, as between the Maker and the Payee, the obligation of the
Maker, which is unconditional and absolute, to pay to the Payee the principal
hereof and interest on this Note as and when the same shall become due and
payable in accordance with the terms of this Note, or prevent the Payee from
exercising all rights, powers and remedies otherwise permitted by applicable law
or under this Note upon a default or Event of Default under this Note, all
4
<PAGE> 5
subject to the rights of the Banks to receive cash, securities or other property
otherwise payable or deliverable to the Banks.
3.09 Future Action. The Payee will take such action (including,
without limitation, the delivery of this instrument to an agent for the Banks or
consent to the filing of a financing statement with respect thereto) as may, in
the opinion of counsel designated by any Bank, be necessary or appropriate to
assure the effectiveness of the subordination effected by these provisions.
4. DEFAULTS AND REMEDIES.
4.01 Events of Default. An "Event of Default" shall occur if:
(a) the Maker defaults in the payment of interest on this
Note when the same becomes due and payable and such Default continues
for a period of 30 days;
(b) the Maker defaults in the payment of principal on
this Note when the same becomes due and payable, at maturity or
otherwise;
(c) the Maker fails to comply with any of the other
agreements contained in this Note, and the Default continues for the
period and after the notice specified below; and
(d) the Maker pursuant to or within the meaning of any
Bankruptcy Law (as defined below):
(i) commences a voluntary case;
(ii) consents to the entry of an order against it
for relief in an involuntary case; or
(iii) makes a general assignment for the benefit of
its creditors; or
(e) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Maker in an
involuntary case;
(ii) appoints a Custodian (as hereinafter defined)
for all or substantially all of the assets of the Company; or
(iii) orders a liquidation of the Company.
5
<PAGE> 6
The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
federal or state law. The term "Custodian" means any receiver, trustee,
assignee, liquidator, or similar official under any Bankruptcy Law.
A default under clause (c) above shall not constitute an Event of
Default until Payee notifies the Maker of the Default and the Maker does not
cure the Default within 60 days of such notice. The notice must specify the
Event of Default, demand that it be remedied, and state that it is a notice of
Event of Default.
4.02 Remedy. If an Event of Default occurs and is continuing, the
sole remedy of the holder of this Note shall be as set forth in SECTION 2.02
hereof.
5. MISCELLANEOUS
The undersigned hereby waives presentment, demand for payment, notice
of dishonor, and any and all other notices or demands in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
hereby consents to any extensions of time, renewals, releases of any party to
this Note, waivers or modifications that may be granted or consented to by the
Payee in respect to the time of payment or any other provision of this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
(EXCLUSIVE OF THE LAWS GOVERNING CONFLICTS OF LAWS) OF THE COMMONWEALTH OF
MASSACHUSETTS.
DYNAGEN, INC.
By:/s/ Dhananjay Wadekar
------------------------
Name: Dhananjay Wadekar
Title: Executive Vice President
To acknowledge limited recourse in accordance with Sections 2 and 4 of this
Note:
SOVEREIGN PARTNERS
By:
----------------------------------
Name: Steven Hicks
Title: President and General Manager
6
<PAGE> 1
Exhibit 4h
[DYNAGEN, INC. LETTERHEAD]
- -------------------------------------------------------------------------------
June 25, 1998
Attn.: Stephen Hicks
Dominion Capital Fund
c/o Citco Asset Management
Bahamas Financial Center
Shirley & Charlotte Streets
Nassau, Bahamas
Dear Steve:
This letter will confirm our agreement concerning when and under what
conditions you will cause certain exercise rights under the Series H
Convertible Preferred Stock. This Agreement is in consideration of your
agreement to amend the terms of the $450,000 Limited Recourse Promissory Notes
dated April 30, 1998 and May 13, 1998. These notes require DynaGen to repay the
principal and interest amount out of the next private placement. You have
agreed to convert these notes into equity at a 20% discount to the market. We
will include these notes in the current S-3 being filed with the SEC.
In consideration of the above agreement, we agree as follows:
1. The conversion price will be 80% of the average closing bid price
over the 5 day period ending on the date of conversion.
2. The convertible preferred shall be convertible at the option of the
holder into securities of the Company after a 90 day period after the
date of initial issuance (the "Closing") at a conversion price (the
"Conversion Price") equal to: 80% of the average closing bid price of
the Company's Common Stock for the 5 business days prior to the
business day on which the notice of conversion is transmitted by
the holder(s).
In the event that DynaGen completes the restructuring of its
obligations to the former owners of Superior within 90 days, you will
agree to convert after 120 days from the date of initial investment.
3. The Company, at its option, may redeem all or part of the investment
at any time and without notice the Preferred Shares by paying in cash
an amount equal to 125% of the face value of the Preferred Shares
redeemed.
<PAGE> 2
DYNAGEN, INC.
Stephen Hicks
June 25, 1998
Page 2
4. Under no circumstances will the aggregate conversion of the Preferred
Shares exceed 19.9% of issued and outstanding shares of the Company.
In the event that the conversion amount exceeds 19.9% of the shares
outstanding, the Company will redeem the balance in cash based on the
above redemption feature or obtain shareholder approval for the
issuance of such shares or a combination of redemptions and
shareholder approval.
5. Any unconverted shares of Preferred Stock will convert automatically
or, if such conversion would exceed 19.9% of the outstanding shares
of Common Stock, be redeemed at 125% of the full value of the
Preferred Shares on the second anniversary of the Closing date.
6. The Company has agreed to file a registration statement under the
Securities Act of 1933 with respect to the shares of Common Stock
concurrently with the registration statement for the Company's
Series C and D Preferred Stock.
If this is acceptable to you, please sign below and return a copy to us.
Thank you.
Sincerely,
/s/ Jay Wadekar
Jay Wadekar
Executive Vice President
JGW/cak
AGREED AND ACCEPTED BY:
___________________________________
Signature
___________________________________
Date
<PAGE> 1
Exhibit 4i
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Agreement"), dated as of _________, 1998, by
and among DynaGen, Inc., a corporation organized under the laws of the State of
Delaware (the "Company"), with headquarters located at 840 Memorial Drive,
Cambridge, Massachusetts 02139 and the undersigned ("Purchaser").
WHEREAS:
A. The Company and Purchaser are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by
Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act").
B. The Company desires to sell and issue to Purchaser and Purchaser desires to
purchase, upon the terms and conditions stated in this Agreement, the
number of shares of Series H Preferred Stock, $.01 par value per share (the
"Preferred Stock"), of the Company convertible into shares of common stock,
par value $.01 per share, of the Company (the "Common Stock") in accordance
with the terms and conditions set forth therein. The Series H Preferred
Stock Designation setting forth the rights, preferences, including the
terms upon which the shares of Preferred Stock are convertible into shares
of Common Stock, is attached hereto as Exhibit A. The shares of Common
Stock issuable upon conversion of the Preferred Stock or otherwise pursuant
to the Preferred Stock are referred to herein as the "Conversion Shares."
The Preferred Stock and the Conversion Shares are collectively referred to
herein as the "Securities."
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK
a. Purchase of Preferred Stock. on the Closing Date (as defined
below), subject to the satisfaction (or waiver) of the conditions set forth in
Sections 6 and 7 below, the Company shall issue and sell to Purchaser and
Purchaser agrees to purchase from the Company, the number of shares of Preferred
Stock (the "Preferred Shares") set forth on the signature page. The purchase
price (the "Purchase Price Per Share") for each of the Preferred Shares.
b. Form of Payment. On the Closing Date (as hereinafter defined),
Purchaser shall pay the aggregate Purchase Price for the Preferred Shares by
wire transfer or check to Foley, Hoag & Eliot LLP as escrow agent (the "Escrow
Agent") and shall deliver by telecopier (with originals following by first class
mail) a fully executed copy of this Subscription Agreement to the Escrow Agent.
Payment and delivery instructions are attached as Exhibit B hereto. The Company
shall deliver one or more certificates (the "Certificates") representing
<PAGE> 2
the Preferred Shares to the Escrow Agent and an executed copy of this Agreement
indicating the Company's acceptance of the Purchaser's subscription. Promptly
upon receipt of the Purchase Price, the executed and accepted Agreement and the
Certificates representing the Preferred Shares, the Escrow Agent shall (1)
deliver the Purchase Price together with copies of the executed and accepted
agreement to the Company in accordance with the instructions delivered to the
Escrow Agent by the Company and (2) deliver the Certificates together with the
accepted Agreement to the Purchaser by Federal Express or other overnight
courier at the address set forth on the signature page of this Agreement.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the shares of Preferred Shares Pursuant to this
Agreement shall take place from time to time as may be mutually agreed upon by
the Company and Purchaser. Each closing shall occur at the offices of Foley,
Hoag & Eliot LLP, One Post Office Square, Boston, MA 02109.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
Purchaser represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Preferred
Stock for Purchaser's own account for investment only and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
that are exempt from the registration requirements of the Securities Act and/or
sales registered under the Securities Act. Purchaser understands that Purchaser
must bear the economic risk of this investment indefinitely, unless the
Preferred Shares or the Conversion Shares are registered pursuant to the
Securities Act and any applicable state securities or blue sky laws or an
exemption from such registration is available, and that the Company has no
present intention of registering any such Securities other than as contemplated
by Section 5 of this Agreement.
b. Accredited Investor Status. Purchaser is an "accredited
investor" as defined in Rule 501(a) promulgated under the Securities Act.
c. Reliance on Exemptions. Purchaser understands that the
Preferred Shares and the Conversion Shares are being offered and sold to
Purchaser in reliance upon specific exemptions from the registration
requirements of United States federal and state securities laws and that the
Company is relying upon the truth and accuracy of, and Purchaser's compliance
with, the representations, warranties, agreements, acknowledgments and
understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Preferred Shares and Conversion Shares.
d. Information. Purchaser and its counsel or representative, if
any, have been furnished all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Preferred Shares which have been requested by Purchaser or its counsel or
representative. Purchaser and its counsel, if any, have been
2
<PAGE> 3
afforded the opportunity to ask questions of the Company and have received what
Purchaser believes to be complete and satisfactory answers to any such
inquiries. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or its counsel or any of its representatives shall
modify, amend or affect Purchaser's right to rely on the Company's
representations and warranties contained in Section 3 below. Purchaser has been
informed and understands that (i) this investment involves a HIGH DEGREE OF
RISK, (ii) the Company's independent auditing have included an explanatory
paragraph in their opinion on the Company's financial statements expressing
substantial doubt about the Company's ability to continue as a going concern and
(iii) the Company has been notified by the NASDAQ Stock Market that it does not
meet the applicable listing requirements and that its common stock is subject to
delisting.
e. Governmental Review. Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Resale. Purchaser understands that (i) except as
provided in Section 5 of this Agreement, the Securities have not been and are
not being registered under the Securities Act or any state securities laws, and
may not be transferred unless (a) subsequently registered thereunder, or (b)
Purchaser shall have delivered to the Company an opinion of counsel (which
opinion shall be in form, substance and scope customary for opinions of counsel
in comparable transactions) to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration, including without limitation Rule 144 promulgated under the
Securities Act (or a successor rule) ("Rule 144"), or (c) transferred without
consideration to an affiliate of Purchaser; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule 144 is not applicable, any resale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
g. Legends. Purchaser understands that the Preferred Shares and,
until such time as the Conversion Shares have been registered under the
Securities Act as contemplated by Section 5 of this Agreement or otherwise may
be sold by Purchaser pursuant to Rule 144 without any restriction as to the
public resale thereof, the certificates for the Conversion Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment
3
<PAGE> 4
and may not be sold, transferred or assigned in the absence of an effective
registration statement for the securities under said Act, or an opinion of
counsel, in form, substance and scope customary for opinions of counsel in
comparable transactions, that registration is not required under said Act
or unless the Company is provided with reasonable assurances that the
securities were sold pursuant to Rule 144 under said Act.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend upon conversion of the Preferred Stock to the
holder of any Security upon which it is stamped, if (a) the resale of such
Security is registered under the Securities Act, or (b) such holder provides the
Company with an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale
or transfer of such Security may be made without registration under the
Securities Act or (c) such holder provides the Company with reasonable
assurances that such Security has been sold pursuant to Rule 144 or can be sold
pursuant to Rule 144 without any restriction as to the number of Securities
acquired as of a particular date that can then be immediately sold. Purchaser
agrees to sell all Securities, including those represented by a certificate(s)
from which the legend has been removed, pursuant to an effective registration
statement and to deliver a prospectus in connection with such sale (if and to
the extent such delivery is required) or in compliance with an exemption from
the registration requirements of the Securities Act. In the event the above
legend is removed from any Security and thereafter the effectiveness of a
registration statement covering such Security is suspended or the Company
determines that a supplement or amendment thereto is required by applicable
securities laws, then upon reasonable advance notice to Purchaser the Company
may require that the above legend be placed on any such Security that cannot
then be sold pursuant to an effective registration statement or Rule 144 without
any restriction as to the number of Securities acquired as of a particular date
that can then be immediately sold, which legend shall be removed when such
Security has been sold pursuant to Rule 144 or may be sold pursuant to an
effective registration statement or Rule 144 without any restriction as to the
number of Securities acquired as of a particular date that can then be
immediately sold.
h. Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of Purchaser and are valid
and binding agreements of Purchaser enforceable in accordance with their
respective terms.
i. Location of Purchaser. Purchaser has advised the Company in
writing with respect to the jurisdictions wherein the investment decision
regarding Purchaser's acquisition of the Preferred Stock has been made.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Purchaser that:
a. Organization and Qualification. The Company is a corporation
duly organized and existing in good standing under the laws of the jurisdiction
in which it is incorporated, and has the requisite corporate power to own its
properties and to carry on its
4
<PAGE> 5
business as now being conducted. The Company is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction where
the failure so to qualify would have a Material Adverse Effect. "Material
Adverse Effect" means any material adverse effect on the operations, properties,
condition (financial or otherwise) or prospects of the Company and its
subsidiaries, taken as a whole on a consolidated basis or on the ability of the
Company to perform its obligations in connection with the transactions
contemplated hereby on a timely basis.
b. Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and perform this Agreement, to issue
and sell the Preferred Shares in accordance with the terms hereof, and to issue
the Conversion Shares upon conversion of the Preferred Shares in accordance with
their terms. The execution, delivery and performance of this Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including, without limitation, the issuance of the Preferred Shares and
the issuance and reservation for issuance of the Conversion Shares) have been
duly authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board or Directors, or its stockholders is
required; this Agreement has been duly executed and delivered by the Company;
and this Agreement constitutes the valid and binding obligations of the Company
enforceable against the Company in accordance with its respective terms.
c. Issuance of Securities. The Preferred Stock is duly authorized
and, upon issuance in accordance with the terms of this Agreement, the Preferred
Shares will be validly issued, fully paid and non-assessable. The Conversion
Shares have been duly authorized by the Company's Board of Directors, and have
been reserved for issuance upon conversion of the Preferred Shares in accordance
with the terms thereof, will be validly issued, fully paid and non-assessable.
d. No Conflicts. The execution, delivery and performance of this
Agreement by the Company, the performance by the Company of its obligations
hereunder and thereunder, and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance, as applicable, of the Preferred Shares
and the Conversion Shares) will not (i) result in a violation of the Certificate
of Incorporation or By-laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including U.S. federal and state
securities laws and regulations) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have or reasonably be expected to result
in a Material Adverse Effect or for which consents have been obtained). Except
as described in the SEC Documents (as hereinafter defined) neither the Company
nor any of its subsidiaries is in violation of its Certificate of Incorporation
or other organizational
5
<PAGE> 6
documents and neither the Company nor any of its subsidiaries is in default (and
no event has occurred which, with notice or lapse of time or both, would put the
Company or any of its Subsidiaries in default) under, nor has there occurred any
event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for defaults as would not, individually or in the aggregate, have
or reasonably be expected to result in a Material Adverse Effect or for which
consents have been obtained. The businesses of the Company and its subsidiaries
are not being conducted, and shall not be conducted so long as Purchaser owns
any of the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations the sanctions for which
either singly or in the aggregate would not have or reasonably be expected to
result in a Material Adverse Effect. Except as specifically contemplated by this
Agreement and except for the filing of a Form D with the Securities and Exchange
Commission, the filing of the registration statement contemplated by this
Agreement under the Securities Act, any filings required by applicable state
securities laws and the filing of an application with Nasdaq (as defined below)
to list or approve for quotation the Conversion Shares, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, or the Preferred Stock, in each case in
accordance with the terms hereof or thereof. The Company has been notified that
it is not in compliance with new listing requirements of the Nasdaq SmallCap
Market ("Nasdaq") and the Common Stock is subject to delisting by Nasdaq.
e. SEC Documents, Financial Statements. Since December 31, 1995,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (all of the foregoing, filed prior to the date hereof and after December
31, 1995, and all exhibits included therein and financial statements and
schedules thereto and documents (other than exhibits) incorporated by reference
therein together with any registration statements or other documents filed by
the Company pursuant to the Securities Act prior to the date hereof and all news
releases by the Company being hereinafter referred to herein as the "SEC
Documents"). The Company has made available to Purchaser true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act or the
Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. as of their
respective dates, the financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto. Such financial statements have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, during the
periods involved (except (i) as may be otherwise indicated in such financial
6
<PAGE> 7
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may include footnotes or may not be condensed or
summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in the
ordinary course of business subsequent to the date of the most recent financial
statements included in the SEC Documents and (ii) obligations under contracts
and commitments incurred in the ordinary course of business and not required
under generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company.
f. Absence of Litigation. Except as disclosed in the SEC
Documents or otherwise disclosed to Purchaser, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company, any of its subsidiaries, or any of their respective
directors or officers in their capacities as such, wherein an unfavorable
decision, ruling or finding would or could reasonably be expected to result in a
Material Adverse effect.
g. Disclosure. All information relating to or concerning the
Company set forth in this Agreement or provided to Purchaser pursuant to Section
2(d) hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed
(assuming for this purpose that the Company's Exchange Act Reports are being
incorporated into an effective registration statement filed by the Company under
the Securities Act).
h. Current Public Information. The Company is currently eligible
to register the resale of its Common Stock by a stockholder on a registration
statement on Form S-3 under the Securities Act. The Company has been notified
that it is not in compliance with new listing requirements of the Nasdaq
SmallCap Market ("Nasdaq") and the Common Stock is subject to delisting by
Nasdaq. If the Common Stock should be delisted, the Company may no longer be
eligible to register the sale of its Common Stock on Form S-3.
i. No General Solicitation. Neither the Company nor any person
acting for the Company has conducted any "general solicitation," as such term is
defined in Regulation D, with respect to any of the Securities being offered
hereby.
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<PAGE> 8
j. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act.
4. COVENANTS
a. Best Efforts. The parties shall use their best efforts timely
to satisfy each of the conditions described in Sections 6 and 7 of this
Agreement.
b. Blue Sky Laws. The Company shall take such action as the
Company or Purchaser shall reasonably determine is necessary to qualify the
Securities for sale to Purchaser pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States or obtain
exemption therefrom, and shall provide evidence of any such action so taken to
Purchaser.
c. Reporting Status. So long as Purchaser beneficially owns any
of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act.
d. Use of Proceeds. The Company shall use the proceeds from the
sale of the Preferred Stock for internal working capital purposes, mergers and
acquisitions, investments and general corporate purposes.
e. Financial Information. Upon the written request of Purchaser
while holding any Preferred Shares, the Company shall send the following reports
to Purchaser: a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, any proxy statements, any Current Reports on Form 8-K and any press
releases issued by the Company or any of its subsidiaries.
f. Reservation of Shares. The Company shall reserve and shall at
all times thereafter have authorized and reserved for the purpose of issuance a
sufficient number of shares of Common Stock to provide for the full conversion
of the shares of Preferred Shares issued in accordance herewith and issuance of
the Conversion Shares in connection therewith and as otherwise required by the
terms of the Preferred Stock.
g. Corporate Existence. So long as Purchaser beneficially owns
the Preferred Shares, the Company shall maintain its corporate existence, except
in the event of a merger, consolidation or sale of all or substantially all of
the Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of the Preferred Shares as of the date of such transaction and (ii)
is a publicly traded corporation
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<PAGE> 9
whose common stock is listed for trading on the Nasdaq Stock Market, the New
York Stock Exchange or The American Stock Exchange.
5. REGISTRATION; TRANSFER AGENT INSTRUCTIONS
(a) Registration. On or before the later of (i) six (6) months after the
Company's registration statement relating to the registration of the Company of
shares of common stock issuable upon conversion of the Company's Series C and D
Convertible Preferred Stock shall have been declared effective or (ii) nine
months after the date hereof, the Company shall file with the Securities and
Exchange Commission a registration statement on Form S-3 (or such other form as
shall be available) to register the resale of the Conversion Shares. The Company
shall use its best efforts, subject to receipt of necessary information from the
Purchaser to cause the Registration Statement to become effective within 60 days
of filing.
(b) Transfer Agent Instructions. The Company shall instruct its transfer
agent to issue certificates, registered in the name of Purchaser or its nominee,
for the Conversion Shares in such amounts as specified from time to time by
Purchaser to the Company upon conversion of the Preferred Shares. Prior to
registration of the Conversion Shares under the Securities Act or resale of such
Securities under Rule 144, all such certificates shall bear the restrictive
legend specified in Section 2(g) of this Agreement. The Company warrants that no
instruction other than such instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof in the case of the
Conversion Shares prior to registration of the Conversion Shares under the
Securities Act, will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Preferred
Stock terms. Nothing in this Section shall affect in any way Purchaser's
obligations and agreement set forth in Section 2(f) hereof not to resell the
Securities except pursuant to an effective registration statement (and to
deliver a prospectus in connection with such a sale) or in compliance with an
exemption from the registration requirements of applicable securities law. If
Purchaser provides the Company with an opinion of counsel, which opinion of
counsel shall be in form, substance and scope customary for opinions of counsel
in comparable transactions, to the effect that the Securities to be sold or
transferred may be sold or transferred pursuant to an exemption from
registration, the Company shall permit the transfer, and, in the case of the
Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by a Purchaser.
(c) Rule 144. The Company will use its best efforts to make all filings
and take all other actions so that Rule 144 promulgated under the Securities Act
of 1933, as amended, will be available for the resale of the Conversion Shares.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
The obligation of the Company hereunder to issue and sell the Preferred
Shares to Purchaser at the closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
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<PAGE> 10
(a) Purchaser shall have executed the execution page to this
Agreement and delivered the same to the Company.
(b) Purchaser shall have delivered the Purchase Price for the
Preferred Shares.
(c) The representations and warranties of Purchaser shall be
true and correct in all material respects.
(d) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO PURCHASER'S OBLIGATION TO PURCHASE
The obligation of Purchaser hereunder to purchase the Preferred Shares on
the Closing Date is subject to the satisfaction of each of the following
conditions, provided that these conditions are for Purchaser's sole benefit and
may be waived by Purchaser at any time in Purchaser's sole discretion:
(a) The Company shall have executed the signature page to this
Agreement and delivered the same to Purchaser.
(b) The Company shall have delivered to Purchaser one or more
duly executed Certificates representing the Preferred Shares purchased hereby in
the principal amount being purchased by Purchaser in accordance with Section
1(b) above.
(c) The representations and warranties of the Company shall be
true and correct as of the Closing Date in all material respects and the Company
shall have performed, satisfied and complied in all material respects the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing Date.
(d) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
8. GOVERNING LAW; MISCELLANEOUS
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<PAGE> 11
a. Governing Law; Jurisdiction. This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware applicable
to contracts made and to be performed in the State of Delaware. The parties
consent to the jurisdiction of the United States District Courts for the
Southern District of New York in any suit or proceeding based on or arising
under this Agreement and agree that all claims in respect of such suit or
proceeding may be determined in such court. The parties irrevocably waive the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The parties further agree that service of process mailed by first class mail
shall be deemed in every respect effective service of process in any suit or
proceeding arising hereunder. Nothing herein shall affect Purchaser's right to
serve process in any other manner permitted by law. The parties agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor Purchaser make
any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and Purchaser.
f. Notices. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier, overnight
delivery service or by confirmed telecopy, and shall be effective five days
after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier, overnight delivery service or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
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<PAGE> 12
DynaGen, Inc.
840 Memorial Drive
Cambridge, Massachusetts 02139
Telecopy: (617) 354-3902
Attention: Dhananjay G. Wadekar
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, Massachusetts 02109
Telecopy: (617) 832-7000
Attention: David A. Broadwin, Esq.
If to Purchaser, to :
to the address set forth on the signature page hereof.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other. This
provision shall not limit Purchaser's right to transfer the Securities pursuant
to the terms of the Preferred Stock and this Agreement or to assign Purchaser's
rights hereunder to any such transferee, nor shall this provision limit the
right of Purchaser to transfer or assign its rights under such agreements and
instruments to an affiliate (provided that Purchaser makes no more than two (2)
such transfers), provided that the representations and warranties set forth in
Section 2 are true and correct with respect to such affiliate or managed
account.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the parties
and the agreements and covenants set forth in Sections 2, 3, 4 and 5 shall
survive the closing hereunder and any conversion of the Preferred Stock,
notwithstanding any due diligence investigation conducted by or on behalf of
Purchaser.
j. Purchaser. Purchaser shall not make any press release or other
public statement concerning the transactions contemplated hereby without the
prior written consent of the Company.
12
<PAGE> 13
k. Publicity. Purchaser shall not make any press release or other
public statement concerning the transactions contemplated hereby without the
prior written consent of the Company.
l. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE> 14
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
SUBSCRIPTION AMOUNT PURCHASER
Number of Shares By:
--------- -------------------------------
Total Purchase Price Name:
--------- -------------------------------
Title:
----------------------------
ACCEPTED:
DYNAGEN, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
<PAGE> 1
Exhibit 10a
COMMERCIAL FINANCING AGREEMENT
Commercial Financing Agreement (the "Agreement") made this ____ day of
June, 1998, between ABLE LABORATORIES, INC., a New Jersey corporation, with an
office for the transaction of business at 6 Hollywood Court, South Plainfield,
NJ 07080 (the "Company"), And PORTER CAPITAL CORPORATION, an Alabama corporation
with offices for the transaction of business located at 67 Wall Street, NY, NY,
10005; 109 Danbury Road, Ridgefield, CT 06877; and 2112 First Avenue North,
Birmingham, Alabama 35203 ("Porter Capital"). Company and Porter Capital agree
and shall be legally bound as follows:
1. Purpose of Agreement. Company desires to obtain short-term financing by
selling, transferring, setting over and assigning to Porter Capital certain
accounts receivable and invoices held by Company at a discount below their face
value.
2. Definitions.
2.1 "Account Receivable" shall mean any right to payment for goods
sold, or leased, and delivered, or services rendered, which is not evidenced by
an instrument or chattel paper.
2.2 "Acceptable Account" shall mean an account conforming to the
warranties and terms set forth herein.
2.3 "Customer" shall mean Company's customer or account debtor.
2.4 "Collateral" shall mean the intangible or tangible property given
as security for the obligations of Company under this agreement.
2.5 "Warranty" shall mean to guarantee, as a material element of this
agreement. Each separate warranty herein shall be deemed to be an independent
condition to Porter Capital's duties and obligations under this agreement.
2.6 "Credit Problem" shall mean a Customer unable to pay its debts
because of financial problems or insolvency or both, the appointment of any
receiver or trustee for all or a substantial portion of the assets of has been
appointed, has filed a general assignment for the benefit of creditors or had
filed against it an involuntary or voluntary Bankruptcy proceeding.
2.7 "Customer Dispute" shall mean a claim or disagreement, by
Customer against Company at any time, of any kind whatsoever, whether valid or
invalid that reduces the amount collectible from a Customer by Porter Capital.
3. Tender of Accounts Receivable; Invoices.
3.1 The Company will tender to Porter Capital for purchase pursuant
to this Agreement all of the Accounts Receivable from its Customers with respect
to goods sold and delivered to, or services performed for, such Customers by the
Company by delivering to Porter Capital all invoices to such Customers promptly
after the creation thereof. Porter Capital will forward said invoices to the
Company's Customers, in accordance with Porter Capital's standard procedures,
together with a notice by the Company to its Customers, in the form prescribed
by Porter Capital, of the assignment of payment of said invoices to Porter
Capital.
3.2 In each instance where the Company delivers its Accounts
Receivable to Porter Capital, the Company must simultaneously deliver to Porter
Capital an original, a copy of each invoice, and satisfactory proof of delivery.
3.3 Porter Capital will conduct such examination, verification, and
credit investigation of the invoices and the account debtors as it considers
necessary, and will notify the Company within 48 hours of receipt of such
invoices as to which of the individual Accounts Receivable tendered by the
Company, if any, Porter Capital elects to purchase from the Company. Porter
Capital shall have the absolute right, in its sole discretion, to reject any or
all of the Accounts Receivable tendered to it by the Company.
4. Assignment. Those Accounts Receivable which Porter Capital elects to
purchase from the Company shall be listed in an "Invoice Delivery Schedule",
substantially in the form of Exhibit "A" annexed hereto (such form, together
with any schedules and attachments thereto is hereinafter referred to as an
"Invoice Schedule"), executed by the Company and accepted by Porter Capital from
time to time throughout the term of this Agreement. Upon acceptance by Porter
Capital of an Invoice Schedule, the Company shall have been deemed to have sold,
assigned, transferred, conveyed and delivered to Porter Capital, and Porter
Capital shall be deemed to have purchased and received from the Company, all
right, title, and interest of the Company in and to the Accounts Receivable
listed on the Invoice Schedule. Upon the assignment of an Account Receivable,
Porter Capital shall have all of the rights of an unpaid seller of any goods,
the sale of which gives rise to each receivable, including the right of stoppage
in
<PAGE> 2
COMMERCIAL FINANCING AGREEMENT
transmit, reclamation and replevin. Notwithstanding the foregoing, if the
Company or Porter Capital fails to include in any Invoice Schedule a particular
Account Receivable tendered by the Company to Porter Capital, but Porter Capital
nonetheless pays to the Company the "Purchase Price" (as hereinafter defined)
for such Account Receivable, then Porter Capital shall be presumed conclusively
to have purchased, and the Company shall be presumed conclusively to have sold,
such Account Receivable pursuant to this Agreement, and such Account Receivable
shall be governed by the terms and conditions (including, without limitation,
the Company's representations and warranties to Porter Capital) of this
Agreement. It is understood and agreed that Porter Capital is not assuming any
of the responsibilities or obligations of Company under such Accounts Receivable
but that it is simply taking an assignment of the right to be paid on such
Accounts Receivable which Company has fulfilled in the ordinary course of its
business operations. It is also understood and agreed that Porter Capital will
have no obligation whatsoever to buy any Accounts Receivable from the Company at
any time.
5. PURCHASE PRICE, RESERVE ACCOUNT.
5.1 Purchase Price. Porter Capital agrees to buy the Accounts Receivable
set forth on the Invoice Schedule from the Company at the Purchase Price
Percentage on Exhibit B attached of the face value of each such acceptable
invoice (respectively the "Purchase Price" and "Purchased Receivable"). The
Purchase Price for each Purchased Receivable, less the reserve amount described
in Exhibit B, shall be paid to the Company in immediately available funds at
the time of purchase.
5.2 Reserve Account. Porter Capital shall establish and maintain a
reserve account (see Exhibit B) for the Company and withhold from each
Purchased Receivable an amount equal to the Purchase Price in paragraph 5.1
above, less the amount advanced to the Company (the "Reserve Account"). Porter
Capital may increase the reserve amount taken on each Purchased Receivable in
its sole discretion. The Reserve Account may be held and applied by Porter
Capital in its sole discretion against charge backs or any Obligations of the
Company to Porter Capital.
5.3 Rebates. As an inducement to secure full and prompt payment of the
Accounts Receivable upon which Porter Capital agrees to pay the Company, a
rebate on each Purchased Receivable paid in full in accordance with the rebate
schedule annexed hereto as Exhibit "B", Porter Capital shall deliver a Monthly
Reserve Statement and pay any reserves and rebate due on or before the seventh
business day of each month for the prior month. Notwithstanding the previous
sentence, Porter Capital may, in its sole discretion, withhold from time to
time any rebate sums due Company as further security for the re-payment of any
and all Obligations of Company. In the event of any conflict between the
wording in Exhibit B and this agreement, this agreement shall prevail.
6. COLLECTION OF ACCOUNTS RECEIVABLE. Commencing on the date of this
Agreement, Porter Capital shall administer the collection of all Accounts
Receivable originated by the Company and shall forward an Aged Accounts
Receivable Schedule to the Company weekly. Porter Capital shall have the right
of endorsement on all payments received in connection with each Account
Receivable and the Company hereby appoints Porter Capital the attorney-in-fact
and agent of the Company for this purpose, which appointment is coupled with an
interest and is irrevocable during the term of this Agreement. Porter Capital
shall have no liability to the Company for any mistake in the application of any
payment received by it with respect to any Account Receivable, so long as it
acts in good faith without gross negligence.
7. CROSS-COLLATERALIZATION. If a "Default" (as defined in this Agreement)
shall have occurred and be continuing, Porter Capital shall have the right,
which may be exercised in its sole and absolute discretion at any time and from
time to time during the continuance of such Default, to apply all amounts
collected with respect to Accounts Receivable as follows, before any payment
from such collections shall be made to the Company: (i) against the
un-reimbursed balance of the Purchase Price made by Porter Capital to the
Company with respect to Purchased Receivables; (ii) to the payment of all fees
accrued with respect to the Accounts Receivable purchased by Porter Capital from
the Company, whether or not such fees have become due and payable pursuant to
the terms of this Agreement; and (iii) to the payment of any and all other
liabilities and obligations of the Company to Porter Capital pursuant to this
Agreement, the "Security Agreement" and any other agreement entered into between
Porter Capital and the Company concurrently herewith (the "Transaction
Documents"). For purposes of this paragraph, "Company" shall mean and include
each person named as the Company in the preamble of this Agreement and any
shareholder, parent, subsidiary, controlling person or other affiliate.
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<PAGE> 3
COMMERCIAL FINANCING AGREEMENT
8. NEGATIVE RESERVES. While it is anticipated that the Reserve Account will
carry a positive balance most if not all the time, Porter Capital may, as part
of this Commercial Financing Agreement and to ease the Company's short-term
cash-flow problems, permit the Company to carry a negative-balance on its
Reserve Account. Upon the establishment of each such negative balance amount,
Porter Capital shall have the right to charge the Company a one-time processing
and administrative fee of up to two percent of each such amount so established
as a negative balance. Porter Capital may withhold from the Accounts Receivable
such sums as it deems necessary to satisfy any negative balance in the Reserve
Account. Notwithstanding anything contained herein to the contrary, Porter
Capital may terminate the negative reserve facility at any time without notice
to the Company as it deems fit. Interest shall accrue on the outstanding
negative balance at the rate of forty/one-hundredths percent per week.
9. COLLECTION OF ACCOUNTS RECEIVABLE.
9.1 The Company will instruct all of its Customers obligated with
respect to its Accounts Receivable to mail or deliver payments on such Accounts
Receivable directly to Porter Capital at its address set forth in the preamble
of this Agreement or to such other address that Porter Capital may specify in a
written notice to the Company. Such instructions shall not be rescinded or
modified without Porter Capital's prior written consent. If, despite such
instructions, the Company shall receive any payments with respect to any
Accounts Receivable purchased by Porter Capital, it shall receive such payments
in trust for the benefit of Porter Capital, shall segregate such payments from
its other funds, and shall deliver or cause to be delivered to Porter Capital,
in the same form as so received with all necessary endorsements, all such
payments received as soon as practicable, but in no event later than two
business days after the receipt thereof by the Company. If the Company fails to
turn over to Porter Capital any checks or other form of payment received by it
or in the event the Company deposit any such checks into its own account, this
shall be an event of default of this contract, and in addition the Company
shall pay to Porter Capital the entire invoice amount at once plus liquidated
damages equal to twenty percent of the amount so deposited.
9.2 Porter Capital shall have the full power and authority to
collect each Account Receivable, through legal action or otherwise, and may, in
its sole discretion, settle, compromise, or assign (in whole or in part) the
claim for any of the Accounts Receivable, or otherwise exercise any other right
now existing or hereafter arising with respect to any of the Accounts
Receivable, if such action will facilitate collection. The amount of any
reduction resulting from any such settlement, compromise, assignment or other
collection action shall reduce the balance otherwise due to the Company
hereunder. The Company acknowledges and agrees that Porter Capital shall have
the sole and exclusive right to commence legal action to collect any Account
Receivable.
9.3 If Porter Capital shall agree that certain Account Debtors'
invoices be eligible for financing between the thirty-first and sixtieth days
beyond their net-thirty due date (i.e., during the period from sixty to ninety
days after their origination date), then these invoices shall be deemed
"Special Risk," and a further charge of two percent for each thirty-day period
in which each of these invoices is outstanding will be collected by Porter
Capital, but ninety days after the origination date these Special Risk invoices
shall be deemed a Customer Dispute and shall be charged back to the Company's
account.
10. PAYMENT OF EXPENSES AND TAXES; INDEMNIFICATION. The Company will (a) pay
or reimburse Porter Capital for all of Porter Capital's out-of-pocket costs and
expenses incurred in connection with the preparation and execution of, and any
amendment, supplement or modification to, the Transaction Documents and the
consummation of the transactions contemplated hereby and thereby, including,
without limitation, the fees and disbursements of counsel to Porter Capital,
(b) pay or reimburse Porter Capital for all its costs and expenses incurred with
the enforcement or preservation of any rights under the Transaction Documents,
and the verification of the Accounts Receivable and the credit worthiness of
the Customers, including without limitation, fees and disbursements of counsel
to Porter Capital; (c) pay, indemnify, and hold Porter Capital harmless from,
any and all recording and filing fees and any and all liabilities with respect
to, or resulting from, any delay in paying any stamp, excise, and other taxes,
if any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any waiver
or consent under or in respect of, the Transaction Documents; (d) pay for
monthly statements at $0.53 each plus all postage expended by Porter Capital to
mail invoices and otherwise collect the accounts; (e) pay a processing and
administration fee of no percent of the value
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<PAGE> 4
COMMERCIAL FINANCING AGREEMENT
of each invoice; (f) pay, indemnify and hold Porter Capital harmless from and
against any and all claims, liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever, whether threatened, pending or determined (including
attorney's fees and court costs now or hereafter arising from this Agreement or
any activities of the Company (referred to as the "indemnified liabilities");
provided that the Company shall have no obligation hereunder to Porter Capital
with respect to indemnified liabilities arising from the gross negligence or
willful misconduct of Porter Capital. The covenants of this paragraph shall
survive the termination of this Agreement.
11. Term.
11.1 This Agreement shall be effective for a period commencing on the
date hereof and continuing until the close of business on last day of the
sixth month (the "Initial Term"). This Agreement shall be deemed to be
automatically renewed for an additional term of six months at the expiration of
the Initial Term, and thereafter to be automatically renewed for succeeding six
month terms at the end of the first and each succeeding renewal term, unless
the Company shall deliver written notice of cancellation to Porter Capital not
earlier than ninety days and not later than thirty days prior to the expiration
date of the Initial Term or any succeeding renewal term. No such termination
shall terminate or otherwise affect Company's obligations hereunder incurred or
accrued prior to such termination.
11.2 The Company shall pay Porter Capital an application and due diligence
fee in the amount of $350.00 (waived) on the first day of each term hereunder,
which amount, at the option of Porter Capital, may be deducted from any amounts
otherwise due from Porter Capital to the Company.
11.3 The representations, warranties and covenants of the Company and the
remedies of Porter Capital for a breach of such representations, warranties
and/or covenants, shall survive the termination of this Agreement, and such
termination shall not effect the rights of Porter Capital to enforce its
remedies under the Transaction Documents against the Company or against any
collateral after a default by the Company. Upon termination, the Company shall
remain fully responsible to Porter Capital for any Purchased Receivables
purchased prior to such termination. Additionally, Porter Capital shall maintain
its security interest in the Property (as hereinafter defined) of the Company
until all of its Obligations (as hereinafter defined) to Porter Capital have
been paid in full.
12. Facility Fee; Credits.
12.1 The rebates set forth in the rebate schedule attached hereto have
been established after negotiations between the Company and Porter Capital on
the assumption that the Company will tender to Porter Capital for purchase
hereunder acceptable Accounts Receivable averaging at least two hundred
thousand dollars a month (the "Base Purchase Amount") during the Initial Term
and each renewal term.
12.2 In further consideration of Porter Capital's undertakings in this
Agreement, the Company shall pay to Porter Capital a fee in an amount equal to
four percent of the Base Purchase Amount (the "Facility Fee") as of the
termination date of the Initial Term and of each renewal term, but the amount
thereof shall be reduced by the total fees paid by the Company to Porter
Capital.
13. Disputed Accounts Receivable, Re-Purchase, etc.
13.1 Non-Recourse. Porter Capital shall not have any recourse against
Company for unpaid Accounts Receivable, if the reason for non-payment is
related to a Customer's Credit Problem, except under the following
circumstances, where Porter Capital will have immediate recourse against the
Company:
13.1.1 if Company mails invoices on Accounts Receivable directly to
a Customer;
13.1.2 if Company breaches any warranties, representations, or
promises in this Agreement, and which breaches shall have a
material adverse effect on the Company;
13.1.3 if Company has contributed to or aggravated Customer's credit
problem;
13.1.4 if Company and Customer are involved in a Customer Dispute of
any kind, regardless of its validity; or
13.1.5 if Customer asserts a claim of loss or offset of any kind
against Company.
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<PAGE> 5
COMMERCIAL FINANCING AGREEMENT
13.2 Notice of Dispute. Company agrees to promptly notify Porter Capital of
any Customer Dispute between Company and any of its Customers within 48 hours
that may lead to the non-payment of an invoice.
13.3 Re-payment of Disputed Purchased Receivable. Company shall immediately
pay to Porter Capital the full amount of any Purchased Receivable subject to a
Customer Dispute of any kind, whether or not the same is valid or with merit. If
Company fails to fully settle any Customer Dispute within thirty (30) days,
Porter Capital may, in addition to any other remedy it may have under this
Agreement, charge or sell back the Purchased Receivable to the Company. Invoices
unpaid after seventy days from any Customer without a Credit Problem shall be
deemed to be in dispute and shall be charged back to the Company or sold back to
the Company.
14. Warranties By Company. As an inducement to and as a condition of Porter
Capital's willingness to enter into this Agreement, and with full knowledge that
the truth and accuracy of the warranties in this Agreement are being relied
upon by Porter Capital, Company warrants as follows:
14.1 By its execution of each Invoice Schedule with respect to Accounts
Receivable or acceptance of the Purchase Price with respect to a Purchased
Receivable that:
14.1.1 The Company is the sole owner of such Purchased Receivable and
such Purchased Receivable has not been previously assigned or encumbered in any
manner; the Company has the full power and authority to sell such Purchased
Receivable and its sale to Porter Capital has been duly authorized;
14.1.2 The goods or services listed or referred to in the Purchased
Receivable have been shipped or rendered to the Customer, and the prices and
terms of shipment set forth therein conform in all material respects to the
terms of any related purchase order or agreement with the Customer;
14.1.3 The invoice representing the Purchased Receivable correctly
sets forth the full purchase price of the goods and services covered thereby,
and such amount, less only the applicable trade discounts and allowances stated
therein, if any, is due and owing from the Customer, subject to no set-offs,
deductions, disputes, contingencies or counterclaims against the Company or the
invoice, and payment thereof is not contingent upon fulfillment of any
obligation other than delivery of the goods or services referred to in such
invoice; and Company represents that its invoices do not represent a delivery of
merchandise or services upon consignment, guaranteed sale, or similar term.
14.2 Company is validly existing and in good standing under the laws of
the state in which it is incorporated and is properly licensed and authorized
to operate the business it conducts under its corporate name or any trade name
of and is authorized to do business in every jurisdiction in which it conducts
business. By reason of this Agreement the Company is conducting business in the
State of New York.
14.3 Each Customer's business is solvent to best of Company's information
and knowledge.
14.4 Company is, or will be at the time of the purchase by Porter Capital,
the lawful owner of and have good and undisputed title to the Purchased
Receivables.
14.5 Company does not own, control or exercise dominion over, in any way
whatsoever, the business of any account-debtor/Customer whose Accounts
Receivable are to be purchased by Porter Capital and shall not change or modify
the terms of any Account Receivable with any Customer unless Porter Capital
first consents to such change in writing. By way of example only, Company shall
not extend a Customer's credit beyond thirty (30) days without Porter Capital's
prior written consent.
14.6 All financial records, statements, books or other documents of
Company furnished to Porter Capital for review at any time, either before or
after the signing of this Agreement, are true and accurate. Company has no
outstanding state, federal, or local tax liabilities, and has filed all tax
returns or other documents as required by law.
14.7 Company will not, under any circumstances or in any manner
whatsoever, interfere with any of Porter Capital's rights under this Agreement.
14.8 Company shall not factor, finance, give a security interest or sell
any of its Accounts Receivable or any of its property, fixtures or inventory to
any person or entity other than Porter Capital during the term of this
Agreement, nor shall any Accounts Receivable to be purchased under this
Agreement be previously sold, pledged or encumbered by Company or any other
person or entity in any manner whatsoever.
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<PAGE> 6
COMMERCIAL FINANCING AGREEMENT
14.9 Company shall not permit the placement of any lien, security interest,
or encumbrance on its fixtures, inventory, or other personal property and
chattels except with the prior written consent of Porter Capital and shall
maintain its property, inventory, and fixtures in good order and in an
operating state, condition, and repair, except
(1) for taxes not delinquent or being contested in good faith and by
proper proceedings, as to which adequate reserves with respect thereto are
maintained on the books of such Borrower or its Subsidiary, as the case may be,
in accordance with GAAP;
(2) carriers', warehousemen's, mechanics', materialmen's or similar liens
imposed by law incurred in the ordinary course of business in respect of
obligations not overdue, or if being contested in good faith and by proper
proceedings, which shall be bonded or discharged within thirty (30) days of
filing;
(3) pledges or deposits in connection with workers' compensation,
unemployment insurance and other types of social security, if incurred in the
ordinary course of business;
(4) security deposits made in the ordinary course of business.
Upon the breach of any of the warranties above, the Company will immediately
pay to Porter Capital the entire unpaid balance of the Purchased Receivables
purchased pursuant to this Agreement and any other Obligations of the Company
to Porter Capital.
15. Security Interest. To secure the payment of any sums which have or may
become due by the Company to Porter Capital under this Agreement and also to
secure any other indebtedness or liability of the Company to Porter Capital,
direct or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, including all future advances or loans which may be made
at the option of Porter Capital to the Company (hereinafter referred to as
"Obligations"), Company hereby grants, conveys and mortgages to Porter Capital
the Property as defined in the Security Agreement.
16. Financing Statements and Security Agreement. The Company and/or its
principals shall execute such security agreements as Porter Capital may
reasonably request to perfect the security interest granted hereunder,
including but not limited to the Security Agreement, (a true copy of which is
annexed hereto, made a part hereof and is marked Exhibit "C"), Corporate
Resolutions (a true copy of which is annexed hereto, made a part hereof and is
marked Exhibit "D"; and the Performance Covenant and Waiver (a true copy of
which is annexed hereto, made a part hereof and is marked Exhibit "E"). The
Company hereby authorizes Porter Capital or its agents or assigns to sign and
execute on its behalf, any and all necessary forms to perfect the security
interest granted hereunder.
17. Financial Records. During the term of this Agreement, Company agrees to
provide Porter Capital with such financial statements and records and such
other information as may be reasonably requested by Porter Capital from time to
time, and each quarter shall furnish an updated customer list with customer
names, contact names, addresses, and phone numbers, as well as a complete and
current payables-aging report.
18. Notice of Levy. Company shall promptly notify Porter Capital of any
attachment or any other legal process levied against Company or any of
Company's Customers. Company's failure to do so shall be a material default
hereunder.
19. No Pledge. Company shall not, at any time during the term of this
Agreement, pledge the credit of Porter Capital to any person or business for
any purpose whatsoever.
20. Book Entry. Company shall, immediately upon the sale of an Account
Receivable to Porter Capital, make proper entries on its books and records
disclosing the absolute sale and assignment of such Account to Porter Capital.
21. Power of Attorney. Company irrevocably appoints Porter Capital, or any
person designated by Porter Capital, its special attorney-in-fact, or agent,
with power to: (1) strike out Company's address on all invoices or statements
of account mailed to Customers and substitute Porter Capital's address; (2)
receive and open all mail addressed to Company or to Company's trade name via
Porter Capital address; (3) endorse the name of Company or Company's trade name
on any checks or other evidences of payment, invoices or other documents that
may come into the possession of Porter Capital on Accounts Receivable or on
which Porter Capital holds a security interest; (4) in Company's name, or
otherwise, demand, sue for, collect, and subject to Company's prior written
approval, compromise, prosecute, or
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<PAGE> 7
COMMERCIAL FINANCING AGREEMENT
defend any action, claim, or proceedings and give releases for any and all
monies due or to become due; (5) do any and all things reasonably necessary and
proper to carry out the purpose intended by this Agreement. The authority
granted Porter Capital shall remain in full force and effect until all Accounts
Receivable sold and/or assigned to Porter Capital have been paid in full.
22. Default. Any one or more of the following shall constitute a default
hereunder (a "Default"):
22.1 Company's failure to pay any indebtedness or Obligations to Porter
Capital when due or any other default under the Commercial Financing
Agreement between Porter Capital and the Company;
22.2 Company's breach of any material term, provision, warranty, or
representation under this Agreement, or under any other agreement or
contract between Company and Porter Capital, or Obligation of Company
to Porter Capital;
22.3 Porter Capital shall reasonably believe that Company is failing to
tender all of its Accounts Receivable to Porter Capital for purchase;
or the Company shall have failed to tender Accounts Receivable
aggregating at least twenty percent of the Annual Base Purchase
Amount during any Calendar Quarter; of the Company shall have failed
to tender Accounts Receivable to Porter Capital for purchase for a
period of fifteen or more consecutive business days;
22.4 The Company shall instruct any Customer to mail or deliver payment on
Accounts Receivable to the Company or to any person other than Porter
Capital;
22.5 The appointment of any receiver or trustee for all or a substantial
portion of the assets of Company, the filing of a general assignment
for the benefit of creditors by Company or a voluntary or involuntary
filing under any bankruptcy or similar law which is not dismissed
with prejudice within 60 days;
22.6 The issuance of any levies of attachment, execution, tax assessments,
or similar process against the Accounts Receivable which is not
released within ten days;
22.7 If any financial statements, profits-and-loss statements, borrowing
certificates or schedules, or other statements furnished by Company
to Porter Capital prove false or incorrect in any material respect.
22.8 Failure of the Company to pay all taxes to every government agency in
a timely manner.
22.9 Any false or misleading representations or warranties made or given
by the Company in connection with this Agreement;
22.10 Upon the non-payment by Company of any charges of rent under the
premises or equipment leases used by the Company to operate its
business, or the failure to comply with any terms of any such lease,
which is not cured within the time and in the manner provided for in
the lease;
22.11 Upon the further surrender, transfer, pledging, assignment, or
granting of a security interest by Company in the Property without
the prior written consent of Porter Capital; or
22.12 Upon the attachment of any further lien on the Property.
23. Remedies Upon Default. In the event of any default Porter Capital shall
have the following cumulative rights and remedies:
23.1 Declare any Obligations (including any sums still due and owing under
any Purchased Receivable) immediately due and payable;
23.2 Enforce the security interest given hereunder;
23.3 Require Company to assemble any Collateral secured hereunder and the
records pertaining thereto and make them available to Porter Capital
at a place designated by Porter Capital;
23.4 Enter the premises of Company and take possession of any Collateral
not then in its possession and of the records pertaining thereto and
any other collateral;
23.5 Grant extensions, compromise claims, and settle Accounts Receivable
for less than face value;
-7-
<PAGE> 8
COMMERCIAL FINANCING AGREEMENT
23.6 Use, in connection with any assembly or disposition of the
collateral, any trademark, trade name, trade style, copyright, patent right, or
technical process used or utilized by Company; and
23.7 Return any surplus realized and hold Company liable for any
deficiency.
24. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon the heirs, executors, administrators, successors, and assigns of
both Company and Porter Capital.
25. Cumulative Rights. All rights, remedies, and powers granted to Porter
Capital in this Agreement, or in any note or other Agreement given by Company
to Porter Capital, are cumulative and may be exercised singularly or
concurrently with such other rights as Porter Capital may have. These rights
may be exercised from time to time as to all or any part of the pledged
collateral as Porter Capital in its discretion may determine.
26. Written Waiver. Porter Capital shall not be deemed to have waived any
right or remedy it may have hereunder unless such waiver is in writing and
signed by Porter Capital. A waiver by Porter Capital of a right or remedy under
this Agreement on one occasion shall not be deemed a waiver of a right or
remedy on any subsequent occasion.
27. Governing Law and Jurisdiction.
27.1 This Agreement is, and shall be deemed to be, a contract entered
into under and pursuant to the laws of the State of New York and shall be in all
respects governed, construed, applied and enforced in accordance with the laws
of the State of New York. No defense given or allowed by the laws of any other
state or country shall be interposed in any action or proceeding hereon unless
such defense is also given or allowed by the laws of the State of New York.
27.2 The parties hereto agree to submit to personal jurisdiction and
acknowledge they are doing business in the State of New York in any action or
proceeding arising out of this Agreement and, in furtherance of such agreement,
they hereby agree and consent that without limiting other methods of obtaining
jurisdiction, that personal jurisdiction in any such action or proceeding may
be obtained within or without the jurisdiction of any court located in New York
and that any process or notice or motion or other application to any such court
in connection with any such action or proceeding may be served by registered or
certified mail, return receipt requested, to or by personal service at their
last known address whether such address be within or without the jurisdiction
of any such court.
28. Invalid Provisions. If any provision of this Agreement shall be declared
illegal or contrary to law, it is agreed that such provision shall be
disregarded and this Agreement shall continue in force as though such
provisions had not been incorporated herein. If a law, which applies to this
Agreement and which sets maximum loan charges, is finally interpreted so that
the fees and commissions charged by Porter Capital to Company or other charges
collected or to be collected in connection with this Agreement exceed the
permitted limits under any applicable law or statute, then: (i) any such fee or
commission shall be reduced by the amount necessary to reduce the charges to
the permitted limit; and (ii) any sums already collected from the Company which
exceed permitted limits will be applied and shall be deemed to have been
payments in reduction of the obligations hereunder.
29. Further Instruments. Company agree that, upon request from time to time
of Porter Capital, it will, at its expense, execute, acknowledge and deliver
all such additional instruments and further assurances and will do or cause to
be done all such further acts and things as may be reasonably necessary to
fully establish, confirm or perfect from time to time the security interest of
Porter Capital in the Collateral and to fully establish, confirm or perfect
from time to time the intention of this Agreement.
30. No Jury Trial. The Company hereby irrevocably and unconditionally waives,
and Porter Capital by its acceptance of this Agreement irrevocably and
unconditionally waives, any and all right to trial by jury in any action, suit
or counterclaim arising in connection with, out of or otherwise relating to
this Agreement.
31. Entire Agreement. This instrument contains the entire Agreement between
the parties. Any addendum or modification hereto must be signed by both parties
in order to have any force or effect.
32. Notices. All notices, demands or requests (collectively, "Notice") made
pursuant to, under or by virtue of this Agreement must be in writing and sent
to the party or parties to whom or to which such Notice is being sent, by
certified or registered mail, return receipt requested, reputable overnight
courier or delivered by hand with receipt acknowledged in writing to the
addresses first hereinabove set forth.
-8-
<PAGE> 9
COMMERCIAL FINANCING AGREEMENT
All notices shall (a) be deemed given when received in accordance herewith and
(b) may be given either by a party or such party's attorneys.
33. Effective Date. This Agreement shall be effective only upon its execution
by a duly authorized officer of Porter Capital.
34. Duplicate Originals. This Agreement may be executed in any number of
duplicate originals and each such duplicate original shall be deemed to
constitute but one and the same instrument.
35. Headings, Etc. The headings, titles and captions of various paragraphs of
this Agreement are for convenience of reference only and are not to be
construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
ABLE LABORATORIES, INC.
By: /s/ Indu Muni
-------------------------------------------
Indu Muni, President, a duly authorized officer
PORTER CAPITAL CORPORATION,
By:
-------------------------------------------
Donald Porter, CEO, a duly authorized officer
-9-
<PAGE> 10
COMMERCIAL FINANCING AGREEMENT
EXHIBIT "B-1"
Rebate Schedule
The "Purchased Receivables" shall be bought at a discount of ninety-four
percent of their face amount. A rebate for prompt payment will be paid to
the Company by Porter Capital as follows:
<TABLE>
<CAPTION>
If the Invoice is paid The amount rebated The net charge
by the customer to the Company to the Company
between: will be: will be:
---------------------- ------------------ --------------
<S> <C> <C>
01-30 days 4.0% 2.0%
31-60 days 2.0% 4.0%
61-90 days 0.0% 6.0%
</TABLE>
Advances and Reserves
The Advance Amount shall be seventy percent of each invoice, and the
Reserve Amount shall be twenty-four percent of each invoice. Invoices
aged 60 days or older shall be bought back by the Company as Disputed
Invoices, unless Porter Capital grants a 30-day extension, after which
such invoices shall be repurchased by the Company.
From time to time, the underwriting department of Porter Capital may
require the invoice verification form in Exhibit B-2 signed by the
Company's Account Debtors. The Company will use its best efforts to
have its Account Debtors sign this form acknowledging the invoice.
-10-
<PAGE> 11
EXHIBIT "C" SECURITY AGREEMENT
Agreement (the "Agreement") made this day of June, 1998, between ABLE
LABORATORIES INC., a State of New Jersey Corporation with an office for the
transaction of business at 6 Hollywood Court, South Plainfield, NJ 07080, (the
"Company"), and PORTER CAPITAL CORPORATION, an Alabama corporation with an
office for the transaction of business located at 67 Wall Street, NY, NY 10005;
109 Danbury Road, Ridgefield, CT 06877; 2112 First Avenue North, Birmingham,
Alabama 35203 (the "Porter Capital").
W I T N E S S E T H
WHEREAS, Porter Capital and Company have this day entered into a commercial
financing agreement and other related documents wherein Porter Capital has
agreed to purchase, at a discount, certain accounts receivables and/or invoices
of the Company under certain terms and conditions (collectively the "Commercial
Financing Agreement"); and WHEREAS, in order to secure the Company's payment of
any sums which may become due under the Commercial Financing Agreement, Company
is granting Porter Capital a security interest in all of its personal property
and assets of any nature, including but not limited to its inventory,
equipment, trade fixtures, good will, and accounts receivables all as more
particularly set forth below; NOW, THEREFORE, it is agreed as follows:
1. GRANTING OF SECURITY INTEREST. To secure the payment of any sums
which have or may become due by the Company to Porter Capital pursuant to the
Commercial Financing Agreement and also to secure any other indebtedness or
liability of the Company to Porter Capital, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, including
all future advances or loans which may be made at the option of Porter
Capital to the Company (hereinafter referred to as "Obligations"), Company
hereby grants and conveys to Porter Capital a security interest in, and
mortgages to Porter Capital the "Property" as defined in paragraph 2 below.
2. "THE PROPERTY". All of the following, whether now existing or
hereafter arising, shall be deemed secured and mortgaged by this Agreement (the
"Property"): (a) all of the Company's accounts, proceeds from accounts,
contract rights, instruments, documents, chattel paper and general intangibles,
as such terms are defined in the Uniform Commercial Code, as enacted in the
State of New York ("UCC"); (b) all forms of obligations owing to the Company,
including but not limited to all tax refunds and tax refund claims, letters of
credit and all proceeds thereof; (c) all guarantees, security, and liens which
the Company may hold for the payment or performance of any item of Property
(including, without limitation, all rights of stoppage in transit, replevin,
and reclamation and as an unpaid vendor or lienor); (d) all rights to goods
represented by any item of Property or the sale of which goods gave rise to any
item of Property including, without limitation, all rights upon return,
replevin, or repossession of such goods, all documents of title, warehouse
receipts, bills of lading, books, records and other documents relating to any
of the Property; (e) the Company's goodwill; (f) all books, records, and lists,
in whatever form maintained; (g) all the Company's inventory, wherever located,
whether in the Company's or some other person's possession, including, without
limitation, all raw materials, supplies work in process, and finished products
manufactured by and/or held for sale or lease or to be furnished in connection
with the Company's business. (h) all equipment (as defined in the UCC), whether
in the Company's or some other person's possession, including, without
limitation, all machinery, accessories, motors, controls, engines, dies, tools,
jigs, benches, tables, computers and data fixtures, and all substitutions,
accretions, replacements, and additions thereto and all other component and
auxiliary parts used in connection therewith or attached thereto; (i) any other
property of the Company of any kind or nature coming into Porter Capital's
actual or constructive possession, custody or control, or in transit to Porter
Capital or his agent for whatever purpose, and all proceeds of any item of
Property and all proceeds of such proceeds (including, without limitation, all
payments under any indemnity, warrant or guaranty payable with respect to the
Property, all awards for taking by eminent domain, and all proceeds of fire or
other insurance.) Permitted liens shall be: (1) for taxes not delinquent or
being contested in good faith and by proper proceedings, as to which adequate
reserves with respect thereto are maintained on the books of such Borrower or
its Subsidiary, as the case may be, in accordance with GAAP; (2) carriers',
warehousemen's, mechanics', materialmen's or similar liens imposed by law
incurred in the ordinary course of business in respect of obligations not
overdue, or if being contested in good faith and by proper proceedings, which
shall be bonded or discharged within thirty (30) days of filing; (3) pledges or
deposits in connection with workers' compensation, unemployment insurance and
other types of social security, if incurred in the ordinary course of business;
(4) security deposits made in the ordinary course of business.
3. REPRESENTATIONS AND WARRANTIES. Company represents and warrants to
Porter Capital as follows:
-12-
<PAGE> 12
SECURITY AGREEMENT
(a) To pay and perform all of the Obligations secured by this
Agreement in accordance with their respective terms.
(b) To defend title to the Property against all persons and against
all claims and demands whatsoever, which Property, except for the security
interest granted hereby, is lawfully owned by the Company and is now free and
clear of any and all liens, security interests, claims, charges, encumbrances,
taxes and assessments except as may be set forth specifically herein.
(c) On demand of Porter Capital to do the following: (i) furnish
further assurances of title; (ii) execute any written agreement or do any other
acts necessary to effectuate the purposes and provisions of this Agreement; and
(iii) execute any instrument or statement required by law or otherwise in order
to perfect, continue or terminate the security interest of Porter Capital in
the Property and pay all costs of filing in connection therewith.
(d) To retain possession of the Property during the existence of this
Agreement and not to sell, exchange, assign, loan, deliver, lease, mortgage or
otherwise dispose of same, other than in the ordinary course of business,
without the written consent of Porter Capital.
(e) To keep the Property at the principal office of the Company and
not to remove the same, except in the ordinary course of business, without the
prior written consent of Porter Capital.
(f) To keep the Property free and clear of all liens, charges,
encumbrances, taxes and assessments.
(g) To pay, when due, all taxes, assessments, and license fees
relating to the Property.
(h) To keep the Property, at the Company's own cost and expense, in
good repair and condition and not to misuse, abuse, waste, or allow to
deteriorate except for normal wear and tear and to make the same available for
inspection by Porter Capital at all reasonable times.
(i) To keep the Property insured against loss by fire (including
extended coverage), theft and other hazards as Porter Capital may require and
to obtain collision insurance if applicable. Policies shall be in such form and
amounts and with such companies as Porter Capital may designate. Policies shall
be obtained from responsible insurers authorized to do business in the state in
which the Property is located. Certificates of insurance or policies, payable
to the respective parties as their interest may appear, shall be deposited with
Porter Capital who is authorized, but under no duty, to obtain such insurance
upon the failure of the Company to do so. Company shall give immediate written
notice to Porter Capital and to insurers of loss or damage to the Property and
shall promptly file proofs of loss with insurers. Company hereby appoints
Porter Capital its attorney-in-fact in obtaining, adjusting and canceling any
such insurance and endorsing settlement drafts and hereby assigns to Porter
Capital all sums which may become payable under such insurance, including
return premiums and dividends, as additional security for the Obligations.
(j) To immediately notify Porter Capital in writing of any change in
or discontinuance of Company's place or places of business and/or residence.
4. EVENTS OF DEFAULT. If any of the following occur ("Event of Default"),
Porter Capital may, but shall not be required to, without presentment or
demand, declare the immediate payment of the Obligations, with all accrued
interest, if any, and all applicable charges due thereunder:
4.1 Company's failure to pay any indebtedness or Obligations to Porter
Capital when due or any other default under the Commercial Financing
Agreement between Porter Capital and the Company;
4.2 Company's breach of any material term, provision, warranty, or
representation under this Agreement, or under any other agreement or
contract between Company and Porter Capital, or Obligation of Company
to Porter Capital;
4.3 Porter Capital shall reasonably believe that Company is failing to
tender all of its Accounts Receivable to Porter Capital for purchase;
or the Company shall have failed to tender Accounts Receivable
aggregating at least twenty percent of the Annual Base Purchase Amount
during any Calendar Quarter; of the Company shall have failed to
tender Accounts Receivable to Porter Capital for purchase for a period
of fifteen or more consecutive business days;
4.4 The Company shall instruct any Customer to mail or deliver payment on
Accounts Receivable to the Company or to any person other than Porter
Capital;
4.5 The appointment of any receiver or trustee for all or a substantial
portion of the assets of Company, the filing of a general assignment
for the benefit of creditors by Company or a volun-
-13-
<PAGE> 13
Security Agreement
tary or involuntary filing under any bankruptcy or similar law
which is not dismissed with prejudice within 60 days;
4.6 The issuance of any levies of attachment, execution, tax
assessments, or similar process against the Accounts Receivable
which is not released within ten days;
4.7 If any financial statements, profits-and-loss statements,
borrowing certificates or schedules, or other statements
furnished by Company to Porter Capital prove false or incorrect
in any material respect.
4.8 Failure of the Company to pay all taxes to every government
agency in a timely manner.
4.9 Any false or misleading representations or warranties made or
given by the Company in connection with this Agreement;
4.10 Upon the non-payment by Company of any charges of rent under the
premises or equipment leases used by the Company to operate its
business, or the failure to comply with any terms of any such
lease, which is not cured within the time and in the manner
provided for in the lease;
4.11 Upon the further surrender, transfer, pledging, assignment, or
granting of a security interest by Company in the Property
without the prior written consent of Porter Capital; or
4.12 Upon the attachment of any further lien on the Property.
5. ACCELERATION. In the event Company shall have failed to cure an
Event of Default within the specified time period and Porter Capital has
declared the Obligations due, interest on the Obligations and any other amounts
due under the Continuing Guaranty or this Agreement shall accrue at the rate of
eighteen percent per annum or the highest legal interest rate, whichever is
greater. This shall not constitute an extension of time for the payment of any
Obligations or other sums due to Porter Capital.
6. REMEDIES. If any Event of Default shall occur, which remains
uncured, Porter Capital, in addition to any other rights and remedies it may
have at law, including those set forth below, and shall have and may exercise
immediately and without demand, any and all rights and remedies granted to a
secured party upon default under the UCC or such other measures as Porter
Capital deems necessary to preserve its security interest in the Property.
(a) If an Event of Default shall occur and the Company elects to
declare the Obligations due and payable in accordance with this Agreement, and
the Company fails to cure its default or pay the Obligations; Porter Capital
may, but shall not be obligated to, sell, assign and deliver the Property at
public or private sale, for cash, upon credit or for future delivery with or
without advertisement of the time, place or terms of sale except that if the
sale be a private sale, ten (10) days notice in writing from Porter Capital of
the time and place of sale and the terms of sale shall be given to the Company.
In case of any sale on credit or for future delivery, the Property sold shall be
retained by Porter Capital until the sale price is paid, but Porter Capital
shall incur no liability if the purchaser fails, to take up and pay for the
Property sold, in which event the Property may again be sold. At any sale,
Porter Capital may purchase the Property sold, free from all right of redemption
of the Company which is hereby waived and released.
(b) In case of any sale, Porter Capital may first deduct all
expenses of collection, sale and delivery of the Property sold and any expenses
incidental thereto, including, but not limited to reasonable attorneys' fees,
brokerage commissions and transfer taxes, and may then apply the residue to any
liability of the Company under the Obligations, and shall return the surplus,
if any, to the Company. Any sale conducted upon the foregoing terms shall be
deemed commercially reasonable.
(c) The Company agrees that Porter Capital shall have the right
to continue to retain the Property until such time that Porter Capital in its
reasonable judgment believes that an advantageous price can be secured for the
Property; Porter Capital shall not be liable to the Company for any loss in the
value of the Property by reason of any such retention of the Property by Porter
Capital. If Porter Capital shall not commence to dispose of the Property within
ninety (90) days after the right to dispose of the Property shall have accrued,
then the Company shall have the right, at any time thereafter, and prior to the
time that Porter Capital shall commence to dispose of the Property to request
of Porter Capital that it dispose of the Property or the Company itself at its
own cost and expense, have the right to dispose of the Property provided,
however, that in the case of the former, Porter Capital shall not be obligated
to dispose of the Property unless the net proceeds to be received therefrom
shall be sufficient to satisfy in full the then obligations of the Company to
Porter Capital, and that in the case of the latter, any disposition of the
Property by the Company must be upon terms and conditions consented to by
Porter Capital, and Porter Capital shall be obligated to give such consent if
the net proceeds
- 14 -
<PAGE> 14
Security Agreement
to be received from such disposition shall be sufficient to satisfy in full the
then Obligations of the Company to Porter Capital.
(d) Porter Capital shall not be liable to the Company for any agents'
or brokers' fees incurred in connection with the sale of the Property.
7. Uniform Commercial Code. The UCC of the State of New York shall govern
the rights, duties and remedies of the parties and any provisions herein
declared invalid under any law shall not invalidate any other provisions of
this Agreement. The Company hereby authorizes Porter Capital or its agents or
assigns to sign and execute on the Company's behalf any and all necessary UCC-1
forms to perfect the Security Agreement interest herein above granted to Porter
Capital.
8. No Offsets. The Company covenants and warrants that it is now the owner
of the Property and that there are no defenses or offsets to this Agreement or
to the Continuing Guaranty which it secures.
9. Attorney-in-Fact. The Company hereby irrevocably appoints Porter
Capital as its attorney-in-fact in connection with the Property and to execute
and file on its behalf any financing statements, or other statements in
connection therewith with the appropriate public office.
10. Joint and Several Liability. In the event this Agreement is executed
by more than one person, firm or corporation, the liability of the "Company"
hereunder shall be joint and several.
11. Reimbursement - The Company agrees that, with or without notice or
demand, it will reimburse Porter Capital, for all costs and expenses
(including, without limitation, reasonable attorney's fees) incurred by Porter
Capital in connection with the collection of the Obligations or any portion
thereof or in any action or proceeding brought by Porter Capital to enforce the
obligations of the Company under this Agreement. Porter Capital shall have the
right but not the obligation to examine the Company's books and records at any
time during reasonable business hours once per quarter, the expense of such
audit to be charged against the Company. In the event of a default under this
agreement, Porter Capital shall have the right to examine the Company's books
once a month and the Company shall pay for this expense.
12. Application of Payments - All moneys available to Porter Capital for
application in payment or reduction of the Obligations may be applied by Porter
Capital in such manner and in such amounts and at such time or times and in
such order, priority and proportions as Porter Capital may see fit to the
payment or reduction of such portion of the Obligations as Porter Capital may
elect.
13. Successors and Assigns - Each reference herein to Porter Capital shall
be deemed to include its successors and assigns, in whose favor the provisions
of this guaranty shall also inure. Each reference herein to the Company shall
be deemed to include the heirs, executors, administrators, legal
representatives, successors and assigns of the Company, all of whom shall be
bound by the provisions of this Agreement, provided, however, that the Company
shall in no event or under any circumstance have the right, without obtaining
the prior written consent of Porter Capital, to assign or transfer the
Company's obligations and liabilities under this Agreement, in whole or in
part, to any other person, party or entity.
14. Non-Waiver - No delay on the part of Porter Capital in exercising any
right or remedy under this Agreement or failure to exercise the same shall
operate as a waiver in whole or in part of any such right or remedy. No notice
to or demand on the Company shall be deemed to be a waiver of the obligation of
the Company or the right of Porter Capital to take further action without
notice or demand as provided in this Agreement.
15. Further Modification - This Agreement may only be modified, amended,
changed or terminated by an agreement in writing signed by Porter Capital and
the Company. No waiver of any term, covenant or provision of this Agreement
shall be effective unless given in writing by Porter Capital and if so given by
Porter Capital shall only be effective in the specific instance in which given.
16. Unconditional Agreement - The Company acknowledges that this Agreement
and the Company's obligations under this Agreement are and shall at all times
continue to be absolute and unconditional in all respects, and shall at all
times be valid and enforceable irrespective of any other agreements or
circumstances of any nature whatsoever which might otherwise constitute a
defense to this Agreement and the obligations of the Company under this
Agreement or the obligations of any other person or party relating to this
Agreement or the obligations of the Company thereunder or otherwise with
respect to the Obligations. This Agreement sets forth the entire agreement and
understanding of Porter Capital and the Company, and the Company absolutely,
unconditionally and irrevocably waives any and all rights to assert any
defense, set-off, counterclaim or cross claim of any nature whatsoever with
respect this Agreement or the obligations of any other person or party
(including, without limitation, Company) relating to this Agreement or the
obligations of the Company hereunder or otherwise with respect to the
Obligations in any action or proceeding brought by Porter Capital to collect the
-15-
<PAGE> 15
SECURITY AGREEMENT
Obligations, or any portion thereof, or to enforce the obligations of the
Company under this Agreement. The Company acknowledges that no oral or other
agreements, understandings, representations or warranties exist with respect to
the obligations of the Company under this Agreement, except those specifically
set forth in this Agreement.
17. NO JURY TRIAL - The Company hereby irrevocably and unconditionally
waives, and Porter Capital by its acceptance of this Agreement irrevocably and
unconditionally waives, any and all right to trial by jury in any action, suit
or counterclaim arising in connection with, out of or otherwise relating to
this Agreement.
18. NO SUBROGATION - Notwithstanding any payments made by the Company
pursuant to the provisions of this Agreement, the Company shall have no right
of subrogation in and to the Commercial Financing Agreement or any other
security held by or available to Porter Capital for the Obligations or the
payment thereof until the Obligations have been paid in full to Porter Capital.
19. ACTIONS AND PROCEEDINGS. Porter Capital may, but shall not be
obligated to appear in and defend any action or proceeding brought with respect
to the Property and to bring any action or proceeding, in the name and on
behalf of Company, which Porter Capital, in its discretion, feels should be
brought to protect its interest in the Property.
20. FURTHER INSTRUMENTS. Company agree that, upon request from time to
time of Porter Capital, it will, at its expense, execute, acknowledge and
deliver all such additional instruments and further assurances and will do or
cause to be done all such further acts and things as may be reasonably necessary
to fully establish, confirm or perfect from time to time the security interest
of Porter Capital in the Property.
21. GOVERNING LAW - This Agreement is, and shall be deemed to be, a
contract entered into under and pursuant to the laws of the State of New York
and shall be in all respects governed, construed, applied and enforced in
accordance with the laws of the State of New York. No defense given or allowed
by the laws of any other state or country shall be interposed in any action or
proceeding hereon unless such defense is also given or allowed by the laws of
the State of New York.
22. JURISDICTION - All of the parties hereto agree to submit to personal
jurisdiction and acknowledge they are doing business in the State of New York
for any action or proceeding arising out of this Agreement and, in furtherance
of such agreement, they hereby agree and consent that without limiting other
methods of obtaining jurisdiction, that personal jurisdiction in any such
action or proceeding may be obtained within or without the jurisdiction of any
court located in New York and that any process or notice or motion or other
application to any such court in connection with any such action or proceeding
may be served by registered or certified mail, return receipt requested, to or
by personal service at their last known address whether such address be within
or without the jurisdiction of any such court.
23. NOTICES - All notices, demands or requests (collectively, "Notice")
made pursuant to, under or by virtue of this Agreement must be in writing and
sent to the party or parties to whom or to which such Notice is being sent, by
certified or registered mail, return receipt requested, reputable overnight
courier or delivered by hand with receipt acknowledged in writing to the
addresses first hereinabove set forth. All notices (a) shall be deemed given
when received in accordance herewith and (b) may be given either by a party or
such party's attorneys.
24. DUPLICATE ORIGINALS - This Agreement may be executed in any number of
duplicate originals and each such duplicate original shall be deemed to
constitute but one and the same instrument.
25. HEADINGS, ETC. - The headings, titles and captions of various
paragraphs of this Agreement are for convenience of reference only and are not
to be construed as defining or limiting, in any way, the scope or intent of the
provisions hereof.
(This part of the page intentionally blank.)
-16-
<PAGE> 16
Security Agreement
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
ABLE LABORATORIES, INC.
By: /s/ Indu Muni
-------------------------------------------
Indu Muni, President, a duly authorized officer
PORTER CAPITAL CORPORATION
By:
--------------------------------------------
Donald Porter, CEO, a duly authorized officer
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 230,488
<SECURITIES> 0
<RECEIVABLES> 3,602,971
<ALLOWANCES> 100,536
<INVENTORY> 7,411,686
<CURRENT-ASSETS> 12,157,238
<PP&E> 3,119,882
<DEPRECIATION> 1,147,252
<TOTAL-ASSETS> 27,085,268
<CURRENT-LIABILITIES> 21,785,395
<BONDS> 0
0
560
<COMMON> 225,276
<OTHER-SE> 3,942,832
<TOTAL-LIABILITY-AND-EQUITY> 27,085,268
<SALES> 13,391,422
<TOTAL-REVENUES> 13,391,787
<CGS> 11,068,500
<TOTAL-COSTS> 16,619,840
<OTHER-EXPENSES> 33,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 679,749
<INCOME-PRETAX> (3,874,593)
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