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: September 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
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Commission File Number 1-11352
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DynaGen, Inc.
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(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 November 9, 1998, there were outstanding 27,500,449 shares of common
stock, $.01 par value per share.
<PAGE>
DYNAGEN, INC.
FORM 10-Q
QUARTERLY REPORT
TABLE OF CONTENTS
Facing Page 1
Table of Contents 2
PART I. FINANCIAL INFORMATION (*)
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Loss 5
Condensed Consolidated Statements of Changes
in Stockholders' Equity 7
Condensed Consolidated Statements of
Cash Flows 8
Notes to Unaudited Condensed Consolidated
Financial Statements 10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 24
PART II. OTHER INFORMATION
Item 2. Changes in Securities 32
Item 3. Defaults Upon Senior Securities 32
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
SIGNATURES 36
(*) 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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DYNAGEN, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
------------- ------------
(As Restated)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 205,426 $ 697,045
Accounts receivable, net of
allowance for doubtful accounts
of $42,793 and $43,118 3,648,701 3,152,779
Rebates 628,172 713,976
Inventory (Note 3) 7,554,576 9,111,324
Notes receivable 360,000 110,000
Prepaid expenses and other
current assets 112,983 147,972
------------- ------------
Total current assets 12,509,858 13,933,096
------------- ------------
Property and equipment, net 1,760,612 1,772,878
------------- ------------
Other assets:
Customer lists, net of accumulated
amortization of $3,488,486 and
$1,361,200 (Note 2) 10,853,132 12,250,800
Goodwill, net of accumulated
amortization of $55,021 and
$22,751 (Note 2) 331,198 363,468
Patents and trademarks, net of
accumulated amortization of
$102,930 and $89,164 272,375 345,381
Deferred debt financing costs,
net of accumulated amortization 341,620 359,621
Deposits and other assets 81,317 322,870
------------- ------------
Total other assets 11,879,642 13,642,140
------------- ------------
$ 26,150,112 $ 29,348,114
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30, December 31,
1998 1997
------------- ------------
(As Restated)
<S> <C> <C>
Current liabilities:
Bank overdraft $ 551,179 $ 142,616
Notes payable (Note 4) 8,815,947 8,348,333
Loan payable - bank 4,385,725 6,584,710
Accounts payable 4,079,900 6,390,421
Accrued payroll and
payroll taxes 244,388 95,312
Acquisition obligation (Note 2) 4,083,000 4,083,000
------------- ------------
Total current liabilities 22,160,139 25,644,392
Warrant put liability 812,680 750,594
Long term debt 578,500 328,500
------------- ------------
Total liabilities 23,551,319 26,723,486
------------- ------------
Stockholders' equity (Notes 1 and 2):
Preferred stock, $.01 par value,
10,000,000 shares authorized,
55,781 and 63,522 shares of
Series A through H outstanding
(liquidation value $5,582,132 and
$6,348,417 respectively) 558 635
Common stock, $.01 par value,
75,000,000 shares authorized,
26,388,260 and 4,315,137 shares
issued and outstanding
respectively 263,883 43,151
Additional paid-in capital 46,851,457 40,122,386
Accumulated deficit (44,517,105) (37,541,544)
------------- ------------
Total stockholders' equity 2,598,793 2,624,628
------------- ------------
$ 26,150,112 $ 29,348,114
============= ------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Product sales $ 20,009,036 $ 7,355,636
Fees and Royalties 553 88,744
------------- -------------
Total revenues 20,009,589 7,444,380
------------- -------------
Costs and expenses:
Cost of sales 17,145,156 7,352,213
Research and development 430,774 2,369,821
Selling, general and
administrative 8,437,873 4,795,008
------------- -------------
Total costs and expenses 26,013,803 14,517,042
------------- -------------
Operating loss (6,004,214) (7,072,662)
------------- -------------
Other income (expense):
Investment income, net 297,894 112,170
Interest expense (902,256) (581,025)
Warrant put expense (62,086) (23,821)
Amortization of debt
financing costs (304,900) (47,366)
------------- -------------
Other income (expense), net (971,348) (540,042)
------------- -------------
Net loss (6,975,561) (7,612,704)
Less, returns to preferred stockholders:
Beneficial conversion feature 570,198 1,432,000
Dividends paid and accrued 126,006 94,000
------------- -------------
Net loss applicable to common stock $ (7,671,765) $ (9,138,704)
============= =============
Net loss per share - basic $ (0.45) $ (2.95)
============= =============
Weighted average shares outstanding 17,023,765 3,095,982
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF LOSS
-----------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Revenues:
Product sales $ 6,617,614 $ 5,571,779
Fees and Royalties 188 38,086
------------- -------------
Total revenues 6,617,802 5,609,865
------------- -------------
Costs and expenses:
Cost of sales 6,076,656 4,644,546
Research and development 110,487 723,143
Selling, general and
administrative 3,206,820 2,546,360
------------- -------------
Total costs and expenses 9,393,963 7,914,049
------------- -------------
Operating loss (2,776,161) (2,304,184)
------------- -------------
Other income (expense):
Investment income, net 143,283 3,136
Interest expense (222,507) (464,538)
Warrant put expense (9,975) (23,821)
Amortization of debt
financing costs (235,609) (28,995)
------------- -------------
Other income, (expense), net (324,808) (514,218)
------------- -------------
Net loss (3,100,969) (2,818,402)
Less, returns to preferred stockholders:
Beneficial conversion feature 245,156 1,229,000
Dividends paid and accrued 28,357 73,000
------------- -------------
Net loss applicable to common stock $ (3,374,482) $ (4,120,402)
============= =============
Net loss per share - basic $ (0.14) $ (1.27)
============= =============
Weighted average shares outstanding 24,589,980 3,246,312
============= =============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1998 and 1997 (Unaudited)
COMMON STOCK PREFERRED STOCK ADDITIONAL
COMPREHENSIVE --------------------- -------------------- PAID-IN
INCOME SHARES AMOUNT SHARES AMOUNT CAPITAL
------------- ---------- ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 - 2,910,623 $ 29,106 - $ - $29,338,794
Shares issued in private
placements - 147,500 1,475 60,950 610 5,838,665
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 - - - - - 728,145
Stock issued for interest
obligation - 3,863 39 - - 49,099
Conversion of note payable - 98,959 990 - - 984,775
Conversion of Preferred
Stock and dividend - 23,249 233 (800) (8) (225)
Net loss $(7,612,704) - - - - -
Decrease in unrealized
gain on investment
securities (1,307) - - - - -
----------- ---------- -------- --------- ---------- -----------
Balance at
September 30, 1997 ($7,614,011) 3,351,011 $ 33,510 60,150 602 $41,939,161
=========== ========== ======== ========= ========== ===========
Balance at December 31, 1997
(As Restated) 4,315,137 $ 43,151 63,522 $ 635 $40,122,386
Stock issued for GDI
acquisition - - 12,000 120 1,199,880
Shares issued in private
placements - - 34,000 340 3,251,698
Stock issued for services 1,562,671 15,626 - - 655,585
Employee stock & stock options
granted for services 300,000 3,000 - - 128,400
Issuance of common stock
purchase warrants - - - - 182,500
Common stock issued
for interest 416,167 4,162 - - 139,528
Conversion of note payable
to preferred stock - - 4,500 45 449,955
Delayed registration
penalty - - - - (175,000)
Conversion of note payable
into common stock 1,798,526 17,986 - - 412,014
Conversion of family loans 1,560,000 15,600 - - 179,400
Conversion of preferred
stock 16,435,759 164,358 (58,241) (582) (163,777)
Adjustment due to change in
ownership of former subsidiary - - - - 468,888
Net loss 6,975,561 - - - - -
----------- ---------- -------- --------- ---------- -----------
Balance at
September 30, 1998 6,975,561 26,388,260 $263,883 55,781 $ 558 $46,851,457
=========== ========== ======== ========= ========== ===========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1998 and 1997 (Unaudited)(Continued)
ACCUMULATED
OTHER
ACCUMULATED COMPREHENSIVE
DEFICIT INCOME TOTAL
------------- ---------- -----------
<S> <C> <C> <C>
Balance at
December 31, 1996 $ (24,315,191) $ 1,307 $ 5,054,016
Shares issued in private
placements - - 5,840,750
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 - - 728,145
Stock issued for interest
obligation - - 49,138
Conversion of note payable - - 985,765
Conversion of Preferred
Stock and dividend -
Net loss (7,612,704) - (7,612,704)
Decrease in unrealized
gain on investment
securities - (1,307) (1,307)
------------ ---------- -----------
Balance at
September 30, 1997 $ (31,927,895) $ - $10,045,378
============= =========== ==========
Balance at December 31, 1997
(As Restated) $ (37,541,544) $ - $ 2,624,628
Stock issued for GDI
acquisition - - 1,200,000
Shares issued in private
placements - - 3,252,038
Stock issued for services - - 671,212
Employee stock & stock options
granted for services - - 131,400
Issuance of common stock
purchase warrants - - 182,500
Common stock issued
for interest - - 143,690
Conversion of note payable
to preferred stock - - 450,000
Delayed registration
penalty - - (175,000)
Conversion of note payable
into common stock - - 430,000
Conversion of family loans - - 195,000
Conversion of preferred
stock - - -
Adjustment due to change in
ownership of former subsidiar 468,888
Net loss (6,975,561) - (6,975,561)
------------- ----------- ----------
Balance at
September 30, 1998 ($44,517,105)$ - $2,598,793
============ =========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
7
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,975,561) $ (7,612,704)
Adjustments to reconcile
net loss to net cash used for
operating activities:
Employee stock and stock
option grants 131,400 -
Depreciation and amortization 2,346,105 549,195
Stock options and warrants issued
for services 853,712 728,145
Amortization and accretion
of (discounts) premiums on
investment securities - (10,152)
Stock issued for
interest obligation 143,690 49,138
Write-off of patent costs 97,076 -
(Increase) decrease in operating assets:
Accounts receivable 259,332 (390,132)
Rebates 85,804 112,982
Inventory 2,608,532 (358,105)
Prepaid expenses and
other current assets 157,969 -
Deposits and other assets 226,944 (128,876)
Notes receivable (250,000) -
Increase (decrease) in operating liabilities:
Accounts payable and
accrued expenses (2,636,119) 2,315,208
------------- -------------
Net cash used for
operating activities (2,951,116) (4,745,301)
------------- -------------
Cash flows from investing activities:
Acquisition of Superior - (6,878,463)
Acquisition of GDI (756,406) -
Purchase of investment securities - (1,186,455)
Proceeds from sales and maturities
of investment securities - 4,200,000
Purchase of property and equipment 38,673 (783,268)
Increase in deposits - (200,000)
Increase in deferred financing and
acquisition costs (50,000) -
------------- -------------
Net cash provided (used) by
investing activities (767,733) (4,848,186)
------------- -------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
8
<PAGE>
DYNAGEN, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
-----------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds on exercise of stock
warrants and options $ - $ 1,125
Net proceeds from issuance of
common stock and warrants - 854,250
Net proceeds from preferred stock 3,252,038 5,790,052
Proceeds from bank loan 1,214,280 -
Net proceeds from private
debt placements 1,200,000 2,696,898
Increase in deferred
financing costs - (419,002)
Net repayments of loan
payable-bank (2,430,984) (1,837,833)
Repayments of long-term debt (416,667) (416,667)
Increase in bank overdraft 408,563 844,509
------------ -------------
Net cash provided by
financing activities 3,227,230 7,513,332
------------ -------------
Net change in cash and cash equivalents (491,619) (2,080,155)
Cash and cash equivalents,
beginning of period 697,045 2,112,300
------------ -------------
Cash and cash equivalents,
end of period $ 205,426 $ 32,145
============ =============
Supplemental cash flow information:
Conversion of preferred stock
into common stock $ 164,358 $ 2,325
Common stock issued for
convertible note payable $ 430,000 $ 1,065,000
Conversion of related party loans $ 195,000 -
Conversion of note payable
to preferred stock $ 450,000 -
Debt issued for delayed
registration penalty $ 262,500
Interest paid $ 633,013 $ 549,527
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)
Common stock issued (5,000,000)
Note payable issued (5,000,000)
Liabilities assumed (8,263,477)
-------------
Goodwill and customer list (exclusive of
other acquisition cost of $694,890.00) $ 13,599,644
=============
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
=============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
9
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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
10
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
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.
FINANCIAL STATEMENT RESTATEMENT
-------------------------------
The accompanying financial statements have been restated from those
originally issued to reflect a change in accounting for the February 1996
issuance of a convertible note, as described in Note 6 to the December 31, 1997
financial statements. The convertible note could be converted at a discount to
the traded market price of the common stock into which the securities are
convertible. At the date of issuance, the company did not allocate any portion
of the proceeds received to the beneficial discount.
Subsequently, the Securities and Exchange Commission announced its
position that a beneficial conversion discount on convertible notes should be
computed based on the quoted market value of the Company's Common Stock and this
amount should be recognized as additional interest expense and an addition to
paid-in capital.
The Company estimated the amount of the beneficial conversion discount
at the date of issuance to be $985,000 and the financial statements have been
restated to comply with the accounting treatment described above. A summary of
the impact of the restatement on the Company's financial statements follows:
Period As Reported As Restated
- ------ ----------- -----------
December 31, 1997:
Additional paid-in capital $ 39,137,311 $ 40,122,386
Accumulated deficit $(36,556,469) $(37,541,544)
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
----------------
11
<PAGE>
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
susceptible to
12
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
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
13
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
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.
For the three and nine months ended September 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
nine monthes ended September 30, 1997. There is no other comprehensive income
for the nine months ended September 30, 1998.
14
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 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 it'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
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.
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
15
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
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 $2,041,800 for the nine months ended
September 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 nine months ended September 30, 1998 was $19,362.
GENERIC DISTRIBUTORS, INC.
--------------------------
On March 2, 1998, the Company through its subsidiary, Generic
Distributions, 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
16
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
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 $85,486 for the nine months ended September 30,
1998.
Unaudited proforma 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:
Nine Months Ended
-----------------
September 30, 1998 September 30, 1997
------------------ ------------------
Revenues $21,903,312 $25,010,420
Net loss (7,562,796) (10,259,021)
Net loss per share (0.44) (3.32)
Three Months Ended
------------------
September 30, 1998 September 30, 1997
------------------ ------------------
Revenues $ 7,330,802 $ 7,905,244
Net loss (3,274,585) (4,505,311)
Net loss per share (0.13) (1.45)
The unaudited proforma 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.
3. INVENTORY
Inventory consists of the following:
September 30, December 31,
------------- ------------
1998 1997
---- ----
Raw materials $ 453,893 $ 311,166
Work-in-progress 224,870 136,240
Finished goods 6,875,813 8,663,918
---------- ----------
$7,554,576 $9,111,324
========== ==========
17
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
4. DEBT
Notes payable consist of the following:
September 30, December 31,
------------- ------------
1998 1997
---- ----
Convertible note payable $ 535,000 $ 535,000
Bridge loans 300,000 630,000
Notes payable - Superior
acquisition 3,766,667 4,183,333
Secured debt - Fleet Bank 1,214,280 -
Senior subordinated debt 3,000,000 3,000,000
---------- ----------
$8,815,947 $8,348,333
5. SUBSEQUENT EVENTS
In October 1998, the Company, through its Able Laboratories, Inc.
subsidiary (Able), refinanced its existing short-term financing agreement with
Porter Capital with a short-term financing agreement with K&L Financial, Inc.
(K&L) whereby Able will finance its outstanding accounts receivable through K&L.
K&L will advance funds equal to 80% of invoice value upon receipt of invoices
from Able. Upon payment in full from Able's customers, K&L will remit the
balance due Able less K&L's net charge of 1% per each 10 days outstanding. K&L
has the right to reject any or all accounts receivable tendered from Able. No
assurance can be given that K&L will accept any or all of Able's outstanding
accounts receivable. The term of this agreement is twelve months.
In October, 1998, the Company, through its Able Laboratories, Inc.
subsidiary (Able), refinanced its existing machinery & equipment financing
agreement with Porter Capital with a machinery & equipment financing agreement
with Triple L, Ltd. (Triple L). Net proceeds from this refinancing totalled
$303,500.
In November 1998, the Company's Executive Vice President, who is also a
director, invested $50,000 in the Company and purchased shares of BioTrack, Inc.
owned by the Company. Also, in connection with the subordinated loan of $150,000
by the spouse of the Chief Executive Officer and Chairman of the Company, the
Company transferred shares of BioTrack, Inc. to the investor.
18
<PAGE>
On November 5, 1998, the Company accepted the resignation of Indu A.
Muni, Ph.D. as President, Chief Executive Officer, Treasurer and Director. On
November 6, 1998, Mr. C. Robert Cusick, who had been serving since May 1998 as
Chairman of the board of directors, was appointed Chief Executive Officer of the
Company.
19
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
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., 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.
SPECIAL CONSIDERATIONS
During the nine months ended September 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:
20
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
FINANCIAL CONDITION OF THE COMPANY
- ----------------------------------
For the three months ended September 30, 1998, the Company incurred net
losses of approximately $3,100,969. As of September 30, 1998, the Company had
approximately $205,426 in cash and cash equivalents and a net worth of
$2,598,993. The Company's current liabilities, as of such date, aggregated
$22,160,139. 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.
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. 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 COMMON STOCK DELISTED FROM NASDAQ STOCK MARKET
- --------------------------------------------------------
On October 7, 1998 the Company was informed by the NASDAQ Stock Market
that the Company's Common Stock does not meet the applicable listing requirement
and is therefore delisted as of the end of the day. The Company continues to
trade on the Boston Stock Exchange and the OTC Bulletin Board. The delisting
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.
ADVERSE CONSEQUENCES ASSOCIATED WITH THE OBLIGATION TO ISSUE A
- --------------------------------------------------------------
SUBSTANTIAL NUMBER OF SHARES OF COMMON STOCK UPON CONVERSION OF
- ---------------------------------------------------------------
CONVERTIBLE SECURITIES
- ----------------------
21
<PAGE>
The Company is obligated to issue a substantial number of shares of
Common Stock upon the conversion or exercise of its
22
<PAGE>
DYNAGEN, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS - Continued
September 30, 1998
-------------------------------------------------------------
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.
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.
23
<PAGE>
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
OVERVIEW
The Company develops and markets generic and specialty products. The
Company has changed its focus from being a development and licensing company 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, 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
("GDI").
The Company has financed its operations primarily through the proceeds
from its public and private stock offerings, a convertible note, 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 September 30, 1998 as Compared With the
- ----------------------------------------------------------------
Three Month Period Ended September 30, 1997
- -------------------------------------------
Revenues for the three month period ended September 30, 1998 were
$6,617,802 versus $5,609,865 for the period ended September 30, 1997. The
increase of $1,007,937 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).
24
<PAGE>
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
Cost of product sales was $6,076,656, or 92% of product sales for the
three-month period ended September 30, 1998 compared to $4,644,546, or 83% of
product sales for the three month period ended September 30, 1997 due to
increased sales of the newly acquired subsidiary, GDI.
Research and development expenses for the three month period ended
September 30, 1998 were $110,487 versus $723,143 for the three month period
ended September 30, 1997. 1997 R&D expenses were primarily the result of the
NicErase(R)-SL Phase 3 clinical trials, now concluded, 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 three month period
ended September 30, 1998 were $3,206,820 versus $2,546,360 for the three month
ended September 30, 1997. The increase is primarily due to GDI's selling,
general and administrative expenses.
Investment income was $143,283 for the three months ended September 30,
1998 as compared to $3,136 for the three month period ended September 30, 1997.
The increase is due to forgiveness of debt. Interest and financing expenses of
$468,091 for the three month period ended September 30, 1998, compared to
$517,354 for the three month period ended September 30, 1997, relate primarily
to private placements of equity as well as private debt financing for the
Superior and GDI acquisitions.
Nine Month Period Ended September 30, 1998 as Compared With the
- ---------------------------------------------------------------
Nine Month Period Ended September 30, 1997
- ------------------------------------------
Revenues for the nine month period ended September 30, 1998 were
$20,009,589 versus $7,444,380 for the period ended September 30, 1997. The
increase of $12,565,209 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 $17,145,156, or 86% of product sales for the
nine month period ended September 30, 1998 compared to $7,352,213, or 99% of
product sales.
25
<PAGE>
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
Research and development expenses for the nine month period ended
September 30, 1998 were $430,774 versus $2,369,821 for the nine month period
ended September 30, 1997. 1997 R&D expenses were primarily the result of the
NicErase(R)-SL Phase 3 clinical trials, now concluded, 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 nine month period
ended September 30, 1998 were $8,437,873 versus $4,795,008 for the nine months
ended September 30, 1997. The $3,642,865 increase is primarily due to Superior's
selling, general and administrative expenses of $3,150,000.
Investment income was $297,894 for the nine months ended September 30,
1998 as compared to $112,170 for the nine month period ended September 30, 1997
primarily due to the sale of BioTrack stock. Interest and financing expenses of
$1,269,242 for the nine month period ended September 30, 1998, compared to
$652,212 for the nine month period ended September 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
As of September 30, 1998, the Company had a working capital deficit of
$9,650,281, compared to working capital deficit of $11,711,296 at December 31,
1997. Cash was $205,426 at September 30, 1998 compared to $697,045 at December
31, 1997. Working capital was used primarily to fund the Company's operating
losses, including approximately $1,660,000 of operating losses of its Able
subsidiary. The Company expects its cash needs for the next 12 months to be
approximately $6,000,000. Of this amount, approximately $2,000,000 is expected
to be general and administrative and approximately $4,000,000 is expected to be
for working capital. The Company expects to generate the needed cash through
additional financing activities.
In June 1997, the Company completed the acquisition of Superior
Pharmaceutical Company, of Cincinnati, OH, 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
26
<PAGE>
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
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, OH.
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 $3,800,000, 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 continues to operate its Able Laboratories, Inc.
manufacturing facility for manufacture and distribution of generic drugs. Able
has a working capital deficit and management expects Able will require
27
<PAGE>
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
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.
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 November 9, 1998, there were
27,500,449 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 8,000 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.
28
<PAGE>
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
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
so-called "grandfathered" products are expected to generate revenues by June
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 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 October 31, 1998,
the Company raised $2,000,000 through the sale of convertible preferred stock,
$450,000 in Limited Recourse Notes, and $700,000 through factoring and leasing
arrangements.
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 its
creditors and the
29
<PAGE>
limited internal R&D program at Able.
30
<PAGE>
DYNAGEN, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
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.
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 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.
31
<PAGE>
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
Item 2. Changes in Securities
---------------------
a. Not applicable.
b. Not applicable.
c. Sales of Unregistered Securities - In the three
months ended September 30, 1998 the Company sold the
following securities:
On July 22, 1998, the Company sold 4,750 shares of
Series H Convertible Preferred Stock to an
unafilliated accredited investor in a private
placement. The Company received aggregate proceeds
of $475,000 from the sale.
On August 26, 1998, the Company issued a Warrant to
purchase 150,000 shares of Common Stock to Michael
Sorrell, a former director of the Company, in
consideration for service provided. This Warrant is
exercisable at $0.50 per share.
On August 1, 1998 the Company issued a Warrant to
purchase 200,000 shares of the Company's Common Stock
to Fortress Financial for $0.15 per share, in
consideration of investment banking services
provided.
On August 18, 1998 the Company issued a Warrant to
purchase 37,500 shares of the Company's Common Stock
to Carolyn Cusick in connection with her loan to the
Company. This Warrant is exercisable at $0.40 per
share.
On August 18, 1998 the Company issued a Warrant to
purchase 37,500 shares of the Company's Common Stock
to Porter Capital Corporation in connection with a
loan to the Company. This Warrant is exercisable at
$0.40 per share.
On September 29, 1998, the Company issued a 7%
Convertible Debenture in the principal amount of
$250,000 to a private investor. The Company received
aggregate proceeds of $250,000 from the sale. The
debenture may be converted into common stock or, at
the option of the investor, repaid through the
proceeds of future financing.
The foregoing transactions were effected by the
Company in reliance upon the exemption from a registration
under the Securities Act provided by Section 4(2) thereof.
Item 3. Defaults
--------
The Company has incurred recurring losses from operations
resulting in an accumulated deficit of $44,517,105 and a
working capital deficiency of $9,650,281 at September 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:
32
<PAGE>
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
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 has been charged to expense at March 31, 1998. (See Note
6.)
Superior Pharmaceutical Company - The Company acquired
Superior on June 18, 1997 for $16,500,000. The purchase price
was paid as follows: $6,500,000 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 was 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 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 equal to or greater than $1.50. Any difference
between the value of
33
<PAGE>
DYNAGEN, INC.
PART II. OTHER INFORMATION
-------------------------------------------------------------
the stock received and the $5,000,000 guaranteed value has to
be paid in cash. The common stock price did not reach the
specified level of $1.50 by June 18, 1998. Accordingly, the
Company has accrued a current liability to the former Superior
stockholders in the amount of $4,083,333 at March 31, 1998 and
reduced the amount originally added to additional paid-in
capital at the time of acquisition.
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 a payment of
$4,200,000, which represents the remaining amount due on the
original selling shareholder notes. 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
On November 5, 1998, the Company accepted the resignation of
Indu A. Muni, Ph.D. as President, Chief Executive Officer,
Treasurer and Director. On November 6, 1998, Mr. C. Robert
Cusick, who had been serving since May 1998 as Chairman of the
board of directors, was appointed Chief Executive Officer of
the Company.
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
- --- ----------------------
3a Restated Certificate of Incorporation (filed as Exhibit 3a to the
Company's Report on Form 10-Q for the Quarter ended June 30, 1998, as
amended, and incorporated herein by reference).
3b By-laws, as amended (filed as Exhibit 3b to Registrant's
Registration Statement on Form S-1, No. 33-46445, and
incorporated by reference).
34
<PAGE>
4a Warrant dated August 26, 1998 in the name of Michael Sorrell to
purchase 150,000 shares of Common Stock.
4b Warranted dated August 1, 1998 in the name of Fortress Financial to
purchase 200,000 shares of Common Stock.
4c Warrant dated August 18, 1998 in the name of Carolyn Cusick to purchase
37,500 shares of Common Stock.
4d Warrant dated August 18, 1998 in the name of Porter Capital Corporation
to purchase 37,500 shares of Common Stock.
4e $250,000 7% Convertible Debenture in the name of Sovereign Partners
dated September 29, 1998.
10a Factoring Agreement dated October 2, 1998 with K & L Financial, Inc.
10b Asset Purchase Agreement and exhibits thereto dated October 2, 1998
with Triple L, Ltd.
27 Financial Data Schedules (filed in electronic form only)
(b) Reports on Form 8-K:
None.
35
<PAGE>
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/ Dhananjay G. Wadekar
--------------------------------
Dhananjay G. Wadekar
Executive Vice President
Date: November 14, 1998
36
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
3a Restated Certificate of Incorporation (filed as Exhibit 3a to the
Company's Report on Form 10-Q for the Quarter ended June 30, 1998, as
amended, and incorporated herein by reference).
3b By-laws, as amended (filed as Exhibit 3b to Registrant's
Registration Statement on Form S-1, No. 33-46445, and
incorporated by reference).
4a Warrant dated August 26, 1998 in the name of Michael Sorrell to
purchase 150,000 shares of Common Stock.
4b Warranted dated August 1, 1998 in the name of Fortress Financial to
purchase 200,000 shares of Common Stock.
4c Warrant dated August 18, 1998 in the name of Carolyn Cusick to purchase
37,500 shares of Common Stock.
4d Warrant dated August 18, 1998 in the name of Porter Capital Corporation
to purchase 37,500 shares of Common Stock.
4e $250,000 7% Convertible Debenture in the name of Sovereign Partners
dated September 29, 1998.
10a Factoring Agreement dated October 2, 1998 with K & L Financial, Inc.
10b Asset Purchase Agreement and exhibits thereto dated October 2, 1998
with Triple L, Ltd.
27 Financial Data Schedules (filed in electronic form only)
37
EXHIBIT 4a
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 December 31, 1999.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Massachusetts corporation (the "Company"),
hereby certifies that Michael Sorrell, or his permitted assigns, is entitled to
purchase from the Company, at any time or from time to time commencing on August
26, 1998 and prior to 5:00 P.M., Eastern Standard Time, on December 31, 1999, a
total of One 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 $0.50 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 August 26, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on December 31, 1999, 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 is entitled to receive a new Warrant
covering the number of Warrant Shares in
<PAGE>
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 December 31, 1999.
(b) Net Issuance. Notwithstanding anything to the contrary contained in
Subsection 1(a) hereof, in the case of any exercise on or prior to December 31,
1999 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>
(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>
"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>
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,
Massachusetts 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,
One Post Office Square, Boston, Massachusetts 021 10, or
5
<PAGE>
(b) the Holder at 115 East 92nd Street, New York, New York
10128, 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 Executive Vice President this 26th day of August, 1998.
DYNAGEN, INC.
By:________________________________
6
<PAGE>
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:_________________________________
<PAGE>
Address:___________________________
___________________________
___________________________
7
<PAGE>
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
EXHIBIT 4.b
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 December 31, 1998.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Delaware corporation (the "Company"),
hereby certifies that Fortress Financial, or its permitted assigns, is entitled
to purchase from the Company, at any time or from time to time commencing on
August 1, 1998 and prior to 5:00 P.M., Eastern Standard Time, on December 31,
1998, a total of Two Hundred Thousand (200,000) fully paid and nonassessable
shares of the common stock, par value $.01 per share, of the Company for an
aggregate purchase price of $0.15 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 August 21, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on December 31, 1998, 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 Section 7(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 is entitled to receive a new Warrant
covering the number of Warrant Shares in respect of
<PAGE>
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 December 31,
1998 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>
(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>
"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>
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 02109, or
5
<PAGE>
(b) the Holder at__________________________________, 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 1st day of August,
1998.
ATTEST: DYNAGEN, INC.
By: /s/ Dhananjay Wadekar
------------------------
[Corporate Seal]
6
<PAGE>
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:_________________________
Address:___________________________
___________________________
___________________________
7
<PAGE>
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
EXHIBIT 4.c
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 August 18, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Massachusetts corporation (the "Company"),
hereby certifies that Carolyn Cusick, or her permitted assigns, is entitled to
purchase from the Company, at any time or from time to time commencing on August
18, 1998 and prior to 5:00 P.M., Eastern Standard Time, on August 18, 2001, a
total of Thirty-Seven Thousand Five Hundred (37,500) fully paid and
nonassessable shares of the common stock, par value $.01 per share, of the
Company for an aggregate purchase price of $0.40 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 August 18, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on August 18, 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 is entitled to receive a new Warrant
covering the number of Warrant Shares in
<PAGE>
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 August 18,
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>
(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 "Securities Act"), or under any state
securities laws and unless so registered may not be
3
<PAGE>
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. The Company agrees that, at any time beginning after the date that
is six months from the date of this Warrant's issuance, upon the written request
of the Holder and if and to the extent that the Warrant or the Warrant Shares
are not then transferable pursuant to one or more of the foregoing conditions,
the Company will use commercially reasonable efforts at the Company's expense to
include the Warrant Shares on any registration statement it files under the
Securities Act to register any shares of Common Stock.
(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 4, 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 material inaccuracy of any
representation or the material breach of any warranty of the Holder contained
in, or any other material 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 materially untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations
4
<PAGE>
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. Upon surrender of this Warrant to the Company,
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:
5
<PAGE>
(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, Esq., Foley, Hoag & Eliot LLP, One Post Office
Square, Boston, Massachusetts 02109, or
(b) the Holder at 1100 Lancaster Street, Pittsburgh, PA 15218,
or such other address as the Holder has designated in writing to the Company,
with a copy to Richard C. Agins, Esq., Agins, Siegel & Reiner, LLP, 342 Madison
Avenue, New York, NY 10173.
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. Reorganization, etc. If the Company is a party to a reorganization
or merger with one or more other corporations, whether or not the Company is the
surviving corporation, or if the Company consolidates with or into one or more
other corporations, or if the Company is liquidated or sells or otherwise
disposes of substantially all of its assets to another corporation (each
hereinafter referred to as a "Transaction"), in any such event while this
Warrant remains outstanding, then after the effective date of such Transaction,
the unexercised portion of this Warrant shall remain outstanding, and lawful and
adequate provision shall be made whereby the Holder shall thereafter have the
right to purchase and receive, upon the basis and upon the terms and conditions
herein specified and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of this Warrant had such
Transaction not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provisions for adjustments to
the Warrant Purchase Price and of the number of shares purchasable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly as may be
practicable, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
10. 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.
* * *
6
<PAGE>
IN WITNESS WHEREOF, DYNAGEN, INC. has caused this Warrant to be signed
by its Executive Vice President Officer and its corporate seal to be hereunto
affixed and attested by its Secretary this 18th day of August 1998.
ATTEST: DYNAGEN, INC.
_______________________ By: _____________________________
Dhananjay G. Wadekar
Executive Vice President
7
<PAGE>
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:_________________________
Address:___________________________
___________________________
8
<PAGE>
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:___________________________
___________________________
9
EXHIBIT 4.d
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 August 18, 2001.
WARRANT TO PURCHASE COMMON STOCK
OF
DYNAGEN, INC.
FOR VALUE RECEIVED, DYNAGEN, INC., a Massachusetts corporation (the "Company"),
hereby certifies that Porter Capital Corporation, or its permitted assigns, is
entitled to purchase from the Company, at any time or from time to time
commencing on August 18, 1998 and prior to 5:00 P.M., Eastern Standard Time, on
August 18, 2001, a total of Thirty-Seven Thousand Five Hundred (37,500) fully
paid and nonassessable shares of the common stock, par value $.01 per share, of
the Company for an aggregate purchase price of $0.40 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 August 18, 1998 and prior to 5:00 P.M.,
Eastern Standard Time on August 18, 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 is entitled to receive a new Warrant
covering the number of Warrant Shares in
<PAGE>
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 August 18,
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>
(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 "Securities Act"), or under any state
securities laws and unless so registered may not be
3
<PAGE>
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. The Company agrees that, at any time beginning after the date that
is six months from the date of this Warrant's issuance, upon the written request
of the Holder and if and to the extent that the Warrant or the Warrant Shares
are not then transferable pursuant to one or more of the foregoing conditions,
the Company will use commercially reasonable efforts at the Company's expense to
include the Warrant Shares on any registration statement it files under the
Securities Act to register any shares of Common Stock.
(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 4, 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 material inaccuracy of any
representation or the material breach of any warranty of the Holder contained
in, or any other material 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 materially untrue statement or omission to state
any material fact in connection with the investment representations or with
respect to the facts and representations
4
<PAGE>
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. Upon surrender of this Warrant to the Company,
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:
5
<PAGE>
(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, Esq., Foley, Hoag & Eliot, One Post Office Square,
Boston, Massachusetts 021 10, or
(b) the Holder at 109 Danbury Road, Ridgefield, CT 06877, or
such other address as the Holder has designated in writing to the Company, with
a copy to Richard C. Agins, Esq., Agins, Siegel & Reiner, LLP, 342 Madison
Avenue, New York, NY 10173.
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. Reorganization, etc. If the Company is a party to a reorganization
or merger with one or more other corporations, whether or not the Company is the
surviving corporation, or if the Company consolidates with or into one or more
other corporations, or if the Company is liquidated or sells or otherwise
disposes of substantially all of its assets to another corporation (each
hereinafter referred to as a "Transaction"), in any such event while this
Warrant remains outstanding, then after the effective date of such Transaction,
the unexercised portion of this Warrant shall remain outstanding, and lawful and
adequate provision shall be made whereby the Holder shall thereafter have the
right to purchase and receive, upon the basis and upon the terms and conditions
herein specified and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon exercise of this
Warrant, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of this Warrant had such
Transaction not taken place, and in any such case appropriate provision shall be
made with respect to the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provisions for adjustments to
the Warrant Purchase Price and of the number of shares purchasable upon the
exercise of this Warrant) shall thereafter be applicable, as nearly as may be
practicable, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise hereof.
10. 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.
6
<PAGE>
IN WITNESS WHEREOF, DYNAGEN, INC. has caused this Warrant to be signed
by its Executive Vice President Officer and its corporate seal to be hereunto
affixed and attested by its Secretary this 18th day of August 1998.
ATTEST: DYNAGEN, INC.
_______________________ By: _____________________________
Dhananjay G. Wadekar
Executive Vice President
7
<PAGE>
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:_________________________
Address:___________________________
___________________________
8
<PAGE>
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:___________________________
___________________________
9
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID
ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION
FROM SUCH REGISTRATION REQUIREMENTS.
7% CONVERTIBLE DEBENTURE DUE DECEMBER 31, 1998
THIS 7% CONVERTIBLE DEBENTURE ("Debenture") is issued by DynaGen,
Inc.,a corporation duly organized and existing under the laws of the State of
Delaware and having its principal address at 840 Memorial Drive, Cambridge,
Massachusetts 02139 (the "Company").
FOR VALUE RECEIVED, the Company promises to permit Sovereign Partners,
having an address at Executive Pavilion, 90 Grove Street, Richfield, Connecticut
06877, the holder hereof, or its order (the "Holder"), to convert in accordance
with Section 6 hereof the principal sum of Two Hundred and Fifty Thousand United
States Dollars (U.S. $250,000) on December 31, 1998 (the "Maturity Date")
together with interest on the principal sum outstanding under this Debenture, at
the rate of 7% per annum due on or after the Maturity Date unless this Debenture
is prepaid in accordance with Section 4 or converted in accordance with Section
4. Interest shall be calculated based on a 360 day year of twelve equal months.
Accrual of interest shall commence on the date hereof and shall continue until
payment in full of the principal sum has been made. This Debenture is
subordinate to all secured indebtedness of the Company.
This Debenture is subject to the following additional provisions:
1. Exchange. The Debenture is exchangeable for an equal aggregate
principal amount of Debentures of different denominations, of not less than
$50,000 (or the total principal amount, if less than $50,000) each as requested
by the Holder surrendering the same. No service charge will be made for such
exchange.
2. Transfers. This Debenture may be transferred or exchanged in the
United States only in compliance with the Securities Act of 1933, as amended
(the "Securities Act"), and applicable state securities laws and in accordance
with other applicable provisions hereof. Prior to due presentment for transfer
of this Debenture, the Company may treat the person in whose name this Debenture
is duly registered as the owner hereof for the purpose of receiving payment as
herein provided and all other purposes, whether or not this Debenture is then
overdue, and the Company shall not be affected by notice to the contrary.
<PAGE>
3. Definitions. For purposes hereof, the following terms shall have the
following meanings:
"Closing Date" shall mean the date of original issuance of
this Debenture.
"Common Stock" shall mean the Common Stock, par value $.01 per
share, of the Company.
"Conversion Date" shall have the meaning set forth in
Paragraph 4(c)(i).
"Conversion Date Market Price" shall mean, at any Conversion
Date eighty percent (80%) of the average Market Price for Shares of Common Stock
for the five trading days immediately preceding the Conversion Date.
"Conversion Notice" shall have the meaning set forth in
Section 6(c).
"Conversion Rate" shall have the meaning set forth in Section
6(b).
"Event of Default" shall have the meaning set forth in Section
16.
"Market Price for Shares of Common Stock" shall mean the price
of one share of Common Stock determined as follows:
(i) If the Common Stock is listed on the Nasdaq
SmallCap Market, the closing bid price on the date of valuation, as reported by
Bloomberg Financial Markets; or
(ii) If the Common Stock is listed on any other
national securities exchange, the closing bid price on the date of valuation, as
reported by Bloomberg Financial Markets; or
(iii) If neither (i) nor (ii) apply, but the Common
Stock is quoted in the over- the-counter market on the pink sheets or bulletin
board, the lowest sales price on the date of valuation, as reported by Bloomberg
Financial Markets; or
(iv) If neither clause (i), (ii) or (iii) above
applies, the market value as determined by an independent nationally recognized
investment banking firm or financial advisor retained in good faith by the
Company for such purpose, taking into consideration, among other factors, the
earnings history, book value and prospects for the Company, and the prices at
which shares of Common Stock recently have been traded. Such determination shall
be conclusive and binding on all persons.
"Outstanding Amount" shall mean the principal sum outstanding
under this Debenture and all accrued but unpaid interest thereon.
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<PAGE>
4. Prepayment. This Debenture is prepayable in whole or in part in the
sole discretion of the Company by payment to the Holder an amount equal to 125%
of the principal amount to be repaid together with all interest accrued and
unpaid thereon.
5. Conversion into BioTrack, Inc. Common Stock. In the event that this
Debenture is not prepaid in full on or before the Maturity Date, the Holder may,
at the Holder's sole discretion, convert all or any part of the outstanding
principal amount of this Debenture together with interest accrued and unpaid
thereon into shares of common stock, $.01 par value per share, of BioTrack, Inc.
("BioTrack Stock") at a value of$1.00 per share of BioTrack Stock. Such right to
convert into BioTrack Stock shall continue until this Debenture is paid in full
or converted into DynaGen Common Stock in accordance with Section 5 hereof.
BioTrack, Inc. has executed this Debenture to indicate that it is bound by the
provisions of this Section 5.
6. Conversion. This Debenture is subject to conversion as follows:
(a) (i) Holder's Right to Convert. This Debenture shall be
convertible at any time and from time to time commencing with the Maturity Date
and until paid in full, in whole or in part, at the option of the Holder hereof,
into fully paid, validly issued and nonassessable shares of Common Stock;
provided, that, in any 14 calendar day period commencing on such 90th day after
the Closing Date and thereafter, the Holder (or Holders collectively, of this
Debenture shall have been divided into more than one Debenture) hereof may
convert no more than one-fifth of the original principal amount of the
Debenture. The foregoing conversion restrictions shall immediately terminate,
and the Holder shall be permitted to convert all or any part of this Debenture
without regard to the conversion restrictions, upon the occurrence of any Event
of Default, or upon the commencement by any person (other than the Holder) of
any tender offer for shares of Common Stock.
(ii) Accrued But Unpaid Interest. Notwithstanding
anything in this Debenture to the contrary, the Outstanding Amount of this
Debenture on any Conversion Date shall include, without limitation, all accrued
but unpaid interest under this Debenture through such date.
(b) Conversion Price for Converted Shares. The Outstanding
Amount of this Debenture that is converted into shares of Common Stock shall be
convertible into the number of shares of Common Stock determined in accordance
with the following formula:
P + I
--------------------------------------
Conversion Date Market Price
P = principal amount of this Debenture submitted for
conversion
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<PAGE>
I = accrued but unpaid interest on the principal amount of
this Debenture submitted for conversion plus any unpaid
charges or amounts through the Conversion Date.
The number of shares of Common Stock into which the Outstanding Amount
of this Debenture may be converted pursuant to this paragraph is hereafter
referred to as the "Conversion Rate."
(c) (i) Mechanics of Conversion. In order to convert this
Debenture (in whole or in part) into full shares of Common Stock, the Holder
shall surrender this Debenture, duly endorsed, by either overnight courier or
two-day courier, to the Company, and, in case of any conversion pursuant to
Section 6(a)(i), shall give written notice (the "Conversion Notice") by
facsimile (with the original of such notice forwarded with the foregoing
courier) to the Company that the Holder elects to convert all or the portion of
the Outstanding Amount of this Debenture specified therein, which notice and
election shall be irrevocable by the Holder, provided, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion unless this Debenture with evidence of the
principal amount hereof to be converted is delivered to the Company as provided
above, or the Holder notifies the Company that this Debenture has been lost,
stolen or destroyed and promptly executes an agreement reasonably satisfactory
to the Company to indemnify the Company from any loss which may be incurred by
it in connection with this Debenture. The date on which a Conversion Notice is
given (the "Conversion Date") shall be deemed to be the date the Company
received by facsimile the Conversion Notice, as evidenced by a printed
confirmation of receipt received by the Holder. Upon receipt of any Conversion
Notice, the Company shall immediately verify the Holder's calculation of the
Conversion Rate.
(ii) Issuance of Certificates. In the case of any
Conversion Notice given by the Holder, the Company shall use its best efforts to
cause the transfer agent for its Common Stock to issue and deliver as promptly
as practicable and in no event later than three (3) business days after delivery
to the Company of the Debenture, or after receipt of the agreement and
indemnification referred to in Section 6(c),to such Holder or to its designee, a
certificate or certificates for the number of shares of Common Stock to which
the Holder shall be entitled, together with a Debenture for the principal amount
not submitted for conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock on the
Conversion Date. If the Company shall not have the requisite number of shares of
Common Stock issuable upon conversion of the Debenture by the Holder, then,
without limiting the Company's obligation to convert the Debenture, such
conversion shall be made for each Holder, pro rata according to the portion of
the total Outstanding Amount of the portion of the Debentures sought to be
converted. At the Holder's option, the request for conversion by the Holder
shall be null and void for any portion of the Debentures for which the Company
does not have shares of Common Stock issuable upon conversion as of the
Conversion Date.
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<PAGE>
7. Registration. At the time the Company files its registration
statement on Form S-3 for the holders of its Series H preferred stock, the
Company shall include the shares of Company common stock acquired upon
conversion of this Debenture. The Company shall use reasonable efforts (subject
to receipt of necessary information from the Holder) to cause such registration
statement to become effective.
8. Stock Splits: Dividends, Adjustments, Reorganizations
(a) Subdivisions, Combinations, etc. If the Company shall
subdivide its outstanding Common Stock, by split-up, spin-off, or
otherwise, or combine its outstanding Common Stock, then the Conversion
Rate in effect as of the date of such subdivision, split-up, spin-off
or combination shall be determined with reference to the Market Price
for shares of Common Stock as reported after such subdivision split up,
spin-off or combination without other adjustment.
(b) Adjustment for Merger, Reorganization; etc. In the event
that at any time or from time to time after the Closing Date, the
Common Stock issuable upon conversion of the Debentures is changed into
the same or a different number of shares of any class or classes of
stock, whether in connection with a merger or consolidation, by
recapitalization, reclassification, reorganization or otherwise (other
than a subdivision or combination of shares or stock dividend or
reorganization provided for elsewhere in this Section 8, then and in
each such event the Holder of Debentures shall have the right
thereafter to convert this Debenture into the kind of securities
receivable upon such merger, recapitalization, reclassification or
other change, all subject to further adjustment as provided herein. In
such event, the formula set forth herein for conversion shall be
equitably adjusted to reflect such change in number of shares or, if
shares of a new class of stock are issued, to reflect the market price
of the class or classes of stock (applying the same factors used in
determining the Market Price for Shares of Common Stock) issued in
connection with the above described transaction.
(c) Certificate as to Adjustments. Upon the occurrence of each
adjustment pursuant to this Section 8, the Company at its expense shall
furnish to the Holder a certificate from its independent auditors or an
investment banking firm setting forth (i) in reasonable detail the
facts upon which such adjustment is based, and (ii) the number of
shares of Common Stock and the amount of other property or securities
that after giving effect thereto would be received by the Holder upon
conversion of this Debenture.
(d) Disputes. In the event of a reasonable, good faith dispute
between the Holder and the Company with respect to the adjustments required by
Sections 8(a), (b), or (c), then, at the option of either the Holder or the
Company, the dispute shall be submitted to the American Arbitration Association
for resolution according to the then applicable rules thereof. The cost of such
proceeding shall be shared 50% by the Holder and 50% by the Company, except that
each party shall bear its own legal and other expenses.
-5-
<PAGE>
9. Fractional Shares. No fractional shares of Common Stock or scrip
representing fractional shares of Common Stock shall be issuable hereunder. The
number of shares of Common Stock that are issuable upon any conversion shall be
rounded up or down to the nearest whole share.
10. No Impairment. The Company shall not intentionally take any action
which would impair the contractual rights and privileges of the Debenture set
forth herein or of the Holder thereof.
11. Limitations on Holder's Obligation to Convert. Notwithstanding
anything to the contrary contained herein, no Holder shall be required to
convert any part of this Debenture in excess of the portion then convertible
into that number of shares of Common Stock specified in the Holder's
representation to the Company that, after giving effect to the shares of the
Company's Common Stock to be issued pursuant to such Conversion Notice, the
total number of shares of Common Stock deemed beneficially owned by the Holder,
together with all shares of the Company's Common Stock deemed beneficially owned
by the Holder's "affiliates" as defined in Rule 144 of the Act, would exceed
4.9% of the total issued and outstanding shares of the Company's Common Stock.
12. Obligations Absolute. No provision of this Debenture, other than
conversion as provided herein, shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place and rate, and in the manner,
herein prescribed.
13. Waivers of Demand, Etc. The Company hereby expressly waives demand
and presentment for payment, notice of nonpayment, protest, notice of protest,
notice of dishonor, notice of intent to accelerate, prior notice of bringing of
suit and diligence in taking any action to collect amounts called for hereunder
and will be directly and primarily liable for the payments of all sums owing and
to be owing hereon, regardless of and without any notice (except as required by
law), diligence, act or omission as or with respect to the collection of any
amount called for hereunder.
14. Replacement Debenture. In the event that the Holder notifies the
Company that this Debenture has been lost, stolen or destroyed, a replacement
Debenture identical in all respects to the original Debenture (except for
registration number and Outstanding Amount, if different than that shown on the
original Debenture) shall be issued to the Holder, provided that the Holder
executes and delivers to the Company an agreement reasonably satisfactory to the
Company to indemnity the Company from any loss incurred by it in connection with
the Debenture and provided that the Company is provided a form of Debenture for
such replacement purposes.
15. Payment of Expenses. The Company agrees to pay all debts and
expenses, including reasonable attorneys' fees and expenses, which may be
incurred by the Holder in enforcing the provisions of this Debenture and/or
collecting any amount due under this Debenture.
16. Defaults. If one or more of the following events (hereinafter
called "Events of Default") shall occur:
-6-
<PAGE>
(a) The Company shall fail to perform or observe any covenant,
term provision, condition, agreement or obligation of the Company under this
Debenture, and such failure shall continue uncured for a period of ten (10)
business days after notice from the Holder of such failure, or the Company shall
fail to make any payments upon redemption of this Debenture or fail to issue
shares of Common Stock upon conversion of this Debenture; or
(b) The Company shall (i) make a general assignment for the
benefit of creditors or commence proceedings for its dissolution; or (ii) apply
for or consent to the appointment of a trustee, liquidator or receiver for it or
for a substantial part of its property or business; or
(c) A trustee, liquidator or receiver shall be appointed for
the Company or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
(d) Any governmental agency or any court of competent
jurisdiction shall assume custody or control of the whole or any substantial
portion of the properties or assets of the Company and shall not be dismissed
within sixty (60) days thereafter, or
(e) Bankruptcy, reorganization, insolvency or liquidation
proceedings or other proceedings, or relief under any bankruptcy law or any law
for the relief of debt shall be instituted by or against the Company and, if
instituted against the Company, shall not be dismissed within sixty (60) days
after such institution, or the Company shall by any action or answer approve of,
consent to, or acquiesce in any such proceedings or admit to any material
allegations of, or default in answering a petition filed in, any such
proceeding; then, or at any time thereafter prior to the date on which all
continuing Events of Default have been cured, and in each and every such case,
unless such Event of Default shall have been waived in writing by the Holder
(which waiver shall not be deemed to be a waiver of any subsequent default) at
the option of the Holder and in the Holder's sole discretion, the Holder may, by
notice to the Company declare this Debenture immediately due and payable, and
the Holder may immediately, and without expiration of any period of grace,
enforce any and all of the Holder's rights and remedies provided herein or any
other rights or remedies afforded by law. In such event, the Debenture shall be
redeemed at a redemption price per Debenture equal to the Outstanding Amount.
17. Savings Clause. In case any provision of this Debenture is held by
a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if
possible, so that it is enforceable to the maximum extent possible, and the
validity and enforceability of the remaining provisions of this Debenture will
not in any way be affected or impaired thereby.
18. Entire Agreement. This Debenture and the agreements referred to in
this Debenture constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Debenture nor any term hereof may be amended,
-7-
<PAGE>
waived, discharged or terminated other than by a written instrument signed by
the Company and the Holder.
19. Assignment, Etc. The Holder may, transfer or assign this Debenture
or any interest herein (but in no event in an amount less than $50,000 in
Outstanding Amount or, if less than $50,000, the total Outstanding Amount
hereof) and may mortgage, encumber or transfer any of its rights or interest in
and to this Debenture or any part hereof, and each assignee, transferee and
mortgagee (which may include any affiliate of the Holder) shall have the right
to so transfer or assign its interest.
20. No Waiver. No failure on the part of the Holder to exercise, and no
delay in exercising, any right, remedy or power hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Holder of any
right, remedy or power hereunder preclude any other or future exercise of any
other right, remedy or power. Each and every right, remedy or power hereby
granted to the Holder or allowed it by law or other agreement shall be
cumulative and not exclusive of any other, and may be exercised by the Holder
from time to time.
21. Miscellaneous. Unless otherwise provided herein, any notice or
other communication to a party hereunder shall be deemed to have been duly given
if personally delivered or sent by registered or certified mail, return receipt
requested, postage prepaid with a copy in each case sent on the same day to the
party by facsimile, Federal Express or other such expedited means to said party
at its address set forth herein or such other address as either may designate
for itself in such notice to the other and communications shall be deemed to
have been received when delivered personally or, if sent by mail or Federal
Express, when actually received by the party to whom it is addressed. Copies of
all notices to the Company shall be sent to:
DynaGen, Inc.
840 Memorial Drive
Cambridge, MA 02139
Attention: President
Telephone: (617) 491-2527
Telecopy: (617) 354-3902
with a copy to:
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Attention: David A. Broadwin, Esq.
Telephone: (617) 832-1259
Telecopy: (617) 832-7000
-8-
<PAGE>
If to the Holder, to:
Sovereign Partners
Executive Pavilion
90 Grove Street
Richfield, CT 06877
Whenever the sense of this Debenture requires, words in the singular shall be
deemed to include the plural and words in the plural shall be deemed to include
the singular. Paragraph headings are for convenience only and shall not affect
the meaning of this document.
22. Choice of Law and Venue: Waiver of Jury Trial. THIS DEBENTURE SHALL
BE CONSTRUED UNDER THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW OR CHOICE OF LAW THEREOF. The parties hereby (i)
irrevocably submit to the exclusive jurisdiction of the United States District
Court for the Southern District of New York for the purposes of any suit, action
or proceeding arising out of or relating to this Debenture and (ii) waive, and
agree not to assert in any such suit, action or proceeding, any claim that it is
not personally subject to the jurisdiction of such court, that the suit, action
or proceeding is brought in an inconvenient forum or that the venue of the suit,
action or proceeding is improper. The Company consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to the Company
at the address in effect for notices to it under this Debenture and agrees that
such service shall constitute good and sufficient service of process and notice
thereof. Nothing in this paragraph shall affect or limit any right to serve
process in any other manner permitted by law.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated as of September __, 1998
DYNAGEN, INC.
By:
-------------------------------
Name:
Title:
-9-
<PAGE>
BioTrack, Inc. agrees to be bound by the provisions of Section 5.
BIOTRACK, INC.
By:
-------------------------------
Name:
Title:
The Holder agrees to be bound by all the provisions of this Debenture
applicable to it.
SOVEREIGN PARTNERS
By:
-------------------------------
Name:
Title:
-10-
EXHIBIT 10a
FACTORING AGREEMENT
AGREEMENT between Able Laboratories, Inc., an Delaware corporation having its
principal place of business at 6 Hollywood Court, South Plainfield, NJ 07080 ,
hereinafter "Seller", and K & L Financial, Inc., an Illinois corporation, 60
Revere Drive, Suite 840, Northbrook, IL 60062, hereinafter "Purchaser".
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. PURCHASE OF ACCOUNTS. From time to time, Seller may tender to Purchaser some
or all of its Accounts which are defined as Seller's rights to payment for goods
sold or leased or services rendered. All of Seller's said Accounts, irrespective
of whether same are purchased by Purchaser are herein called "Account(s)".
Purchaser is not obligated to purchase any Account tendered and shall have the
right to purchase such Accounts tendered as Purchaser, in its sole and absolute
discretion, shall determine. Purchaser will evidence its agreement to purchase
specific Account(s) tendered by issuance of its check or wire transfer to Seller
in the amount set forth in Paragraph 2 hereof and by its issuance of a Schedule
Status Report upon which Purchaser, in its sole and absolute discretion, shall
have the right to group said Accounts tendered. Said grouped accounts are
hereinafter collectively called Purchased Account(s).
2. PAYMENT FOR ACCOUNTS. Upon acceptance of an Account for purchase, Purchaser
shall pay to Seller, as the Purchase Price for the Purchased Account, an amount
equal to eighty (80) percent of the face amount thereof (or such lesser
percentage as Purchaser and Seller shall agree upon). Seller shall deliver the
original invoices relating to Purchased Accounts to Purchaser at such time, and
such Purchased Accounts shall be deemed sold and assigned to Purchaser at such
time without any formal assignment being required.
3. CHARGES. In consideration of the purchase of said Purchased Accounts, Seller
agrees to pay charges (Charges) to Purchaser with respect to each Purchased
Account of an amount equal to the sum of: (a) zero (0) percent of the face
amount thereof; plus (b) an amount equal to one ( 1 ) percent of the face amount
thereof for each 10 day period or part thereof, calculated from the date of
purchase until payments received by Purchaser in collected funds on said
Purchased Account equals the Purchase Price of the Purchased Account plus all
Charges due Purchaser from Seller at that time. (Funds are considered collected
4 business days after receipt assuming same is in fact collected).
4. PAYMENT TO SELLER UPON COLLECTION. Provided Seller is not and has not been in
default to Purchaser hereunder, upon Purchaser's receipt of payment(s) on
Purchased Accounts of an aggregate amount in excess of the aggregate Purchase
Price thereof plus all Charges and other amounts then due Purchaser, Purchaser
shall pay to Seller an amount equal to the difference between the amount of such
collections less (a) amounts previously paid by Purchaser to Seller as the
Purchase Price of such Purchased Accounts (b) any Charges or other amounts then
due Purchaser from Seller, and (c) any reserves Purchaser elects to establish to
secure payment of any other Purchased Accounts.
5. POWER OF ATTORNEY. At any time after purchase of a Purchased Account,
Purchaser shall have the right to notify Account Debtors [the party(ies)
obligated to pay an Account] of Purchaser's rights with respect to the Accounts
and to notify Account Debtors to make payment of the Accounts directly to
Purchaser. Purchaser shall also have the right in its name to compromise or
extend the time for payment of any Account for such amounts, and upon such terms
PLEASE INITIAL HERE
_______
<PAGE>
- - Factoring Agreement. page 2 of 5.
as Purchaser may determine; to demand, collect, receive and sue for any and all
amounts due or to become due on the Accounts; and to take control of cash and
other proceeds of any Accounts. Seller hereby constitutes Purchaser's President,
or any other person designated by Purchaser, as Seller's attorney-in-fact with
full authority to act for Seller; to endorse Seller's name upon notes,
acceptances, checks, drafts, money orders or other evidences of payment or
collateral that may come into Purchaser's possession; to sign Seller's name on
any invoice, freight bill, bill of lading, storage or warehouse receipt, or
other instrument or document in respect to any Account, to sign Seller's name on
UCC financing statements and on notices to Account Debtors; to send notices and
verifications of Accounts to and collect Accounts from Account Debtors; and to
open Seller's mail and take payments for Accounts. Seller shall in all other
ways do all acts and things necessary or appropriate to protect, preserve and
realize upon the Accounts for the benefit of Purchaser and to carry out this
Agreement and shall not interfere, directly or indirectly, with any of the
rights given Purchaser in this paragraph. Seller hereby ratifies and approves
all acts of such attorney or designee, and such attorney shall not be liable for
any acts of omission or commission, nor for any error of judgment or mistake of
fact or law. The powers granted in this paragraph are coupled with an interest
and are irrevocable while any Purchased Accounts are unpaid or sums are
otherwise owed by Seller to Purchaser and until this agreement is terminated.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS. To induce Purchaser to purchase
Accounts from Seller, with full knowledge that the truth and accuracy of the
following are being relied upon by the Purchaser in the purchase of and payment
for the Purchased Accounts, Seller represents, warrants and covenants to
Purchaser and agrees that: (a) Seller is the sole and absolute owner of each
Account and has full legal right to make said sale, assignment and transfer
thereof hereunder; (b) The correct amount owed on each Account is as set forth
on the document tendering such Account to Purchaser and such amount is not in
dispute; (c) The payment of each Account is not contingent upon the fulfillment
of any obligation or condition, past or future, and any and all obligations
required of the Seller with regard to such Account have been fulfilled by
Seller, (d) Each Account is based on an actual sale and delivery of goods and/or
services actually rendered for which an invoice has been tendered to the Account
Debtor, is presently due and owing to Seller, is not past due or in default, has
not been previously sold, assigned, transferred or pledged, and is free of any
encumbrance or lien; (e) There are no defenses, offsets, or counterclaims with
respect to any of the Accounts and no agreement has been made under which the
Account Debtor may claim any deduction or discount, except as otherwise stated
in any of the invoices submitted to Purchaser in connection with the tender of
such Account for purchase; (f) Upon purchase, Seller will convey to Purchaser
good and marketable title to each Purchased Account free and clear of all liens
and encumbrances which shall thereafter be the sole and exclusive property of
the Purchaser. Each Account shall be the property of the Purchaser and shall be
collected by Purchaser, but if for any reason it should be paid to Seller,
Seller shall promptly notify Purchaser of such payment, shall hold any checks,
drafts, or monies so received in trust for the benefit of Purchaser, and shall
promptly endorse, transfer and deliver the same to the Purchaser, however, in
addition to Purchaser's other remedies, failure to deliver said payment in kind
to Purchaser within five business days of receipt may result, at Purchaser's
option, in an additional charge to be paid by Seller to Purchaser of twenty
percent of said payment; (g) Each Account Debtor is not insolvent as that term
is defined in the United States Bankruptcy Code; (h) The Seller's place of
business and the place where the records concerning all Accounts herein referred
to are kept is the one set forth at the beginning of this Agreement, Seller will
promptly advise Purchaser in writing if such place of business or record keeping
is changed or a new place of business or record keeping is added; (i) All
Accounts, now existing or hereafter arising, shall comply with each and every
one of the representations, warranties, covenants and agreements referred to in
this Paragraph and as otherwise supplemented pursuant to this Agreement; (j) All
sales and other taxes imposed with respect to the Accounts have been remitted by
Seller to the proper taxing authority; (k) All invoices with respect to
Purchased Accounts shall state that the Account is payable to Purchaser; (1) no
Purchased Account is evidenced by a note or other instrument. Seller hereby
agrees to indemnify and hold harmless Purchaser from and against any and all
losses, claims, demands, liabilities, suits, actions, causes of action,
administrative proceedings or costs (including attorneys' fees and costs and
expenses of defense) arising out of (a) any breach or violation of any
representation, guarantee or warranty set forth in this Agreement, (b) any
rejection
PLEASE INITIAL HERE
_______
<PAGE>
Factoring Agreement. page 3 of 5.
of goods or services or alleged claims, defenses or offsets of every kind and
nature by any Account Debtor, or (c) any other breach or violation of this
Agreement by Seller.
7. ASSUMPTION OF RISK. Seller hereby assumes full risk of non-payment, and
hereby unconditionally guarantees the full and prompt payment of the full face
amount of all Purchased Accounts. If any Purchased Account shall remain unpaid
after ninety (90) days from the date of Seller's original invoice evidencing
same, or if Purchaser shall otherwise deem itself insecure for any reason
whatsoever, or if any Account Debtor shall become bankrupt, insolvent or the
subject of a reorganization, or makes an assignment for the benefit of
creditors, then or any time thereafter, Purchaser, upon notice to Seller, may
require Seller to repurchase within five (5) days thereafter, such Purchased
Account(s) in which event Seller shall pay to Purchaser an amount equal to the
uncollected balance of such Purchased Account plus Purchaser's costs relating to
the collection of such Purchased Account plus all other Charges and amounts owed
to Purchaser hereunder with respect thereto. Seller's obligations hereunder
shall not be affected by Purchaser's actions or inaction with respect to such
Accounts.
8. SECURITY INTEREST. As security for the performance of all Seller's present or
future obligations to Purchaser, whether hereunder or otherwise, including, but
not limited to the payment of all amounts owing Purchaser including, but not
limited to, all amounts due Purchaser from Seller pursuant to Paragraph 9
hereof, and to secure the repayment by Seller to Purchaser of any amounts which
Purchaser, at its option, may hereafter loan to Seller independent of this
agreement, Seller hereby grants to Purchaser a first priority security interest
in all of Seller's presently owned or hereafter acquired assets including,
without limitation, all accounts, accounts receivable, investment property,
contract rights, chattel paper, general intangibles, instruments, documents,
intellectual property, deposit accounts, inventory including all claims against
any supplier, equipment, furniture, fixtures, and all books, records
(computerized or manual) and computer software in connection with all the
foregoing, and all proceeds and products of the foregoing including, but not
limited to insurance proceeds, lock box contents and proceeds, and deposit
accounts. The security interest specifically includes, without limitation,
Sellers' rights to any returned and repossessed personal property from Account
Debtors and also shall include all rights of replevin, reclamation, and stoppage
in transit and all rights as a seller of goods. In the event of any default by
Seller under this Agreement and/or pursuant to any loan which Purchaser may make
to Seller, Purchaser shall have all rights with respect to the aforesaid
collateral of a secured party under the Uniform Commercial Code of the state in
which Seller is located. In recognition of the Purchaser's right to have all
amounts due it in connection with this Agreement secured by the aforesaid
collateral, Purchaser shall not be required to record any terminations or
satisfactions of any of Purchaser's liens on the aforesaid collateral unless and
until Seller has executed and delivered to Purchaser a general release in a form
reasonably satisfactory to Purchaser. Seller agrees that it will execute and
deliver to Purchaser such documents, including financing statements, all in form
satisfactory to Purchaser, as Purchaser shall, from time to time desire to
perfect the security interest granted to it hereunder. In addition, at
Purchaser's request Seller agrees to enter into and execute, a lock box
agreement with a bank designated by Purchaser in form satisfactory to Purchaser
to be applicable to the full term of this Agreement and thereafter so long as
any amounts are, or may be, owed to Purchaser hereunder.
9. DEFAULT AND REMEDIES. The occurrence of any one or more of the following
events shall constitute a default ("Default") of this Agreement by Seller: (i)
failure of Seller to repurchase any Purchased Account when required pursuant to
Paragraph 7 hereof; (ii) the failure of Seller to perform any other covenant or
agreement contained herein; (iii) any warranty or representation of Seller made
herein shall be untrue; (iv) dissolution or termination of existence of Seller;
(v) death of any Seller if Seller shall be an individual; (vi) Seller shall file
or have filed against it a petition in bankruptcy or for reorganization or
adjustment of its debts or if Seller shall make an assignment for the benefit of
creditors; (vii) a tax lien shall be filed against Seller; (viii) a judgment
shall be entered against Seller which is not promptly satisfied or if a levy
attachment shall be filed against Seller or its property; and/or (ix) if
Purchaser shall
PLEASE INITIAL HERE
_______
<PAGE>
Factoring Agreement. page 4 of 5.
deem itself insecure for any reason whatsoever. In the event a Default shall
occur: i) Purchaser shall have the right to require Seller to immediately
repurchase all of the Purchased Accounts for an amount equal to the sum of the
aggregate unpaid balances of all the Purchased Accounts then owned by Purchaser
plus all Charges and other amounts due Purchaser hereunder; ii) Seller shall pay
to Purchaser all other damages costs and losses caused to it by reason of such
Default, including, but not limited to reasonable attorneys' fees, court costs,
other collection expenses and all other expenses and costs incurred or paid by
Purchaser to obtain performance or to enforce any covenant or agreement of
Seller hereunder; and iii) Purchaser shall have the right to enforce all rights
which it may have with respect to the security interest granted to it pursuant
to this Factoring Agreement and specifically, but not by way of limitation, to
notify all Account Debtors of Seller's Accounts to make all payments directly to
Purchaser, to notify and require the U.S. Post Office to deliver Seller's mail
to Purchaser, and to open Seller's mail and take and endorse for deposit in the
name of Seller all payments received upon any of Seller's Accounts and to
deposit same for benefit of Purchaser.
In addition to the Charges provided for elsewhere herein, Seller shall pay
Purchaser a late payment charge equal to eighteen per cent ( 18%) per annum of
any amounts not paid when due to the date of payment thereof. To the extent
permitted by law, Seller hereby irrevocably authorizes any attorney of any court
of record to appear for Seller in such court, in term time or vacation, at any
time after a default hereunder and confess judgment against Seller, without
process in favor of Purchaser, its successors or assigns, for such amount as may
appear due, owing and unpaid hereunder, together with costs of collection
including reasonable attorney's fees, and to waive and release all errors which
may intervene in any such proceedings, and consent to immediate execution upon
such judgment, hereby ratifying and confirming all that said attorney may do by
virtue hereof.
10. TERM AND TERMINATION. This Agreement shall commence as of the date hereof
end and shall continue in force and effect beginning from the date that the
first Purchased Account is purchased and continuing for a period of twelve (12)
months (Initial Term) and shall be automatically renewed for successive periods
of one (1) months (Renewal Term) unless terminated as follows: Seller may
terminate this agreement by so notifying Purchaser in writing 30 days before the
end of any Initial or Renewal term hereof, provided, however, that all of
Purchaser's security interests in assets of Seller as provided for in this
Factoring Agreement and otherwise and all other rights pursuant to Paragraphs 5
and 8 above shall survive such termination until all of Seller's obligations to
Purchaser have been paid in full and discharged. Any and all of Seller's
representations, agreements, covenants, obligations, liabilities and
undertakings under this Agreement or any collateral agreements existing prior to
any termination hereof shall not be affected by a termination of this agreement
and shall survive such termination. Seller agrees that if Purchaser has not
purchased Accounts during any Initial or Renewal Term hereof which, in the
aggregate, exceed $ n/a (Minimum Amount), Seller agrees to pay to Purchaser, on
demand, an additional amount equal to what the Charges provided for elsewhere
herein would have been on said Minimum Amount assuming the number of days from
the date of purchase of said Minimum Amount until receipt of payment of said
Minimum Amount is n/a days, less the actual Charges paid by Seller to Purchaser
during said Initial or Renewal Term. Seller will not, during the term of this
Agreement, sell, transfer, pledge, create a security interest in or hypothecate
any of its Accounts to any party other than Purchaser.
11. NOTICES. Notices required or permitted hereunder shall be in writing and
shall be given by personal delivery or certified or registered mail, postage
prepaid, to the parties at their addresses hereinabove set forth. Such notice
shall be deemed given when delivered or mailed as aforesaid. Either party shall
have the right to change its address by notice as herein provided.
PLEASE INITIAL HERE
_______
<PAGE>
Factoring Agreement page 5 of 5.
12. CONSTRUCTION. The laws of Illinois shall govern the construction of this
Agreement and the rights, remedies, duties and obligations of the parties hereto
with respect to all transactions hereunder. Any matter or controversy between
Seller and Purchaser may be litigated in the state or federal courts located at
Chicago, Illinois and each party hereby submits to the jurisdiction of such
courts. Any claim or controversy asserted by Seller against Purchaser shall only
be litigated in the state or federal courts located at Chicago, Illinois. TO THE
EXTENT PERMITTED BY LAW, SELLER AND PURCHASER WAIVE THEIR RIGHT TO TRIAL BY
JURY.
13. ASSIGNMENT BY PURCHASER. Purchaser, without notice to Seller, may assign
and/or pledge all of Purchaser's rights hereunder to Purchaser's lender
(Assignee). Seller hereby consents to any such Assignment and agrees that in
such event, upon request of Assignee, it will render all acts, performance and
payment directly to Assignee, and that said Assignee shall have all of
Purchaser's rights hereunder but none of Purchaser's obligations.
14. GENERAL. Waiver by Purchaser of any breach or default of this Agreement or
of any warranty, representation, covenant, obligation or guaranty herein shall
not be construed as waiver of any subsequent breach or default. Failure by
Purchaser to exercise any right or remedy hereunder shall not operate as a
waiver of any subsequent breach or default. All rights and remedies are
cumulative and not alternative. This Agreement contains the entire agreement of
the parties and may not be modified except by a written agreement executed by
Seller and Purchaser.
15. SEVERABILITY. If any provision of this Agreement is held or found to be
illegal, invalid or unenforceable, all other provisions shall nevertheless
continue to be binding on the parties hereto and shall be of full force and
effect.
SELLER: Able Laboratories, Inc.
BY:X /s/ Indu A. Muni President DATE September 30, 1998
----------------------------- ------------------
Indu A. Muni (Title)
Accepted at Northbrook, IL this 2nd day October 1998
PURCHASER: K & L Financial, Inc.
BY:X /s/ Vee Lacroix President
------------------------------
Vee Lacroix (Title)
EXHIBIT 10b
ASSET PURCHASE AGREEMENT
This is an Agreement made and entered into on the 30 day of September, 1998 by
and between Able Laboratories, Inc., a Delaware corporation, doing business as
N/A, with its principal place of business at 6-Hollywood Court-South
Plainfield-N.J.07080 ("Seller") and TRIPLE L, LTD., an Illinois corporation,
located at 60 Revere Drive, Suite 840 Northbrook, Illinois ("Buyer").
WHEREAS, Seller desires to sell and Buyer desires to buy certain assets
of Seller's business in South Plainfield N.J., and hereinafter described.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, it is agreed by and between the parties as follows:
1. Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows:
(a) Seller is a corporation duly organized and existing and in
good standing under the laws of the State of Delaware, and is duly authorized to
carry on its business and to own its properties as and in the place in South
Plainfield N.J. where such properties are now owned and operated.
(b) Seller has good and marketable title to all of the Assets to
be conveyed, transferred and assigned to Buyer pursuant to this Agreement,
subject to no mortgage, conditional sales agreement, charge, lien or
encumbrance.
(c) Seller has filed all federal, state and local governmental
tax returns required by it to be filed in accordance with the provisions of law
pertaining thereto and has paid all taxes and assessments (including, without
limitation of the foregoing, income, excise, unemployment, social security,
occupation, franchise, property, and import taxes, duties or charges and all
penalties and interest in respect thereto) required by Seller to have been paid
to date, as all of such returns and payments pertain to the ownership of Assets
and the
<PAGE>
operation of business at Seller's location in South Plainfield-N.J.
(d) There are no legal, quasijudicial or administrative actions,
suits or proceedings of any kind or nature now pending or, to the knowledge of
Seller, threatened before any court or administrative body in any manner
involving the Seller (including, but not by way of limitation, any pending or
threatened charges for unfair labor practices) or any of its properties or
shares of capital stock, or which may adversely affect the power or authority of
Seller to carry out the transactions to be performed by Seller hereunder.
(e)With respect to the ownership and operation of its business
at South Plainfield, N.J., Seller is not a party to any of the following
agreements, written or oral, which would give rise to liability on the part of
Buyer or result in a Lien, charge or encumbrance against the Assets: (i) any
contract not made in the ordinary course of business, (ii) any employment
contract which is not terminable without cost or other liability to Seller, or
any successor, (iii) any contract with any labor union, (iv) any bonus, pension,
profit sharing, retirement, share purchase, hospitalization insurance or similar
plan providing employee benefits, (v) any lease with respect to any property,
real or personal, whether as lessor or lessee, (vi) any advertising contract or
contract for public relations services, (vii) any continuing contract for the
purchase of materials, supplies or equipment, (viii) any sales and service,
distributorship, agency, or franchise contracts, or (ix) any contract continuing
for a period of more than thirty (30) days or which is not terminable without
cost or other liability to Seller or its successors.
(f) With respect to the ownership and operation of its business
at South Plainfield N.J., Seller has, in all respects, performed all obligations
required to be performed by it to date and is not in default in any respect
under any of the contracts, agreements, leases or other documents to be assigned
to Buyer and has made all pension, profit sharing, welfare and other
contributions called for by the terms of any agreement or plan to which it is a
party (and as of the Closing Date will have made all such contributions accruing
prior to such Closing Date.)
-2-
<PAGE>
(g) The consummation of the transactions contemplated by this
Agreement and compliance with the provisions hereof will not conflict with or
result in a breach of the terms, conditions or provisions of, or constitute a
breach or default under, any provision of the law, any order of any court or
other agency of government, known to and binding upon Seller, the charter or
bylaws of Seller or any note, debenture, mortgage, loan agreement or other
instrument to which Seller is a party, or by which it is bound or will result in
the creation or imposition of any lien, charge or encumbrance of. any kind
whatsoever on the assets to be transferred to Buyer pursuant to this Agreement.
(h) Seller has not entered into or committed itself, orally or
in writing, to any purchase, sales or other commitments, not in the ordinary
course of business, or to any sales warranty policies or customer claims
policies which, upon closing of these transactions, would be binding upon Buyer
or which could result in a lien, charge or encumbrance of any kind whatsoever on
the Assets following Closing.
(i) At the Closing Date, Seller will have all necessary federal,
stare or local licenses, permits and authorizations for the use of its
facilities at its place of business South Plainfield N.J., and is, and at all
times to and including the Closing Date, will be in full compliance won the
terms thereof.
(j) The Board of Directors of Seller have approved this
Agreement and the transactions contemplated herein and have authorized the
execution and delivery hereof by Seller.
2. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
(a) Buyer is a corporation ("Corporation") and is duly
organized, validly existing and in good standing under the laws of the State of
Illinois and has full power and authority to enter into this Agreement and
perform the transactions contemplated herein. The Corporation is duly qualified
to do business in the State of New Jersey.
-3-
<PAGE>
(b) This Agreement shall be, when duly executed and delivered, a
legal and binding obligation of Buyer and the Corporation, enforceable in
accordance with its terms.
(c) No representation or warranty by Buyer in this Agreement
contains or will contain any untrue statement or omits or will omit to state a
material fact necessary to make the statements contained herein not misleading.
All representations and warranties made by Buyer in this Agreement shall be true
and correct as of Closing with the same force and effect as if they had been
made on and as of such date.
(d) To the best of Buyer's knowledge, neither Buyer nor any
officer, director, affiliate, or controlling person of Seller has committed any
violation, or been in any way in contravention, of any law, rule or regulation
governing transactions in securities, in connection with the transactions
herein.
(e) Buyer has formed his own opinion as to the value of Seller's
Assets being purchased hereunder. The parties agree that Sellers warranties
include only the express written warranties that are contained in this
Agreement. Any other express warranties, oral or written, not contained in this
Agreement are of no force and effect Seller hereby disclaims all implied
warranties, including without limitation, implied warranties of merchantability
and of fitness for special or ordinary uses or purposes. The parties acknowledge
that Buyer has inspected such Assets to the full extent of Buyer's desire, and
Seller has given Buyer ample opportunity to conduct such inspections. Seller's
Assets being purchased hereunder, except as expressly warranted or represented
herein, are purchased "As Is" and "With All Faults." Seller warrants that all
motor vehicles, machinery and equipment being sold pursuant hereto shall be in
operating condition at the time of Closing.
(f) No actions or proceedings are pending or to Buyer's best
knowledge, threatened before any court, administrative authority, or other
authority that might materially or adversely affect Buyer's ability or right to
perform all of his obligations hereunder.
(g) Buyer will have sufficient funds necessary to enable him to
meet his cash
-4-
<PAGE>
obligations under this Agreement.
3. Covenants of Seller. Seller represents and covenants to Buyer that
during the pending completion of the sale of the Assets contemplated hereby and
as of Closing that:
(a) Each and every covenant, representation and warranty set
forth in Paragraphs 1 and 3 hereof shall be true and correct.
(b) Seller will maintain itself at all times up to and including
the Closing Date as a duly organized corporation in good standing under the laws
of the State of Delaware.
(c) Seller will afford Buyer, his representatives, agents and
employees, at all reasonable times, access and facilities to use, with respect
to all of the assets of Seller and its books, files, records and insurance
policies as they relate to the assets for the purpose of audit, inspection and
examination thereof, and will do everything reasonably necessary to enable Buyer
to make a complete examination of the Assets of Seller and the condition
thereof. All information so obtained by Buyer and his representatives, agents
and employees shall be kept confidential.
(d) Other than in favor of Buyer, Seller will not further
mortgage, pledge or subject to lien or other encumbrance any of the Assets.
(e) Seller will not dispose of any of the Assets subject to the
terms of this agreement or in anywise obligate itself to do so except as may be
expressly provided by the terms of this Agreement.
(f) Seller will keep all of its insurable Assets insured in
accordance with its present practice, and it will maintain, preserve and keep
all improvements on its property and all equipment, furniture, fixtures and
other personal property constituting a part of the Assets in a good condition
and state of repair, reasonable wear and tear or damage or loss by fire, storm
or other casualty loss excepted.
4. Covenants of Buyer. Buyer represents and covenants to Seller that
during the
-5-
<PAGE>
pending completion of the sale of the Assets contemplated hereby and as of
Closing that:
(a) Each and every covenant, representation and warranty set
forth in Paragraphs 2 and 4 hereof shall be true and correct.
(b) Buyer shall have performed and complied with all its terms,
agreements and conditions under this Agreement on or before Closing.
5. Representations. Warranties and Covenants True as of Closing Date.
All of the representations, warranties and covenants herein contained in
Paragraphs 1 through 4 hereof shall be true and correct and shall not have been
breached on and as of the Closing Date as though made on and as of said Closing
Date, and all such representations, warranties and covenants shall survive the
Closing Date.
6. Transfer and Pricing of Assets to be Sold. Seller shall sell and
Buyer shall buy the equipment described of Exhibit "B" attached hereto
("Assets"). The price to be paid for all said Assets is Four Hundred and
Sixty-Two Thousand Dollars ($462,000) Seller shall transfer and deliver
marketable tide to such Assets by appropriate Bill of Sale, free and clear of
all mortgages, Liens and security interests therein. The purchase price shall be
paid by Buyer on the Closing Date.
7. Payment of Seller's Obligations. This is an asset purchase only.
Buyer is not assuming or agreeing to pay any of Seller's debts or obligations
whatsoever. Seller agrees to pay any debts or liabilities which could result in
the attachment, after Closing, of any lien or encumbrance to the Assets, and to
indemnify and hold Buyer harmless from any liabilities whatsoever arising out of
any of Seller's debts or obligations.
8. Lease. Subsequent to this Agreement, Buyer and Seller shall enter
into an Equipment Lease Agreement in the form attached as Exhibit "B", which
shall provide for monthly rental of the Assets described in Exhibit "At" from
Buyer to Seller. During the term of the Lease, taxes, insurance, repairs and
maintenance on the Assets shall be paid by the Seller. At the end of the lease
term, Seller shall have the option to repurchase the Assets for cash in
-6-
<PAGE>
an amount established by such Equipment Lease Agreement.
9. Brokers. Seller and Buyer each represent and warrant to the other
that each party will be solely responsible to any person employed by it for any
broker's, finder's or similar fees incident to this sale, and will indemnify and
hold harmless the other foam such fees.
10. Closing Date. The Closing Date, as used herein, shall 10/2/98 or on
such other date as may be mutually agreeable to the parties. Closing shall occur
at such place as shall be mutually agreed upon by the parties. Prior to the
Closing Date, Seller will permit Buyer and its representatives access to all
Seller's records related to its business and to the premises for physical
inspection of the Assets to be sold. For purposes of this Agreement, the
"Closing Date" means the day on which the purchase prices are paid and the Bills
of Sale and other transfer documents are executed and delivered.
11. Conditions Precedent to Seller's Obligations. Seller's obligations
to complete the Closing hereunder are, at its option, subject to the following
conditions:
(a) All Buyer's representations and warranties contained in this
Agreement shall be true in all material respects as of and at the Closing.
(b) Buyer shall have performed and complied with all its
agreements, terms, and conditions under this Agreement on or before the Closing.
(c) Buyer shall have delivered to Seller true copies current UCC
searches of documents filed in the office of Secretary of State of New Jersey on
Seller or its Assets.
12. Conditions Precedent to Buyer's Obligations. Payment of the
purchase prices stated in this Agreement shall be conditioned upon their
calculation under the provisions of this Agreement and upon accomplishment of
the following conditions precedent, it being understood that Seller shall do
everything reasonably within its power to cause such conditions to be
accomplished:
(a) On the Closing Date:
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<PAGE>
(i) Seller shall have reasonably satisfied Buyer that all
Assets transferred hereunder are in as good condition, reasonable wear and tear
excepted, as when inventoried and the prices for such items established, or, if
not in such condition, have been removed from the premises to be transferred
hereunder and the puce reduced accordingly. The Assets shall be transferred
without any other warranties, express or implied, except warranty of title.
(ii) Seller shall execute in favor of Buyer or the
Corporation Bills of Sale, effective under the laws of New Jersey, Delaware for
all Assets to be transferred by Seller hereunder, other documents of transfer of
title, and any other documents necessary or desirable in the opinion of Buyer's
counsel in connection with the transfer, which documents shall warrant title to
Buyer and shall in all respect be in such form as may be reasonably requited by
Buyer or its counsel.
(iii) All actions, proceedings, instruments and documents
required to carry out this Agreement or incident thereto, and all other legal
matters, shall have been approved by counsel for Buyer, it being understood that
such approval shall not be unreasonably withheld.
(b) On or before Closing Date:
(i) Seller shall have furnished to Buyer evidence to the
reasonable satisfaction of Buyer and his counsel of ownership by Seller of the
Assets to be transferred by Seller, free of any mortgage, conditional sales
agreement, charge, lien, encumbrance or security interest.
(ii) Buyer shall not have discovered any material error,
misstatement or omission in any of the representations or warranties made by
Seller herein. In the event that any of the conditions hereinabove set forth
shall not have been fulfilled on or before the Closing Date, Buyer shall have
the right at his option to rescind this Agreement.
13. Bulk Sales Law. The parties hereby waive Seller's compliance with
the provisions of the Delaware New Jersey Uniform Commercial Code-Bulk
Transfers. Seller shall hold a sufficient amount of the net cash proceeds in
trust to pay all its creditors as and when their
-8-
<PAGE>
claims come due, and hold and save Buyer harmless any loss, damage or expense,
including reasonable attorneys, fees and court costs, incurred by Buyer as a
result of or attributable to the parties' failure to comply with such
provisions.
14. Expenses of Transaction. Whether or not the transaction
contemplated hereby is consummated, except as otherwise specifically provided in
this Agreement, each party shall pay its own expenses incident to the
preparation of this Agreement, or for carrying this Agreement into effect and
consummating the transactions hereby contemplated.
15. Waiver. The waiver by any party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other
provision of this Agreement or any subsequent breach thereof.
16. Notices. Any notice, communication, request, reply or advice
(hereinafter severally and collectively, for convenience, called "Notice") in
this Agreement provided or permitted to be given, made or accepted by either
party to the other must be in writing and may, unless otherwise in this
Agreement expressly provided, be given or be served by depositing the same in
the United States mail, postage paid, and registered or certified, and addressed
to the party to be notified, with return receipt requested, or by delivering the
same in person to an officer of such party, or by prepaid telegram, when
appropriate, addressed to the party to be notified. Notice deposited in the mail
in the manner hereinabove described shall be effective, unless otherwise stated
in this Agreement, from and after the date it is so deposited. Notice given in
any ocher manner shall be effective only if and when received by the party to be
nodded. For purposes of notice, the addresses of the parties shall be as
follows:
If to Seller to: ABLE Laboratories, Inc.
6-Hollywood Court
South Plainfield, N.J. 07080
With a Copy to: Indu A. Muni-President
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<PAGE>
If to Buyer to: TRIPLE L, LTD.
60 Revere Drive, Suite 800
Northbrook, Illinois 60062
With a Copy to: Vee Lacroix-President
17. Entire Agreement.
(a) This Agreement is the entire agreement between the parties
and supersedes all prior and contemporaneous agreements and understandings of
the parties.
(b) This Agreement shall be construed and enforced in accordance
with Illinois law.
18. Section and Other Headings. Section and other headings contained in
this Agreement are for reference purposes only, and shall not affect in any way
the meaning or interpretation of this Agreement.
19. Time: Time is of the essence of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and year
first above written.
Witness: _____________________ ABLE LABORATORIES, INC.
By:_____________________________
Its______________________________
TRIPLE L, LTD.
By:______________________________
Its______________________________
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<PAGE>
EXHIBIT "B"
EQUIPMENT LEASE AGREEMENT
-------------------------
Equipment Lease Agreement made this October 1, 1998, between TRIPLE L,
LTD. an Illinois corporation, whose address is 60 Revere Drive, Northbrook,
Illinois 60062, herein referred to as "Lessor", and Able Laboratories,/NC a
Delaware corporation, doing business as N/A, with its principal place of
business at 6-Hollywood Court-South Plainfield N.J., herein referred to as
Lessee.
For the consideration set forth herein, or hereby leases to Lessee, and
Lessee hires from Lessor, the items of equipment and personal property described
in Exhibit "A" attached hereto and incorporated herein by reference, hereafter
referred to as "Equipment", at such rate of rental and for such periods of time
as are stated in this Lease Agreement subject to the following terms and
conditions:
SECTION ONE
-----------
TERM OF LEASE AND RENT
----------------------
A. Term. The term of this Lease shall be for a period of
____________________ months, commencing on the _______________ and concluding on
the ____________.
B. Rent. Lessee shall pay to Lessor for the term of this Lease total
rent in the amount of _____________________ Dollars in lawful money of the
United States payable in monthly installments of ________________ Dollars in
advance upon the _____________ day of each and every calendar month beginning
________ and concluding _________.
<PAGE>
Lessee shall pay any and all amounts to which the Lessor is entitled by
reason of this Lease by check or cash payable and addressed to Triple L., Ltd.,
60 Revere Drive, Suite 840, Northbrook, Illinois 60062, or such other place as
may be designated in writing by the Lessor and delivered to the Lessee.
SECTION TWO
-----------
LESSOR'S SALE OF EQUIPMENT
--------------------------
As of this date, the Lessor owns the Equipment identified in the
attached Exhibit "A".
SECTION THREE
-------------
LOCATION OF EQUIPMENT
---------------------
As of this date, the Equipment owned by Lessor is located at 6-Hollywood Court,
South Plainfield N.J. 07080. Such Equipment shall not be removed from that
location without Lessor's prior consent.
SECTION FOUR
------------
CARE AND OPERATION OF EQUIPMENT
-------------------------------
Lessee shall use the Equipment in a careful and proper manner and shall comply
with all laws, ordinances, and regulations relating to the possession, use, or
maintenance of the Equipment and shall insure that the Equipment is not
subjected to careless or needless rough usage.
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<PAGE>
SECTION FIVE
------------
IDENTIFICATION OF EQUIPMENT
---------------------------
If at any time Lessor supplies Lessee with labels, plates, or other
markings stating that the property is owned by Lessor, Lessee shall affix and
keep the same in a prominent place on the Equipment. Lessee shall not alter,
disfigure, or cover up any marks of identification displayed on the Equipment.
SECTION SIX
-----------
ALTERATIONS
-----------
Lessee agrees that it will make no alterations in the Equipment without
obtaining prior written permission from Lessor. All additions to and
improvements of the Equipment of any kind shall immediately become the property
of Lessor and subject to the terms of this Lease.
SECTION SEVEN
-------------
MAINTENANCE AND REPAIR
----------------------
Lessee agrees to keep the Equipment in good repair and operating
condition, allowing for reasonable wear and tear. Lessee agrees to pay all
expenses of maintaining and repairing Equipment, and to furnish necessary
supplies, including all wear parts, maintenance parts and replacement parts to
operate the Equipment. Expenses of repair shall include labor, material, parts
and similar items.
-3-
<PAGE>
SECTION EIGHT
-------------
LESSOR'S RIGHT OF INSPECTION
----------------------------
Lessor shall have the right at any time to enter the premises occupied
by the Equipment and shall be given free access thereto and afforded necessary
facilities for the purpose of inspection.
SECTION NINE
------------
RETURN OF EQUIPMENT
-------------------
On expiration of the rental term specified herein, Lessee agrees to
deliver at its own expense the said Equipment in good condition, ordinary wear
and tear resulting from proper use thereof alone accepted, and free and clear of
encumbrances, at 60 Revere Drive, Suite 840, Northbrook, Illinois 60062, or to
such other location as Lessor may designate that does not increase the cost of
delivery.
SECTION TEN
-----------
LESSEE'S OPTION TO PURCHASE
---------------------------
Commencing November 1998, Lessee, if not in default in any obligation
hereunder, is hereby granted the option to purchase the Equipment at any time
during the remaining term of this Lease by tendering to Lessor the appropriate
rental balance established in the attached Exhibit "B", together with a sum
equal to any new or applicable unpaid sales and use taxes. Lessee agrees to
provide notice to Lessor of its intention to purchase the Equipment at least
thirty (30) days prior to its exercise of the option contained herein.
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<PAGE>
SECTION ELEVEN
--------------
ACCEPTANCE OF EQUIPMENT
-----------------------
Lessee has inspected the Equipment and is fully aware of its condition
and as such is leasing the Equipment AS IS, WHERE IS.
SECTION TWELVE
--------------
RISK OF LOSS OR DAMAGES
-----------------------
Lessee hereby assumes all risks of loss of and damage to the Equipment
from any cause, and agrees to maintain it during the term of the Lease in as
good condition as when the Lease commenced, normal wear and tear accepted. No
loss of or damage to the Equipment shall impair any obligation of Lessee under
this Lease, and all such obligations shall continue in full force and effect
until otherwise discharged.
SECTION THIRTEEN
----------------
INDEMNITY OF LESSOR FOR LOSS OR DAMAGE.
---------------------------------------
In the event of loss of or damage to the Equipment, Lessee shall:
(a) Place the same in good repair, or
(b) Replace the same with like equipment in good repair, which
equipment shall thereupon become the property of Lessor and subject to this
Lease.
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<PAGE>
SECTION FOURTEEN
----------------
LIABILITY AND INDEMNITY FOR PERSONAL INJURIES
---------------------------------------------
The Lessee acknowledges that the leased Equipment has been purchased by
the Lessor in accordance with the specific specifications required by the
Lessee. The Lessee agrees to indemnify and hold the Lessor harmless against all
claims, liabilities, losses or damages arising out of injuries to persons,
including injures to employees of the Lessee, or arising out of injuries to
property incident to or related to the possession, use, operation, maintenance
or repair, installation or removal or any other activity in any way related to
the leased Equipment. Specifically, but not by way of limitation, the Lessee
agrees to indemnify and hold the Lessor harmless from any third party claims
asserted against the Lessor by any employee or any members of the employee's
family or his estate as a result of any injury for which the employee, his
estate or members of his family received or may be entitled to receive Workers'
Compensation benefits, whether or not such injury arose out of defective
material or negligent workmanship or any other defect in the leased Equipment or
out of any act or omission of the Lessor or any agent or employee of the Lessor.
SECTION FIFTEEN
---------------
LESSOR'S AND LESSEE'S DUTY TO INSURE
------------------------------------
Lessee shall at all times keep the Equipment insured in the amount of
at least eighty percent (80%) of its replacement cost, and Lessee shall maintain
a personal liability insurance policy naming the Lessor and Lessee as insured
parties in an amount determined by Lessor. Such insurance shall be in the form
and with companies approved by Lessor.
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<PAGE>
SECTION SIXTEEN
---------------
TAXES AND FEES
--------------
Lessee shall pay all taxes (including personal property taxes),
assessments, and license and registration fees on said Equipment during the term
of the Lease, and furnish to Lessor satisfactory proof that such payment has
been made before such taxes, assessments, or fees become delinquent.
SECTION SEVENTEEN
-----------------
EVENTS CONSTITUTING DEFAULTS
----------------------------
The following events constitute defaults which shall allow Lessor to
exercise its rights to terminate this lease as provided herein:
(a) The non-payment by Lessee for a period of thirty (30) days of any
sum required hereunder to be paid by Lessee;
(b) The non-performance by Lessee of any other covenant or condition of
this Lease which is not cured within thirty (30) days after notice thereof from
Lessor,
(c) Any affirmative act of insolvency by Lessee, or the filing by
Lessee of any petition under any bankruptcy, reorganization, insolvency, or
moratorium law, or any law for the relief of, or relating to, debtors;
(d) The filing of any involuntary petition under any bankruptcy statute
against Lessee, or the appointment of any receiver or trustee to take possession
of the property of Lessee, unless such petition or appointment is set aside or
withdrawn or ceases to be in effect within ten (10) days;
(e) The subjection of any of Lessee's property to any levy, seizure,
assignment, application, or sale for or by any creditor or governmental agency.
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<PAGE>
SECTION EIGHTEEN
----------------
LESSOR'S RIGHT TO PREVENT DEFAULT
---------------------------------
Should Lessee fail to make any payment or do any act as herein
provided, then Lessor shall have the right, but not the obligation, without
notice to or demand on Lessee, and without releasing Lessee from any obligation
hereunder, to make or do the same, and to pay, purchase, contest, or compromise
any encumbrance, charge, or lien which in the judgment of Lessor appears to
affect the Equipment, and in exercising any such rights, incur any liability and
expend whatever amounts in its reasonable discretion it may deem necessary
therefor. All expenses so incurred by Lessor shall be without demand immediately
due and payable by Lessee.
SECTION NINETEEN
----------------
LESSOR'S RIGHTS UPON DEFAULT
----------------------------
On the occurrence of any of the events defined herein in this Lease
constituting defaults, Lessor may without notice to or demand on Lessee:
(a) Take possession of the Equipment and lease the same or any portion
thereof, for such period and such rental, and to such persons, as Lessor shall
elect, and apply the proceeds of any such renting, after deducting all costs and
expenses incurred in connection with the recovery, repair, storage, and renting
of the Equipment, in payment of the rent and other obligations due from Lessee
to Lessor hereunder, Lessee remaining responsible for any deficiency.
(b) Take possession of the Equipment and sell at public or private sale
without demand or notice of intention to sell, and apply the proceeds of any
such sale, after deducting all costs and expenses incurred in connection with
the recovery, repair, storage, and
-8-
<PAGE>
sale of the Equipment and any rentals and other obligations then due hereunder,
against the remaining rental due under the terms of this Lease. If the proceeds,
after the permitted deductions, are less than the remaining rental due under the
terms of this Lease, Lessee shall immediately pay Lessor the difference.
SECTION TWENTY
--------------
EXCLUSIVE FACTORING
-------------------
Concurrently with the execution of this Lease, Lessee agrees to
execute an Accounts Receivable Purchase Agreement with Security Agreement (the
"Accounts Receivable Purchase Agreement") in substantially the form attached
hereto as Exhibit "C", pursuant to which Accounts Receivable Purchase
Agreement, Lessee agrees to sell accounts receivable generated from Lessee's
customers exclusively to Lessor during the term of this Lease on the tams set
forth therein.
SECTION TWENTY-ONE
------------------
RENTAL DEDUCTIONS
-----------------
In the event Lessee defaults in the payment of any charges, fees or
rents as may be due and owing to Lessor under this Lease, Lessor may deduct such
charges, fees or rents from the amounts due to Lessee under the Accounts
Receivable Purchase Agreement, including payments of advance or contingent
reserve as those terms are defined in such Accounts Receivable Purchase
Agreement.
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<PAGE>
SECTION TWENTY-TWO
------------------
CHOICE OF LAW
-------------
This Lease shall be governed by and construed under the laws of the
State of Illinois.
SECTION TWENTY-THREE
--------------------
OWNERSHIP OF EQUIPMENT
----------------------
Title to the Equipment shall at all times remain in Lessor unless
transferred to Lessee by sale and Lessee shall have only the right to retain the
possession of said Equipment pursuant to the conditions hereof. Lessee shall
give Lessor immediate notice of any claim, levy, lien or legal process issued
against the Equipment.
SECTION TWENTY-FOUR
-------------------
LIMITATION OF EFFECTS OF WAIVERS
--------------------------------
No delay or omission to exercise any right, power, or remedy accruing
to Lessor on any breach or default by Lessee under this Lease will impair any
such right, power or remedy of Lessor, nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence therein, or of any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. Any waiver, permit, consent, or approval of any kind or
character on the part of Lessor of any term, provisions condition, or covenant
of this Lease, must be in writing, and will be effective only to the extent in
such writing specifically set forth. All remedies, either under this Lease or by
law, or otherwise afforded to Lessor, will be cumulative and not alternative.
-10-
<PAGE>
SECTION TWENTY-FIVE
-------------------
ASSIGNMENT
----------
Lessee shall not assign this Lease or any interest in said Lease or
Equipment, without Lessor's written consent. Lessee shall not sublet the
Equipment herein, without Lessor's written consent.
Lessor may assign this Lease or any rights thereunder without Lessee's
consent; but Lessor shall not because of the assignment be excused from
performing any of its obligations and duties hereunder.
SECTION TWENTY-SIX
------------------
LEASE APPLICABLE TO SUCCESSORS AND ASSIGNS
------------------------------------------
Lessor and Lessee agree that the rights and obligations under this
Lease shall inure to and be binding on their respective successors and assigns,
subject, however, to the provisions of Section Twenty-Five limiting assignment
by Lessee.
SECTION TWENTY-SEVEN
--------------------
ATTORNEY'S FEES
---------------
In the event that Triple L, Ltd. is successful in any action against
Lessee in relation to this Lease, the Lessee shall pay to Triple L, Ltd. in
addition to all other sums that Lessee may be called upon to pay, Triple L, Ltd.
actual attorney's fees.
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<PAGE>
SECTION TWENTY-EIGHT
--------------------
SEVERABILITY
------------
This Lease embodies the entire agreement between the parties. It may
not be modified or terminated accept as provided herein or by other written
agreement. If any provision herein is invalid, it shall be considered deleted
herefrom and shall not invalidate the remaining provisions.
SECTION TWENTY-NINE
-------------------
EXECUTION OF LEASE
------------------
This Lease is not binding until executed by a proper officer of Lessor
at its offices in N/A, Illinois, and until the receipt and acceptance thereby of
the initial monthly rental fee provided for hereunder.
SECTION THIRTY
--------------
TERMINATION OF LEASE
--------------------
Unless otherwise terminated. this Lease will continue in force until
the Equipment specified herein has been ultimately disposed of by return to
Lessor, and until all of the obligations of the parties hereto have been
discharged.
-12-
<PAGE>
SECTION THIRTY-ONE
------------------
WARRANTIES
----------
LESSOR MAKES NO WARRANTIES, EITHER EXPRESS OR IMPLIED, AS TO ANY
MATTERS WHATSOEVER, INCLUDING, BUT WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, THE CONDITION OF THE EQUIPMENT, OR ITS MERCHANTABILITY OR ITS FITNESS
FOR ANY PURPOSES, HOWEVER, LESSOR SHALL EXTEND TO LESSEE ALL THE VENDOR'S
WARRANTIES AND GUARANTIES BUT MAKES NO REPRESENTATION OR WARRANTIES ON ITS OWN
BEHALF WITH RESPECI TO THE EQUIPMENT.
SECTION THIRTY-TWO
------------------
NOTICES
-------
Any notice to be given under this Lease shall be mailed to the party to
be notified at the address set forth herein, by registered or curried mail with
postage prepaid, and shall be deemed given when so made.
SECTION THIRTY-THREE
--------------------
LIEN PROVISIONS
---------------
Although this Equipment Lease is not intended to be a security
agreement or in the nature of a security agreement, Lessor may file a
financing statement or other documents for the purpose of establishing its
prior claim to the Equipment leased hereunder, and Lessee
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<PAGE>
will execute such financing statements or other appropriate documents as Lessor
may from time to time render to it. Lessor and Lessee further agree that Lessor
shall be entitled to a security interest in the Equipment should Lessee exercise
its option to purchase the Equipment pursuant to Section Nine herein, such
Equipment to constitute after acquired property under the Uniform Commercial
Code.
IN WITNES S WHEREOF, the parties have executed this Lease at 10/2/1998
the day and year first above-written.
WITNESSES: LESSOR
TRIPLE L, LTD.
An Illinois corporation
______________________________ By: /s/ Vee Lacroix
--------------------------------
Its: President
--------------------------------
LESSEE
ABLE LABORATORIES, INC.
/s/ Illegible
______________________________ By: /s/ Dhananjay G. Wadekar
--------------------------------
Its: President
--------------------------------
-14-
<PAGE>
BILL OF SALE
------------
Able Laboratories, Inc., a Delaware corporation, doing business as N/A
("Seller"), for and in consideration of the sum of Four Hundred and Sixty-Two
Thousand (462,000) Dollars in lawful money of the United States, and other good
and valuable consideration, paid by TRIPLE L, LTD., an Illinois corporation
("Purchaser"), the receipt whereof is hereby acknowledged, does hereby bargain,
sell, assign, grant, transfer and convey unto Purchaser the following assets:
All machinery, equipment, inventory of raw materials and
work-in-process, furniture and fixtures as described in Exhibit
A attached hereto, which were utilized in, or associated with
the conduct or operation of the business of Seller 6-Hollywood
Court-South Plainfield, N.J. 07080 ("the Premises"). Expressly
excluded this purchase shall be:
a. all accounts, accounts receivable, cash, cash equivalents,
deposits, contract rights and claims relating to, or arising out of the
business of Seller,
b. any materials of a hazardous or toxic nature ("Hazardous
Materials") located on or about the Premises; and
c. any assets which are not owned by Seller, or which are leased
by Seller.
Only the Seller's right, title and interest, if any, in
the foregoing property is sold to die Purchaser.
EXCEPT FOR WARRANTING TITLE, ALL OF TO ABOVE DESCRIBED ASSETS ARE
HEREBY SOLD AS IS, WHERE IS, AND SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED,
AS TO THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OR OTHERWISE
WITH RESPECT TO THE ABOVE-DESCRIBED ASSETS, ALL OF WHICH WARRANTS ARE EXPRESSLY
EXCLUDED.
Seller hereby agrees with Purchaser to sign, sell, execute and deliver,
and to do or make or cause to be done or made, upon reasonable request by
Purchaser (at Purchaser's expense),
<PAGE>
any and an agreements, instruments, papers, deeds, acts or other things,
supplemental, confirmatory, or otherwise, as reasonably may be required by
Purchaser for the purpose of or in connection with acquiring the above-described
assets of Seller transferred, assigned, conveyed and granted or intended to be
transferred, assigned, conveyed or granted, hereby or hereunder.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed
and delivered on this day of 10/2/1998.
ABLE LABORATORIES, INC.
---------------------------------
_____________________corporation
doing business as
N/A
---------------------------------
_____________________________ By: /s/ Dhananjay G. Wadekar
---------------------------
Its: President
---------------------------
ACKNOWLEDGED AND AGREED TO THIS
DAY OF 10/2/1998
TRIPLE L, LTD.
By: /s/ Vee Lacroix
----------------------------
Its: President
----------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 205,426
<SECURITIES> 0
<RECEIVABLES> 3,648,701
<ALLOWANCES> 42,793
<INVENTORY> 7,554,576
<CURRENT-ASSETS> 12,509,858
<PP&E> 2,783,967
<DEPRECIATION> 1,023,355
<TOTAL-ASSETS> 26,150,112
<CURRENT-LIABILITIES> 22,160,139
<BONDS> 0
0
560
<COMMON> 263,883
<OTHER-SE> 2,334,352
<TOTAL-LIABILITY-AND-EQUITY> 26,150,112
<SALES> 20,009,036
<TOTAL-REVENUES> 20,009,589
<CGS> 17,145,156
<TOTAL-COSTS> 26,013,803
<OTHER-EXPENSES> 7,006
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 964,342
<INCOME-PRETAX> 6,975,561
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,975,561
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.45
</TABLE>
